1. Cost Studies Model Paper Answers
Please be informed that the answers given here are model and briefed answers. It is student’s responsibility to provide complete and comprehensive answers based on the given model answers.
Q1
I. Define following terms
a) Life cycle cost analysis (LCCA)
LCCA is the collection and analysis of historic data on the actual costs of occupying comparable building, having regard to running costs and performance.
b) Life cycle cost management (LCCM)
LCCM is derived from life cycle cost analysis. It identities those areas in which the costs of using the building as detailed by life cycle cost analysis can be reduced, assist clients to compare building costs in a meaningful way and assessing and controlling occupancy costs throughout the life of a building to obtain the greatest value for the client.
c) Life cycle cost planning (LCCP)
Considered as part of life cycle cost management and constitutes the prediction of total costs of a building, part of a building or an individual building element, taking account of initial capital costs, subsequent running costs and residual values, if appropriate, and expressing these various costs in a consistent and comparable manner by applying discounting techniques.
It also includes planning the timing of work and expenditure on the building, and should also take into account such factors as the effect of performance and quality.
The selected Plan should be reasonably flexible and updated as necessary to encompass changing conditions, including n changes, particularly when formulating a full functional life plan.
II. difficulties in assessing life cycle costing
A. Difficulties in assessing the maintenance and running costs of different materials, processes and systems, great scarcity of reliable historical cost data and predicting the type of materials and components
B. three types of payments involved – initial, annual and periodic, and these all have to be related a common basis for comparison purposes.
C. Variation of taxation rates and its impact.
D. selection of suitable interest rates for calculations
E. Inflationary tendencies may not affect all cost in a uniform manner,
F. When the projects are to be sold as an investment on completion.

2. G. initial funds available to the building client are restricted, or his interest in the project is of quite short- term duration, it is of little consequence to him to be told that he can save large sums in the future by spending more on the initial construction.
H. Future costs can be affected by changes of taste and fashion
Difficulties in forecasting the life time of different types of building
practical problems which affect Life cycle costing
a) Change in the basic prices of materials, components, energy, labour and capital are difficult to forecast
b) Changes in government policies, the way in which people live and work and their expectations,
c) Emergency repairs and maintenance, arising from such factors as unforeseeable design faults or bad workmanship,
d) With foreseeable maintenance work such as cleaning and redecoration,
e) Major maintenance, replacement and modernization works are linked not only to the life of the particular building elements, but also to economic, social and technological changes, and even possible obsolescence,
f) Many variable factors contribute to the real cost of maintenance work making it very difficult to assess with accuracy
g) A CLC study cannot cater satisfactorily for the way in which the building is used. Work may be carried out which is not essential for the upkeep of the building, to suit individuals or to meet changing tastes and fashions.
h) lack of adequate data
Q2.
I. Explain the following steps
Phase 1: the information stage.
Phase 2: the creativity/speculation stage
Phase 3: the evaluation/analysis stage
Phase 4: the development stage,
Phase 5: the presentation/proposal stage,
Phase 6: the implementation/feedback stage,
II. Value management can be described as a service which is provided in the earlier stages of a project where the primary goal is to determine explicitly the client’s needs and wants related to both cost and worth, sometimes described as judgment values, by the use of functional analysis and other problem solving techniques, which will be described later in the chapter. Whereas in cost management, the main thrust is on cost budgeting, management and control, and embraces such activities as feasibility studies, cost planning in all its aspects, the production of bills of quantities, tender evaluation, on-site measurement and valuation and the settlement of final accounts.
Value management often precedes cost management in its timing but there can be a substantial overlap between the two activities during the inception, feasibility and design stages. In both cases an early investigation is desirable while the design is in its early stages, as the longer it is delayed, the more advanced the design, the less opportunity there is for radical changes to the project, the lower the cost savings that can be made and the higher the cost of implementing them

3. III. Advantages
 Examines function and cost
 Provides opportunity for options to be considered
 Seeks better technical and more cost-effective solutions
 Identifies and reviews constraints and criteria affecting the project
 Design changes can be accommodated at minimal cost (if study conducted early)
 Opportunity for in depth project review and greater understanding for all team members
 Team building
 Identifies and can eliminate unnecessary costs
 Generates greater client confidence
 Can shorten overall programme period (longer brief/design period and shorter production/construction period)
 Assist client decision making
Disadvantages
 Extra work for existing project team, which is not always reimbursed, as it is at the client’s discretion
 Disruption to project team
 Can incur extra fees
 Can extend design period
Q3.
I. Traditional Estimate and cost plan  A traditional estimate is a prediction of the cost of a design, specific for a particular design.  The cost plan is a flexible overall allowance permitting changes in the design without needing constant revision  The cost plan is a statement of how design team proposes to distribute the money available on elements of the building,  Once the estimate is prepared, it is seldom referred to until the time comes to compare it with the tender. The cost plan is referred to continually throughout the design process.  In contrast, the cost plan is used continuously throughout the subsequent documentation ( Detail design) stage as a method of checking that the detail design is constrained within the cost limit. The cost plan s therefore a frame of reference . the cost plan helps the design team to detail the design within a cost framework. II. Explain the aim of following six plus one stages Pre stage A – Establishing the need Work stage A – Options appraisal Work stage B – Strategic briefing Work stage C – Outline proposals Work stage D – Detailed proposals Work stage E – Final proposals Work stage F – Production information

