The text presented here is not precisely as published by OUP, but modifications are minor. Illustrations are another matter. Where images used in the original book were not my copyright, I have in most cases been able to substitute links to coloured images on the web.
When this text was submitted as part of a PhD thesis in 1996, the Notes were greatly extended. Most readers may prefer to ignore them. They have been collected at the end of each chapter, with internal links leading to them and back to the text. They are a mixture of: simple page references; additional examples or quotations to justify generalisations; and some afterthoughts.
Introduction.
The idea of providing good value for money is central to the philosophy of the engineer. It is surprising therefore that so little attention is paid to elementary economic analysis in conventional undergraduate courses. To quote Armstrong again: "It is customary to classify economics and engineering as separate disciplines. Such a distinction is ill-founded and a great handicap to the effective practice of decision analysis." (1979, p.259.)
Fortunately, there are a considerable number of very readable texts on this topic, although they do relate mainly to buildings. They also provide a great deal of background information on topics such as sources of finance, accounting methods and legal matters, which are not of direct concern to the structural designer but are very useful if he is to understand what the other members of the design team are talking about. Examples of these are listed in the notes. [Note 1.]
There are also regular articles on costs and the effect of various parameters in specialist periodicals while government departments and professional bodies such as the Institute of Chartered Surveyors (U.K.) and the American Society of Cost Engineers also conduct investigations and publish information concerning trends in prices. [Note 2.]
The increasing size and complexity of projects, both public and private, demands greater care than ever in financial planning. The result, as we have already seen, is that quantity surveyors, cost engineers, accountants, economists and legal experts are being called into the decision-making process at an early stage along with architects and specialist consultants such as the structural engineer. Griffin speaks of the 'economic design' proceeding hand-in-hand with the 'physical design'. As he points out, the traditional system whereby the client specifies his needs, the architect supplies an envelope for these needs, and the engineer works out how to support it, often results in the architect becoming hedged-in in the later phases of design by misguided initial decisions. This may eventually cause much additional work. The final result may cause damage to the architect's reputation because of progressive economies, such as the substitution of inferior quality finishes in order to keep within the budget as the project nears completion. [Note 3.]
Exactly the same point applies to the structural engineer and his work. Early planning may determine what constraints are placed upon his freedom of choice of structural form and material. It is therefore essential that he understand the effects of financial planning and desirable that he contribute to it. Such early involvement is most easily achieved within the large integrated firm but is also possible within the professional-consultant framework, as is illustrated by the development of the project manager and the number of people offering their services as 'space programmers', 'space planners', 'cost consultants' and 'building system consultants'.
To understand the pressures which those supplying the finance impose upon the design team, it is necessary to understand the pressures which are in turn imposed upon them. In this regard there is a difference between the public sector and the private sector, or more accurately, as Ferry suggests, between the profit and non-profit sectors, since some private organizations such as churches and charities do not aim to make a profit while governments often demand that public organizations or individual projects should do so. (Ferry, 1972, p.118.)
The major differences with regard to planning thus lie in the manner in which priorities are established for the allocation of limited resources between competing needs, and in the means of assessing the value derived from an investment, the two being largely inter-related. A great deal has been written on the philosophy of value, but it can be broadly stated that in the private sector this is measured by profitability while in the public sector an attempt is made to include the less tangible benefits of a project to the general public. [Note 4.]
Simple financial analysis of capital versus costs-in-use.
A major consideration in deciding between alternatives is striking the correct balance between capital and running costs. Many people, not only engineers, place too much emphasis on initial cost and neglect maintenance and operating costs. These cannot simply be added to initial cost because the required outlay will take place in the future, and so one does not have to borrow money immediately. The comparison of two schemes which are identical except that one has low initial cost and high maintenance, while the other has high initial cost and low maintenance is a complex process, but the basic concept of the 'time value' of money is introduced below.
The basic idea is that because capital is continually earning interest, $100 in 1980 does not have the same value as $100 in 1990. This has nothing to do with inflation which is being omitted from consideration for the time being. It is based on the fact that if the $100 had been invested in 1980 at say 6 per cent interest paid annually, by 1990 it would have been worth 100 x (1.06)10 = $179. Conversely, an outlay of $179 to be made in 1990 would have a value of only $100 in 1980 terms. Thus an expected outlay of $100 in 1990 would count for only $100/1.79 = $55.84 in 1980. The process is known as 'discounting' and the value obtained, when referred to the present, is known as 'present value'.
