Data-Driven Design

Cost estimating is a process that tracks directly with the design process. Recognizing that projects of all sizes need to meet the owner’s budget, designers need some costing feedback along the way to determine if the design being created is on track or not. By having a reliable cost estimate at each phase of design, assessments can be made as to whether the design is within a comfortable margin of cost or if some changes need to be made in the design to stay on budget. This is a not just a technical issue for design firms. It has been observed that one of the most common complaints from building owners that creates a lack of trust in designers is cost overruns. On the negative side, this can be an issue for risk management if an owner finds out during bidding that the design is way over budget and holds the designers liable for excessive costs, time delays (to redesign and re-bid), or both. On the positive side, if a firm has a proven track record of producing designs that stay close to an owner’s budget, that becomes an important marketing message.

So how does this play out in a typical project? Design is still a process since even with the use of computers, it takes time to create a well-designed building, with several milestone phases that require review and feedback from the owner before moving on to the next phase. Some firms are using building information modeling (BIM) to create their designs and, arguably, the computerized model is just one continuous, evolving creation. But even in this case, there are established levels of detail that everyone on the design team progresses through, stopping along the way for feedback and review from the owner. In the most sophisticated of BIM processes, cost information is linked to the modeled components and systems. Sometimes referred to as 5-D modeling (with 3-D being physical, 4-D adding time scheduling, and 5-D referring to cost estimating), the computer program calculates area and quantities as the building project is being modeled. It then links that information to unit or assembly price information and calculates the costs on an ongoing basis as the design develops or changes are made. In this case, the computer program still needs a good, reliable, and accurate source of cost data. So while it is a variation on the process of doing a cost estimate independent of the model, the underlying need for good data remains. Fortunately, most BIM software will allow for the importing of or linking to outside, independent cost data. In any scenario, the cost estimate is only as good and reliable as the information on which it is based.

With all of the above in mind, let’s take a closer look at the most common phases of a project and how cost data can inform each one.

As a design progresses through the most common phases of a project, accurate cost data used for estimating can inform each phase to drive decision-making.

Schematic Design

Schematic designs, by definition, don’t have a lot of detail. They are intended to capture an overall basic concept with a number of assumptions made about the major constructions systems. Often, several schematic concepts are generated and compared to each other to determine which one makes the most sense for a particular project. In this case, it is common to assess cost simply on a square-foot basis related to the design assumptions made. Using a data source that allows for customized inputs means that things like building type and location can be identified first, followed by number of stories, square footage, and basic construction type (i.e., steel frame, concrete, masonry, etc.). Online versions of this type of data base allow for a customized square footage cost to be developed pretty quickly (usually a matter of minutes) once the basic parameters of a schematic design are identified and input. That means it is pretty easy to then go back and input the comparable parameters for any subsequent schematic design or variation and compare the costs. So, for example, if one design is based on more square footage on a lower level and less on upper levels compared to a design that is spread more equally among floors, the relative difference in cost can probably be identified. Or if a similar building was constructed in one city and the current project is in a different one, the difference between costs in the two locations might be revealed so the design can be adjusted accordingly (i.e., perhaps make it bigger or smaller). This is probably the most fundamental way that good cost data can drive design, but recognize that the margin of accuracy is broad at this stage, probably on the order of a plus or minus 20 percent variation compared to where the final cost may end up. Nonetheless, it can certainly help make sure that the project cost is in the right ballpark and let the design team know if it needs to be careful of costs or are in a comfortable position. It can also be very useful for the comparative analysis of different designs since the relative differences can be identified.

Design Development

Once a design concept is agreed upon, it is time to start getting more specific about how it will be built. The design development phase is the time when fundamental choices get made to select the structural system, type of building enclosures (wall systems, roof assemblies, openings, etc.), type of mechanical system, and basic parameters of plumbing and electrical systems. Once identified, each of these building systems or assemblies can be the subject of a specific cost estimate. Once again, if there is a concern about staying within budget, variations on different systems can be identified and compared to determine if there is any significant difference in cost between them or not. This might also be the time to address questions regarding the cost of a high-performance building. For example, if there is a desire to achieve a highly energy-efficient building or even a net-zero design, having good cost information at this stage can inform designers and the owner as to whether or not those goals can be achieved within budget. This would require generating a full cost estimate for the whole building to see if items that may cost more (i.e., insulation and solar panels) are offset by items that may cost less (i.e., smaller HVAC systems). In this way a truly informed design can be developed without simply guessing or hoping that design goals can be achieved. The available level of detail means that accuracy of a systems-based cost estimate can now increase to plus or minus 15 percent of expected final cost.

Construction Documents

Here is where all of the final specifications and details are generated so there are no longer any assumptions needed. Rather, a very specific unit-based pricing can be undertaken to generate a full final cost estimate. Specific quantity takeoffs of materials and products can be identified, corresponding labor crews and time can be associated with each, and any equipment needs identified. This can also be the time to assess and tweak anything in response to any changing market conditions before releasing the project to bid. As such, it provides a good bar to assess quotes and prices received to determine how competitive different companies might be and who to negotiate and finalize a contract with. Construction estimates at this stage can be very detailed with a reasonable expectation that they are within 10 percent of actual cost. In fact, very experienced and skilled estimators can routinely achieve accuracy within 5 percent of final costs and often take professional pride in doing so.

Construction Phase

Once a project has moved into construction, it doesn’t necessarily mean that there is no longer a need for cost estimating. While everyone prefers to avoid them, change orders do happen. Having a reliable cost estimate already in place can allow the assessment of a change to happen readily. It can also reveal any other aspects of the construction that might be affected, such that not only might an additional cost be identified, but a credit back to the owner might be justified as well. This allows for a double check on the prices being submitted for change orders and helps assure that all parties are being treated fairly during construction.

Throughout the entire design and construction process, then, properly used independent cost data and estimating processes provide real, informative value to a project. Using data to drive design decisions all along the way allows for adjustments to be made in a timely manner and helps assure that different variations can be tried to remain within budget.

Value Engineering

A reliable and credible cost-estimating process is a necessary prerequisite to undertaking any efforts to compare and control costs. The term “value engineering” is often used to describe the process of doing such comparisons with the intention of not only staying within budget but also truly getting the best value for the building owner. This term was first used during World War II by an employee of General Electric (GE) named Lawrence Miles. Tasked with finding materials in extreme shortages during the war, he needed to get creative and resourceful to still meet the needs of GE customers. Accordingly, he felt forced to evaluate alternative materials that could still meet the performance requirements of the materials they would have normally use in their production. In so doing, he created a standard method to compare, contrast, and assess materials and determine their suitability.

The term “value engineering” is often used to describe the process of doing cost comparisons with the intention of not only staying within budget but also truly getting the best value for the building owner.

Value engineering often gets proposed when a budget is found to be exceeded at any point in a design and construction process. In this case, there are commonly two alternatives. First, the project team and the building owner can agree that the extra cost is warranted, and the budget can then be increased accordingly. This might be true if something changed or was added to the original scope of the project or a new design or performance requirement was introduced. If this route is not an option, then the second alternative is to enter into the value-engineering process. In essence, that means finding ways to make design adjustments that still meet project goals while allowing for better value, thus returning to an in-budget condition. It is worth noting that value engineering does not need to be limited to first costs of construction only but can take into account the longer-term operational and maintenance costs where that is important to the owner. In that way, a truly informed decision-making process can be undertaken that doesn’t simply protect the construction budget while causing operational headaches later on.

The earlier in the process that value engineering is performed, the greater the potential savings.