Cost Certainty in the Development Process

THE COST CHALLENGE

 

We spoke to David Ledger, specialist in construction feasibility and project management at Arc Consulting Partners about projects he has worked on recently. These include spa developments in London and Budapest, where he supervised project management and hotel schemes where he also managed cost control.

 

With so many variables, how do you identify realistic costings in complex development projects?

We aim to provide the nearest we can to cost certainty. When preparing development feasibility cost plans and further refined costs we divide the project into levels of certainty.

 

 

Can you provide an example?

In London we reviewed the initial costs for converting a commercial office into a branded hotel. This posed a number of challenges as the layout and structure of an office block doesn’t always fit well with the needs of a more complex building such as a hotel where service lifts and other elements – for example, bathrooms and food and beverage areas - need to be included. The entire scheme must adapt to these needs.

 

Any others?

We recently looked at a spa scheme for an international developer who owns and operates spas. The trend in spas nowadays is to include a good level of dry and wet areas and here we had the additional challenge of having to develop the spa in site which included areas below ground and having no certainty of basic utilities being available at the outset.

 

How do you go about identifying the various elements?

At the embryonic stage of the scheme we can estimate and provide accurate cost feedback and risk analysis to inform the developer/funder/owner. This is from a detailed site assessment, past experience and reviewing plans and designs.

 

How can you categorise - or risk assess - cost certainty and uncertainty?

Cost certainty is related to the ‘knowns’. These include brand standards for fit out and building services, communication requirements, fire protection, vertical transportation and fixtures fittings and equipment. Many of these items are well ‘specced’ and relatively easy to cost.

 

Uncertainty is where the risks lie. We have to assess what the impact is of ‘imposing’ the brand standards on the existing building fabric. This can mean assessing a range of issues such as:

 

 

Dependent on the age of the building, there may be a cost associated with upgrading the building fabric to comply with building regulations.

 

From this assessment and carrying out an analysis we can provide at inception the project cost certainty and cost risks in graph form to the client.

 

This provides the owners with a degree of certainty from an investment point of view and identifies where the professional construction and development team will need to focus attention in eradicating the risk.

 

This approach has been taken in a range of projects we have been involved in that include the five star St James Taj hotel in London, an assessment of a branded hotel in the Midlands and two hotels in Budapest and Barcelona.

 

David Ledger, specialist in construction feasibility and project management at Arc Consulting Partners, has worked and managed projects across a broad range of development types and sectors, including projects in the UK, Spain, France, United Arab Emirates, Indonesia and the Caribbean.