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Cost

Elements

Concept

Cost Structure

Direct Cost

Indirect Cost

Variable Cost

Fixed Cost

Cost Accounting

Cost Management

Cost Estimating

Cost Trending

Cost Fore Casting

Life Cycle Costing (LCC)

Ch 01 Cost Elements.mmap - 02-06-2010 - Mindjet

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Material

1. Material Competition

Material quality is driven by

those who are utilizing it

material must be procured in proper amount, at

right time at, right cost for efficient production

Characteristic of material are combination of ---> cost availability,

machinability, weldability, and other ease of fabrication criteria

2. Handling

Material Handling Principle

Poor handling can result in damage of raw material or the finished product

Material Handling Decision Factors

material to be handled

different system to handle

different material, viz,

front loader for clay,

structure steel overheadcrane etc.

Production system type

production type are - job

shop or batch process and

continuous type

fix-path equipment like

pipes, conveyor belts forcontinuous

Job shop or batch

processes need more

flexibility in their material

handling

facility type

head rooms - if less then

overhead cranes notpossible

material handling system cost

3.

Type of Material

and Related

Information

Raw Material

Bulk Material

Fabricated Material

Engineered/Designed

Material

4.

Production Material

Purchase and

Management

Material Quality

Material and Vendor

Surveillance and Material

Traceability

Material Quality

Economic Order Quantity

Just in Time vendor

Technique

Individual Purchasing

Order and SystemContracts

Expediting

Global Material Decisions

5.

Plant Material

ManagementSpecialized Plant Material

Plant Material

Benchmarking

6.

Material WasteProduct and Hazard

Issues

Material Safety Datasheet and Hazard

Communication

Environmental Regulations

Water Material and

Surplus Materials

Ch 03 Material.mmap - 02-06-2010 - Mindjet

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Labor

Labor Classifications

Direct Labor

Indirect Labor

Overhead Labor

Developing Labor Rates

Base Wages

Paid Time off (PTO)

Medical and Life Insurance benefit

Government Mandated benefit

Engineer Contractor

Overhead and Profit

Fully Loaded of Billing Rate

Overtime Wages

Weighted Average

Rates/Crew

Composition Rates

Indirect and

Overhead Labor

Estimating Work

hours to complete

the given work scope

Work Package and Work

breakdown structure

Cost to support the worker

Factor affecting

productivity

Productivity Improvements

Learning Curve

Productivity Improvements

Using Commercially

available info

Performance

Monitoring

WBS

Graphic Presentation of

Earn Value data

Work Sampling

Ch 04 Labor.mmap - 02-06-2010 - Mindjet

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Engineering

Product, Project and

Process Development

Pure and Applied Research

Product, Project and

Process Life Cycle

Computer-Aided Design (CAD)

Computer-Aided

Manufacturing (CAM)

Prototypes

Patents and Trade Secrete

Product Liability

Product, Project,

and Process Design

Standardization

Process Selection

Manufactuerbility

Constructibility

Make or Buy Decision

EngineeringProduction/Construction

Production Health and Safety

Facility Layout

Assembly and Flow Process Chart

Quantitative Analysis in

Facility Layout

Ch 05 Engineering.mmap - 02-06-2010 - Mindjet

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Equipment, Parts and Tools

1.

Equipment Value

categories

both -- current and

residual value

aim establish a reliable valuation database upon which to base estimates or

appraisals

quality and level of trade data being cataloged -> so values are good to use

Replacement Cost New

Reproduction Costcost for new identical item

Replacement Cost

cost of new of an item

having the same or similar

utility

Fair Value

adjusted new cost of an item - consider cot of similar items,

taking into account adjustments - like utilities, discount etc.

