Cost consultants can learn a thing or two from William Shakespeare, says the T&T cost manager
"My bounty is as boundless as the sea, my love as deep. The more I give thee, the more I have, for both are infinite," wrote William Shakespeare in Romeo & Juliet.
I had the pleasure of being the best man at a wedding in January and the speech is no doubt an important responsibility.
The above quote was the key message in the speech so I made sure that I could recite it on the day. Learning that good speeches sometimes end how they begin, I opened and closed the speech with the same quotation, the speech was a great success.
The wedding and speech are now a distant memory. Ironically though, I have found that the quote can also be applied to life as a cost consultant, albeit in a rather more romantically diluted form. If it is viewed in the context that “the more I give thee” clients - knowledge, then “the more work I have” surely “both are infinite”.
A common factor I have experienced within the construction industry is that each client has differing levels of knowledge and exposure to cost management.
A recent experience of this was when I compared the RPI Retail Price Index and the TPI Tender Price Inflation forecast for a number of capital works programmes spanning over a decade.
Certainly clients have heard of RPI but TPI (based on accepted tender prices) was a completely new concept or ‘knowledge’. An updated approach to capital programme forecasts needed to be applied which naturally equated to more work.
According to the Building Cost Information Services (BCIS) the increase in TPI over RPI hit 10% in 2007. Surprisingly though, this increase has only happened over the past five years, but it’s currently forecasted to reach 15% during 2009.
These are significant margins and if the trend continues the disparity between the two could be as high as 30% by 2016 which could cause some real issues for larger construction projects.
Whilst this is a rather radical view based on indices and the contents of a typical shopping basket it’s not being driven by the demand for bread, and after all seven year old bread maybe very stale but it’s no good for building with!
The cost of steel, aluminium, copper and oil all continue to rise and there is a genuine reason for this, demand is continuously outstripping supply. Whilst the recent credit crunch may create a blip on the horizon across the Atlantic, the Middle and Far East construction markets are still expected to grow exponentially. According to the Journal of Commerce, last year China used 40% of the world’s cement and also accounted for 90 per cent of the growth in steel demand.
Considering this, it is possible that construction costs are on the increase. My advice though is don’t all rush at once just because you see a ‘build early opportunity’ as a cost saving. This will only add strength to demand and inflate tender prices further. It may be prudent to wait a while and see if the market improves.
Nevertheless, an awareness of how construction costs have changed recently and could possibly change further should be an important consideration for any organisation that has long term construction plans.
"My work is as boundless as the sea, my commitment as deep. The more I can educate my clients, the more reward I have, for both are infinite," by Paul Davies.
After all, a good blog ends in the same way with which it begins…
Paul Davies is senior cost manager at Turner & Townsend.