Pareto is an Italian economist, who created a mathematical formula for describe the unequal distribution of wealth in Italy. He has found 80% of the wealth of Italy has owned by 20% of people. The principle also knows as the 80/20 Rule. Later many other experts have observed similar phenomena to Pareto principle in their own fields.
· Project managers know that 20 percent of the work consumes 80 percent of the time and resources.
· Planning engineer knows that 80% of delays in a construction project arise from 20% of possible causes of the delays.
· Marketing manager knows that 20% of his marketing efforts generate 80% of his marketing results.
· Nimal knows that 80% of his expenses for 20% of items.
If the Project manager plans and perfume well that 20% of works, he will have a greater success.
If the Planning engineer plans well that 20% of causes, he will have a greater success.
If Nimal plans well his 20% items, he may be able to save more money.
Below Pareto graph represent Nimal’s expenses. It shows 80% of Nimal’s expenses is because of 20% of items, in namely for rent, foods, transport and liquors.
I have analysis the Nimal’s expenses with Pareto principle in one of my article titled “එදිනෙදා මුලය කලමණාකරණය 2(Day today financial management 2)”, that may worthwhile to read to you. You can access the article on www.kedapatha.info.
For Cost Planning.
Quantity Surveyor (QS) can be adopted the Pareto principle for various Quantity Surveying functions from Inception to Completion and even after the completion also.
One of key function of Quantity Surveyors during Design and Pre construction is “Cost planning”. There are two techniques use for cost planning. Those are;
ü Budgetary establishing
ü Budgetary distributing
Quantity Surveyor may establish the client budget in Option appraisal or Strategic Briefing stages*.
First step of Cost planning is establishing cost targets at the Outline proposal stage. In another way, establishing cost targets is the way of distributing, established budget. In Outline proposal stage QS can establish group element cost target.
Following is an example for a Group elementary cost plan at Outline proposal stage.
Budget – Rs. 300M
| Group element | Percentage | Cost (M) |
| Substructure | 7% | 21.00 |
| Superstructure | 20% | 60.00 |
| Internal Finishes | 12% | 36.00 |
| Services | 40% | 120.00 |
| Fit out | 21% | 63.00 |
* Figures are not realistic figures.
Now let’s draw the Pareto graph for above cost plan.
In Detail design stage QS may produce an Elementary Cost plan.
| Element | Percentage | Cost (M) |
| Substructure | 7% | 20.22 |
| Frame | 5% | 14.77 |
| Upper Floors | 9% | 27.52 |
| Roof | 1% | 3.55 |
| Stairs | 1% | 2.46 |
| External Walls | 1% | 3.94 |
| External Windows & Doors | 1% | 2.45 |
| Int Walls & Partitions | 2% | 6.23 |
| Int Doors & Screens | 2% | 6.57 |
| Wall Finishes | 7% | 22.26 |
| Floor Finishes | 3% | 10.14 |
| Ceiling Finishes | 3% | 9.52 |
| HVAC | 11% | 33.32 |
| Plumbing & Drainage | 6% | 17.64 |
| Fire Protection | 1% | 3.33 |
| Electrical, AV Etc. | 15% | 45.07 |
| Security | 1% | 4.12 |
| Vertical Transportation | 3% | 10.06 |
| Fit out | 19% | 56.83 |
Now let’s draw the Pareto graph for above cost plan
In both Design and Pre construction phases, QS should ensure that the cost of the project should within the allocated budget, which is the main purpose of cost planning. In order to accomplish the purpose, QS have to continuously do cost checking and cost reconciliations.
After reconciliation, QS may come out with a smiley faceJ, when the cost of a particular element is less that the established target in the cost plan. However in some cases cost of a particular element may exceeds the target, which is not a cause to keep QS happyL.
In later case, QS have three options to overcome from terrible situation.
1) Ask client to increase the budget and change the cost target for the particular element. This option is not favour of the QS, since it may imply QS’s cost plan is erroneous.
2) Ask design team to review the design and bring it within the cost limit.
3) Share cost with some other elements which have cost saving.
In second option, Quantity Surveyor should advice to design team to pay more attention for first 7 elements (37%) out of 19 elements, which are representing 80% of the total cost. Changing an element from first 37% elements make greater effect to the project cost.
However design team may have to pay their attention for some other factors before review an element such as effect to other elements by changing a particular element. For an example, change the substructure design may effects to all other element and change the wall design may effects to finishes.
For Value Management (VM)
“Value Management is a service which maximizes the functional value of a project by managing its development from concept to completion and commissioning through the audit (examination) of all decisions against a value system determined by the client.”(Kelly, J & Male, S.2005. p.p.2)
The Institution of Civil Engineers (ICE) has identified the following sub-processes within the Value Management process.
1) Value planning - During the design and pre construction phase of a project.
2) Value engineering – During construction phase of a project.
3) Value reviewing – During use phase of a project.( After the practical completion)
Simply in the Value Management, VM team tries to find alternatives for current design without changing the function. Following are some example for value management;
· Replace custom made high capacity (1100CFM) exhaust fan with two nr law capacity (2 ´ 550CFM) interconnected exhaust fans. The alternative did not change the function; however there is a Rs. 30,000.00 Cost savings has been made for the client.
· Use isolated chillers sets instant of central chillier unit. This has made a Rs. 500,000.00 cost saving to the client which is 10% of the item cost.
Following Pareto graph has been drawn for a residential building during Tender documentation stage from the tender estimate.
Hence VM team should focus on those first five elements instant of others to get an effective VM result. Since the Quantity Surveyor as the cost consultant, plays proactive role within the VM team to achieve successful outcome.
VM team should do value management for;
· Concrete, but not for Metal work
· Floor, Wall & Ceiling finishes, but not for Drainage
* RIBA plan of work.
| Phase | Stage |
| Preparation | Option appraisal |
| Strategic Briefing | |
| Design | Outline proposal |
| Detail Proposal | |
| Final Proposal | |
| Pre Construction | Production information |
| Tender documentation | |
| Tender action | |
| Construction | Mobilization |
| Construction to Practical completion | |
| Use | After Practical completion |
References:
1. Envision. (?).Pareto Principle or The 80/20 rule. [Online]. Available from: http://www.envisionsoftware.com/Management/Pareto_Principle.html. [Accessed: 30th April 2011]
Thanks for the article
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