The document discusses cost management for real estate development projects. It addresses the why (reasons for cost management), what (procedures for cost monitoring), and how (methods used) at different project stages. Specifically, it describes using a cost model at feasibility stage, cost plans at design stages, and a priced bill of quantities at tender stage to monitor costs. It emphasizes verifying cost predictions at each stage and discussing significant differences with the designer and developer. Maintaining an up-to-date cost database is also important for accurate cost estimations throughout the extended project timelines.

1. The WHY-The WHAT and The HOW?
Author: Jihad Daniel

2. WHY Do Cost Management?

3. THE WHY? The Developer aims at developing a
Project for the purpose of Financial
Gain
Before proceeding with the
development the Developer will
prepare a FEASIBILITY STUDY
If Expenditure If Income exceeds
exceeds Income Expenditure
Project is NOT
Project is viable
viable
Developer employs
Architects/Engineers to
design his project and a
Contractor to built it

4. THE WHY?
When preparing the Financial Feasibility Study, the Developer
will consider the following prime cost centers:
Land Cost-market prices (Purchase of the site)
Construction Costs (Cost of the Project)
Financial Charges (Institutional Funding)
Professional Fees and other costs and charges
Disposal Costs (Advertising and selling costs).
The Developer only makes his money after completion of the
development, i.e. Profit is obtained only after completion of
the project and this can take years.

5. THE WHY?
It is essential to identify the Cost of Construction at the
Feasibility Stage and to ensure that the cost of
construction does not substantially vary during the
Design Stage-Tender-and on completion of the
Construction Stage (Final Account).

6. Example Feasibility Study

7. Example Feasibility Study
Proposed Development:
8 story Apartment Building with Penthouse located in Beirut
4 No. Apartments per floor each offering 150m2 of accommodation
Common circulation area of 20% net apartment area
1 No. Penthouse on the roof.
Factors to Consider:
Cost of Land = 475,000 US$
Construction Cost = 4,284,900 US$
Disposal Cost = 238,000 US$
Revenue on Sale = 4,760,000 US$

8. Example Feasibility Study
Feasibility of Project:
Gross Development Income = 4,760,000 US$
Gross Development Expenditure = 4,998,100 US$
Land Cost = 475,000 US$
Construction Cost = 4,284,900 US$ (@500 US$/m2)
Disposal Cost = 238,000 US$
LOSS = 238,100 US$
The Development is NOT FEASIBLE
The Professional Role of the Design Team in Making the
Project Viable.

9. WHAT Do We Do to Satisfy the
WHY?

10. THE WHAT?
Cost Variations and their effect on Profit.
The Procedures adopted for cost monitoring during
different project stages are divided into:
Pre-Contract (Design Stage)
Post Contract (Construction Stage)

11. THE WHAT?
For Pre-Contract (Design Stage):
Initial Cost-Feasibility Design Stage (the design is less than
20% complete)
a) Feasibility Cost Prediction is based on a Cost
Model
Design Development
Conceptual Design Stage (design stage +/- 20%)
b) Conceptual Cost Prediction is based on functional
costs/m2 and verifies (a)
Preliminary Design Stage (design stage +/- 50%)
c) Preliminary Cost Prediction is based on a Cost Plan
Elemental Analysis and verifies (a)

12. THE WHAT?
For Pre-Contract (Design Stage): cont’
Design Development (cont’)
Fundamental Design Stage (design stage +/- 75%)
d) Fundamental Cost Prediction is based on the
Review of the Cost Plan and verifies (a)
Tender Stage
Final Design Stage (design stage 100%)
e) Final Design Cost Prediction is based on a Priced
BOQ and verifies (a)

13. THE WHAT?
For Post-Contract (Construction Stage):
Contract Forms provide administrative procedures to
monitor and limit cost variations/claims arising between
the Tender Cost and Final Accounts Costs.

14. HOW We Do WHAT We Do?

15. THE HOW?
During the Feasibility Design Stage (Design less than 20%
complete) a COST MODEL is used.
A Cost Model is data extracted from a similar previous completed
project
Differences from the Cost Model and Proposed Project are isolated
Historical cost data is updated to present day costs BASE DATE
accounting for the differences
The Cost Model’s modified costs are equated to cost/m2 and then
applied to the built-up floor area of the Proposed Project.
The Above Procedures provide an Indicative Cost based on cost/m2.

16. THE HOW?
During the Conceptual Design Stage (Design +/- 20%
complete).
Assumptions made at the Feasibility Stage Estimate are verified
Elements should be quantified, if possible
The estimated total cost should be similar to that already
reported. But if there are differences, these should be discussed
with the Designer/Developer.
The Above Procedures provide an Indicative Cost based on cost/m2
but with more certainty.

17. THE HOW?
During the Preliminary Design Stage (Design +/- 50%
complete).
Design advances to approximate quantification priced at composite
unit rates
A Cost Plan is prepared
The estimated total cost should be similar to that already reported.
But if there are differences, these should be discussed with the
Designer/Developer.

18. THE HOW?
During the Fundamental Design Stage (Design +/- 75%
complete).
An updated Cost Plan incorporating additional details is prepared
The estimated total cost should be similar to that already reported.
But if there are differences, these should be discussed with the
Designer/Developer.
During the Final Design Stage (Design 100% complete).
A BOQ is priced using market prices in an attempt to predict tender
results (Fair Priced Estimate)
The estimated total cost should be similar to that already reported.
But if there are differences, these should be discussed with the
Designer/Developer.

19. THE HOW?
Tender Results-Contractor’s Prices
In the event the Tender results differ from the Tender Predications
(Priced BOQ), differences should be discussed with the Designer and
the Developer.
Keeping a Cost Data Base
A Data Base of Building Costs is maintained for the purposes of
preparing those estimates required by the various design stages.
In addition to the Data Base, continuous attention must be made to
the various economic conditions arising during extended
development and construction programmes and the effect of these
conditions on prices.

20. COMMENTS & QUESTIONS!?