The validity of this concept depends on two assumptions; firstly that it would in fact be possible to invest the money at the same rate in an alternative, equally sound venture; and secondly, that the money would in fact be so invested, rather than spent in any other way. These assumptions may be true when applied to industry as a whole, but do not necessarily apply to any particular person or company.
If one accepts this idea there are a number of ways of applying it to financial planning. The simplest text book approach is to compute net returns (income from rents, etc., minus interest, premium payments and running costs) for each year over the expected life of the venture, and reduce all these to their present value. The returns are then summed to give a total return in terms of present value which can be sensibly compared with the amount of capital which must be invested now. Thus the attractiveness of the proposition can be assessed, usually as some sort of return as a percentage of total capital or of equity capital belonging solely to the developer.
The concept may also be applied to compare the benefits of alternative schemes, particularly when they have differing ratios of capital investment to maintenance costs. [Note 5.] Consider a project for which two alternative designs have been prepared. Scheme A requires an initial outlay of $8000 and will require maintenance at a cost of $1000 after 15 years of service and a further $1000 after 25 years. Scheme B is initially more expensive, requiring an outlay of $9000, but it requires no maintenance.
At first sight Scheme A appears to be more expensive since the total cost, ignoring the time value of money, amounts to $10,000. However, if the developer pays $8000 for Scheme A, and puts aside $315 at 8 per cent interest to provide him with $1000 in 15 years time, and a further $146 to provide him with $1000 in 25 years, his total outlay will be only $8461. Thus the present value of Scheme A is considered to be less than that of B, regardless of what provision the developer actually makes for future maintenance. The concept may also be used to determine the optimum size of a single project, say a multi-storey building to provide the maximum return on investment. The consideration of maintenance costs is still often neglected and most writers on the subject make a plea for a more logical approach to decisions between alternatives. Two practical cases in which present value analysis was reported are mentioned in the Notes.
Financial planning in the private sector is considered by some to be simple and accurate because there is only one criterion: profit. If one looks at text-book methods of accounting this certainly appears to be the case. In practice there are considerable difficulties in obtaining reliable predictions.
Many authorities on the subject consider that inflation does not greatly affect the results of a time-value analysis. However Elliott (1978) points out that if the costs of labour and materials inflate at different rates the balance between capital and maintenance may be considerably affected because maintenance is more labour-intensive than construction. Goodacre (1978) also states that it is dangerous to assume that inflation will have the same impact on costs as on revenues. Despite this he considers that the errors involved in this assumption are less than would be caused by making an incorrect guess as to future rates of inflation.
Another major problem lies in choosing the figure to be used for the interest or 'discount' rate. Armstrong points out that from 1969 to 1978 the British government used a rate of 10% for the appraisal of nationalized industries, but that this was later halved. [Note 6.]
Ferry and Brandon (1980) look in detail into the problem of estimating cost-in-use and list ten complicating factors which make estimates of running costs either unreliable or irrelevant. [Note 7.] These include future sale of the property, (or in the case of government, transfer to another department) and shortened life due to changes in fashion or developments in commerce or technology. Capital provisions made at the inception of a project commit future users, whereas on-going maintenance processes can be varied to suit unforeseen developments. He points out that if a businessman in 1990 finds he must outlay $179 it is little comfort to know that somebody else back in 1980 discounted this to $100, unless the latter also established a sinking fund to provide for it. The cost of maintenance "is pure guess" and interest rates and taxation provisions can hardly be forecast over long periods. Ferry also provides an example of cost comparisons which shows how sensitive such calculations are to the estimation of interest rates and 'cost-in-use'.
In recent years interest and inflation rates have been particularly volatile and the economic life of projects more difficult to predict. Supporters of the 'High-Tech' concept of the flexible factory (Chapter 10) point out that rigidly planned portal-frame factories in the U.K. are being demolished 15 years after construction because they are unsuitable for the changed needs of the owners. Elliott also raises the moral questions involved in a decision which reduces present capital cost but commits future generations to high maintenance costs.
