2013 Cost Estimating Challenge: BAE Systems North West Team

Transcription

1 2013 Cost Estimating Challenge: BAE Systems North West Team 23 rd April 2013, Bristol BAE SYSTEMS PLC 2013 All Rights Reserved The copyright in this document, which contains information of a proprietary nature, is vested in BAE SYSTEMS Public Limited Company. The contents of this document may not be used for purposes other than that for which it has been supplied and may not be reproduced, either wholly or in part, in any way whatsoever, nor may it be used by, or it s contents divulged to, any person whatsoever without the prior written permission of BAE SYSTEMS Public Limited Company.

2 Contents The SCAF Challenge Set the Scene Approach DAREO Risks & Sensitivities Methodology Economic Analysis Cost Model Key Findings Through-Life Comparison Investment Appraisal Next Steps If We Had More Time & Lessons Learnt 2

3 The SCAF Challenge (The Problem/or Not?) Your partner tells you the Good News, you are going to have twin babies! X 2 However, your house is currently too small for the new arrivals. Do you move house? Or Do you build an extension? You and your partner have a Financial Decision to make! 3

4 Set the Scene Two Main Options Extend Current House Move to a Larger House Building Costs Planning Permission Fees Retain property No uprooting Investment Uncertainty around building timescales Additional Funding Stamp Duty Estate Agent Fee Conveyance Fee Choice of location i.e. near schools Chain Delays Other Options Extension with Additional Improvements Stay in Current House & Invest Savings* 4

5 Current House 5

6 DAREO 6

7 Risks & Sensitivities Key Considerations Fluctuation of Interest Rates Council Tax Rates Maintenance Costs Fluctuations in Energy Prices Schedule Risk Overall each Business Unit has Commercial and Procurement functions set up in line with the products and services it provides; this system works as each BU has different levels of turnover/complexity in its outputs. 7

8 Create and Maintain Commercial Independent Estimate Create and Maintain Functional Estimates Review and Reconcile Functional Estimates Compile and Maintain Risk Opportunity and Uncertainty Evaluations Reconcile and Maintain Estimate Recommendations Conduct Estimate Clearance and Respond Create and Maintain Commercial Independent Estimate Create and Maintain Functional Estimates Review and Reconcile Functional Estimates Compile and Maintain Risk Opportunity and Uncertainty Evaluations Reconcile and Maintain Estimate Recommendations Conduct Estimate Clearance and Respond Methodology Approach and Technique Review Create Requirement and Maintain Cost Estimates Select Estimating Method Plan and Manage Cost Estimates Create and Maintain Cost Estimates Plan and Manage Cost Estimates Project Management Engineering Manufacturing Provide Support to Contract Management Provide Support to Contract Management Obtain Data Procurement Project Management Normalise Data Support Engineering Analyse Data Manufacturing Verify Method to be Used Procurement Create Estimate Support Validate Estimate Document Basis of Estimate 8

9 Methodology Sources of Data Internet research Council, Local Government Websites Builder Enquiries Data Sources Previous build estimates from Family & Friends House price trends Near neighbour comparisons Data normalisation 9

10 Methodology Data Capture & Analysis Data collected from a broad range of sources including internet articles, professional advice and industry publications. During collation the wealth of data was assessed for accuracy and relevance before being normalised for input into the cost model. The model was planned and built in accordance with the framework of Best Practice Spreadsheet Modelling, ensuring data integrity and ease of use. Robust estimating approaches such as Top Down, Bottom Up, and Three Point Estimates were used in order to make informed decisions in conjunction with parametric, extrapolation from actuals and detailed analysis techniques. Despite using proven estimating methodologies, the future variability of our outputs cannot be guaranteed. However, contingencies have been specifically selected to minimise these risks and ensure long term estimate accuracy. 10

11 Economic Analysis: 5 Year Cost Forecast Outlay Description Option 1 Option 2 Option 3 Building New Extension Building New Extension incorporating Eco-Technology Improvements Move to Larger Home Mortgage per Month Mortgage per Year 9,541 9,541 11,094 Loan per Month Loan per Year 4,056 6,084 - Total Cost per Month 1,133 1, Total Cost per Year 13,597 15,625 11,094 Total Outlay over 5 Years 67,983 78,123 55,470 Obtain a Home Improvement Loan for 30,000 on Current 2 Bedroom House, assuming Couple have 10,000 in current savings. Obtain a Home Improvement Loan for 45,000 on Current 2 Bedroom House, assuming Couple have 10,000 in current savings. Obtain a 30,000 for the larger house by remortgaging. Moving cost will be covered through the Couple's assumed 10,000 current savings. Interest Only Mortgage based on 215,000 & 250,000 with a 10% deposit. 11

