Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

DESIGN COST MODELLING A WAY FORWARD

Peter M Lawther and Peter J Edwards Department of Building and Construction Economics
Royal Melbourne University of Technology University, Australia

1.
Introduction
Accurate cost modelling is fundamental to
the efficiency of the construction industry
in general, and the stakeholders within the
industry in particular. Clients, consultants
and contractors all have much to lose from
the consequences of inaccurate cost
modelling, e.g. through the time and cost
ramifications of tender results not
matching clients budgets. Such
ramifications include:

the costs of redesign and

retendering / negotiating of
projects (perhaps of reduced
scope and quality) and the
associated time delay, or;
increased construction costs
requiring additional funds to be
sourced by clients.

Potentially this can impact upon the

financial returns of a building project to a
client and, at worst, lead to the
abandonment of a project altogether.
Design cost modelling (i.e. during the
design stage of the development process)
has traditionally been undertaken by
consultant quantity surveyors, at times
with less than adequate results. Research
undertaken at the Department of Building
and Construction Economics at RMIT
investigated potential means for
improvement of the accuracy of design
cost modeling, and has concluded that the
way forward may lie in the manner of
procurement for building projects. The
objective of this paper is, firstly, to review
the current status of design cost modelling
in terms of the techniques used, their
accuracy, levels of usage, and
deficiencies. Secondly, the paper
identifies a way forward for research in
this field through the emergence of nontraditional methods of building
procurement.

Page 32

2.
Cost Modelling
Cost models are technical aids which
enable management decisions to be made
in the context of building design (Skitmore
and Marston, 1999). The primary function
of cost models in this context is to provide
reliable cost forecasts (Elhag and
Boussabaine, 1998), either for the client or
the contractor (Ashworth, 1999). More
specifically, the management decisions
supported by cost models include:

forecasting the total cost of

construction.
comparing design alternatives.
forecasting the economic effects
upon society of changes to design
codes and regulations (Skitmore and
Marston, 1999).

Because clients undertaking construction

projects will wish to have an
understanding of their financial
commitment, it is appropriate to apply cost
modelling techniques as early as possible
in the development process, prior to
commissioning extensive design work
(Ashworth and Skitmore, 1983).
Further, because design precedes
construction in the development process,
cost modelling is generally commenced at
the beginning of the design stage. At its
earliest, this could be the initial feasibility
study of a project. Various cost modelling
techniques may then be utilised
throughout the design process, generally
in accordance with the level of design
information (drawings, specifications etc.)
available at any particular stage.
Importantly, such design information
portrays the completed product or
building, rather than the production
processes of construction. That is, the
design information represents what is to
be built (in terms of the completed
building), as opposed to the production
process of (explicitly) how the building is
to be constructed. As such, cost modelling
The Australian Journal of Construction Economics & Building

Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

techniques used during the design

process, which are based upon such
design information, have also traditionally
focused upon modelling the completed
product price, rather than modelling the
production process cost, of
construction. Consequently, two distinct
paradigms of cost modelling techniques
exist:

product based where the

completed building is modelled.

process based where the

construction production process is
modelled (Skitmore and Marston
1999).

ways in which costs arise. Brandon (1982)

considers that the cost modelling
techniques used during the design stage
of the development process are distinctly
black box, and suggests that modelling
the reality, i.e. the way costs are incurred
on site, does not enter into the
(development) process until operational
costs are considered, usually at the post
contract stage.

These differences have been recognised

for some time. Beeston (1982) suggests
that cost modelling techniques are either
black box (product based) or realistic
(process based). Realistic methods are
derived from attempts to represent costs
in the ways in which they arise. Black box
methods do not attempt to represent the

3.

