Full—Process Cost Control of Real Estate Development Enterprises

LIU Xing-quan

【Abstract】In the present paper， cost control existing in stages of decision making， drawing design， construction bidding， construction， completion settlement， product sales of real estate development are analyzed and solutions for cost control in each stage are provided.

【Key words】Real estate development enterprises； Full process； Cost control

中圖分類號： F293.3 文獻標識碼： A 文章編號：2095-2457（2018）08-0243-002

1 Problems Existing in Cost Control of Real Estate Development

1.1 Problems Existing in Cost Control in Decision Making Stage

In the decision making stage of real estate project development， many enterprises fail to carry out detailed feasibility study prior to project development and only make rough cost and cash flow estimate， which frequently leads to imbalance between cash inflow and outflow during the project development. Especially， capital chain often becomes tense in construction stage. As a result， they have to raise fund in a hurry and thus bear more fund raising cost， construction progress cost and manpower cost.

1.2 Problems Existing in Cost Control in Drawing Design Stage

In the schematic design stage， design institutes usually only consider the demand that the design result should satisfy functions of projects and do not consider the structure and material costs， which leads to unnecessary construction cost. In the design bidding stage， real estate development enterprises pay more attention to the preliminary scheme bidding than the design bidding. This usually makes design institutes attach importance to functions and styling but ignore the related costs.

1.3 Problems Existing in Cost Control in Construction Bidding Stage

In the construction bidding stage， imprecise conditions and terms of bidding documents make it more difficult for real estate development enterprises to control their costs. Incompletion and errors are often found in bills of quantities， which directly impair the accuracy of the construction pricing and comprehensive unit price and lead to cost ambiguity. Besides， the unbalanced bid provided by construction contractors builds up problems for the final cost of the projects.

1.4 Problems Existing in Cost Control in Construction Stage

Besides land procurement， construction requires the most fund input in real estate development. In the construction stage， cost control problems mainly arise from wastes or noncompliance in construction progress， materials and quality of construction contractors due to improper supervision on construction contractors by real estate development enterprises. Many real estate development enterprises have no adequate professional and technical personnel specialized in construction. This means that imbalance exists in construction talents between real estate development enterprises and construction contractors. Therefore， construction process supervision and construction cost control of real estate development enterprises are very weak.

1.5 Problems Existing in Cost Control in Completion Settlement Stage

In the completion settlement stage， real estate development enterprises perform building acceptance and takeover as well as construction cost calculation and payment according to the construction contract. They rely on the third-pay cost audit too much and often are led by nose by claims for compensation due to changes by construction contractors. This makes it difficult to control costs in this stage. The root reason still lies in that real estate development enterprises lack high-level talents of building construction management.

1.6 Problems Existing in Cost Control in Product Sales Stage

In the product sales stage， real estate development enterprises often disregard actual conditions. They recruit lots of salespersons， adopt expensive advertising and marketing means， build luxurious sales facilities， which causes very high sales cost.

2 Solutions for Cost Control in Full Process of Real Estate Development

2.1 Solution for Cost Control in Decision Making Stage

In the decision making stage， carry out adequate market investigation on factors related to project costs such as the land， technical principle， construction scheme， product configuration， material， and financing cost. Real estate development designers should carry out full investigation and study on the design bases， guiding principle， applicable laws， regulations， standards and specifications， construction scale， construction schedule， prices and procurement places of major materials and equipments， etc.， prepare detailed feasibility study report， and make satisfactory construction cost estimate to control the construction cost in a scientifically way.The most important thing is construction cost estimate and fund planning.

2.2 Solution for Cost Control in Drawing Design Stage

In the drawing design stage， real estate development enterprises should ① optimize the design scheme and apply the basic principle of value engineering to meet requirements of related standards and specifications by using the most economical means under the precondition that it is technically feasible； ②introduce the design bidding system and improve the competition awareness of design institutes so as to continuously optimize the design scheme， work out the best product design and cut down construction cost； ③implement the design to total cost so as to keep the construction cost in a reasonable range and thus control the total cost； ④improve the quality and construction convenience of design so that the construction can be easier， materials can be saved and construction period can be shortened； ⑤focus on construction costs estimated by design institutes and select the design institution and design scheme according to the design quality and cost in the design bidding.

2.3 Solution for Cost Control in Construction Bidding Stage

First of all， in the construction bidding stage， real estate development enterprises should make comprehensive preparation prior to the construction bidding and check the qualification and credit of bidders so as to lay a good foundation for bid evaluation and avoid evaluating the bids arbitrarily and affect fairness of bid evaluation. Second， development enterprises should use the bid method of selecting bid with a reasonably low price whenever possible to cut down the construction cost. However， they should be alert against the construction contractors that quote the lowest price at all costs to prevent them wining the bid. Otherwise， such construction contractors will cut down their costs by all means during the construction. In this case， it is very difficult to ensure the construction quality and potential safety hazards often arise in construction. Third， development enterprises should specify the price adjustment mode in the contract and be on guard against unbalanced bid provided by contractors so as to mitigate the cost risk caused by price adjustment and unbalanced bid. Fourth， development enterprises should carry out centralized procurement of major and important building materials by themselves whenever possible so as to reduce the material cost. Last， development enterprises should prepare precise bidding documents and contract documents to clearly define work scope， technical requirements， list items， work quantities and other important matters and ensure all the items are included and there is no conflict between them. In addition， they should specify the payment modes and time.

2.4 Solution for Cost Control in Construction Stage

Real estate development enterprises should properly control costs in the construction stage. First， they should use more high-level professional management talents with expertise in construction to match with construction contractors in the aspect of human resource quality. Second， development enterprises should improve their management over claims for compensation due to changes， establish clear and reasonable system on claim for compensation due to changes and define responsibilities and the corresponding authorities of construction， estimate and management personnel to tackle claims for compensation due to changes. Third， development enterprises should make a full use of the third-party cost audit of high quality. Fourth， development enterprises should require construction contractors， resident supervision engineer and their own site representatives to strengthen sense of responsibility and mission， properly do site work， sign each document as needed and avoid certification delay or in batches which may make the cost out of control.

2.5 Solution for Cost Control in Completion Settlement Stage

Construction completion settlement is the last stage for construction cost control. In the completion settlement stage， real estate development enterprises should be careful， sift out the true from the false and impose strict control so as to finish the completion settlement based on the contract and design. Meanwhile， they should respect actual conditions and never demand lower prices viciously. During the review， they should safeguard their own reputation with good professional ethics. Compare the completion acceptance list with the bill of quantities provided in the bidding stage to check whether there is any item or quantity increased or reduced. Increase or reduce the costs accordingly in the settlement. Be sure to make comparison with the original contract and do not approve the items included in the costs of the original contract.

2.6 Solution for Cost Control in Product Sales Stage

In the product sales stage， according to actual conditions of the market environment and the products， real estate development enterprises should prudently establish sales plans covering details about the personnel， site， and advertisement costs and make the estimate so as to enable each sales cost to maximize the sales results.

3 Conclusion

For real estimate development enterprises， cost control should be implemented in every stage in the full process of development. An organic and dynamic full-process cost control system should be established to enhance competitiveness for sustainable development.

【References】

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