12 Cost Model Option 1 Extension Minimum Cost Most Likely Cost Maximum Cost Planning Costs Planning Costs Planning Costs Project Management Cost 1,248 Project Management Cost 2,000 Project Management Cost 3,000 Planning Permission Fee 150 Planning Permission Fee 172 Planning Permission Fee 172 Planning Submission Fee 166 Planning Submission Fee 216 Planning Submission Fee 216 Inspection Fees 400 Inspection Fees 396 Inspection Fees 396 Total Planning Costs 1,964 Total Planning Costs 2,784 Total Planning Costs 3,784 Building Costs Building Costs Building Costs Extension Size (m²) - Ground Floor 15 Extension Size (m²) - Ground Floor 15 Extension Size (m²) - Ground Floor 15 Extension Size (m²) - First Floor 15 Extension Size (m²) - First Floor 15 Extension Size (m²) - First Floor 15 Extension Cost - Ground Floor 15,000 Extension Cost - Ground Floor 18,000 Extension Cost - Ground Floor 22,500 Extension Cost - First Floor 9,000 Extension Cost - First Floor 15,000 Extension Cost - First Floor 18,000 Total Extension Cost 24,000 Total Extension Cost 33,000 Total Extension Cost 40,500 Building Contingency 3,000 Building Contingency 4,125 Building Contingency 5,063 Total Building Costs 27,000 Total Building Costs 37,125 Total Building Costs 45,563 Total Extension Cost 28,964 Total Extension Cost 39,909 Total Extension Cost 49,347 12

13 Key Findings Option 1 Extension Initial Cost: 39,909 Total Cumulative Cost in 5 years: 67,983 Future Value of House in 5 years: 277,467 Key Considerations - Build time and disruption - No need to move; less upheaval 13

14 Cost Model Option 2 Extension with Eco Improvements Minimum Cost Most Likely Cost Maximum Cost Additional Home Improvements Additional Home Improvements Additional Home Improvements New Energy Efficient Boiler Installed 1,200 New Energy Efficient Boiler Installed 1,600 New Energy Efficient Boiler Installed 2,000 Solar Panels (solar to hot water) 2,900 Solar Panels (solar to hot water) 4,000 Solar Panels (solar to hot water) 4,900 Photovoltaic Panels (solar to electricity) 8,000 Photovoltaic Panels (solar to electricity) 10,000 Photovoltaic Panels (solar to electricity) 12,500 Total Additional Improvements Cost 12,100 Total Additional Improvements Cost 15,600 Total Additional Improvements Cost 19,400 Total Extension and Home Improvement Cost 41,064 Total Extension and Home Improvement Cost 55,509 Total Extension and Home Improvement Cost 68,747 14

15 Key Findings Option 2 Extension with Eco Improvements Initial Cost: 55,509 Total Cumulative Cost in 5 years: 78,123 Future Value of House in 5 years: 282,091 Key Considerations - Most costly option - Improvements likely to yield benefits in future years 15

16 Ground Floor Plan Current Ground Floor Plan 7m x 5m = 35m² Ground Floor Features Lounge, Dining Room, Kitchen and Hallway. Future Extended Ground Floor Plan 10m x 5m = 50m² New Ground Floor Boasts Lounge, Dining Room, Playroom, Kitchen and Hallway with Increased Dining and Kitchen Spaces. 16

17 First Floor Plan Current First Floor Plan 7m x 5m = 35m² First Floor Features Front and Rear Bedrooms, Bathroom and Landing. Future Extended First Floor Plan 10m x 5m = 50m² New First Floor Boasts Additional Rear Bedroom Creating 3 Spacious Rooms Plus an Extended Bathroom and Landing. 17

18 Cost Model Option 3 Move to Larger House Minimum Cost Most Likely Cost Maximum Cost Sale Price of Current House 224,400 Sale Price of Current House 220,000 Sale Price of Current House 215,600 Purchase Price of New House 245,000 Purchase Price of New House 250,000 Purchase Price of New House 255,000 Additional Funding Needed 20,600 Additional Funding Needed 30,000 Additional Funding Needed 39,400 Conveyancing fee (Purchase) 390 Conveyancing fee (Purchase) 400 Conveyancing fee (Purchase) 410 Conveyancing fee (Selling) 390 Conveyancing fee (Selling) 380 Conveyancing fee (Selling) 370 HomeBuyer Report (Survey) 360 HomeBuyer Report (Survey) 375 HomeBuyer Report (Survey) 390 Removals 350 Removals 370 Removals 390 Energy Performance Certificate 65 Energy Performance Certificate 65 Energy Performance Certificate 65 Estate Agent Fee 4,225 Estate Agent Fee 4,750 Estate Agent Fee 5,280 Stamp Duty Land Tax 2,400 Stamp Duty Land Tax 2,500 Stamp Duty Land Tax 7,650 Mortgage Arrangement Cost Inc Valuation 143 Mortgage Arrangement Cost Inc Valuation 150 Mortgage Arrangement Cost Inc Valuation 158 Mail Re-direction (12mths Per Surname) 41 Mail Re-direction (12mths Per Surname) 41 Mail Re-direction (12mths Per Surname) 41 Total Estimated Moving Cost 8,363 Total Estimated Moving Cost 9,031 Total Estimated Moving Cost 14,753 Total House Purchase Cost 28,963 Total House Purchase Cost 39,031 Total House Purchase Cost 54,153 All prices include VAT except Stamp Duty 18