Market Value

Fair Market Value-in-Place 100%

money that may be

expected to be exchanged

between buyer and seller

under no compulsion

both knows about relevant facts

Fair Market

value-in-Exchange 73%

money that may be

expected to be exchanged

in third party transaction

again no compulsion & facts

are knows

Also known as retail value

Orderly Liquidation Value 64%

money that can be realized

from a properly executedorderly liquidation

maximum time to conduct

sale is six months

adequate fund for

re-marketing

Also called as wholesale values

Force Liquidation Value 55%

auction done

proper advertisement

where time is of essence

Under hammer or blow out value

Salvage Value 5%

component value of

equipment that can be

used or resold to enduser

for repair or replacement

purpose

Scrap Value 1% equipment basis commodity value

dollar per ton of steel or

pound of copper

2. Source of data for

Replacement Cost New

highest value that can be

attributed to equipment

i.e. 100% of value

Sources are

manufacturer price list

sales representative quotes

technical and trade

journals

trade show literatures

invoices

appraisals values -

insurances etc.

Market Value

for used equipments

same as new but for used

equipments +

Auction sales catalogs

regulatory filings

past re-marketing and

sales result from own

firms

3.

Market Valuations

example ------------------------------------------------------------------------------------------------>

Equipment Condition

Very Good (VG)

Excellent appearance

being used to its full design specs without being modified and

without requiring any repairs or abnormal maintenance @ thetime of inspection or within the foreseeable future

Good (G)

equipment being used to its

full or near full

specification capacity ,

however the equipment was

modified or repaired

equipment used some point

below the specified

utilization

Initial Cost

hard cost

soft cost

Maintenance

Use/Wear and Tear

how it is used e.g. if used

in sand more wear and tear

most mechanical tend to

wear out around 10,000 to

20,000 hours rebuild and

refurbishment is required

1,700 to 2,000 first shift,

3,000 to 4,000 2nd shift

and 5000+ third shift

Third term usually contains

strong returns and

maintenanceprovisions

10.

Calculating Residual

ValuesMethodologies

11.

Residual Valuation

Format

should contain some basic

elements -

Market place

Manufacturer

Model Run - number of years equipment has been manufactured

US Market - numbers of units in the maket

Installation - estimated time to install

Software - used to control the equipment - is applicable

Versatility - number to uses for the subject equipment

life expectancy

Residual value

Manufacturer Name

Type of Equipment

Manufacturer market plans

Future Improvement - any tech break through on the horizon

Listing of price increase that are planned in future, as well as

analysis of past increase.

De-installation

Conclusion

12. Residual Curves

Standard Curve for indicative purposes can be developed through constant residual analysis over many years

use of these curve should be limited to Order of Magnitude calculations

Methodology

Three approaches

Cost Approach

Income Approach

Market data Approach

-best one - practical

standpoint of view

Market approach analysis

involves following approach

1. Compete market analysis

-all available sales trade

data for same or similar

equipments. Notation for

different trade levels -

like auctions, retail, retail

asking etc.

2. Current List (new) price,

adjust to discounts, =

100% price

3. Compile equipment trade

history, characterized by

the age of the equipment

sale

4. do average to enter into

residual analysis line

5. Residual value in % form

is calculated

6. Review and adjust to

factor like - maintenaince,

use, location, regulation,

technology etc.

7. Cross check with other

equipments curves

no inflation is considered here

13. Inflation Factor

Care must be taken in selecting index

trade association, insurances companies, appraisal companies, and/or government

index should be machine specific - industry specific, - not CPI -

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Economic Cost

1. Type of Cost

Opportunity Cost

foregone benefit forchoosing one option over

other

Sunk Cost

fund already spend by

virtue of past decisions

fund cost are ignored in

current or future decisionmaking

Book Cost

on the firms books

can not be taken into

economic analysis; takemarket value

does not implement cash flow

= Original value -depreciation

land cost - very less is

book but high in market

value

Incremental Cost

cost associate with production of additional unit on its balance sheet

2. Changes in Cost

Inflation

is risk in key prices of service or good (or their baskets)

four driving force forinflation

money supply

central bank role

loosing of monetary policy

- increase money inflow

exchange rate

rise of export commodity

due to change in exchange

rate

demand - pull inflation

Excessive money is chasinglimited amount of

goods/services

cost-push inflation

high input cost - material,labow wages etc.

