Building Economics, Research Paper Example

Introduction

Given that a developer who is my client wants to purchase a development site in Manchester, U.K., to build a four-story Grade A office Complex, the client needs a more environmentally friendly building cost which can substantially motivate them to build on the same quoted cost. With a well-finding investigation on the building site and coming up with a clear way to ensure the project would be deliverables, the client would be certified. As a contractor, there’s a need to be observant of the analysis of the project’s risks to make it successful based on the client cost of construction and the impact the threats pose to the project’s viability. Also, to make the project cost appreciated by the client, it would be necessary to appreciate the number of issues being assessed before the beginning of the project and the criteria performance for each. Considering costs and benefits clearly shows that particular circumstances of a new building and client preference for a project will significantly impact the costs. In addition, it is clear that based on the variability of the site condition, building type, system design, and end usage, a detailed assessment of the overall cost premium would be highly problematic. Consequently, the outcome of this paper will show the significance of value management and value engineering by indicating cost premiums and potential benefits as they might apply to this project.

Notable Risks to successful project and Impact of the said Risks on Project’s Viability

In construction, risks are experienced most of the time, and management of these risks in construction projects, as one of my clients, is full of restrictions that can affect the project effectiveness and impact project success in the long run. Therefore, given that my client wants to develop a four-story Grade A office complex within Manchester, there’s various risk in terms of successful project delivery will be experienced. As a contractor working to make the project successful, you are tasked to recognize and assess the potential hazards that can lead to constraints, assumptions, and even possible adverse outcomes. In critical assumption, it is evident that any small deviation from the project value will automatically damage the project worthiness. And for that reason, it is good for the contractor to research constraints and opportunities that would make the project successful. Based on the project, it is significant that the Grade A office complex faces different risks such as financial, accidents, and operational risks based on the assessment of the project (Doloi 2012, 326).). Also, it is worth noting that the construction of this project also risks the results from economic intensity, which may change, distinct environment, and duration of the project. Therefore, although the project might face risk at the construction level, it is significant that good research into opportunities that the project would create in the region will make the developer look into legal and planning aspects that are well evolved for the project’s success. Consequently, as a contractor, you have to produce a robust development appraisal by ensuring that the project under construction will maximize profit and demonstrate that a healthy margin can be maintained. For that case, to make your project accurate and devoid of risks, you will need quality information that will compile everything needed to achieve project success.

In addition, it is notable that this project would face different kinds of risks based on the stage of construction. Below is the analysis of significant risks in each stage and how these risks could impact the project’s viability.

The Initial Stage Risks

Construction projects carry some levels of risk, and because of that, it is significant to identify and manage these risks. For instance, the project faces threats such as labor shortage and productivity issues at an initial stage. The construction’s key issue is inappropriate methods for selecting a professional team and omissions of errors when developing a client’s project brief. In addition, the project faces economic and financial sabotage, including inflation and funding. Also, the project faces contractual relations risks related to the contractor’s difficulty accessing licenses and permits to continue with the work project (Doloi 2012, p. 320). Finally, the project may face risks of late changes made by stakeholders and the possibility of the landowner refusing to sell the property at the last stage.

In addition, the project can face risks of restriction by government bureaucracy such as U.K. construction industry regulation as the body is mandated to make sure that the construction of the project is safe and professional. This can be a risk to the contractor because of the project timeline in which he would want to finish the project (Smith 2016, p.125). Furthermore, after the authority mandated with construction in the region has evaluated the project, it would escalate the targeted construction cost of $2,800/m2, thus increasing the cost of construction. Therefore, from this stage to the next, there would be a new uncertainty dimension added cost of construction to complete the project.

The Planning Phase Risks

At this stage, you need to calculate the end value or revenue for the completed project using Gross development Value. Without being well-advised to comparable source data on recent property on construction and rental transactions in asset location, it is significant that it would be a risk in future revenue generation. From the viability appraisal for development, it is clear that if contractors don’t take time to seek advice based on the knowledge of the locale, they would be at risk on GDV. At the end of the project, the developer wants to get the maximum asset purchase price based on the equation GDV- Development Cost-profit Maximum asset purchase price (Tworek and Myrczek 2017, p. 419).). Consequently, at this stage, the project can face the risk of the cost of material inflation. And this could be attributed due to a lack of precise information construction and inaccurate estimate leading to deviation from the targeted cost of construction of $2,800/m2.

The Execution Phase Risks

As the project progress and more information become available to the contractor, the total risk typically reduces to enable the contractor to perform the activity without a loss. However, given that the project is based on the viability appraisal, the risks such as delayed payment and negotiations would bring changes in finance rate per annum as the contractor would have to either increase or reduce the expenditure value. In addition, social risks such as corruption and labor issues could also affect the project’s viability by increasing the cost of building from 50 percent and developers’ profit. In the current time in the U.K., social risks have been frequent; thus, they could lead to delay in completing the project.

