Cost optimisation in affordable housing

Vivek Gadhe, head, construction (affordable housing), Rustomjee Group, believes that developers must consider the bottom line of projects

Vivek Gadhe, Rustomjee Group, Cost optimisation, Affordable housing

Affordable housing is a sector that has come into its own over the past few years. This is largely due to several government initiatives, prime among them being granting industry status to affordable housing, the Pradhan Mantri Awas Yojna (PMYA) and the Housing for All by 2022.

With the dream of accommodating the urban poor and providing shelter to the lower and middle income group, in 2016, the Union government launched PMAY to build 20 million houses in the country. Currently the government has sanctioned 9 million homes and Maharashtra itself has more than 4 million dwelling units. The Ministry of housing and urban affairs has further announced 6 Public private partnership (PPP) models to motivate the private developers to get into the affordable housing sector. However, there continue to be issues that developers face at the ground level which impede their entry into the affordable housing sector. These include - scarcity of land, unacknowledged bottlenecks of property records, market trends, unfavourable weather conditions, socio political influence and supply of skilled manpower throughout the entire project life cycle.

Thus, while the government is pushing for affordable housing, developers still tend to gravitate towards mid-segment or luxury projects where the profit margins are higher; 20-30% as compared to the 10% of profit margin in affordable sector.

It is in affordable housing, in particular, that developers need to focus on cost optimisation so as to improve the bottom line in these projects. Cost optimisation is nothing but ensuring that the project cost is within the budgeted limit throughout the construction period. There are several factors to consider when it comes to cost optimisation:

*Planning and Design: The initial stage is the most crucial in determining the cost of the project. A good, sustainable and a simple and easy to construct design without any complex elevation features, fulfilling the building norms and environmental factors within the affordability index is found to be a very crucial aspect in project cost management.

*R&D: Improved construction techniques, use of better and more economical materials will ensure further reduction in costs. All of these require upgrades in research and development so as to optimise costs without compromising on quality or structural integrity. For instance, modern technology such as Aluminium formwork system is used across the world at present. Precast technology of construction could also be explored to finish the construction within the stipulated time. Further examples of cost optimisation through research and development are seen from the idea of making carbon bricks which has been proposed by students of Massachusetts Institute of technology, USA or even Meghalaya’s plastic road!

*Input materials: Value engineering in procurement of material with competitive rates plays a major role in the cost efficiency without comprising the quality and durability of material. Innovative ideas in reusing the recycled material without compromising the look and feel of the end product could be the crucial aspect of cost optimisation.

*Labour productivity: Skilled labour is crucial in ensuring cost optimisation and timely completion of a project. Recognising this requirement, the Government has come up with the initiative of  ‘STRIVE’ (Skill Strengthening for Industrial Value Enhancement, funded by the World Bank) which is being implemented at every level of skill development for better productivity or first time right, which could help the industry in cost optimisation.

*Time: This is also important factor, along with Planning, as it helps to evaluate alternative schedules and establishes an optimum one considering the project completion deadline. Bear in mind that delay in projects invariably leads to cost overruns in terms of interest payments, increasing cost of materials and labour.

Essentially cost optimisation boils down to the simple task of avoiding or reducing wastages of all 5 M’s of Production - Man, Material, Money, Machinery and Method.

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Sept 2020
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