cost has potential to change

cost changes are measuredby price indexes

irrelevant if product

quality are changed

Deflation

opposite of inflation

same factors as inflation

rise in currency price

advent of new technology

can reduce the cost somegoods or services

Escalation

escalation is technique to

accommodate price

increase or decreaseduring life of the contract

Without these clauses seller would include contingency amount

this contingency amount might be proven to be higher at later date

CurrencyVariation

for multinational tradesand contracts

currency future hedging

or value contract against

very stable currency - toprotect

Cost impact due togovernment can be both

direct and indirect

Taxes are direct

other like prohibiting orrequiring certain action are

indirect

Taxes

income tax, inventory tax, employment tax, gross receipt tax, sales taxes.

direct or indirect

cost to manage tax type .

tax department etc.

VAT is only on value

4. Depreciation Techniques

Straight Line Depreciation

rate of depreciation isstraight

Double Declining Balance

Depreciation

double the rate fromstraight line,

salvage value not taken

into consideration

high rate of depreciation

than straight line method

Sum-of-Years DigitsDepreciations

5,4,3,2,1, reverse

N(N+1)/2 is sum of years

high rate of depreciationthan straight line method

Modifies Accelerated Cost

Recovery System

Asset class i.e. 3, 5, 7, 10 years

rate of depreciation based

on asset class

5. Economic Analysis Technique

Time Value of Money

to consider cost of money

overtime

Net Present Worth method

present value of Cost and benefit

Capitalized Cost Method (CC)

for indefinite analysis period

CC represents the present sum of money that need toset aside now, at some interest rate, to yield the fund

required to provide service indefinitely

CC = A/I, A = annual cost,I= interest rate

Equivalent Uniform Annual

Cost (EUCB)

Cost per year, while

considering time value of

money

applicable when the assetcompared are having

different economic life

Rate of Return Analysis (ROR)

Causes from incremental benefit

if it is incremental answerneeded if the additional

investment is need or not

P/F or P/A formula

Benefit Cost Ratio Method

NPW of cost and benefit

higher ratio attractive

Payback period method

not precise method does

not consider time value ofmoney

cost = 100, retun =10/year,

payback period = 10 years

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Estimating

Estimate Accuracy

estimating is iterative process which is defined, modifiedand refined as we go along the project life cycle

if wrongly estimated

for owner - financialreturn from capital

investment shall not be

realized

for contractor - his profit

margin is dependent uponaccuracy of estimate

in additional to beingbudget of the project

cost estimate serves astool or resource for

scheduling and cost control

estimate classification

is used to indicates over all maturity and quality of estimation

there are 5 classed as per AACEI 17R-97...

CLASS 5 (LEAST

ACCURATE)

CLASS 1 (MOST

ACCURATE)

five charactersics are -- degree of project definition, use of estimate, estimating

methodology, estimate accuracy and effort required to produce

estimate input checklist and maturity matrix can be developed.... as be go to class 1

engineering deliverable are more complete

estimating methodologies

conceptual estimating methodologies

types

a. end product unit method

cost of electric generating power plant ---> plant capacity in kilowatts

cost of hotel ---> numberof guest room

cost construction of

hospital ---> number ofpatient rooms

cost of parking garage --->

number of available parking

adjust for time and location

economics of scale is ignored

b. physical dimension unit method

based on length, area,volume...

per square feet costing....

