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Cost Analysis and Benchmarking 1st Edition Rics
Cost Analysis and Benchmarking 1st Edition Rics
RICS HQ
Parliament Square
Advancing standards in land, property and construction. Cost analysis and benchmarking
London SW1P 3AD RICS is the world’s leading qualification when it comes to
United Kingdom professional standards in land, property and construction.
Worldwide media
In a world where more and more people, governments, banks and 1st edition, guidance note
enquiries:
commercial organisations demand greater certainty of professional
e pressoffice@rics.org
standards and ethics, attaining RICS status is the recognised
Contact Centre: mark of property professionalism.
e contactrics@rics.org
t +44 (0)870 333 1600 Over 100 000 property professionals working in the major established
f +44 (0)20 7334 3811 and emerging economies of the world have already recognised the
importance of securing RICS status by becoming members.
RICS is an independent professional body originally established
in the UK by Royal Charter. Since 1868, RICS has been committed
to setting and upholding the highest standards of excellence and
integrity – providing impartial, authoritative advice on key issues
affecting businesses and society.
RICS is a regulator of both its individual members and firms enabling
it to maintain the highest standards and providing the basis for
unparalleled client confidence in the sector.
RICS has a worldwide network. For further information simply contact
the relevant RICS office or our Contact Centre.
rics.org/guidance
Cost analysis and benchmarking
Acknowledgmentsiv
Foreword 2
1 Introduction 6
2.1 Definitions������������������������������������������������������������������������������������������������������������������������������������������7
2.2 Cost analysis�������������������������������������������������������������������������������������������������������������������������������������8
2.3 Benchmarking����������������������������������������������������������������������������������������������������������������������������������13
2.4 The cost analysis/benchmarking relationship: review���������������������������������������������������������������������16
3 Practical application: (Level 2: doing) 17
References 39
This is a guidance note. Where recommendations are made for specific professional tasks, these are
intended to represent ‘best practice’, i.e. recommendations which in the opinion of RICS meet a high
standard of professional competence.
Although members are not required to follow the recommendations contained in the note, they should
take into account the following points.
When an allegation of professional negligence is made against a surveyor, a court or tribunal may take
account of the contents of any relevant guidance notes published by RICS in deciding whether or not
the member had acted with reasonable competence.
In the opinion of RICS, a member conforming to the practices recommended in this note should have
at least a partial defence to an allegation of negligence if they have followed those practices. However,
members have the responsibility of deciding when it is inappropriate to follow the guidance.
It is for each member to decide on the appropriate procedure to follow in any professional task.
However, where members do not comply with the practice recommended in this note, they should
do so only for a good reason. In the event of a legal dispute, a court or tribunal may require them to
explain why they decided not to adopt the recommended practice. Also, if members have not followed
this guidance, and their actions are questioned in an RICS disciplinary case, they will be asked to
explain the actions they did take and this may be taken into account by the Panel.
In addition, guidance notes are relevant to professional competence in that each member should be
up to date and should have knowledge of guidance notes within a reasonable time of their coming into
effect.
This guidance note is believed to reflect case law and legislation applicable at its date of publication. It
is the member’s responsibility to establish if any changes in case law or legislation after the publication
date have an impact on the guidance or information in this document.
This guidance note provides best practice recognised system for construction cost
guidance on cost analysis and benchmarking elemental breakdown and analysis but it
for quantity surveyors and cost managers in all is acknowledged that BCIS is not used
world regions. The purpose of this guidance consistently across all world regions. It should
note is to ensure consistent practice, delivered be noted that several other systems exist across
in a professional manner that is in line with the various world regions that define costs
internationally recognised standards. The according to cost elements (also acknowledged
standards set a framework for best practice, in the BCIS publication Principles of Elemental
subject to specific local legislative requirements Classification (2012)).
and local market specifics. Where the legislative
requirements differ by jurisdiction, these Staged Plans of Work
have been referred to as ‘local legislative Reference is also made to the RIBA Outline
requirements’. Plan of Work (see Appendix D) and it is similarly
Where requirements or issues differ by recognised that other staged plan of works
jurisdiction, these have been referred to as are used across other locations across world
‘local jurisdiction issues’. regions. In these instances the practitioners
should clearly set out the assumptions made
Taxation issues have been referred to as ‘local and adjust the analysis accordingly.
taxation issues’.
