ROLE OF QUANTITY SURVEYOR AS
PROFIT CENTER
AND
COST ESTIMATION METHODS
Er. V.K. Sharma
4/8/2015
CIVIL ENGINEERING
• Civil Engineering
– Is considered as the mother of all engineering
disciplines
– It is also simplest of all engineering disciplines
– Because of its simplicity it is also the most
complex branch
– Requires interaction with a wide range of
professions and handling of complex
situations in difficult and new environments
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RAMIFICATIONS OF
CIVIL ENGINEERING
• The ramifications of this discipline are far
and wide ranging
– A well designed and executed project adds to
individual and national wealth
– Converts cash into kind where possibility of
appreciation of investment is high
– Is one of single largest contributor to GDP
– Is only second to agriculture in generating
primary and secondary employment
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RAMIFICATIONS OF
CIVIL ENGINEERING
• HOWEVER a poorly designed and
executed project is:
– A sure recipe of disaster
• Case in point is damage caused in a recent
earthquake in Haiti
– Cause of wastage of precious resources
– Wastage of money
– Source of pollution and creator of GHG
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ROLES OF CIVIL ENGINEERS
• Except for generalist civil engineers, who
are involved in each sphere, each
specialist engineer is obsessed with one
aspect of construction activity
– Structural engineer – structural integrity
– Services engineer- efficient services designs
– Construction supervisor- Speed of execution
– Quantity surveyor or Cost Engineer
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ROLES OF CIVIL ENGINEERS
• Initially a generalist civil engineer
performed all or most of the roles
• Post some major natural calamities the role
of structural designers gained prominence
• Now in view of the competitiveness in the
industry the role of Quantity Surveyors has
gained importance and is considered as a
highly specialized role
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ROLE OF
QUANTITY SURVEYOR
• A quantity surveyor, amongst all specialist
civil engineers, is the only professional
whose sole obsession is “COST”
• Cost prediction, monitoring and control is
what quantity surveying is all about
• They provide independent, objective,
reliable and accurate capital and operating
cost assessment which are used for
investment funding and project control
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ECONOMIC ANALYSIS OF
PROJECTS
• Monetary evaluation of alternatives for meeting a given
objective
• Somebody has to define the problem, identify feasible
alternatives which can achieve the desired objectives,
determine whether an economic analysis is necessary
and if so how much effort has to be put in, determine the
uncertainties, identify the non tangible advantages and
present the best solution
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
– Help in making investments possible on
scientifically pre-determined values
• The property market plays a key role in the global
economy; comprising, in some countries, as much
as 20% of the Gross National Product. With a
resource this vital, businesses, governments and
society need advice they can trust
• This advice can be given only by a QS
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• How?
• By applying principles of Value
Engineering
– VE is a systematic evaluation procedure directed at
analyzing the function of materials, systems,
processes, and building equipment for the purpose of
achieving required functions at the lowest total cost of
ownership.
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
– It is a team approach that analyzes a function by
systematically developing the answers to such questions
as: what is it?; what does it do?; what must it do?; what
does it cost?; what other material or method could be
used to do the same job without sacrificing required
performance or degradation to safety, reliability, or
maintainability?
• VE is concerned with elimination or modification of anything that
adds costs without contributing to the program functional
requirements. Reductions in a project's scope or quality to get it
into budget are not considered VE—those decisions are simply
"cost cutting".
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• Cost V/s benefits- use an Analytic Hierarchy
Process
– Challenge is identifying benefits because they
resist quantification
– These typically include
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Aesthetics
Safety
Environmental impact
Historic preservation.
QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• How?