economics of scale is ignored

c. capacity factor method

d. ratio or factor method

e. parametric method

need significant estimate

in data gathering

however preparation takes

less time.. sometime lessthan an hours

used for class 4, 5 (sometime 3) type of estimate.. 'order of magnitude' (OOM)

concept estimate are used for

screening estimate

feasibility of project

screening projectalternative

evaluate cost impact of

design alternative

estimating a preliminarybudget for control purposeduring design phase ofproject

deterministic detail methodologies

direct measure of item

being estimated

high degree of precision is needed in determiningquantities, pricing and completeness of scope definition

take offs

Cost vs Pricing

pricing is adjustment of cost to allow, overhead and profit, to improve cashflow orotherwise serve the business interest of the party preparing the estimate... specific

project condition

Estimate allowances

estimate to account for the predictable but

undefinable cost associated with project scope

there are also time when it is simply not cost effective toquantify and cost every small item included with project

design allowance forengineering equipments

to cover continuing designestimate.. 2 to 5%

material take off allowance

to cover cost ofundefinable at the time..cover both material and

labor cost... 2 to 15%

material losses to cover

material damages, cuttingloss & waste, theft,

Estimate review -a. for accuracyb. contain all the info required topresentThe estimate review cycle shall consistfor steps

Esti department review

Check the mathSpread sheet - sub total is missed etc.

Basis of Estimate -Estimate should use onepricing and labor rates.

Design

Scope summary

Specific inculsion and exculsions

All assumption w.r.t to project scope

Equipment list

List of drawing and specifications referred

Planning

Contracting strategy

Resources and project execution plan - workweeks, overtime, shifts.

Project schedule and keymilestone dates affecting the estimate

Cost

Source of all pricing used in the estimate, source of bulk material pricing, equipment pricing etc.

source of labor work hours should be documented

Allowances made in estimate to be identified

Risk

How contingencywas determined

Identifykey are of risk and opportunities to cost estimate

Estimate departmentguidelines - review the

standard followed bytheestimate department

Verifythat the proper estimating methods, techniques, and procedures were used that match the stage of project completeness

Confirm that the estimate summaryand details are organized and presented in the properformat (i.e., following the project WBS and code of accounts);

Ensure that all estimate backup information is organized properly.

Verifythat all allowances and factors are appropriate for the type of estimate being preparedand are consistent with comparable projects and estimates

Engineering Design Review(to be done by design team). The Idea is that the scope

of the project as understood by the design team inreflected in the estimate.

Completeness ofEngineering deliverables

Review list of drawings, sketches and specs - ensure that it is complete and theymatch theintended revision for estimate. If late design change occurred - check that if it affects the estimate.

Equipment ListIf equipment involved - check equipment pricing for completeness and accuracy

Design Basis of Estimate

Engineer to verify the their understanding to project scope with the estimate

Exclusion in BOE should be agreed too

All allowance and assumption verified

Estimator and engineer should - for interpretation of drawing

All drawing used byestimator should be available for review

Engineering/Design CostsReview the cost and assumption for design portion of cost

Risk Basis of Estimate

Review the risk basis of estimate

Agree the analysis of cost risk associated with estimate

level of risk associated with risk definition

Estimate documentation - ensure that estimate ispresented in understandable way. review the docs -->. PM

to understand how the estimate is prepared.

BOE

Estimate summary

Estimate detail pages

- Verifythat the latest project schedule agrees with the estimate (particularly as it relates to escalation).-Examine the project administration and other home office related costs for reasonableness(engineering/design costs should have alreadyb een reviewed)

Reviewing estimateprepared by others

Basis of estimate

Basis of estimate in well organize and complete

Is it well-organized and complete? Does it provide the required information regarding the design basis, planning basis, cost basis, and risk basis of the estimate? Does thedesign basis clearly document the scope of the project, and have all engineering deliverables used in developi ng the estimate been identified? Have all scope assumptionsbeen acknowledged? Is the planning basis (schedule, resource plan, construction plan, etc.) reasonable? Is the basis of cost (material prices, labor rates, labor productivities)reasonable, in line with expectations, and consistently applied throughout the estimate? Has the risk basis been clearly defined, and is it reasonable for the level of informationavailable to prepare the estimate?

Estimating personnel used

Who has prepared , their experience??