Technique
Judgement without
quantification
Functional Unit
Superficial
Principal item
Interpolation
method
Elemental analysis
Significant items
Approximate
Quantities
Detailed
Quantities

The cost modelling techniques themselves

are now considered separately in terms of
product based and process, or resource
based, cost modelling techniques.
Product Based Cost Modelling
Techniques
Fortune and Lees (1996) and Fortune and
Hinks (1998) identified the following
"traditional" (product based) cost
modelling techniques in widespread use,
as summarised in Table 1.

Description
The use of professional expertise and intuition to formulate
strategic cost advice.
A monetary rate or amount applied to a unit commensurate
with the function of the building e.g. $/ carparking space
A single rate applied to the floor area of a building e.g. $/m2.
A single $ rate applied to the major item of a project.
The application of costs from previous projects by way of
interpolation.
A summation of the application of costs to the design
elements within a project.
The measurement and pricing of significant items of work.
The measurement and pricing of a small number of grouped
items.
The measurement and pricing of many items, such as a Bill of
Quantities.

Table 1 Cost modelling techniques in widespread use

(Source: Fortune and Lees 1996, and Fortune and Hinks, 1998)

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Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

Technique
Cube
(Smith,
1998).
Functional
Area
(Smith, 1998).
Superficial
Perimeter
(Ashworth, 1995)
Storey Enclosure
(James, 1954)
Regression
Analysis
(Flanagan
and
Norman, 1978)
Probabilistic
Treatments
(Mathur, 1987)
Expert
Systems
(British Computer
Society, as cited in
Ogunlana, 1989)

Description
A single cost rate applied to the internal volume of a building.
Similar to the superficial model, although different cost rates
are applied to different functional areas within a building on
the assumption that those different areas will cost different
amounts to construct.
A variation on the superficial method. As well as taking the
floor area of a building into account, the length of building
perimeter is also included in an endeavour to increase
accuracy.
The measurement and costing of the area of the external
walls, the floor and ceiling which enclose each storey within a
building.
A statistical technique whereby historical data is analysed in a
structured format. The major components of construction are
identified and a mathematical relationship between them, in
the form of an algebraic equation, is determined using
historical data.
The use of probability theory and random number generation
to produce cost models with risk profiles which recognise the
inherent variability and uncertainty of design cost modelling,
due to its predictive nature.
The capture, bottling and dissemination of expert knowledge
for use by less qualified / experienced personnel, generally by
computer program.

Table 2 Lesser used product based cost modelling techniques

Additional traditional or product based
cost modelling techniques identified from
the literature are summarised in Table 2
(above).
As stated, traditional or product based
cost modelling techniques model the
completed building as opposed to the
production process of construction.
However, such models contain an implicit
assumption about construction processes.
This assumption is that similar designs will
always be constructed in the same way.
Whilst this assumption may be valid at a
general level, it is likely to be less so at
more detailed levels. Therefore, if some
variation in construction process is
inevitable, and product based cost
modelling techniques do not explicitly deal

Page 34

with it, how acceptable is the accuracy of

these models?
4.

Accuracy of Product Cost

Modelling Techniques
Studies have been undertaken to
determine the accuracy of cost modelling
techniques. Ashworth and Skitmores
(1983) literature review of the accuracy of
estimating in the design stage of the
development process indicates a
perceived level of accuracy of design
stage cost modelling ranging from +/- 20
40% in the early stages, and improving to
+/- 10 15% in the latter stages of the
design process.
Studies by Flanagan and Norman (1983)
compared the last price prediction prior to

