“Benchmarking is an essential tool to predict the cost of construction at the inception stage of projects.”

 

A database of projects across Saudi Arabia form the basis of the Cost Models required to build this benchmarking. A cost model provides a consolidated construction cost image of a proposed development type; however, each cost model has to be normalized and index linked. For projects older than 6 months in this database, we update via developing a Construction Price Index, to track the actual movement of cost from the point in time the project was tendered/awarded, up to May 2016, which allows us to build an accurate current range.

 

 

The Construction Price Index tracks the historic movement of the following;

• Global construction commodity trends.
• Movement in construction materials such as steel, concrete, cement, blockwork, etc.
• Shifts in manpower which include overheads, supervision staff, skilled and unskilled labour.
• Construction workload & competitiveness.

 

The aforementioned are the key drivers for index linking all projects over 6 months old to present day pricing.

 

When predicting the future construction costs for 2016 & 2017, the same methodology is used, however, instead of looking at historical data, we study forecasted data. Whilst the forecasted data is derived from local, regional and international sources such as Government Departments, the IMF, the World Bank, Industry Stake Holders, etc., they are predictions based on current information which require updating regularly.

 

Some of the highlights included within Cost Benchmarking are;

• Subsidy Cuts: Current cuts in the subsidies for fuel, water and electricity will increase the cost of production, labour and materials, adding circa 1% onto the cost of construction for 2016.
• Labour Costs: Labour will see a reduction in wages to professionals and trades over 2016 and 2017, however the net effect may likely be offset somewhat by an increased push towards Saudization.
• Construction Workload and Competitiveness: The single biggest influence on construction pricing for 2016 & 2017 will be the level of profit, or lack thereof, that construction companies will include within tenders. With a significant decrease in the number of projects to be awarded over the next 2 years, competition will be strong in all sectors.

 

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