Do theyhave procedure and guidelines

Estimating methodology

and procedures

What estimating methods, techniques and procedures were used in preparing the estimate? Are theyappropriate for the level of information available and projecttype? Were different estimating methods used for different parts of the estimate? Is the level of detail in the estimate sufficient for the purpose of the estimate?Were parts of the project difficult to estimate, and why? Was sufficient time available to prepare the estimate? What adjustments were made to the estimate forlocation, complexity, etc., and are they reasonable? Was the estimate prepared utilizing a code of account structure?

Estimating documentation

Is the estimate documented clearly? Are the estimate summaryand detail pages well-organized and presented at an appropriate level of detail? Is everycostappearing on the estimate summary traceable to the estimate detail and other estimate backup?

Estimate validation

Metrics report project administration costs as percent of total project cost, engineering costs as percent of total project cost, ratio of equipment cost to total project cost, construction labor as percent of total field cost, total field costs as percent of total project cost, project cost per unit of capacity, and average composite crew rate bytrade.

Quick using conceptual estimating technique

Estimate details

ensure that estimate is prepared in professional manner

80/20 rule -- identifycost diver

Select an area of estimate and review how quantities are arrived.

Ask estimator to show the drawing from which the estimate is being arrived.

The goal of an estimate is to predict the probable cost of a project. The goal of an estimate review is to determine that a high quality andsufficientlyaccurate estimate has been prepared. The review should ensure that the proper estimating methods, procedures, techniques,data, and guidelines have been employed in the preparation of the estimate. The use of a structured estimate review cycle and estimatingreview techniques will help to ensure that quality estimates are consistentlyprepared which effectively support the decision making processbymanagement.

Presenting theestimate

Numbers are useless without supporting documents. Supporting

info to describe what the number represent.

Estimate report to inculde -- basis of estimate (BOE)- Estimate summaries- Estimate details- Estimate benchmarking details- Estimate reconciliation report-Estimate backup

Can be summaries against WBS

to show bench mark metrics

EstimatingResources

Info needed to prepare estimate - conceptual estimating factors; material cost and pricing information;

labor workhour charts and information; labor productivity information; labor wage rates, composite crew mixes, etc.; and other estimating factors and information.

In-house cost history manual

Every complete project should have be documented by a final design report

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Discrete

ProductManufacturing

Philosophies

Concurrent Engineering

Basic Cost Relationship

Group Theory

Just-in-Time

Computer Added Process Planning

Lean Manufacturing

Material Requirement Planning

Supply Chain Management

Total Quality Management

Cost Estimating for

discrete partmanufacturing Direct and Indirect Cost

Cost Estimating Guide Form

Break-even Analysis

Shutdown (SD)

Cost Point (C)

Required Return Point (RR)

Required Return after Tax

Point (RRAT)

Ch 11 Discrete Product Manufacturing.mmap - 10-06-2010 - Mindjet

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Process

Product

Manufacturing

Type of Operation

cost estimate and

estimating forms

Operating cost is non-liner

to production rate

therefore should be done

full and part production

Incremental cost

estimation

Effect of change or addition to existing

process cost analysis should be done on

incremental basis as project change can beeconomical however overall project can be or

vice versa

Daily vs Annual Cost

estimates

Annual cost of estimation is preferred

over daily as it covers it dams out

seasonal variations, considers equipment

operating time, periodic large cost like(schedule maintenance, vacation shutdown,

major repairs. It is convertible to other

basis as daily cost, unit of production,

yield annual mean.

Nelson Index ?

M&S Index ?

ENR

Index

?