The Australian Journal of Construction Economics & Building

Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

tender with the lowest tender price

received in two English County Council
Authorities. The results indicated that
approximately 50% of projects were
estimated within +/- 10% and all projects
were estimated within +/- 25%; a
considerably higher level of inaccuracy
than Ashworth and Skitmores perceived
accuracy levels.
Beeston (1974) outlined the variability of
design cost modelling in terms of the coefficient of variation (standard deviation
expressed as a percentage of the mean),
based upon investigation of submitted
tender bids. With respect to estimating the
lowest tender, Beeston concluded that the
variability of consultant quantity surveyors
estimates, when combined with the
inherent variability of the tendering
process itself, resulted in a best possible
co-efficient of variation of 7%. According
to Beeston, such a co-efficient of variation
would result in 52% of quantity surveyors
estimates being within 5% of the lowest
tender, 68% of estimates within 10% of
the lowest tender, and all estimates within
30% of the lowest tender. It is not clear
which cost modelling techniques, or
stages of the design process, are being
referred to in Beestons work, other than
using present methods in the best way
under average circumstances. Beeston
considers that improvements to the
quantity surveyor's estimating variability
(and hence accuracy) could be made
through a model which makes a direct
evaluation of contractors' costs,
considering that if this assesses costs by
a method related to the way in which they
arise it will be especially suitable for giving
cost advice to designers.
Morrison (1984) outlines the difficulty of
comparing deign stage cost forecasts with
tender bids, due to the constant state of
flux of the design of many construction
projects. Morrisons work compared the
quantity surveyors pre-tender estimate
with the lowest tender received on 557
projects in which it was possible to
exclude prime cost and provisional sum
items common to both figures. The results
found a mean deviation between the
pretender estimate and the lowest tender

The Australian Journal of Construction Economics & Building

of 11.97% (co-efficient of variation of

15.45%). Morrison contrasts these results
against studies done into the accuracy of
contractors estimating (Barnes and
Thompson 1971; Barnes 1972; and
Flanagan, 1980) which indicate a mean
deviation in the order of 6% (co-efficient of
variation of 8.22%), reducing to a mean
deviation of 3.75% (co-efficient of variation
of 6.59%), when projects valued under
100,000 United Kingdom pounds are
excluded from the sample. Morrison
considers this estimating performance of
quantity surveyors to be very poor, yet
likely to represent the best performance
achievable, concluding that this level of
performance is unlikely to fulfil clients
requirements for controlling the cost of
construction within pre-determined limits.
Such criticism of quantity surveyors'
estimating performance implies
deficiencies with the cost modelling
techniques upon which this performance is
based. Such deficiencies are now
considered.
5.

Deficiencies of Product Based

Cost Modelling Techniques
The product based cost modelling
techniques outlined are considered useful
on the basis of their ease of application,
familiarity and speed, and a tolerable level
of accuracy as noted above (Ashworth
and Skitmore, 1983; Ashworth, 1995).
However, the same models have also
being criticised on the basis that:

they are not (explicitly) founded upon

construction production criteria as the
generator of cost (Brandon, 1982;
Morton and Jaggar, 1995)
they do not fully represent the
relationship between design decisions
and
the
resulting
construction
processes (Bowen, 1993).
they fail to consider the uncertainties
of the construction process (Bowen et
al, 1987; Bowen, 1993).
the cost data used to support
such models is often taken from
previous projects, previous bills
of quantities, price books etc.

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Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

and does not represent cost as a

function of resource usage, but
rather as a function of the
completed building product
(Raftery, 1984; Morton and
Jagger, 1995). Additionally, such
cost data is often massaged, or
subject to noise (Newton,
1989), by having the actual
resource costs spread over the
unit rates, and also when unit
rates are allocated into elemental
costs.
Thus the criticisms of traditional product
based cost modelling techniques are
focused upon two main concerns:
Firstly, the lack of an explicit
relationship between the cost
modelling techniques and the
construction process.
Secondly, the use of distorted cost
data to support such cost modelling
techniques.
It is contended that process or resource
based cost models more accurately
reflect the way in which construction costs
are incurred. In simple terms, this would
comprise the necessary labour, material,
plant and equipment required to construct
a building. McCaffer and Baldwin (1986)
and Beeston (1974, 1987) consider that
the greatest opportunity for improved
accuracy in design cost modelling lies in
aligning the modelling techniques as
closely as possible with the generators of
such costs, i.e. the methods by which they
arise. Bowen et al (1987) contend that
truly realistic cost models must simulate
the construction process. Such models
are hence termed process based or
resource based (hereinafter referred to
as resource based) cost modelling
techniques, and are deemed to be
inherently more reliable than their product
based counterparts (Skitmore and
Marston, 1999).
6.