On the income side, the picture is no better. The market analyst may study demographic trends, movements in commerce and industry and likely trends in government policy. All the same he is involved in little more than crystal-ball gazing when he attempts to forecast future rates of rental and profitability of enterprises. Thus the income side of the calculation is probably even less reliable than the cost side. Of course, the developer himself is not without political means for influencing matters during the life of the venture, but we are concerned here only with the problem of the professionals who must advise on the initial decision whether or not to proceed. It is obvious that the alleged simplicity of decision-making in the profit sector is something of a myth, particularly when one takes into account the effects on income of prestige locations, appearance of buildings and other intangibles which must in reality be brought into consideration. Profit is the difference between two large quantities (income minus expenditure) and as engineers well know, in arithmetic of this nature the result tends to be unreliable. (See also Ferry 1972, p.140.)
A more complex method of financial planning is to look at the cash flows for each separate year rather than to total the present value. The reason for using this approach is that it allows the application of subjective intelligence to the many variables which are inherent in the apparently simple process of discounting. It is however much more expensive than a simple analysis, and is more dependent on the skill of the analyst.
Thus there remains a considerable element of risk in financial planning and there are techniques for 'risk analysis' which determine the risk of a project becoming unprofitable due to unfavourable discount rates or the failure of anticipated benefits.
Some engineers (along with many clients and accountants) are not at all convinced that traditional accounting methods give believable results. At a London conference on corrosion, fears were expressed that economists, on the basis of their calculations, would pressurize engineers to provide for much shorter design lives than those presently adopted for public utilities. [Note 8.] Speakers preferred to compare the current replacement value of assets with current annual maintenance bills to obtain a more 'realistic' picture.
Special techniques in the non-profit sector.
In the non-profit sector, the difficulties in making objective planning decisions are even more severe. Many projects, such as libraries, schools and bridges, earn no identifiable income, and when they are financed out of taxes the only brakes on expenditure are the reluctance of the taxpayer to contribute towards general taxation, and competition from other sectional interests for the limited funds available. The pressures both in favour of the provision of services and against the expenditure of unlimited funds must thus come through rather tenuous channels involving politicians and public administrators. Until recently, the individual taxpayer could only exercize restraint by means of indignant letters to politicians and newspapers, and the average individual was in no position to know whether any particular project was being executed competently or not, since he lacked the expertise and professional advice of the private developer. In recent decades this situation has been modified by the development of pressure groups which often include or employ professional experts, and the introduction of laws relating to freedom of information.
Neverthless, the taxpayer is still highly dependent on the social orientation and professional competence of public administrators. From the latters' viewpoint the problem is threefold: first a department or local authority must decide what priority to give to the various projects felt to be needed in its jurisdiction; secondly, it may be required to approach the Treasury or central government and persuade it of the virtue of these proposals; thirdly it must ensure that the approved projects are completed as far as possible within the estimates. In the first two phases, politics both within the organization and outside are bound to play a large part. Interesting and readable accounts of the workings of phase two are given by Heclo and Wildavsky (1974), and Baker, Michaels and Preston (1975).
Despite its drawbacks, the technique of discounted cash flow analysis is pressed into service to assist in the appraisal stage. However, in recent times the principles of 'cost-benefit' analysis have been developed in an effort to increase the quantification of outlay and return and to systematize the assessment of less tangible factors. Broadly speaking the idea is to look much further for the impacts of a project than is necessary or appropriate in the non-profit sector and to ascribe money values to factors which would not be relevant to the calculations of a private investor. In considering whether the construction of a particular bridge were justified, the analyst might count the benefit occurring due to the reduction in travelling time for people who would be able to use the bridge as a short cut. This would include not only the reduction in charges for goods, which could be calculated on the basis of existing market rates per tonne-km for commercial freight, but an allowance for the less tangible time-saving for the average person based on some estimate of the value of their time. The situation is thus quite different from the private case where the developer might intend to charge a toll. His estimate would proceed somewhat along the same lines as he worked out what advantage the business community and the public would see in the shortened lines of communication, and from this he would estimate what level of toll they would be willing to pay. However, he would be much more conservative than the government cost-benefit analyst in ascribing a value to the time of, say, an old-age pensioner. [Note 9.]
