Planning your project costs
Broadly, the cost plan should contain:
- an estimate of the cost of the works, reflective of the undertaken
- appropriate contingencies and risk allowances (again reflective of the current specificity of project scope)
- other costs, which could include elements such as:
- specific allowances for TAFE procured equipment that is not part of the contractor’s scope but is required for the project
- enabling works (or other non-main works packages) to allow the contractor to commence (or generally complete) the main works
- project management allowances, and
- related project costs (such as land acquisition if required)
- other relevant fees, and
A contingency is an allocation of money set aside in case of a possible, yet uncertain, future event or events.
Contingency should be established and managed in accordance with the delegations and approvals determined as part of . The total contingency allowance will change over the life of the project, generally decreasing as the specificity of project scope increases, and is likely to include:
- design contingency
- construction contingency, and
- project-specific risk allowance.
You may also include some identified specific project contingencies for any particular areas of significant uncertainty or risk that warrant a separate project budget management allocation.
Design contingency is an allocation of money set aside for unexpected costs during the design development stage. Design contingencies should be determined based on project-specific requirements.
Design contingency should decrease as the level of design increases and should disappear entirely at the conclusion of design development.
A construction contingency is an amount of money set aside to cover any unexpected costs that may arise during the project delivery phase.
The level of construction contingency is likely to be higher for refurbishment works than new works, as there are a larger number of unknown factors. A minimum construction contingency would normally be approximately 5% of the construction budget.
A risk allowance is the total sum of money set aside to cover specific risks, identified in the project’s risk register, which may arise on the project. Each risk will need to be costed, taking into account the relevant risk’s likelihood of occurrence and potential consequence. To help quantity these risks and depending on the project's complexity, you may wish to engage a .
Depending on the project, these additional risk items may include existing services or structural capacity, demolition, external work and special site-related costs (e.g. asbestos or soil contamination). Best practice guidance on risk quantification can be found within the . Guidance on is available.
Whilst not a form of contingency, tender options may provide project budget flexibility by asking tenderers to price specific non-essential components of the construction works separately. the Office of TAFE Coordination and Delivery (OTCD) recommends that tender documents are constructed with a base tender plus tender options equivalent to 10% of the construction budget component. These tender options could include items such as landscaping, interior fit-out, and certain material options which are not essential to the functionality of the building but may be considered for inclusion if competitively priced. You can then choose to accept or reject the inclusion of these options depending on whether they fall within the project budget. This strategy may assist you in achieving outcomes and assist in negotiations with . Prices received at tender are likely to be more competitive, providing best value-for-money, than those received during post-tender negotiations or during the construction process.
At the , high-level analysis of options is undertaken using indicative pricing (amongst other criteria), which helps to provide a cost ranking of various options. The main purpose of cost planning at this stage is to provide decision-makers with the information necessary to decide on whether to move forward with a certain high-level strategic solution option.
Typically, during master planning and early concept design development, cost estimates serve to initially assess project feasibility. These cost estimates are prepared when little or no design information is available and often rely on benchmarked cost and program data from similar precedent projects.
At this phase, cost plan accuracy is low as there is limited design information and is typically -50% to +50% accuracy.
The OTCD typically referred to this estimate as cost plan A.
The cost plan progresses the feasibility study. While more detail is available at this level of design, compared with the master planning phase, the cost plan is still based on limited design and scope information, often prepared within a very limited amount of time and with relatively little effort expended.
Cost plan accuracy at the pre-concept and concept design levels are typically -25% to +50% and -10% to +35% respectively.
The OTCD also typically refers to this cost plan estimate as cost plan A (noting in some instances industry may refer to this as cost plan B).
Cost plan accuracy at this level is typically -10% to +25% / 30% and may include a cost element breakdown with approximate quantities at component or work item level with priced unit rates.
The OTCD typically refers to this estimate as cost plan B (noting industry may sometimes refer to this as a cost plan C).
At this level, cost plan accuracy typically varies from -10% to +20% up to -5% to +10% and will likely include a refined cost element breakdown.
The OTCD typically refers to this estimate as cost plan C.
This level of cost estimate is often a first-principles estimate and requires accurate knowledge of the direct costs of resources (i.e. plant, labour, materials and subcontractor prices) as well as indirect costs (i.e. site preliminaries and overheads). This level of cost estimate involves the greatest level of detail and requires significant effort to prepare and is normally only undertaken for the most critical areas of the project. All items in the estimate are usually costed on a per unit basis from actual design quantities.
The OTCD typically refers to this estimate as cost plan D.
At this level, cost plan accuracy is typically -5% to +5% and may include firm bills of quantities in accordance with the method of measurement priced using unit rates.
Cost planning throughout the project lifecycle
The level of detail contained within the cost plan should increase as you progress from developing an initial case for investment through to delivery of the construction works.
For , section 3.2 Cost Accuracy of the Department of Treasury and Finance (DTF) outlines best practice expectations for successfully delivering the project on budget. It provides broad guidance on the types of cost estimates, including the level of cost accuracy expected by DTF for the preliminary business case and full business case stages of the project.
The HVHR cost accuracy guidelines can be used as best practice guidance for all project classifications.
During the , you will need to develop a cost plan which will form the basis for the amount of internally or externally funding sought. For , the cost plan may be a relatively simple benchmarking process.
Given the limited design and scope information available at this phase, the level of detail required for the cost estimate is typically either cost plan A or B.
The Department of Treasury and Finance’s (DTF) section 3.2 Cost Accuracy, outlines best practice expectations for successfully delivering a project on budget, and provides broad guidance on which types of cost estimates and the level of cost accuracy DTF expects at preliminary business case and full business case stages.
Cost plans are not typically included in the , however, you may wish to include the costing of some items where it may be difficult for tenderers to provide an accurate estimate. All tenderers will include these as identical allowances against the specific items. Your OTCD representative can help advise when this may be appropriate during consideration of a go-to-market strategy.
The Department of Treasury and Finance’s (DTF) section 3.2 Cost Accuracy, outlines best practice expectations for successfully delivering a project on budget, and provides broad guidance on which types of cost estimates and the level of cost accuracy DTF expects at a project’s procurement stage.
Effective cost management during the aims to ensure value for money is achieved and that the project is delivered within the approved budget. To ensure value for money, you should establish cost management processes to monitor project costs and provide an early warning of potential financial problems.
Reviewed 05 July 2023