• Help Look at whole lifecycle costs (LCC)
– Lifecycle cost analysis takes into account all costs of
acquiring, owning and disposal of a building or a
building system
– This is useful when project alternatives, which fulfill
same objectives but differ in initial and operating
costs have to be compared
– Aim is to obtain lowest overall cost of ownership
consistent with quality and functionality
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• LCC
– Issues being factored in while determining life
cycle costs are:
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Initial cost of acquisition
Finance charges
Sustainability
Ease of maintenance
Long term cost of operation including energy and
fuel costs
• Cost of disposal
• Social responsibility
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• LCC is usually split into 4 phases:
– concept + proposal,
– design + development,
– build + install and
– finally, the most significant phase, operation +
support
• Since the majority of life of most assets is spent in the operate and maintain
cycle and it is in this phase, that the asset creates the value contribution to the
organization and also absorbs costs of maintenance we have to be careful in
planning stage to ensure that this component remains low. In systems where
outright sale of a product is involved this phase does not impact the developer
excepting as a good business policy but in case the asset is being leased out
this will be very important. In a lifecycle of 30 years cost of salaries required for
maintenance purposes in itself could be very high!
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• Central to LCC analysis is a system of breaking
down cost into different components.
• Cost Breakdown System (CBS) varies in
complexity depending on projects and the
manner in which they are being planned,
executed and marketed. Its aim is to identify all
the relevant cost elements and it must have well
defined boundaries to avoid omission or
duplication.
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• Whatever the complexity any CBS it must include all cost
elements that are relevant to the option under
consideration including internal costs
• Each cost element must be well defined so that all
involved have a clear understanding of what is to be
included in that element.
• It would be necessary that each cost element should be
identifiable with a significant level of activity or major
item of equipment or operation.
• CBS also clearly defines ‘cost spend profile’ which
helps in evaluating the options and coming to a rational
conclusion.
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• How?
• Manage costs
– Management of cost throughout the Planning,
Design, and Development Process is most
essential
– Cost Management is employed as a means of
balancing a project's scope and expectations
of quality and budget.
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COST MANAGEMENT
• How?
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– Define the scope, the
level of quality desired,
and the budget
– Ensure that the scope,
quality, and budget are
aligned
– Monitor and manage
the balance of these
three components
throughout the life of
the project
QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• Advice to owners
– Costs can be managed
– Get a specialized company to do this job
• Ideally the firm charged with managing the costs of
the project should be hired directly by the owner,
early in the process, and should be independent of
both the architect/engineer and the construction
contractor
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
• How?
– Management of variations/changes
– During construction the focus shifts from
predictive cost estimating to reactive cost
management of any changes in the work.
– Changes arise from a number of different
sources—unforeseen conditions, ownergenerated changes, drawing errors and
omissions, code issues or contractual claims.
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QUANTITY SURVEYOR-HELPING
IN GENERATING PROFITS
– Changes can arise from on-going proactive cost
management also, either generated by the design
team or even the vendor, where one of the parties
proposes a better-value substitution (known as Value
Engineering Change Proposals or VECPs).
– Changes should be reviewed by the design team for
entitlement—is it really a change to the scope and are
there any credits due? Then the cost consultant
should review the pricing against the contract and
industry norms, leading to an independent estimate
for presentation to owner
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COST
• Is a function of
– Quantity
– Unit rate
• While computing quantities accurately is
easy, especially with use of IT tools,
assessing rates is difficult and calls for
experience and in-depth knowledge of
market and engineering processes
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RATES
• Rate is a function of:
– Availability of resources at time of
execution
• Manpower – technical, skilled, unskilled
• Materials
• Machinery
– Management competencies
– Government policies
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RATES
– Market situation
• Volume of work available and number of
agencies available to execute the same –
demand & supply
– Time/season when an item is to be
executed
– Duration in which it is to be executed
– Geographical location of the project
– Social conditions prevailing
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RATES
• Assessment of requirement of resources is
