Login to access the BCIS online service.
LoginPublished: 04/11/2024
From HS2 to complex projects such the restoration of Elizabeth Tower, the construction industry has an unfortunate reputation for cost overruns against the initial budget. Indeed, there’s evidence this is relatively normal for the sector – KPMG’s global research shows that 69% of projects exceed their original budget by more than 10%.
These cost overruns result from problems with the budget or the delivery, or both. The contributing factors are:
Some of these can be avoided by the proper use of benchmarking data at the earliest stage of the project definition. By basing estimates at strategic briefing using historical data, construction teams can better anticipate potential issues and keep costs under control.
While no single tool can eliminate every financial complication, benchmarking offers a structured approach that helps construction professionals define the initial budget, identify risks, manage costs, deliver projects on time, and ultimately achieve better financial outcomes. Here, we explore the key principles and benefits of benchmarking in construction.
A foundational concept in benchmarking is the approach of ‘designing to a cost’ rather than ‘costing a design.’ Known as ‘should cost’ analysis, this method involves setting a clear budget at the outset, designing the project within that constraint. In contrast, the ‘would cost’ method that determines costs after the design is created, often results in unwelcome financial surprises.
By employing benchmarking, project leaders can establish target costs early and ensure design choices are aligned with the budget. This approach continues through the project’s lifecycle, as the cost plan is adjusted to reflect design changes, helping to prevent scope creep and avoid uncontrolled cost increases.
Benchmarking empowers clients to challenge costs presented to them, and make better-informed decisions, based on cost verification. The risk is that many clients often rely heavily on external consultants for cost estimates and lack their own body of knowledge. Clients should invest in data management to create internal benchmarks, alongside data drawn from a central repository that’s been gathered from similar projects. This will help to enable more accurate estimates, maintain control and reduce the need to depend entirely on consultants. This approach allows stakeholders to make more confident decisions, backed by solid, comparable data.
From a client’s perspective, collecting data on their projects helps to promote better budgeting and cost control on future projects. It can record performance data, as well as cost and carbon, so that the client can see what worked well and what didn’t.
It’s also important to collect and record data at the appropriate level of analysis for re-use, especially to identify and anticipate potential cost drivers. For example, the costs of specialist work on the Elizabeth Tower will be invaluable for future stages of the refurbishment of the Palace of Westminster but only if it has been recorded and stored in a systematic fashion.
Building a risk register that develops with the design will allow a budget envelope sufficient enough to complete the construction. It will avoid delays while changes occur, which in times of high inflation can be very costly.
Effective benchmarking requires a comprehensive elemental cost plan before the design phase even begins. This involves breaking the project into key elements – such as substructure (foundations), structure, services, finishes, etc. – and comparing the anticipated costs for each element to industry benchmarks. This will also help communication between the client and design team. It will also help control costs throughout the project’s evolution, ensuring they don’t escalate unnecessarily as the design progresses.
This elemental benchmarking approach can also be applied to life cycle cost and carbon plans, which are, increasingly, being asked for by local authorities and other clients across the country. A recent survey by the construction consultancy firm RLB found 33% of contractors are being asked by clients to provide whole life carbon assessments on schemes; a substantial increase from last year’s 14%. As well as investigating which materials are the most cost efficient, it’s also possible to assess which are the most durable, lightweight, energy-efficient and easy to maintain; these are some of the most common qualities required for low-carbon buildings. This process will become easier as the industry continues to gather more carbon data and garner more insights from it.
Benchmarking promotes continuous improvement by helping teams to compare actual costs against their initial estimates. This creates a feedback loop that helps refine cost benchmarks over time, leading to more efficient project delivery.
In addition, benchmarking is not just an internal tool; it fosters collaboration within the industry. Although companies have some quite legitimate concerns about sharing their data – for example, the fear of being compared unfavourably to other companies – our industry can only do better if we share our data with each other.
If we increase the amount of data we have, we can continue to improve the performance of our projects – in terms of ensuring their efficiency and lowering carbon impact in the built environment. For companies that remain cautious about sharing data, it’s now possible to submit it anonymously through pan-industry initiatives, such as the Built Environment Carbon Database (BECD), to overcome this challenge.
Benchmarking also encourages collaboration and greater connectivity between contractors, clients, and the supply chain throughout all phases of the project. By sharing data and best practices, stakeholders can work together to find innovative solutions to common problems.
In recent years, we’ve seen construction materials costs reach unprecedented peaks. A benchmarking system can help with adjusting estimates in line with inflation. This ensures they can build better contingency plans, ensuring that there is financial flexibility to deal with unforeseen cost increases; specifically in material and labour costs. This reduces the need for reactive budgeting adjustments and helps keep the project on track financially. In particular, linking contracts to relevant construction cost indices helps to forecast possible cost increases and mitigate the risk of inflation.
Benchmarking is a fundamental practice that can offer a structured approach to managing costs and controlling project outcomes. Focusing on ‘should cost’ rather than ‘would cost’ helps to ensure cost certainty and encourages a more collaborative approach throughout the supply chain that helps to avoid exceeding budget; while forecasting challenges that could cause an increase in costs, such as labour shortages or inflationary pressures.
The use of benchmarking data in construction is essential for more reliable cost estimation, better project management, and more informed decision-making. By relying on benchmarking, clients, contractors, and insurers can feel more empowered to take control of their projects and avoid cost overruns.
To keep up to date with the latest industry news and insights from BCIS, register for our newsletter here.
The Building Cost Information Service (BCIS) is the leading provider of cost and carbon data to the UK built environment. Over 4,000 subscribing consultants, clients and contractors use BCIS products to control costs, manage budgets, mitigate risk and improve project performance