Health Risk

The UK-based construction workforce has been recently affected by healthy risks for employees, and due to this factor, the project viability would be affected (Akintoye and MacLeod 1997, p. 34). Most of the construction sites in the U.K. are vulnerable to infectious disease, and due to that, the value of development would be more than the targeted cost of construction of $2,800/m2. Also, the risks of the COVID-19 pandemic, which led to a restriction on gathering people, would make the contractor employ few people, which would make the project take more time than the planned one of three years. In addition, due to the minimal workforce due to COVID-19 protocols, the building cost would be more, reducing developers’ profit. Consequently, the employee risks shut down of the project in case the employees fail to comply with safety procedure set out by Manchester local government.

External Risk Factors

The U.K. is affected by both societal and political risks, which leads to employee strikes; thus, the leading project is not completed on time. Furthermore, other risks like environmental pressure from the bodies tasked with compliance make the contractor spend more than the targeted cost of construction as without doing that, the project will be stopped (Adeleke, Bahaudin and Ali 2019, p. 932). In addition, the project faces external risks like political interference and economic instability, which impact the financial rate expenditure as it has to make the project finish on time.

Cultural Risks

In this stage, the risk faced by the project can be the religious difference among communities in the area where the project is taking place, and due to that risk, the project viability would be affected (Rostami and Oduoza 2017, p. 1). For instance, if the culture differs from the contractor’s, it would lead to the project report on a high void period to the property as no one would want to stay in it. Also, the culture of protests in the area would lead to low rental income given that more rooms will be left unoccupied, thus making developers register low profit from the project.

Process that could ensure the Project is Delivered Within the Budget and Achieve proposed Rental Income

To make the project successful, it is important to keep records and procedures to make it an essential tool that managers and employees can use. With the tools and process records, you will know all financial transactions, something vital to the manager given that it helps to identify risks and progress made in the project. In most cases, the construction project faces different challenges related to risks, monitoring, accounting for the cost value, and resource utilization. Due to all these challenges, it is significant to have a process that ensures that the project is carried out within the allocated budget to achieve the proposed rental income. Additionally, the project control process is meant to identify the risk that brings deviation in the project and plan how to curb those risks. To minimize the project’s challenges, it would be good to save during the design and planning phases. But doing changes after the project’s flagship would lead to a delay in completion of construction, resulting in high costs. Therefore, the project control process is mainly concerned with fulfilling the original design plans and minimizing deviation that can occur from the schedule.

Forecasting as a Cost Control Measure

Forecasting is a more significant process in ensuring that the contract remains within the client’s approved budget planning and controlling the building costs throughout until the project is completed. To deliver a project based on the budget, you need to ensure there’s effective pre-contract control which provides that deliverables are established at the beginning of the project and in order of importance (Dator 2010, p.393). With forecasting, the contractor would build the project based on available information and take it in a consecutive stage. Also, this process through pre-contract cost ensures that the project starts with budget development through an order of cost estimate and controlled by cost plans that allocate limits on various elements, thus making the managers ensure mutual understanding between the client and design team (Cunningham 2015, p.4). With the pre-contract cost control method, the manager can deliver the project based on the client’s budget without experiencing any risk.

Cost Accounting

Cost planning has to be done at this level by the cost consultant manager to investigate fiscal feasibility early in a proposed project. By doing this, the developer would analyze if the project is feasible within their time and budget constraints. In addition, with the information on cost analysis, the manager would be able to utilize accounting information when reporting to a government official and the project owner (Derban, Binner, and Mullineux 2005, p.321). Finally, with the cost analysis, the contractor would accurately identify where the project uses money and resources, making it easier for the client to know if the money is well spent. Therefore, to complete construction successfully, there’s a need for a cost consultant to come up with a cost analysis that breaks the expenditure down into categories like labor, supplies, and materials.

Collaboration

Collaboration within construction projects is a vital thing given that it increases the way of finishing the project on time and within budget. In addition, it makes sure that the manager delivers quality products to the developer (Smith 2016, p.126). To make the project cost-effective, collaboration should begin at the first stage so that major plays on a project such as a client, engineers, general contractor, and cost consultant are brought on board for better decision making and better design of budget used in the project. Therefore, reasonable collaborative measures will result in project delivery on time, leading to saving on construction costs.

Monitoring Team Progress and Making Relevant Adjustments

During project execution, construction plans and associated cash flow estimates are used as the baseline in guiding team progress. For instance, the expenses incurred during the course of the project are recorded in specific job cost accounts to be compared with original cost estimates in each category. Through this comparison that involves teamwork, the management and client would be able to adjust the basic unit for cost control. Therefore, by monitoring the team’s progress and making adjustments, the client and management will ensure the project is on track and will meet the target of cost construction, which is $2,800/m2.