easy and will vary within a small band
• Assessment of impact of other factors is
difficult and will be determined by the
experience and knowledge of the QS
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COST ESTIMATION METHODS
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Guess Estimate
Initial or preliminary estimation
Detailed estimation
Tendered rates
Final costing
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COST ESTIMATION METHODS
• Guess estimate- based on past
experience of similar projects
– Good for projects where making profit is not
the main purpose
– OK for personal works or very small projects
• That some use it even for complex business
proposals is another issue
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INITIAL OR PRELIMINARY
ESTIMATION
• This is grossest form of estimation
– Basically it involves assessing total or gross
quantities and using historical data to assess
costs
– Is used to make initial assessments of likely
costs and/or time
– Accuracy at this stage can be compromised if
initial planning is sketchy or data about site
conditions is not reliable
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INITIAL OR PRELIMINARY
ESTIMATION
– In case of buildings it involves calculating
plinth area or total built up area multiplied
with assessed/historic rate per unit area
– Can be accurate if sufficient historical data is
available and all elements are similar and
accounted for
– Can be used for taking a call on areas to be
built or developed
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DETAILED ESTIMATION
• Is taken up when most project details have
been firmed up
• Presents a fairly reliable estimate of the
project and likely total cost
• This involves computing accurately quantities
of different elements such as:
Sub head
Element
Sub head
Element
Civil
Earth work
Electrical
Low side
PCC
RCC
Brick work
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High side
HVAC
Low side
High side
DETAILED ESTIMATION
• Rates for each building element is also
assessed from first principles or using
standard schedules, updated for local site
conditions
• Correct computation of quantities and
accurate assessment of rates is the key to
accuracy
• Though this is primarily a mechanical
exercise yet it is very important
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TENDERED RATES
• Based on detailed estimates tenders are invited
for execution of project
• Tendered rates are influenced by:
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Market conditions
Govt. policies
Financial position of owner and executing agency
Location
Timing of execution
Time permitted for execution
Type of structure
Expertise and experience of executing agency
TENDERED RATES
• Tenders could be of following types:
– Lump sum
– Percentage rate
– Item rate
– Design build
• Competitiveness of the tender and
expertise of person assessing these will
ultimately determine likely final costs
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TENDER EVALUATION
• If the QS has factored all the factors which affect
the rates then variation in estimated and
tendered rates will be marginal
• Items having high difference can be identified
and rates negotiated for these. This, however,
will be possible only in item rate tenders
• A good QS will always examine the quantities for
items where rates quoted are low or high to
ensure that that there is no chance of variation in
these. As variation in these could throw the
tender evaluation haywire.
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FINAL COSTING
Proof of the pudding is in its eating
• All the stages of estimation were just
estimation of likely cost
• Final cost of project is known only at time
of completion or can be predicted during
execution after work has started and
reached beyond foundation stage
• If due diligence was not done at initial
stages it can lead to a disastrous situation
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FINAL COSTING
• If initial cost is ‘X’
– ( arrived at by multiplying total built up area with
historical unit rates for the type of projects)
• It may become ‘X1’ at DE stage.
– (This will be a aggregation of costs of different
elements derived as a function of quantity ‘q’ and
assessed rate ‘r’)
• It may become ‘X2’ at tendering stage.
– (This will be a function of quantities ‘q’ calculated in
DE & tendered rates ‘r2’)
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FINAL COSTING
• Final cost will be ‘X3’.
– (This will be a product of actual quantity ‘q3’
and tendered rate ‘r2’)
• Good estimation will ensure that ‘X3’ is
equal to or very near ‘X’
• Variations could arise if quantities were
computed wrongly or if initial rates were
not assessed correctly
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VALUE FOR MONEY
• Value for Money (VFM)
– Ultimate aim of all professionals
– It is essential that while proceeding with any
project each decision is taken after assessing
whether we get VFM
– Professional QS have a major role to play in
this
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CONCLUSION
• Adopting an approach, where reliability in
estimation and costing is designed into the
asset, using the methods of whole life
cycle costing, ensuring accuracy in
assessment of quantities, accuracy in
prediction of rates can make significant
savings over the life of the asset and
making correct decisions, should be
adopted by all Quantity Surveyors
4/8/2015
THANK YOU FOR YOUR
ATTENTION
Er. V.K. Sharma
4/8/2015