The order of cost estimate is one of the methods to calculate the cost limit of a project. In New Rules of Measurement: Order of Cost Estimate and Cost Planning for Capital Building Works (NRM1), cost limit could be defined as the maximum expenditure that the employer is prepared to make in relation to the completed building. The order of cost estimate could provide a reasonable cost for a project by referencing to the previous similar projects. The cost limit in order of cost estimate could provide a general view to client. The client would consider the feasibility of the project and make decision regarding to the cost estimate. If the project is not viable in financial views, the client may abandon the project. In this connection, the cost estimate should consider all the available information at the beginning of the project to produce accurate cost estimation in order to avoid misunderstanding to the project.
With reference to the section of 2.4.1 of NRM1by RICS, the following is the key constituents of an order of cost estimate.
Section 2.4.1, page 22, New Rules of Measurement: Order of Cost Estimate and Cost Planning for Capital Building Works (NRM1), 2nd edition
The building works estimate is one of the main issue in calculating the cost limit as other factor and cost estimate would be derived from the building works estimate. The following would go through the estimate method one by one.
Building works estimate
To provide the initial cost estimate for client consideration, three methods could be applied and they were functional unit method, floor area method and elemental cost estimate based on Gross Internal Floor Area (GIFA).
Functional unit method
This method could be applied when the client only have a preliminary idea of the project, such as number of items or people. At this stage, no drawings could be provided for cost estimation. The functional unit method required the cost estimation of other similar type of projects as a reference. The cost per functional unit could be extracted from previous similar projects by dividing the total cost of the project by the functional unit. The cost of an element could also take reference to the cost in price book if the cost information was not available. The project which was chosen as a reference should be adjusted with suitable index if there were differences between in base date and location. The classification of functional unit could be take reference to the Appendix 2 of the BCIS (2012) Elemental Standard Form of Cost Analysis. The cost per functional unit could be calculated by divided the total cost of the building cost with functional unit. As suggested by NRN1, the formula of functional unit method is shown as follows:
Building works estimate = number of functional unit x cost per functional unit.
This method requires a lot of skills in obtaining an accurate figure as there was wide range of costs per unit. The building works estimate could be calculated once the cost per unit was set, however, this is not reliable for accurate estimation. Due to variation of the cost, the client may be misled and make wrong decision to next stage of design. For example, if the cost is too high, the client may abandon the project. If the cost is too low and the client proceeds the next stage of design, the cost estimate may not able to include all of the scope of works.
Floor area method
The GIFA could be measured form the inside of external wall with any deduction of void and partitions. The cost/m2 of GIFA should be taken from similar building projects and should be adjusted if there are differences in location and base date. Some items should calculate separately and allow a lump sum for the cost, such as pilling. As the abnormal items would be carried out by specialist, the price should be extracted from the quotations and obtain estimation from those specialists.
As suggested by NRM1, the formula of floor area...
References: Building Cost Control Techniques and Economics 2nd edition, Peter E.Bathurst F.R.I.C.S and David A.Butler F.R.I.C.S
New Rules of Measurement: Order of Cost Estimate and Cost Planning for Capital Building Works (NRM1) 2nd edition
Bill Ibram, FRICS, Budget and Financial Awareness and Cost Monitoring or Control, [online] [assessed on 16/2/2014]
Blogspot of measurement [online] [assessed on 16/2/2014]
Planning portal of UK, the Building Regulations 2000, Approved Document K [online] [assessed on 16/2/2014]
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