Budgeting for Projects with Work Execution Platforms

In order to deliver the project on time under the targeted cost of construction, there’s a need for budgeting for the project. With work execution that involves management and cost consultants, they would monitor cost as highlighted in the budget from the start of construction. The cost consultant, in this case, will help the construct and management in preparing cost plans, estimates, and cash flow projections that would allow work to be executed (Derban, Binner and Mullineux 2005, p.321). Through the involvement of a Cost consultant, it will be easier to alleviate the project manager’s need to calculate budgets and coordinates project participants.

Utilizing Automated Reporting System

The control and tracking of construction projects depend significantly on the accuracy and time required to complete the project. Given the changes in the dynamic of construction, all parties need to be involved in a project to keep it apprised of issues that can affect the cost, performance of work, and schedule (Oberlender 2014, p.5). The contractor will require a cost plan that is generally prepared by the cost consultant to estimate construction cost and have a planning cost of finishing the project. In addition, with the information of project cost analysis, the manager will monitor the cost utilized in the project and other activities.

Scheduling Control

Apart from the cost mentioned above control measures, it would be necessary for the project manager to adopt schedule control measures like that would help ensure the project’s construction is delivered within the budgeted amount and achieves the developer’s proposed rental income (Šimí?ková Buganová, and Mošková 2021, p.1439). In addition, the construction has to involve meeting the deadline of work completion and make the contractual base their work on an agreement that makes project managers focus their attention on planned schedules. Furthermore, as discussed on the risk part, any construction delay will lead to additional costs; thus, forecasting on completion time for certain activities is mandatory for the project.

Budget Updates

Planning the project and scheduling is a continuous task that ensures the project is delivered within the budget. Given that changes can occur within the project more so between the intended plan and project realization, the cost estimates and schedule should be modified as needed (Laryea and Hughes 2011, p.33). This would then need the cost consultant to be involved so that to advise on the new plan; by doing that, it will be helpful to project on the strategy to manage budget and utilize resources available. In addition, given that the project is meant to give the developer profit, the manager should prioritize coordinating construction scheduling and design a way to fast-track the activities to finish the project on time. Also, given that the main aim of constructing this project is for rental income, it will be essential to do some marketing research to avoid making a mistake in pricing your rental. With good research on the market, the developer would achieve his proposed rental income from the property.

Use of Value Management and Value Engineering Methods

The V.M. refers to the process of delivering some benefits to a client. It combines planning tools and methods used to find the optimum balance of project benefits concerning its cost and risks. V.M. is most of the time used in planning, developing, and assessing projects to make the right decision about optimizing the balance of risks, cost, and benefit. On the other side, VE is simply a method that your team can employ to improve the project’s value by examining each item’s function and its associated cost (Tetteh and Chan, 2019, p. 2). The VE allows the manager to weigh the cost and benefit ratio to enable the cost to consultant and other team members to make suggestions for alternate construction design, method, and material that can improve the value of the project. In addition, V.M. is done based on a team-based approach to define the client objective and ensure the best value. Therefore, it is mainly carried out from the early stage of the project and not when the problem occurs. However, in a more systematic approach, the VE ensures that a specific function is satisfied to the required standard and at the least cost. In addition, the techniques used in conducting V.M. include scenarios techniques and SMART methodology, while VE conducts techniques that are substitution of materials and methods with less expensive alternatives.

Aids in Understanding Construction Problems

The VE and V.M. are vital in understanding construction problems because they benefit the project client and the asset owner. For instance, the two helps in reducing the cost of the project by focusing specifically on the functional requirement of the project and help the manager consider what alternative approach can be adopted to make the project successful (Ellis, Wood, and Keel 2005, p. 483). Therefore, these techniques will be used in the project of the client in the U.K. so that to build construction projects in a specified cost-effective way.

Helps Identify Feasible Solutions

Looking at the V.M. and VE when applied into use can help the contractor and manager to solve the risk by designing a particular structure by consulting a cost consultant in brief as that will make the solutions made are subjective to the project (Torp, Thodesen, and Klakegg 2016, p.1179). In addition, they help ensure clarity of the project brief by enhancing communication among the client, cost consultant, and manager to mitigate clashes that result from constraints regarding project requirements.

Further Developing the Shortlisted Solutions

Also, the two value functionally provides further developing shortlisted solutions based on design development which involves close study and engineering of material selection that enhance technical solutions with improved performance and quality of the project. For example, the constructor of the project can choose to go steel frame instead of precast which would fulfill the same solution but with better value for money (Šimí?ková Buganová, and Mošková 2021, p.1437). However, it is not enough to use resources in solution analysis, but surveyors will contribute when extra funding is needed.

Techniques Used in V.M. and VE Methods

To make the project successful and profitable to the developer, the manager and cost consultant must adopt V.M. and VE techniques: functional analysis, cost, and SMART methodology (Torp, Thodesen, and Klakegg 2016, p.1180). In addition, by having appropriate risk management intervention and optimized procurement strategies, they will ensure that the value of the project is maintained throughout. Therefore, techniques used in the two values bring additional gain to a project as it creates value for construction parties, clients, and projects.

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