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Cost planning & control
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| Words: 1003 | Submitted: 03-Sep-2012
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DescriptionImportance of cost planning & control
Question 1: Justify the need to plan the costs of construction projects
Cost planning is a key due diligence step in preparing for a construction project due to these various reasons:
Cost planning tells a property owner how much a proposed project will cost. Cost planning enables to visualise the feasibility of a project. If the owner has set a maximum cost ceiling, then it can be assessed by the architect whether an optimum design / product can be achieved to meet that limit. Otherwise, it creates an opportunity to revisit the proposed design in terms of requirements and specifications and make the necessary changes to meet the owner’s budget.
Cost planning also tells when the expected expenses will most likely occur. Cost planning informs the client when the financial instalments will be needed so that the owner can properly structure his construction loan. When the budget is time phased, this gives a good picture to the client on predicting the actual costs to be incurred and paid. This information is critical for obtaining project financing and for determining whether a project can be profitable. Otherwise, the client will borrow the total project cost upfront and result in paying interest on the total immediately.
With the time phased budget, it also gives a clearer picture to the owner of the proposed project schedule and the resource (manpower, machineries) requirement.
Cost planning functions as an avenue to confirm the scope of work, price, time frame and quality specifications based on the proposed budget. As it is tied to the budget, it is most likely that each category is firmed and can be effectively controlled during the execution.
Cost planning sets as an important milestone to kick start the project to the next stages i.e design. Cost planning should be done three times before the start of construction: once at the project's initial inception, once after the preliminary design is complete, and once after the final design is permitted.
Without cost planning, property owners would enter blindly into construction projects and possibly into insolvency.
Question 2: Even if the costs of construction projects had been planned, they will still be required to be controlled. Explain the reasons for this.
Here are few key reasons why construction project costs have to be controlled:
Although construction costs can be planned and estimated, they also can significantly change during the course of actual construction. Even the smallest changes to design and scope can lead to drastic cost changes due to having to rework a completed portion of the project. The best way to meet original cost planning estimates is to limit the amount of design change that occurs on a project.
Costs needs to be controlled so that there won’t be any scope creep due ...
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