Backcosting: enhancing the accuracy of estimation

Have you ever encountered a project where the estimated cost differed from the actual cost to build?  Thought so.  There are a multitude of reasons why this can occur, and many are out of the control of the best quantity surveyors and smoothest construction process.

Despite this, there is much to learn from reviewing actual costs.  That's why backcosting is one of the tools we use to improve the accuracy of our estimation.  Backcosting is collection of the actual cost to build a specific project and analysis of these results against the project's estimates or tenders.  Such analysis of construction costs contributes to the ongoing quality of the rates we use for estimates and continuously enhances estimation precision.

Backcosting can also be used to highlight market trends.  For example, at Kwanto one of the ways we analyse cost is by gross floor area (GFA) for different project types.  These 'ball park' figures can provide insights into fluctuations in the market.  Jim Gordon, in our office, recently presented a GFA analysis to the team.  The analysis was based on the backcosting data collected from projects that Kwanto provided services during 2017.  This snapshot showed that the average GFA cost for a new, residential, single-dwelling build was $3,941/m² and a residential, single-dwelling re-clad was $2,090/m².  These results indicate that the days of $2,000 - $2,500/m² are long gone and using that range may not be reliable. Our analysis also highlights that a number of factors may contribute to rate increases including market activity (demand outstripping supply), costs related to the changes in health and safety, subcontractor driven market extending durations of projects and changes imposed by consenting authorities.

The elevated 'per square metre rate' may also be a result of our residential sample being architecturally designed, 'top end' builds.  A more diverse sample of residential builds may bring costs back somewhat and our hunch is that the default cost per square metre is likely to sit closer to $3,200/m², roughly 1.5 times what it used to be.  So, there is more work to do to back this up and our backcosting analysis will continue to help us make sense of market trends and inform our estimates.



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