Cost analysis is the systematic decomposition of the cost of a completed or in-progress project into its constituent elements, in order to understand how that cost has been incurred and how it compares with the cost of similar projects. Benchmarking takes that analysis a step further, comparing the cost of the subject project with a database of comparable projects to identify whether the cost is in line with, above or below the relevant benchmark. Together, the two disciplines provide a foundation for evidence-based cost planning, project decision-making and dispute resolution.
A robust cost analysis requires a consistent framework for the categorisation of cost. Industry-standard frameworks include the New Rules of Measurement (NRM), the elemental classification developed by the Building Cost Information Service, and various bespoke frameworks used by individual cost consultancies. Whichever framework is used, consistency is essential: a comparison between two projects classified on different bases will not be reliable.
The data underpinning a cost analysis must be properly normalised before any meaningful comparison is possible. Normalisation typically involves adjustments for time (to a common cost base date), location (to account for regional differences in labour, material and overhead costs), scale (to reflect the impact of project size on unit rates), specification (to reflect differences in the standard of finishes and the complexity of the works), and procurement route (to reflect the impact of contract form and risk allocation on price).
The selection of comparator projects is critical. A comparison between a luxury hotel in Dubai and a budget hotel in Sharjah is unlikely to yield useful insights, even if both are described as 'hotels'. The cost analyst must identify projects that are genuinely comparable in terms of building type, scale, specification, location and procurement route, and must disclose the basis on which the comparators have been selected.
The output of a cost analysis is typically presented in elemental form, with cost per square metre of gross internal area shown for each major element of the works (substructure, frame, upper floors, roof, external walls, windows and doors, internal walls and partitions, internal finishes, fittings and furnishings, services, external works, preliminaries and overheads). This format permits like-for-like comparison between projects and identifies the elements that drive the overall cost.
Benchmarking finds particular application in the early stages of cost planning, where the benchmark provides a reality check on the budget and identifies elements where the cost plan is significantly above or below the comparator data. A material divergence is not necessarily a sign that the cost plan is wrong: it may reflect a genuine difference in scope, specification or market conditions. But it is always an invitation to investigate further.
On disputed projects, cost analysis and benchmarking provide a powerful tool for the quantum expert. Where the parties disagree on the proper valuation of variations or on the reasonableness of the cost incurred, comparison with benchmark data can provide an objective reference point. Our quantum experts at Construction Expert Witness routinely apply cost analysis and benchmarking techniques in support of expert evidence on disputes across the UAE and the wider GCC.