Resource Based Cost Modelling

Techniques
In response to the deficiencies of
traditional product based cost modelling
techniques, a number of resource based
cost modelling techniques have been
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developed. These are summarised in

Table 3.
All of the resource based cost modelling
techniques outlined in Table 3 share a
common theme of utilising the contractor's
resource based data during the design
process. However despite their potential,
the literature contains no reported cases
of the use of such resource based cost
modelling techniques. Their effectiveness,
therefore, remains a matter of academic
conjecture, and the question arises as to
the extent of use of cost modelling
techniques in the design stage of the
development process.
7.

Use of Cost Modelling

Techniques in the Design Stage
of the Development Process
Fortune and Lees (1996) surveyed cost
modelling technique usage during early
cost advice1 by organisations in
Northern England and Wales. Consulting
quantity surveying firms made up 62.6%
of the sample frame in this study, the
remainder comprising project
management, contracting and multidisciplinary organisations, and local and
regional authorities. Later studies were
conducted by Fortune and Hinks (1998)
into the use of cost modelling techniques
by consultant quantity surveyors in the
provision of early cost advice2
throughout the whole of England. The
results of these studies are shown in
Table 4.

Early cost advice was

advice given to the client
contract being made
2
Early cost advice was
advice given to the client
contract being made

defined as being any cost

prior to a formal offer of
defined as being any cost
prior to a formal offer of

The Australian Journal of Construction Economics & Building

Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

Resource Based Cost Modelling Technique Description

Operational Bill of Quantities (Skoyles, 1968). An attempt to restructure the traditional bill of
quantities to correlate with the way
construction work is carried out.
Construction Unit Planning Approach (Bowe Similar to the operational bill of quantities.
1993).
British Property Federation System (Morton anUse of a construction program for the tender
Jaggar, 1995).
bid, in lieu of the bill of quantities.
Cost of Contractors Operations (Beeston, 1973 A cost modelling technique that enables
designers to consider the construction
implications of design decisions and design
alternatives by simulating the thought
processes used by construction planners in
terms of selecting plant and allocating labour
to a project.
Pre-established
Critical
Path
Method a cost model for use in early stage cost
Networks (Bowen, 1993).
forecasting, which is sensitive to both
construction method and construction
duration. The model is based upon the use
of default critical path method networks, with
the injection of algorithms to determine the
duration of construction activities.
Simulation (Bennet and Ormerod, 1984).
a cost modelling technique which mimics the
construction process to provide a simplified
representation of likely duration and cost,
through the use of a computer program.
A Processed Based Modelling System
Similar to simulation, with critical path and
(Bowen et al, 1987; Bowen 1993).
sub-networks used as the underlying cost
modelling structure.
Data Integration Systems (Morton and
Models developed to accommodate the
Jaggar 1995; Kim et al, 1999).
differing data requirements of the design and
construction stages of the development
process.
Table 3 Resource Based Cost Modelling Techniques
The results of these surveys indicate that
traditional product based cost modelling
techniques (with the exception of the
principal items model) have the highest
relative incidence of model usage, and
resource and process based cost
modelling techniques the lowest incidence
in usage.
Studies by Bowen and Edwards (1998),
investigating cost modelling techniques
employed amongst South African quantity
surveying practices, revealed that
traditional cost modelling techniques such
as elemental analysis and approximate
quantities are the most popular methods
employed. Additionally, the superficial

The Australian Journal of Construction Economics & Building

method and bills of quantities are also

employed at particular stages of the
design process; i.e. the brief and
documentation stages respectively.
This study revealed that a large proportion
(83%) of respondents seldom, if ever,
utilise (resource based cost models such
as) critical path methods or activity bills of
quantities in the preparation of price
forecasts. Bowen and Edwards
concluded that South African quantity
surveyors show little inclination to adopt
models which attempt to more closely
represent the construction process itself,
i.e. resource based cost models.