19 Key Findings Option 3 Move to Larger House Initial Cost: 39,031 Total Cumulative Cost in 5 years: 55,470 Future Value of House in 5 years: 262,753 Key Considerations - No guarantee of house sale or suitable purchase - Bigger house; no building work needed 19

20 Cost Model Option 4 Investment Savings Available 10,000 Savings Account Interest Rate 2.45% Yearly Interest After Tax Yr Return on Investment Total Savings 10, % Fixed ISA Interest Rate 2.45% Yearly Interest Tax Free Yr Return on Investment Total Savings 10, % Shares Purchased In BAE Systems 10,000 Broker Commission 20 BAE Systems Share Price 3.60 Shares Purchased 2,772 Future Share Price 4.00 Future Shareholding Value 11,089 Broker Commission 20 Investment Appreciation 1,069 1 Yr Return on Investment Total Savings 11, % 20

21 Key Findings Option 4 Investment Initial Investment: 10,000 Cumulative Investment Gain 5 years: 1,649 Value of Investment in 5 years: 11,649 Key Considerations Twins would have to share bedroom High return only possible using unpredictable stock market 21

22 Initial Outlay Estimated Scenario Costs Total Extension Cost 39,909 Total Extension Cost Inc. Improvements 55,509 Total Moving Cost 39,031 Possible Savings Maximisation from Share Investment **High Return - Very Risky** Possible Savings Maximisation from 1- Year Fixed-Rate Cash 2.45% **Low Return - Very Safe** 11,069 10,245 22

23 Through-Life Comparison Estimated 5 Year Future Values Future Extended House Value 277,467 Total Extension Cost Inc. Improvements 282,091 Future New House Value 262,753 Future Savings from Investing 10,000 in 5-Year Fixed-Rate Cash 3.10% 11,649 23

24 Economic Analysis: Through Life Forecast Outlay Description Option 1 Option 2 Option 3 Building New Extension Building New Extension incorporating Eco-Technology Improvements Move to Larger Home Mortgage per Month Mortgage per Year 9,541 9,541 11,094 Loan per Month Loan per Year 4,056 6,084 - Total Cost per Month 1,133 1, Total Cost per Year 13,597 15,625 11,088 Total Loan over 10 Years 40,560 60,840 - Outstanding Mortgage over 22 Years 209, , ,063 Total Outlay 250, , ,063 Total Outlay based on a 10 year loan for the additional money required on Option 1 & 2. Couple are currently 3 years into the mortgage term, leaving 22 years left to pay. Forecast shows Option 3 as the cheapest option over the long-term period. All figures based on 2012 Interest Rate. 24

25 Investment Appraisal: Scoring Matrix In order to systematically decide which option to consider, a scoring matrix was used to appraise each option against a set of Key Performance Indicators (KPI). Each KPI was given a score between 1 to 5, with 1 being the least beneficial and 5 being the most beneficial to our Couples situation. Option 1 Option 2 Option 3 Option 4 KPI KPI Description Building New Extension Building New Extension incorporating Eco-Technology Improvements Move to Larger Home Investment 1 Location Affordability Value for Money Long Term Investment Potential Fitness for Purpose Timescale Compliancy Dispution Levels Total Score

26 Investment Appraisal Conclusion We would advise the couple in the scenario to choose: Option 1 Build an Extension to their Current House Advantages & Disadvantages for all Options Build an Extension: - Initial Cost Outlay higher in the short term but cost effective in the long term. - Yields more benefits. Moving to a Larger House: - Cheaper Option. - Doesn t provide the same benefits. 26

27 Next Steps How to Fund Investment Home Improvement Loan: Assuming current savings of 10,000 and requirement for a further 30,000 to make up the 40,000 required to complete the extension. Best loan is over 10 years based on 338 per 6.5% APR from Halifax. Going Forward If our recommendation is acceptable to the Couple: 1. Hire a Solicitor assess legal aspects of building the extension 2. Engage Bank Manager - Apply for Home Improvement Loan 3. Hire Architect - Design extension & begin process of gaining planning permission 4. Hire Builder & make it happen! 5. Spend 40,000; house likely to be worth circa 277,500 in 5 years 27

28 If We Had More Time Undertake Monte Carlo Simulations Investigate ecological technologies further Consider the differences in Buying / Selling property at different times of the year Assess Through Life Maintenance Costs Explore potential to move house again in the future Investigate Cost of having children Look into any other options e.g. Rent a property short term 28

29 Lessons Learnt by BAE Systems North West Team Vast amount of Information Normalisation & Assumptions Variation in Data Pre-determined Costs i.e. Stamp Duty Variable Costs i.e. Quality of build Ensure you have a documented Basis of Estimate Configuration Control is essential Cross-platform team working i.e. importance of face to face meetings, conference calls and action logs Managing skill types to deliver specific tasks i.e. public speaking, cost modelling and presentation design Very enjoyable experience on a subject which will benefit our future house purchases and improvements Thank You 29

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