4. Q4 Question 01
Building B
Discount factor
Present Value (Mn)
Purchasing Cost
Rs. 400Mn
1
400
Legal costs associated with purchase
3% of purchase price
1
12
Cost of improvement of the building
Rs. 15Mn
1
15
Annual Maintenance cost
Rs. 10Mn
8.51
85.1
Annual energy cost
Rs. 15Mn
8.51
127.65
Cost of repairs
Rs. 15Mn (every 6 years)
1.06
15.9
Future expansion cost
-
-
0
Resale value of the building
Rs. 350Mn
0.15 -52.5
TOTAL
603.15
Calculations
Building A
Legal costs associated with purchase = 300*3%
=9Mn
*Assume improvements of the building is done just after the purchasing
Discount factor for Annual Maintenance = 1- 1/(1+r)^n
r
= 1- 1/(1+0.1)^20
Building A
Discount factor
Present Value (Mn)
Purchasing Cost
Rs.300Mn
1
300
Legal costs associated with purchase
3% of purchase price
1
9
Cost of improvement of the building
Rs. 30Mn
1
30
Annual Maintenance cost
Rs. 15Mn
8.51
127.65
Annual energy cost
Rs. 15Mn
8.51
127.65
Cost of repairs
Rs. 10Mn (every 5 years)
1.25
12.5
Future expansion cost
Rs. 60Mn (at 12th year)
0.32
19.2
Resale value of the building
Rs. 200Mn
0.15 -30
TOTAL
626.00

5. 0.1
= 8.51
Discount factor for Annual Maintenance = Discount factor for Annual energy
*Assume that at the end of 20th year, there are no repairs
Discount factor for repairs = 1/ (1+0.1)^5 + 1/ (1+0.1)^10 + 1/ (1+0.1)^15
= 1.25
Discount factor for Future expansion = 1/ (1+0.1)^12
= 0.32
Discount factor for Resale value of the building = 1/ (1+0.1)^20
= 0.15
Building B
Legal costs associated with purchase = 400*3%
=12Mn
*Assume improvements of the building is done just after the purchasing
Discount factor for Annual Maintenance of Building A = Discount factor for Annual Maintenance of Building B
= Discount factor for Annual energy of Building B
Discount factor for repairs = 1/ (1+0.1)^6 + 1/ (1+0.1)^12 + 1/ (1+0.1)^18
= 1.06
Discount factor for Resale value of the building = 1/ (1+0.1)^20
= 0.15
According to the given information, LCC of two buildings as follows
LCC of Building A = 626Mn
LCC of Building B = 604Mn
Hence the company management have to be purchased Building B which has the lowest Life cycle cost.

6. Q5.
I.“Historical cost data is invaluable for cost estimating”.
For this statement you can argue the importance as well as the problems with the historical cost data. Need to emphasize the followings.
Sources of cost data
 BOQs
 Site feedback
 Firm’s own data
 Published data
 Work data is obtained from specialist sub- contractors and specialist consultants
More focus on Uses of cost data
 Forecasting of cost
 Comparison of cost
 Balancing of cost
 Analyzing of cost trends
Then the Problems
 Problems with site feed back
 Problems with analysis of BOQs
II. First give an introduction to Value management and then one by one explain the why VM is not successful in Sri Lankan context by emphasizing the followings
 Grater fragmentation of the industries
 Professionals were educated separately in their isolated disciplines
 Less knowledge about the benefits gain from VM
 Unavailability of a standard guide for VM in Sri Lanka
 No encouragement from SL government
 No training from reputed construction institutes
 VM is bit expensive
A small introduction why VM is not popular in SL and then one by one explain the ways to improve usage of VM in Sri Lankan context by emphasizing the followings
 Conducting Seminars and short courses
 Conduct workshops on low costs initially
 Introduce regulatory body to observe and regulate the application of VM
 Knowledge elicitation of successful VM application in the various industries of other developing countries

7. Q6.
1 Unit Method
 Totally related to the end product
 Base on relationship between cost of the project and the number of functional units it accommodates.
 Ex: School, Hospital, Car parks
Estimate = Std. units of accommodation*Cost/unit
Advantages
 Quick method
 Easy to employ as the rules for calculations are much more simple
 Directly relates to accommodation
 Used at very early stages
 Used published information or experience
Disadvantages
 Fails to take account of any variation in plan and shape or storey height
 Lack of Precision
 Used if the purpose of the building is known
Hence, Estimate = 310*(950Mn/250)*(616/560)
=
2 Superficial area method
Estimate = Area of each of the floors*Cost per m2
 Most Popular preliminary estimating method
Advantages
• Quick method
• Easy to employ as the rules for calculations are much more simple
• Directly relates to accommodation
• Allow comparison of different Designs
• Meaningful in its concept of measurement(m2) to both client and architect

8. • Allow comparison between buildings that differ in size and shape
Disadvantages
 Fails to take account of any variation in plan and shape or storey height
* Try to highlight the advantages of this method by analysing the above mentioned points.
Hence, Estimate = 6500*(120Mn/4000)*(616/545)
2
Price indices
 PI measures the changes in price paid for the client
 Used for updating historic cost data for use on present day estimates
Cost indices
 Measures the changes in cost to the contractor
 Ignore any changes in profit levels and overheads
 Purpose is to determine the amount to be paid to contractors under the operation of variation of price clauses in the contract
Location indices
 Generally compiled from the tender price index and attempt to make some allowance for the variation due to location
 Using published set of location indices, the assessment of the variation in price of a proposed project can be obtained by analyzing the past project
Maintenance indices
 Measures the variations in the maintenance of the buildings