Cost-benefit analysis has major disadvantages. It consumes a great deal of time and money, and there is disagreement between its proponents about what factors can reasonably be valued, and what relative weighting should be given to them. Because of the expense and time involved it has been mainly confined to very large projects such as irrigation schemes, airports and transportation systems. One example where it was used specifically for a single structure is the Tay Road Bridge in Scotland. [Note 9 again.] Disagreement over the extent of valuation is diminishing and it is now recognized, as indeed it should be for all accounting techniques, that the calculations can only assist and not replace the intelligent appraisal of subjective factors.
In order to reduce the vagaries of operating in the public arena many government departments use 'yardsticks' or 'cost limits'. These are standard unit costs which in their simplest form might relate to the cost per bed in a hospital or cost per student in a school. These are usually based on an analysis of past experience. Once they have been established the design team is expected to produce the best possible amenity within the costs allowed. This is a good idea in that it (artificially) creates a more immediate goal for the team and presents a real challenge. Cost limits are usually combined with specifications of the quality of the amenity to be provided within the limit. In its simplest form this might be the number of square metres of floor space to be allowed for every child in a school or for each patient in a hospital. A more complex method is to specify activities which must be possible within the space to be provided, or the environmental conditions required.
Obviously, it is important for planners to ensure that, as economic conditions and expectations change, the designer has a real chance of being able to meet the requirements within the limits. There was a period in the U.K. when yardsticks were allowed to remain constant while building costs rose, creating an impossible situation for the designers. The system also produces some distortions: for instance it favours solutions with low capital and high maintenance costs and it takes no account of the high design costs which may be incurred in achieving a small reduction in capital cost. [Note 10.]
Difficulties in predicting construction costs.
The problems of financial planning are further complicated by difficulties which arise in the basic task of attempting to forecast the cost of construction. In the early stages of planning it is necessary to use very approximate figures. These normally relate to the average cost of a particular type of building or bridge per unit area of useable floor or deck. Obviously the method produces errors because of the variability of site conditions and functional requirements, and changes in the economic climate.
When the design of the structure has been finalized it is usual to calculate the required quantities of individual items such as concrete, reinforcement, formwork, rolled steel sections, brickwork and so on, and to apply a typical unit cost to each of these to obtain an estimate of total cost. Even at this stage it is still difficult to predict cost exactly, both for the design team and for the contractor who is to build the structure. All predictions for the future must be obtained by looking at past experience and trying to project forwards on the basis of this knowledge. Predicting the future is always difficult, but there are even problems in interpreting what has gone on in the past. [Note 11.]
Costs recorded by the contractor for his own use will have been broken down into similar units, for instance the cost of brick walls per square metre. This will have been done on the basis of time sheets filled in by foremen and the allocation of overheads by costing clerks. However, it is impossible to make allowances for all the variations between different situations. A large number of small walls will produce a unit cost per square metre larger than that for a big wall because of the time spent moving men and equipment from one location to another in the first case. Thus even the man who is closest to the business of construction has considerable difficulty in forecasting the cost of a new job. (See e.g. Ferry 1972, pp. 109-11.)
For the design team the problems are compounded. Their detailed information comes mainly from unit prices submitted by contractors for 'Bill of Quantities' type contracts, in which the costs are broken down in the manner described above. However, the contractor must include in his unit rates an allowance for overheads and profit, and he is unlikely to add this uniformly to all items. A common practice is to weight the unit price of items which are completed early in the contract so that the early progress payments are greater. There may be separate items for concrete in foundations and concrete in superstructure beams and columns to allow for the greater complexity of placing the latter. This would allow the contractor to weight the first item so that the burden of interest payment is thrown more onto the client.
Also, it is well known that the cost per tonne of steel erected as trusses is much higher than that of steel erected in the form of beams and columns, due to the greater amount of labour per unit weight required for their fabrication. Unless the client provides separate items in the Bill of Quantities to distinguish between these two, the real costs of each will become lost in a common unit price whose position between the two extremes will depend on the relative proportions of the different types of construction. One might ask why the estimators do not request the contractors to provide more detailed information. The reason is that contractors are very jealous of this information because they are in a competitive situation. In fact, most clients guarantee not to divulge to third parties the unit rates quoted in tender documents.
