VIEW: UNDERSTANDING TRUE COST

March 04 2020

The construction industry has got itself into a routine where lowest price wins – the “so called” race to the bottom. Often, this lowest price ends up being the highest final price as the implications of the decision comes back around. What do we need to do to break this cycle and understand the true meaning of cost?

Understanding cost should be a straightforward process – but it isn’t. We frequently find ourselves unable to compare apples with apples but that doesn’t stop us trying, and in many cases, taking the path of least resistance i.e. the cheapest. Products are looked at in isolation and compared like-for-like – the problem is they are not the same. There are many products and systems perceived to be expensive, but offer considerable savings (in terms of cost, time & risk). As such, the wider view of the cost saving – both direct and indirect – over the duration of the installation needs to be taken into consideration.

This is compounded where the solution spans different trades – where benefits are gained by the main contractors as the build goes on rather than limited to one package of works or budget.

To understand true cost requires an ability to understand the entire build programme and the willingness to analyse the knock-on effect of the decision. The other option is to rely on suppliers who can apply the genuine principles of value engineering – to provide a solution where value and economy are improved through the creation of alternate design concepts, materials and methods without compromising the functional and value objectives of the client.

However, here comes the next challenge – for many, value engineering is a process of cost cutting to find a cheaper way of doing something, and with that we are back to lowest cost wins. This is wrong – value engineering is about true value through a process of design and evaluation.

At the end of last year, Dame Judith Hackitt, author of ‘Building a Safer Future: Independent Review of Building Regulations and Fire Safety’ addressed an audience at the annual CABE (Chartered Association of Building Engineers) conference. She spoke about the need for a joined-up regulatory process that went hand-in-hand with a tougher regulatory reform regime with real penalties and sanctions for those who didn’t conform. However she ended her speech claiming the phrase ‘value engineering’ should be driven out of construction, saying that it was a phrase she would be ‘happy to never hear again’ and adding that ‘It is anything but value. It is cutting costs and quality.’

Value engineering at present if is focused on price not the process of analysis and finding a better way of doing something, a way that doesn’t compromise quality, performance of safety. This is where trusted supply chain partners can help.

Specialist suppliers will be able to add value by providing advice, guidance and knowledge. In the case of risers for example, Ambar Kelly has conducted in-depth modelling to demonstrate cost benefits of different solutions to enable fair comparisons. These models – which have compared scaffolding V grp V modular prefabricated deck units (such as RiserSafe) – show that whilst RiserSafe is more expensive at the outset it provides considerable cost savings over the duration of the build. The cost savings are achieved through eliminating the need for installing temporary works, moving and adjusting scaffolding, adding and removing temporary doors and other such processes. And this is where we find the crux of the issue. All too often these processes are not taking into consideration when comparing products. It is easy to overlook the costs associated with these works when you simply look at the initial unit price. But these additional costs add up and can make a massive difference.

To put this into context on a modelled building, a modular approach could offer a time saving of around 50% and a cost saving of around 25% when compared to GRP and 50% when compared to scaffolding. Depending on the size of the building, this could mean savings of tens of thousands of pounds.

At a time when cost is critical, we need to understand that there is more to cost than a basic price. This has been reiterated by Keith Waller, the new Programme Director of the Construction Innovation Hub – an organisation government has charged with transforming the industry. In a recent interview with Building Magazine, he warned that contractors who are living on 0.5% margin are running businesses that are not investible and that margins should be closer to 5%. Where does this extra margin come from? By delivering projects more efficiently and for less, profits can be ploughed back into making firms and processes more efficient, echoing a call made by the Construction Leadership Council (CLC).

The construction process is complex, and we need to stop opting for the lowest price without properly analysing the build process and thinking of long-term savings. Suppliers such as Ambar Kelly can provide the evidence to show that by specifying solutions such as RiserSafe it is possible to save time, money and build safely – this is the true cost.