New Rules of Measurement
The best practice guidance has been set to
follow systems most commonly recognised by The guidance note refers to the RICS New rules
RICS practitioners with guidance as to how of measurement (NRM). It is acknowledged that
to apply and adapt the best practice to local rules of measurement differ between various
requirements. locations and across world regions and that
local rules of measurement are often governed
A key consideration to note is that when by local legislative requirements.
comparing cost analysis benchmarking data
between different projects in different regions Gross and Internal Floor Areas
it is essential that systems of elemental The basis for this guidance note is that costs
breakdown, rules or method of measurement are based on Gross and Net Internal Areas
and stage plan of work are equalised through (see RICS guidance note: Code of measuring
establishment of a defined baseline and set of practice, 6th edition). It should be noted that in
assumptions and that these are consistently some locations and regions differences as to
applied. how this areas are calculated will exist. In these
It is recommended that where the input data to instances the practitioners should clearly set out
a study has been prepared on more than one the assumptions made and adjust the analysis
classification system this is clearly identified accordingly.
in the benchmarking study and details of how Foreign Exchange Exposure
the costs have been adjusted to a common
reporting structure should be stated. Foreign exchange exposure is defined as the
exposure a project may have to increased (or
Elemental Cost Breakdown and Analysis decreased) costs due to the fluctuations in
Reference is made to RICS Building Cost exchange rates when purchases or payments
Information Service (BCIS) as an internationally are being undertaken in a different currency to
the project’s expressed currency.
• Advance payments
• Retention guarantees
• Foreign exchange exposure and exchange
rate hedging
• Escalation
• The use of cash flows to identify trends and
potential change orders
• International use of cash flow forecasts,
such as for earned value calculations
• Import duties and taxes
• Acceleration costs
• Claims plus Liquidated and Ascertained
Damages
• Site Restrictions, constraints and abnormals
• Procurement methods
• Contingency
• Disposition of risk, and
• Value Added Taxes, sales taxes and other
taxes.
Most buildings are unique; even if two Construction costs are normally expressed as
buildings look identical it is likely that there the cost of a relevant metric of the quantity
will be differences between the two. Such of the building, most commonly cost per unit
differences might, for example, relate to the of internal floor area or functional unit (see
depth and type of foundations, different types Appendix A). As such the key principles of
and/or thicknesses of floor construction, cost analysis can be applied globally. However,
different specifications for wall finishes and it should be noted that most regions will have
so on. Differences might also be reflected defined definitions for measurement of buildings
in the individual construction programmes in terms of Gross Internal Areas and Net
and the specific locations on a site. A cost Internal Areas. It is important that definitions
analysis is a means of conceptually modelling and assumptions are applied consistently when
the construction cost, construction duration prepared cost analyses across different regions.
and scope of works of a building. If it is
comprehensively completed it will assist in A cost analysis will reveal the cost impact of
highlighting the key design and cost features design proposals for each of the construction
of a project. As such buildings which appear to elements and an analysis may be used for:
be physically very similar may be revealed to be • estimating the costs of similar buildings
different when considered conceptually.
• estimating the cost of similar construction
elements
2.1 Definitions
• comparing the cost of design options at an
A cost analysis is an examination of the element level
distribution of cost across the construction
• cost modelling design solutions.
elements of a project.
