How to Prepare a Construction Cost Plan
A Construction Cost Plan is a crucial document that outlines the estimated costs associated with a construction project from inception to completion. It provides a structured breakdown of expenses, ensuring financial control, risk management, and efficient resource allocation.
For Quantity Surveyors (QS), project managers, and developers, a well-prepared cost plan is essential to avoid budget overruns, improve cost certainty, and ensure project viability. This guide explains the step-by-step process of preparing a construction cost plan, from initial budgeting to final cost control.
What is a Construction Cost Plan?
A Construction Cost Plan is a financial roadmap that details projected costs for a construction project, covering all elements such as materials, labour, equipment, overheads, contingencies, and profit margins.
It helps project stakeholders:
• Set realistic budgets based on design specifications and market conditions.
• Monitor costs throughout the project lifecycle.
• Identify financial risks and allocate contingency funds.
• Optimise resource allocation to maintain cost efficiency.
Step-by-Step Guide to Preparing a Construction Cost Plan
1. Define Project Scope and Objectives
Before developing a cost plan, it is essential to clearly outline the project scope, including:
• Project type (residential, commercial, infrastructure).
• Size and complexity (number of storeys, structural design, services).
• Sustainability requirements (net-zero carbon, energy-efficient materials).
• Client budget constraints and funding sources.
A well-defined scope ensures cost estimates align with project requirements.
2. Gather Project Information and Data
A cost plan is only as accurate as the data it is based on. Essential information includes:
• Architectural drawings and specifications – Floor plans, elevations, and construction details.
• Engineering reports – Structural, mechanical, and electrical designs.
• Site conditions – Soil reports, accessibility, environmental constraints.
• Historical cost data – Past project costs for benchmarking.
• Current market rates – Material and labour costs from suppliers and contractors.
Using Building Information Modelling (BIM) can improve data accuracy by integrating cost estimates with real-time project models.
3. Select an Appropriate Cost Planning Method
Different cost planning techniques can be used depending on the project stage and complexity:
A. Elemental Cost Planning
• Breaks down costs into functional elements such as foundations, superstructure, finishes, services, and external works.
• Allows comparison of cost allocations across different design options.
• Commonly used by Quantity Surveyors and cost consultants.
B. Approximate Estimating
• Uses cost per square metre or cost per unit (e.g., per apartment or office space).
• Suitable for early-stage feasibility studies.
C. Resource-Based Estimating
• Calculates costs based on labour, material, and equipment rates.
• Provides a detailed breakdown for contractors and procurement teams.
D. BIM-Based 5D Cost Estimating
• Uses BIM models to generate real-time cost estimates linked to design changes.
• Improves cost accuracy by integrating quantities and pricing dynamically.
4. Develop an Initial Cost Estimate
Based on the selected methodology, create an initial cost estimate including:
A. Preliminaries
• Site setup, temporary works, project management fees.
• Health and safety measures, insurance, legal fees.
B. Construction Costs
• Material costs (concrete, steel, bricks, timber, finishes).
• Labour costs (skilled workers, subcontractors, project management staff).
• Equipment hire and transportation costs.
C. Contingency Allowances
• Typically 5–10% of total costs to cover unforeseen risks.
• Higher for complex projects with significant uncertainties.
D. Professional Fees and Overheads
• Architectural, engineering, and legal fees.
• Contractor overheads and profit margins.
E. Inflation and Market Adjustments
• Factor in expected inflation rates based on industry trends.
• Adjust for fluctuations in material and labour costs.
5. Allocate Costs to Project Phases
Divide the total cost estimate into project phases to track expenditure over time:
• Pre-Construction Phase – Design, feasibility studies, planning approvals.
• Construction Phase – Labour, materials, site works, services installation.
• Post-Construction Phase – Commissioning, inspections, handover, defect liability period.
Cost phasing ensures better cash flow management and financial planning.
6. Compare Costs Against Budget and Adjust Accordingly
Once the preliminary cost estimate is prepared, compare it to the available budget:
• If costs exceed the budget – Identify areas for value engineering (e.g., alternative materials, design modifications).
• If costs are within the budget – Validate cost assumptions and assess risk allowances.
Value engineering should not compromise quality or project objectives but should aim to optimise costs while maintaining functionality.
7. Monitor and Update the Cost Plan Throughout the Project
A construction cost plan is not static—it should be reviewed and updated regularly to reflect:
• Design changes impacting materials and labour costs.
• Market fluctuations in material and equipment prices.
• Unforeseen site conditions requiring additional work.
Using cost management software such as CostX, Primavera P6, or ProEst helps track costs in real-time and adjust budgets accordingly.
Example of a Simple Construction Cost Plan Breakdown
Project: 10-Unit Residential Development
- Preliminaries: £100,000
- Site Preparation and Foundations: £250,000
- Superstructure (Walls, Roof, Frame): £600,000
- External and Internal Finishes: £500,000
- Mechanical & Electrical Services: £400,000
- External Works (Landscaping, Roads): £150,000
- Contingency (10%): £200,000
- Professional Fees & Overheads: £200,000
- Total Estimated Project Cost: £2,400,000
Common Mistakes to Avoid in Cost Planning
• Underestimating Contingencies – Unexpected costs can quickly derail a budget. Always allocate contingency funds.
• Ignoring Inflation and Market Trends – Prices fluctuate, and failing to adjust for inflation can lead to cost overruns.
• Overlooking Lifecycle Costs – Consider not just construction costs but also maintenance and operational costs.
• Lack of Regular Cost Reviews – Failing to update the cost plan as the project progresses can result in financial surprises.
• Poor Communication Among Stakeholders – Ensure cost plans are shared with designers, engineers, and contractors to align expectations.
Frequently Asked Questions
What is the difference between a cost plan and a cost estimate?
A cost estimate is a single-point prediction of project costs, whereas a cost plan is an ongoing financial strategy that tracks and updates costs throughout the project lifecycle.
How often should a cost plan be updated?
A cost plan should be reviewed at every project milestone—design changes, procurement stages, contract awards, and construction progress.
What software is best for construction cost planning?
Popular options include CostX, Primavera P6, ProEst, Sage Estimating, and BIM-based estimating tools.
Why is contingency important in a cost plan?
Contingencies protect against unexpected costs, design changes, and market fluctuations, ensuring financial stability.
How does BIM improve cost planning?
BIM integrates real-time cost data with design models, enabling more accurate estimating and scenario analysis for cost control.
By implementing effective cost planning, construction professionals can enhance financial predictability, minimise cost overruns, and deliver successful projects.
Conclusion
A Construction Cost Plan is a fundamental tool for ensuring a project stays within budget and meets financial objectives. By following a structured approach—defining scope, selecting an estimating method, allocating costs, and continuously monitoring expenditures—construction professionals can maintain cost control and reduce financial risks.
With advancements in BIM, AI-driven cost analysis, and real-time data tracking, cost planning is becoming more precise and proactive. A well-prepared cost plan not only improves project financial management but also enhances decision-making and overall project success.
Contact us today to get professional and accurate help with your project. Let‘s help you build with confidence and clarity!