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Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

Model

Judgement
Functional Unit
Cost
per
m2
(Superficial)
Principal Items
Interpolation
Elemental Analysis
Significant Items
Approximate
Quantities
Detailed Quantities
Resource Based*3
Process Based*

Incidence in use
(% of Respondents)
Fortune and Lees
(1996)
85.80
75.50
97.30

Incidence in use
(% of Respondents)
Fortune and Hinks
(1998)
82.96
69.74
96.96

47.30
87.00
88.70
73.00
96.20

39.57
84.13
88.05
69.83
93.34

68.70
50.40
31.80

63.66
46.23
26.35

Table 4 - Use of various cost modelling techniques by Northern England

Organisations (1996) and all England Quantity Surveyors (1998)
(Source: Fortune and Lees, 1996. Fortune and Hinks, 1998)
No comparable study could be found of
the use of cost modelling techniques by
consulting quantity surveyors in the
Australian context. However, the
similarities of structure of the Australian,
English and South African development
process in general, and cost modelling
techniques in particular, make it
reasonable to suggest that similar findings
would prevail.

8.

Inhibitors to use of Resource

Based Cost Modelling
Techniques
Skitmore and Marston (1999) adumbrate
the difficulty of using resource based cost
modelling techniques during the design
stage of the development process due to
the additional assumptions required to
convert design information into process
information.

These studies indicate that whilst

consultant quantity surveyors do at times
make use of resource based cost
modelling techniques in some semblance,
they clearly prefer to use traditional
product based cost modelling techniques.
However, if resource based such cost
modelling techniques do in fact more
realistically represent the cost of
construction, and hence provide for
greater levels of modelling accuracy, why
are they not used to a greater extent?

Formoso (cited in Bowen, 1993) contends

that the primary reason for the low level of
usage of resource based cost modelling
techniques in the design stage of the
development process is due to a
fundamental lack of understanding by the
design team of construction processes.
Ogunlana (1989) considers design cost
estimators to be ill-equipped to estimate
construction costs as contractors do.
Skitmore and Patchell (1990) and Bowen
(1993) have cited lack of understanding of
the construction process on the part of
design cost estimators as the reason for

For the purpose of Fortune and Lees' study, resource based cost modelling techniques were defined as those which use
schedules of materials, plant and labour. Process cost modelling techniques were defined as those which use bar charts and
networks.

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Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

the lack of usage of the simulation and

Cost of Contractors Operations resource
based cost modelling techniques
respectively.
Ashworth (1999) notes that the data
required to use resource based cost
modelling techniques is not available to
the design cost estimator, whilst Ogunlana
(1989) contends that even if such data
were available, unfamiliarity would act as
a barrier to their usage. Such arguments
are supported by the earlier study of
Fortune and Lees (1996). In analysing the
relationship between organisational type
and incidence of cost modelling technique,
they note that project management and
contracting organisations are more
frequent users of resource based cost
modelling techniques than quantity
surveying practices. A possible
explanation offered by the authors for this
discrepancy concerns the limited access
of quantity surveyors to appropriate
construction resource and process data,
as opposed to information (bills of
quantities etc.), which support traditional
product based cost modelling techniques.
Additionally, lack of understanding of
resource based cost modelling techniques
was considered to significantly contribute
to their comparatively lower level of usage
by quantity surveying practices.
Ogunlana (1989) notes the time
constraints of resource based cost
modelling techniques; considering them to
be relatively painstaking and time
consuming compared with other
techniques. Bowen and Edwards (1998)
agree, considering that time constraints
appear to preclude more detailed
attention to the construction resource
implications of building design.
Such inhibitors to the use of resource
based design cost modelling infer a gulf
existing between the users of such
techniques (consultant quantity surveyors)
and the construction process they are
attempting to model. It is contended that
such a gulf emanates from the traditional
method of building procurement.