Benchmarking is the process of collecting
The RICS definition of an elemental cost
and comparing data within an organisation or
analysis is:
external to an organisation to identify the ‘best
‘…a full appraisal of costs involved in class’
in previously constructed buildings…
An elemental cost plan (or cost plan) is ‘…
aimed…at providing reliable information
the critical breakdown of the cost limit for the
which will assist in accurately estimating
building(s) into cost targets for each element of
(the) cost of future buildings. It provides a
the building(s)…’ (UK NRM 2012, p.12).
product-based cost model, providing data
on which initial elemental estimates and An elemental cost plan also provides a frame of
elemental cost plans can be based.’ (UK reference from which to develop the design for
RICS New Rules of Measurement (NRM) a project and maintain cost control.
2012, p.12).’
An element (for cost analysis/planning
An alternative definition from the RICS Building purposes) is a major physical part of a building
Cost Information Service (BCIS) is: that fulfils a specific function or functions
irrespective of its design, specification or
‘The purpose of a cost analysis is to
construction.
provide data that allows comparisons to
be made between the costs of achieving
various building functions in a project with
those of achieving equivalent functions in
other projects.’
5 Does the format of the cost data lend itself It is also important to establish the base data
to any of the established cost analysis for the project (i.e. the date to which the costs
structures? apply). For example where the analysis is based
6 How much time is available for the analysis on:
process? • Lump sum tenders, the date will be
7 Is there any information that is sensitive and/ established in the contract
or has to remain confidential? • Target cost contracts, the base date will be
8 What information is required to complete the the date the cost was agreed
cost analysis? • Two stage tenders, with different tender
9 Is this information readily available? dates for each package the tender date
10 Does the information cover a single building for each package can be recorded and
or multiple buildings constructed under an ‘average’ based date established if
one contract? If it is the latter then it is necessary
suggested that consideration is given to how • Competitive dialogue, it will be the date the
aspects of the project which are common cost was agreed, and
to all the buildings (i.e. site preparation, • Where the analysis is based on a cost plan,
infrastructure, preliminaries, overheads and the base date will be the date of the cost
profit) should be analysed. plan.
The answers to these questions will inform the In each case it is important that the treatment
structure, content and detail of the analysis to of future inflation is recorded. On firm price
be carried out. This is really important because tenders the contractor’s allowance for inflation
the main benefit of a cost analysis is in its will be included but on fluctuating contracts it
output; if the right data can be collected and will not. Target cost contracts tend to identify
recorded in the right way then it should prove to the allowance for inflation separately.
be really useful and worth the time required to
carry out the analysis.
In respect of description (a), other than It is important to ensure that the source of cost
establishing what the cost of the substructures data is used appropriately. If the source is a bill
item equates to, the description tells us nothing of quantities it is easier to identify component
about the extent of excavation, the foundation units and rates for the analysis. If however, the
solution or the construction detailing of the cost analysis is based on cost data generated
ground floor, i.e. very little about the project. by a contract sum analysis then component
cost data may not be available. The cost detail
The resulting cost data therefore has limited use
because it does not establish what it specifically of the analysis should, to an extent, reflect
represents. the cost detail of the source of data. Having
said that it is not intended that a cost analysis
From description (b) we can see that the should be a restructured bill of quantities; there
unit rate of $83 relates to a specific type of is a balance to be achieved in recording the
foundation and floor construction detail. The right information, as opposed to insufficient
rate is therefore attached to a usefully detailed information or too much information.
scope of works. This means then that the rate
could be used for reference. In addition, the Whatever the limitations of the original cost
description tells us about the make-up of the data, the purpose of the analysis is to reflect
substructures and is therefore starting to reveal some form of complete construction works. It
the project itself. should therefore always be possible to identify
key details about the project such as foundation
If the source of cost data permits, the solution, make-up of the external walls, window
substructures item could be further broken
frame type, etc. because models, drawings and
down into unit rates for:
specifications will exist detailing these.
• ground beams (measured m)
3.1.3 Structuring the cost analysis
• pad foundations (measured nr), and
When deciding how to structure the cost
• ground floor slab (measured m2).
analysis it is worth considering how, and in what
This would then act as a record of the way, the resulting information is going to be
construction detailing, the associated quantities, used. The more understandable and logical the
unit rates and the resulting total cost. This structure, the greater use the data will have.
generates useable cost data but also informs
If the analysis is to be used as a source of cost
the observer about key details relating to the
data for cost planning purposes then it helps
project.