A further complicating factor which may have much to do with the desire for secrecy is that quoted prices are often related to the financial circumstances of the bidder. In a depressed climate a contractor may tender a price which barely covers his costs so that he can keep his work force and plant together. It is also reasonably common for a contractor to bid low if he thinks a particular contract will bring special prestige or publicity or keep him in the eye of administrators responsible for drawing up lists of 'approved tenderers' (see e.g. Ferry 1972, pp. 26, 27.)
On the other hand, if the contractor is well stretched during a boom period he may find an additional contract an embarrassment owing to the difficulty of finding skilled workers and management personnel. He may then enter a tender for the political reasons mentioned above but bid high, so that if he does happen to win the contract he will have some recompense for the extra effort involved. Steyert (1972) provides several examples where planning decisions were based on estimates which proved to be up to 50 per cent low because of variations in economic conditions (in Foxhall 1975, pp.183-7.) Package deal companies and government departments which maintain their own construction organizations are able to avoid some of these problems because they can build up their own records of past costs.
An important effect of the uncertainty of costing is that contractors tend to be very wary of unfamiliar forms of construction. [Note 12.] This hinders the introduction of innovations in structural engineering. At the time when large scale precast concrete construction was developing in the U.K. bids for cladding panels on a tower block varied by a factor of four. Yet another effect, due this time to dependence on past unit prices, is that measures taken during design to reduce costs by saving labour at the expense of a slight increase in the use of material, may appear to be counter-productive when the Bill of Quantities is added up. This is because the estimators have not realized what the designer has done, and have applied prevailing unit costs to the increased quantity of material instead of revising their unit costs downward.
It is only when contractors realize that a particular designer consistently makes life easier for them that they will begin to quote lower unit prices for his designs. It will take a long time for this to occur, if indeed it ever does. This places yet another brake on innovation.
The application of cost information.
Despite the inaccuracy of the information available it is necessary, as so often happens in engineering, to make the best possible decisions with the imperfect techniques and data available. Cost estimation is best done by individuals who specialize in this area and are thus continually learning by comparing actual costs (so far as even they can be ascertained) with their original estimates, and are continually monitoring changes in efficiency and economic conditions.
The people who are concerned with this process may be quantity surveyors, economists, accountants or cost engineers, the latter having gravitated to this area within an engineering organization. The quantity surveyor is an independent professional, much of whose training and duties are directed towards the process of financial planning and estimating at the design stage. According to Collier (1974) the profession developed as a result of "the withdrawal of British architects and their counterparts from a real working involvement in construction economics". [Note 13.] The nearest American equivalents are the 'contract manager' and the 'cost engineer'. Collier states that whereas the quantity surveyor is, like the architect, an agent of the owner of a project, the American cost engineer generally advises the builder.
In economic and engineering design the cost consultant oversees the efforts of the design team to produce a concept which will meet the aspirations of the owner with regard to profitability in the profit sector or social objectives in the non-profit sector. Two approaches to this task are commonly identified. In the first, 'elemental' or 'target' cost planning, the owner has basically decided what amount he is prepared to invest or spend and the design team produces the best scheme that it can within the budget. In the second, comparative cost planning, the owner defines the standards of amenity that he wishes to obtain. The project is then divided into sections and the design team prepares alternative schemes to an advanced stage of design for each of these, thus offering a range of possible decisions. Although the owner will have some upper limit of total cost in mind, the sum to be spent is not fixed in advance. (For a more detailed treatment of elemental and comparative cost planning see e.g. Bathurst and Butler 1973, Chapter 16.)
At this stage the design team will be guided by fairly generalized cost information. In the case of common types of projects such as schools, office blocks, apartments, factory buildings and bridges, it is possible to develop approximate rules to indicate the most efficient spacing of columns, and the mot economic thickness of floor systems in typical circumstances. It is also possible to develop an idea of the sensitivity of total building cost to variations in these parameters so that if a client thinks long-span column-free space will increase the attractiveness of his building to tenants, it is possible to give him a rough idea of what he will have to pay for this advantage, so that he can work out whether he will gain or lose. These also enable the designer in his search for the optimum solution to examine the influence on total cost of variables such as floor depth, which are too detailed to enter into the client's initial calculations.
