Cost certainty

For clients and contractors in the construction industry, cost certainty is one of the most important performance criteria. It has a direct impact on resources.

Cost certainty is the likelihood that before a project, or part of a project starts, it will be completed within the agreed budget. Cost certainty is affected by time certainty which is the likelihood that a project, or part of a project, will be completed within the agreed time period agreed.

Construction clients often hold these two concepts as their top priorities as delays and cost overruns can be disastrous. It is for this reason that clients will tend to hold a contingency fund to deal with unforeseen eventualities.

For contractors, it may mean lower than expected profits as a result of:

• Increases in overheads.
• Hiring more operatives.
• Longer plant-hire periods.
• Storage of materials costs.
• Delayed payments from the client.

Some factors that cause delays and cost overruns may not be the contractor's fault:

• Clients making changes.
• Unforeseen ground conditions.
• Delays in material or equipment supplies.
• Inclement weather.
• Labour disputes.
• Changes in market conditions.

However, a 1996 study by the Construction Industry Board (CIB) revealed that cost and time certainty is more often than not under the contractor’s control, resulting from:

• Poor management.
• The contractors’ inability to predict and control the time needed to complete a project.
• Inaccurate material estimating.
• Poor productivity.
• Inadequate planning.
• Poor site management.

Clients will tend to have more confidence in contractors who have a solid record of reliability when it comes to cost certainty and so are likely to rate highly.

Cost certainty tends to improve as a project progresses, as some of the works are complete, and so their actual cost is known, and some risks may have been avoided or mitigated. It is for this reason that the client may reduce the amount they hold as contingency as the project proceeds.

[edit] Related articles on Designing Buildings Wiki

• Budget.
• Capital costs.
• Construction costs.
• Construction price and cost indices.
• Cost-benefit analysis in construction.
• Cost control.
• Cost engineering.
• Cost information.
• Cost of building.
• Cost overruns.
• Cost plans.
• Cost vs price.
• Front-loaded costs.
• Estimate.
• Hard costs v soft costs.
• Irrelevant cost.
• Life cycle assessment.
• New Rules of Measurement.
• Operational costs.
• Other development/project costs.
• Quantity surveyor / Cost consultant.
• Relevant cost.
• Whole life cost.