• Group elements
• Elements
• Sub-elements.
This is a simple means of adjusting cost Which option is selected may depend upon
data and using published indices can create an individual or organisation’s technical ability
consistency when updating multiple sets of and support. It may also depend upon the
historic data. volume of data that is held (both in terms of
number of projects and amount of detail each
If data from a cost analysis is to be used as a
analysis contains) and any requirements for
source of cost data for an order of cost estimate
the information to be visible and accessible by
(as defined in the NRM) or a high-level cost
others.
plan it is suggested that data is extracted from
a single cost analysis and not from multiple Where there is a reasonable volume of projects
analyses for similar projects. An alternative it is worth referencing each project and
approach would be to create a benchmark categorising it (by sector or by construction
derived from multiple cost analyses but it is type, for example).
important to understand that projects may have
been priced strategically to maximise cash-flow. Consideration might be given to the following in
It is also recommended that the cost analysis is deciding the most appropriate means of holding
referenced as a source of cost data. the data:
How project analysis data is held or stored • Will the data need to be amended at any
really depends on how it has been analysed in point in the future?
the first place. Options include:
• If the data needs to be amended, who will
• creating and holding the analysis in a amend it and how will this be controlled?
computer spreadsheet program, or
• Is there a simple means of updating the cost
• creating and holding the analysis using a
database, or data using indices?
• creating and holding the analysis in a • Is all the data held in a common structure?
service, or
• What is the cost of processing, storing and
• creating and publishing analysis.
searching for analyses?
From the chart it is clear that there are inconsistencies between projects; some are showing overheads
and profit, some are not. Likewise, some show risk and inflation and others do not and this might lead
us to review and amend the projects included in the exercise.
The data needs to be put on a consistent basis; i.e the treatment of inflation, risk and overheads and
profit needs to be consistent with allocations made to remaining element and cost categories as
necessary to create the consistency. From this we can produce an overall average cost distribution as
illustrated in Figure 5:
However, we may want to look more closely at how cost is spread over the main building elements
to get a clearer picture of the nature of the projects analysed. This can be seen in Figure 6:
From Figure 4 we can see that the substructures for each project do not vary too much. However,
Project A appears to have a higher percentage cost for fixtures, fittings and equipment (FF&E) than the
other projects. Projects D, E and H appear to be quite heavily serviced in comparison to the others.
Looking at the Data Table in conjunction with Figure 4 will locate where the specific differences lie.
Going back to the cost analyses will identify the reasoning behind the differences.
All of the cost data has been rebased to a To inform the risk profile for any planned, similar
common Tender Price Index of 208 and a secondary school building it is worth looking
location factor of 1. The mean total cost/m2 at the overall spread of cost and the average
GIA is $1,589 and the median is $1,486. From values.
this data it appears initially that the lowest cost
project is Project I (remembering though that A point to note is that while it is advantageous
this is only true if all the projects are within to have a ‘standard’ benchmark output it is also
defined parameters – see 2.3). However, we important that the data presentation is flexible
might want to consider the distribution of cost to meet employer specific requirements.
to establish if Project I represents best value as
well as other factors such as: 3.2.3 Testing the results
The data resulting from the benchmarking
• wall to floor ratio: this may reveal how
exercise will represent a range of factual
efficient the design is and may also help
outcomes using numerical values. As noted,
inform the construction cost
this data may serve a number of purposes but
• quality of the general specification primarily the data will be used to:
• number of children/students in comparison
• provide substance to advice given in respect
to the GIA and NIA
of estimated outcomes
• percentage of circulation space
• inform a project’s risk profile, and
• room sizes.
• inform design development.