Although they are helpful, such rules are, of course, subject to the same inaccuracies as unit costs due to variations in the nature of projects and in local economic conditions. Information of this nature for buildings is provided by Seeley, Ferry and Foster (1976). The only type of civil engineering structure for which such information is readily available is the bridge. [Note 14.]
For less repetitive structures it is usual to make an intelligent guess (based on experience) to arrive at a small number of likely alternatives. The design of these is then taken to a stage at which elemental quantities can be taken off, so that the most economical one can be chosen. It is important to remember however that this is an expensive process, because design and costing are being carried forward for several structures instead of just one. The number of alternatives considered is therefore usually small. Pure cost is, of course, never the only criterion. Appearance and speed of construction, availability of materials, and experience of likely tenderers may all influence the final choice.
The importance of speed of construction.
One of the major effects of economic considerations on the engineer is the pressure for speedy construction. This may often be reflected in design decisions. For the private-enterprise developer the construction period is a particularly critical time. His long-term finance is usually acquired on a mortgage basis with the building as surety against the loan. However, while the work is in progress all the developer owns is a hole in the ground and in order to pay the contractor he is forced to find interim capital from lenders willing to take a higher short-term risk. For this he must pay a higher interest. In addition, he earns nothing until the project is commissioned. Griffin demonstrates the effect on his finances of a reduction in construction time from two years to eighteen months (Figure 4.1). The amount of equity capital saved is represented approximately by the shaded portion of the graph (about $13,000). Speed of construction is therefore of great concern to the private developer and he may be willing to pay for a construction system which has a higher capital cost but faster construction time if his calculations justify it. This is one of the major arguments put forward in favour of steel frames for multi-storey buildings in competition with in-situ reinforced concrete.
Fig. 4.1. The effect of speed of construction on total project cost. The area enclosed by this graph represents total project cost. Increasing the speed of construction increases the positive area and decreases the negative area.
Mahaffey (1977) quoted the following figures as typical of multi- storey construction in a major Australian city.
| Cost of acquiring site (2500m2) | A$ 4,500,000 |
| Cost of building with lettable area, 20,000m² | A$ 7,600,000 |
| Total capital cost | A$12,100,000 |
| Interest rate 11% | |
| Interest charges on land | A$ 495,000 per annum |
| Interest charges and fees on building | A$ 557,000 per annum |
| Rates, taxes, insurance, etc. | A$ 22,000 per annum |
| Total charges | $1,074,000 per annum |
| = $21,000 per week | |
| Contractors administration charges | A$ 10,000 per week |
| Total charges | A$ 31,000 per week |
Thus if construction took place over eight months, the construction charges would amount to approximately one million dollars, which is significant in proportion to the twelve million for land and building.
The high cost of construction time should be kept in mind during detailed design. An excessive concern for, say, minimizing the quantity of reinforcing steel may result in a wide range of shapes and sizes of bar resulting in high cost in cutting and bending, and delays in installation. [Note 15.]
Another major effect of this pressure is to telescope the planning process. [Note 16.] The traditional method for small to medium projects is to complete the physical design down to the last detail so that binding contract documents (specifications and drawings) can be sent out for tender. It has always been necessary on large projects, such as power stations to cut this process short. One method is to ask contractors to tender on incomplete drawings; for instance to omit the reinforcement from concrete drawings so that the contractor inserts a price per unit weight for reinforcement based on his past experience of the complexity and quantities involved in that type of construction. Detailed design and drawing then proceeds while, or even after, tenders are let. Nowadays, this concept is being applied to smaller projects.
Another method is to split the building into reasonably independent stages such as foundations, basement, superstructure, roof and cladding. The process of design, specification, tendering and construction is applied to each stage separately, and in staggered sequence, so that construction of the foundations may be well in hand while detailed design of the roof is commencing. The drawback of this concept is that early decisions on foundations commit the designers to achieving presumed performance levels with the superstructure and roof and we have already seen the problems which arose in the Sydney Opera House because of this very approach. Great care is required in 'interfacing' the various stages both physically and contractually. However, design of shopping centres and office blocks is reasonably predictable and the technique may be applied with great success. As usual, it is a matter of making an intelligent subjective assessment of each particular situation.