The Australian Journal of Construction Economics & Building

9.

Design Cost Modelling and the

Traditional Method of Building
Procurement
Notwithstanding the time constraints of
resource based cost modelling
techniques, it is postulated that any lack of
resource based data, or understanding of
construction processes, on the part of
consultant quantity surveyors is
predominantly a function of the traditional
method of building procurement itself.
Such a method distinctly separates the
design and construction stages of building
development and creates cost specialists
in each; consultant quantity surveyors in
the design stage and contractors in the
construction stage. Any time constraints
which preclude the use of resource based
cost modelling techniques merely serve to
reinforce this division caused by the
traditional method of building
procurement.
Love et al (1998) consider that this
traditional fragmentation of the design and
construction functions has created walls
around the project participants, resulting in
ineffective communication processes.
Such walls create an environment in
which processes such as cost modelling,
and the information upon which they are
based, are often conducted in a climate of
self-perpetuating isolationism. In such an
environment, consultant quantity
surveyors suffer from modelling a design
which does not explicitly represent all the
cost generators which are fundamental to
the accuracy of the cost model. Kim et al
(1999) consider such a problem to result
from the functional gap created from
differing data requirements and traditional
barriers existing between professionals.
In addition, the separation of the design
and construction processes under the
traditional method of building procurement
has effectively excluded contractors from
the design stage of the development
process. As contractors are the specialists
of construction, and by extension
construction processes and methodology,
the implementation of construction
process expertise into design cost
modelling techniques is also excluded.

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Design Cost Modelling A Way Forward by Peter Lawther and Peter Edwards

10

Alternative Methods of Building

Procurement

The traditional method of building

procurement has generally not
accommodated the implementation of
resource based design cost modelling.
Indeed, the obstacles created by the
traditional method of procurement have
possibly stalled research into this area.
However, if the construction expertise of
contractors were available in the design
stage of the development process, it is
reasoned that a resultant increase in the
accuracy of design cost modelling can be
expected. In this regard, recent shifts in
the procurement methods of projects may
provide a way forward. The growth in
popularity of non-traditional procurement
systems which incorporate the contractor
into the design stage of the development
process, such as design and construct,
construction management and
management contracting (Turner, 1997;
Franks, 1998) provide a window by
which the design cost modelling
techniques of contractors may be
examined. If the design cost modelling
techniques used by contractors can be
identified, they can then be compared to
those used by consultant quantity
surveyors. Such a comparison will give an
indication as to the importance of resource
based cost modelling in overall forecasting
accuracy. In turn, areas of potential
improvement to traditional design cost
modelling techniques used by consultant
quantity surveyors may be identified.
11

Conclusions

Consultant quantity surveyors generally

utilise product based design cost
modelling techniques; such techniques
reflecting the design information upon
which they are based. These techniques
do achieve a tolerable level of accuracy.
However, they are deficient in terms of
lacking an explicit relationship with the
construction process they are purporting
to model, and by using distorted cost data
to support them.

Whilst resource based cost modelling

techniques have been developed, the
traditional product based cost models
retain greater favour with consultant
quantity surveyors. Reasons proffered for
lack of use of resource based cost
modelling techniques by consultant
quantity surveyors include lack of data,
lack of understanding of construction
processes, and time constraints. These
restrictions emanate from the traditional
method of building procurement which
distinctly separates the design and
construction processes and thus militates
against the easy transfer of data between
the actors engaged in them.
However, the emergence of nontraditional methods of building
procurement provides fresh opportunities
for the advancement of design cost
modelling research. Such procurement
methods position the contractor directly in
the design stage of the development
process, making it possible to examine
their design cost modelling techniques
and utilise their process expertise. It is
postulated that such an investigation
would provide indicators of potential
improvement to the accuracy of design
cost modelling techniques used by
consultant quantity surveyors.
12.

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