4.1 Common difficulties if the major cost work packages are settled
well in advance of this then this might not be
There are a few common pitfalls to be mindful
appropriate.
of when recording and analysing project data
and carrying out any subsequent benchmarking Recording all the supplementary details about
exercises especially when comparing projects a project is important but it is an aspect of the
across different global regions where different analysis process which can easily be missed.
method of measurement and cost breakdown Having this information helps to inform the cost
and analysis exist. Some of these are noted data and helps to identify the right project data
below. to use in the benchmarking process.
Taken from RICS new rules of measurement: Order of cost estimating and cost planning for capital
building works
The need for elemental classification is Also in the US, the OmniClass Construction
acknowledged in International Standard Classification System (known as OmniClass
Building Construction – Organization of or OCCS) is a complete set of ISO tables that
information about construction works – Part 2: includes an Elements table (Table 21).
Framework for a classification of information
(ISO 12006.2). In Europe, many countries have elemental
tables, all of them slightly different. The
Within this, standard ‘Elements’ is one of the European Council of Construction Economists
recommended classification tables. It defines (CEEC), agreed a common elemental cost
Elements as ‘a part of an entity (building) which, grouping, the ‘CEEC Code of Measurement for
in itself or in combination with other such Cost Planning’, which provides links back to
parts, fulfils a predominating function of the the national elemental cost planning systems
construction entity [building]’. in the UK, Germany, Switzerland, Belgium,
Holland and Ireland. The CEEC code, which
Elemental tables are produced by many national BCIS helped to prepare, enables costs prepared
standards organisations and professional in one system to be compared with costs in
institutions. another system on a common basis. This has
The standard elemental classification used established a methodology for mapping any
in the UK is defined in the BCIS Elemental elemental classification.
Standard Form of Cost Analysis and form the A BCIS International survey of Elements also
basis for NRM1 – Order of cost estimating and identified elemental classification systems in
cost planning for capital building works. Australia, South Africa, Canada, Hong Kong and
In the United States ASTM International Malaysia. The survey is available on the BCIS
(formerly known as the American Society for website at www.rics.org/bcis
Testing and Materials, ASTM), publish Standard
Classification for Building Elements and Related
Siteworks – UNIFORMAT II.
Taken from RICS New rules of measurement: Order of cost estimating and cost planning for capital building works
(NRM 1)
2 Pile foundations
3 Underpinning
2 Superstructure 1 Basement excavation 1 Basement excavation
2 Basement retaining walls 1 Baement retaining walls
3 Basement retaining walls 2 Embedded basement retaining walls
4 Ground floor construction 1 Ground floor slab/bed and suspended
floor construction
5 Planning contributions
6 Insurances
7 Achaeological works
8 Decanting and relocation
9 Fittings, furnishings and equipment
10 Tenant’s costs/contribution
11 Marketing costs
12 Other employer costs
14 Risk 1 Design/development risks
2 Construction risks
3 Employer change risks
4 Employer other risks
15 Inflation 1 Tender inflation
2 Construction inflation
RICS HQ
Parliament Square
Advancing standards in land, property and construction. Cost analysis and benchmarking
London SW1P 3AD RICS is the world’s leading qualification when it comes to
United Kingdom professional standards in land, property and construction.
Worldwide media
In a world where more and more people, governments, banks and 1st edition, guidance note
enquiries:
commercial organisations demand greater certainty of professional
e pressoffice@rics.org
standards and ethics, attaining RICS status is the recognised
Contact Centre: mark of property professionalism.
e contactrics@rics.org
t +44 (0)870 333 1600 Over 100 000 property professionals working in the major established
f +44 (0)20 7334 3811 and emerging economies of the world have already recognised the
importance of securing RICS status by becoming members.
RICS is an independent professional body originally established
in the UK by Royal Charter. Since 1868, RICS has been committed
to setting and upholding the highest standards of excellence and
integrity – providing impartial, authoritative advice on key issues
affecting businesses and society.
RICS is a regulator of both its individual members and firms enabling
it to maintain the highest standards and providing the basis for
unparalleled client confidence in the sector.
RICS has a worldwide network. For further information simply contact
the relevant RICS office or our Contact Centre.
rics.org/guidance