Paradoxically, as Ferry points out, the situation in the public sector with regard to speed of construction, may be exactly the reverse of that in the profit sector. A local education authority might be embarrassed by the early completion of a school building since it would then come under pressure to shoulder the burden of staffing and maintenance earlier than planned.
Conclusion.
The preceding discussion has focussed mainly on buildings because this is the area which is most discussed and in which the information is easiest to obtain. This is because the proportion of the nation's wealth spent on building is very large and because government and service organizations tend to research and publish the economic facts in this sphere.
Small design organizations which do not have sufficient records of their own can make use of commercially produced lists of average current unit prices or those published by trade and professional journals. [Note 17.] However, Seeley points out that these are based on broad averages and, though useful for making cost comparisons between alternative proposals, should not be used for forecasting the cost of a particular structure. [Note 18.]
In the heavier engineering areas (e.g. power stations, bridges, mine frames, bunkers and silos) consultants, government organizations and in-house design teams tend to keep their information to themselves. However, the same basic principles apply, the major difference being that the engineer is usually in a more central position in the decision-making process.
To sum up, the major effects that economic considerations may have on the engineer are:
- early decisions made by others may force him to work inefficiently within an unrealistically tight budget;
- there is a strong pressure for speedy construction, especially in the private sector;
- financial studies are essential to make intelligent choices between alternatives having different capital and maintenance costs;
- the engineer should be represented in this early stage of planning, to ensure that engineering factors are properly taken into account.
The effect of unit costs of material and of complete systems, such as cladding and floors should always be in the designer's mind. In multi-storey buildings, an increase in floor depth, while it may reduce the cost of floor beams, will result in extra cladding and extra height in the building which will thus collect greater wind loads. Thus the overall result may be an increase in total cost. In the midst of this it is necessary to remember the difficulties which estimators face in preparing realistic forecasts, and the expense involved in detailed analysis.
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[Contents.] [References.]
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Notes.
Note 1. Many more texts on building economics must have been published since 1984. Those consulted for this chapter included: Bathurst and Butler (1973); Croome and Sherratt (1977); Ferry and Brandon (1980); Grimm (1976); Halperin (1974); Inst. Civ. Engrs. (1969); Kurtz (1975); Newman (1976); O'Brien (1976); Pilcher (1973); Seeley (1976); Steyert (1972); Griffin (1972). [Return.]
Note 2. Examples identified in 1984 included:
For the UK:
Royal Institution of Chartered Surveyors (U.K.), e.g. Wilderness Cost of Building Study Group, 1964, and others; also their Building Cost Information Service.
Building Research Station (U.K.), e.g. Factory Studies No. 12, H.M.S.O. 1962.
Department of the Environment (U.K.).
Baxter and Osborne Indices (U.K.). [See regular reports in the New Civil Engineer, e.g. 25/3/76, p. 16.] Spon's Architect's and Builder's Price Book, Spon London (annual)
For Australia:
Spon's Architect's and Builder's Price Book for Australia, Hicks Smith, Sydney.
Cordell's Building Cost Book and Estimating Guide, Cordell Newton, Melbourne (quarterly).
For the USA:
Building Research Institute, Washington. Building Construction Cost Data, Robert Snow Means, Duxburg, Mass. (annual)
Engelsman's Cost Guide. Van Rostran Reinhold, New York. [Return.]
Note 3. The arguments for early involvement of all partners in the design process are set out in Griffin (1972), Chaps. 1, 2 and 6 especially pp. 2, 84, 85. [Return.]
Note 4. See e.g. Hutton and Devonald (1973) or Bennie,F.G. 'The philosophy of value in building design and use', in Croome and Sherratt (1977), Chap. 1. [Return.]
Note 5. Consideration (during design) of the balance of capital versus maintenance costs is reported in the following randomly-selected examples:
Ridgway, C. 'Car Park gives Cor-Ten Urban Acceptability', New Civil Engineer, 9/12/76, pp. 28-29.
