Design, Cost Control, Cost Management - Discussion Paper - AAPAC GROUP

Design as a means of Cost Management        Fabian Chan     28.6.2010

Recently I have been thinking about differentiation between Cost Control and Cost Management
Is there any difference between the two?

Cost Control normally refers to watching the way that money is spent and making sure that expenditure will not go over a limit. This usually implies that we more or less know where we need to spend money on, and we have an idea how much each of these areas should cost. In this case, we can control at the time when we spend. And remember, we are talking about controlling ¡°cost¡± in this case. The question usually asked is ¡°how much?¡±

Most of the time we spend a lot of effort in Cost Control exercise. For example, trying to get the best price in obtaining bids for a trade package is a Cost Control action. Trying to get the best price for the supply of a specific material is also a Cost Control action.

Cost Management normally refers to managing anything that concerns cost.  It is about watching beyond how much each of the areas we need to spend money on will cost. It is about looking at how many areas are there to be monitored? What are the critical areas? What are the factors influencing cost of these areas? What happens to the cost when these factors change? Is there any alternative to replace the costly areas? What are the circumstantial factors that can be manipulated? What are the unexpected areas?

This implies that we influence the cost outcome not by just getting the best price, but by also considering different options of area to spend money on; different ways of achieving result; different utilisation of factors which influence cost, and keeping an eye on the possible surprises. And remember, we are talking about managing elements which contribute to and have effect on cost. The questions asked in this case are ¡°what?¡± ¡°how many?¡± ¡±how?¡± ¡°what if?¡±

Most of the time we may not spend a lot of effort in Cost Management exercise, because it is much harder. For example, comparing cost of an alternative design detail with a chosen detail is a Cost Management action. Comparing the cost implication of different material choice is also a Cost Management action.

Simple calculation of Cost can be represented with the following formula:

Item  x  Quantity  x  Unit Price  =  Cost

Focus of Cost Control is on ¡°Unit Price¡± in the above formula. In a true competitive market, there is not much scope for large variation in ¡°Unit Price¡±.

When ¡°Item¡± is broken down into its components, the formula becomes:

Item (Material + Labour + Tools + Plants + Delivery + Site Cost + Supervision + ¡­.)   x  Quantity  x  Unit Price  =  Cost

It is obvious that there is a larger scope of elements, besides ¡°Unit Price¡±, which can be tuned to influence ¡°Cost¡± on the other side of the equation. Attention of Cost Management is on the ¡°Items¡± in addition to ¡°Unit Price¡±.

Design is the aspect of a project which has significant implication on those elements, as Design is about selection of material and defining the way how material is to be put together. This in turn dictates: What skill & labour is required? What tools & plants are needed? Is it to be fabricated on site or in factory? How is it delivered to site? Where & How is it stored? When & How is it fixed? What supervision is required? ¡­...... so on and so on.

But isn't it the responsibility of the Builder to answer those questions? Yes and No. Assuming we have the most efficient builder on board, the builder can only help us to deliver the project at the ¡°optimum¡± price. The cost is built into the particular design and particular details. Designer, who has good understanding of cost effect of all the item components discussed above, will naturally ¡°manage¡± those elements when they make design decisions throughout various stages of a project ¨C concept ideas, developing chosen design option, establishing details, documenting the design, preparing construction drawings and specification, & directing the work to respond to situations during construction.

Designer who is also Builder has better skill & experience to manage cost more effectively & fundamentally - from the ground up!






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