Geiger, D.H. 'Largest and Lightest Fabric Roof to Date', Civ. Engg. ASCE, Vol, 45, No. 11, Nov. 1975, p. 82. [Return.]
Note 6. Armstrong (1979), p.255. See also Institution of Civil Engineers (1969), Chapter 4, and Ferry (1972) on 'costs in use', Chapter 15. [Return.]
Note 7. See Ferry (1972), pp.169, 170. See also Institution of Civil Engineers (1969), Chapter 1 and Steyert (1972), p.38 et seq. [Return.]
Note 8. New Civil Engineer 1 March 1979, p.17. [Return.]
Note 9. For a brief resume of cost benefit analysis, see Ferry (1972) p.121 or Newton (1972), especially p.91.
For practical examples of cost benefit analysis see, for example:
Gillhespy, N.R. The Tay Road Bridge: A Case Study. Scottish Jour. of Political Economy, June 1968, pp. 167-183.
Ministry of Transport. Proposals for a Fixed Channel Link, Cmnd. 2137, H.M.S.O. 1963.
Watson, A.H. The Channel Tunnel: Investment Approach. Public Administration, Spring, 1967. [Return.]
Note 10. For a discussion of the drawbacks of yardsticks, see Ferry (1972), pp.2 and 109-11, and Steyert (1972), pp.4, 6. For a list of the factors which may influence the figure used as a yardstick see Ferry pp.30-32. [Return.]
Note 11. In the late 1960s, a Melbourne consulting engineer prepared two designs for a plate girder. One employed riveted construction and the other welded construction. To ensure that he specified the more economical alternative in his drawings he telephoned four fabricators to obtain approximate quotations. The highest proved to be twice the lowest, and two fabricators indicated that the riveted alternative would be cheapest, while the other two recommended the welded version. [Return.]
Note 12. See Morris (1978), p.126, Engineering News Record 28 Sept. 1978, p.14, and New Civil Engineer 26 May 1977 pp. 20, 21 (target cost).
The Bradford Sports Centre in England was originally conceived with a suspended cable roof supported from two masts and peripheral inclined arches. The design team had allowed an estimated £200 000 for the construction of the roof by a specialist subcontractor, but the bids turned out to be much higher than this. The client, the Bradford District Council, decided that it could not afford the extra expense, and the designers evolved an alternative roof system based on tubular steel lattice girders using the same supports. New Civil Engineer 10 March 1977, pp. 30-1. [Return.]
Note 13. Collier (1974) pp. 269, 270. The professional organization in the USA is the AACE (American Association of Cost Engineers). [Return.]
Note 14. See e.g. Woolley,M.V. Economic road bridge design n concrete for the medium span range 15m - 45m. Structural Engineer 52, 4 (April) 1974 and Elliott,P. Can steel bridges become more competitive? BCSA Conference on steel bridges, London 1968, 199-210. [Return.]
Note 15. A Sydney consulting engineer, Mr Jolyon Nove, provided the following example (private communication). In reinforced concrete construction for regional shopping centres he uses only standard bar lengths (to avoid cutting), a minimum of bends in bars, a minimum of changes in bar spacing. By these means he achieves a highly simplified reinforcement pattern, but at an increase in the weight of steel used of between 200 and 300 per cent. However, the increased tender cost of the reinforcement (alone), based on reduced unit costs because of simplicity, is only 60% higher than usual. Assuming the reinforcement to represent one quarter of the cost of the structure, and the structure one quarter of the cost of the building, the increase in terms of overall cost is only 2.7 cents per square metre. This was negligible when compared with the resulting savings in interest to both client and contractor due to the decreased construction time. [Return.]
Note 16. See Engineering News Record 5 April 1979, pp. 24-5 for a typical example of 'fast track' programming. See also Griffin (1972) pp. 22-4, and 88. [Return.]
Note 17. See note above for sources of unit cost data. See also Croome and Sherratt (1977), p.143 and Steyert in Foxhall (1975) pp. 190-1. [Return.]
Note 18. Seeley (1972) pp. 170-1. See also Steyert in Foxhall (1975) pp. 175-80. [Return.]
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