Cost of operation at

less than full

capacity

Semi-variable Cost

Fixed Cost

Depreciation

Property Taxes

Insurances

Variable Cost

Raw Material

Utilities

Royalties (however can be

Fixed and Semi variable

too)

Packing (however can be

semi-variable)

% Capacity

Shutdown Point = fixed

component of variable cost

recovered

Break even point = fixed

and variable cost

recovered

Minimum Return Point =

fixed, variable cost and

minimum return obtained

Raw Material CostInfo on Raw material needed

Unit of purchase

Unit cost

Source of material

Quantity required per unit of time

Quality of material

By-Products Credit

and Debits

Utility cost increase as

demand increase

Electricity

electricitycost is dependentupon load

factor i.e. rate preferences to steadyconsumption

Natural Gas

Steam

Water

Type of fuel

Btu (British Thermal Unit value

Royalties and

Rentals

General Work

Expenses

Depreciation

Depreciation Basis

Straight Line Method

Double declining balance method

ACRS

MARCS

Depreciation is FIXED,INDIRECT COST

Contingencies

Amortization

Writing of or recovering

any portion of the initial

expenses which is

intangible in nature and as

such has no definable

useful life.

Same calculation techniqueis used as depreciation or

as function of production

Depletion

Deduction from gross

income prior to calculation

of taxes on income

For natural resources e.g..

gas, coal mines

Insurance

Real Estate Taxes

Distribution Costs

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Progress Measurement and

Earned Value

Measuring Work Progress

Method 1 - Unit Completed

applicable where repetitive production of easily

measurable works

when each piece requires approximate same level of efforts

most cases sub-task are not mixed

E.g. Pile number counting

Method 2- Incremental Milestones

applicable for sub-task that must be handled in sequence

e.g. installing a equipment can be done in steps a) receive the equipment

b) Setting c) Alignment d) Utilities connection e) Commissioning

Rules of Credit - segmenting a task into subtasks and assigning each an

increment of progress for the entire task

Method 3 - Start Finish

Applicable when lack readily definable intermediate milestone

difficult to determine the % complete.. when work done --> then done

Method 4 - Supervisor Opinion

take supervisor opinion on judgement of % complete

can be used in minor project

Method 5 - Cost Ratio

% complete = actual cost or work hours to

date/forecast at completion

task that involves long period of time

applicable for project management, quality assurance,

contract administration, and project control

Method 6 - Weighted or Equivalent Units

task ins controlled over long period of time

rules of credit - according to level of efforts

Earn Value for Fixed BudgetIntroduction

The System

Earn value = % complete x budget for that account

Cost and Schedule PerformanceThe system

Productivity

Ch 14 Progress Measurement and Earned Value.mmap - 02-06-2010 - Mindjet

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Earned Value for Variable

Budget

Earned Value -

Variable Budget

The System

What is quantity adjusted budget (QAB)

is adjusted budget - varies

with quantities of works x

budgeted work hours rates

Final quantity can not be

adjusted until the design is

over this is well after

start of the project

Cost and Schedule Performance

SPI, CPI, SV and CV have

same meaning as they have

in Fixed budget

Earned Work = ..... check

Productive Analysis

under variable budget

system - CPI=PI as

quantity adjusted budget

account for quantity

variation

Credit Work hour = EV

Rework in Reimbursable project

it is incorrect to include

reworked portion of

budget or

hours earned when doing

the replacement of work

Original budget unit rates

must represent realistic,achievable objective, or

the quantity adjusted

budget will be invalid for

all purpose

Fixed System

Used where project is well defined

Characteristics

It provides direct

evaluation of cost and

schedule performance

It requires supplementary

system for productivityevaluation

Bookkeeping is simplified

there is no potential for

operator caused error.

Fixed Budget provides

constant target for

manager to see.

Fixed budget provides an incentive for working smarter

Cost performance Index(CPI) and Productivity

Index (PI) can not be same

Performance data is susceptible to distortion if project

budget is not realistically distributed

Variable System

Characteristics

CPI and PI are same

Cost will also be same if

wages are not having any

variance

Separate system is required if operating against fixed or

target budget

It provides moving budget that varies directly with both

actual qty of works and budgeted productivity rates of

includes tasks.

If applied on fixed or target budget, a quantity variance

account will be required to balance additions and deletions in

the work accounts

Continuously changing baseline requires operator attention

Case # 1 - Fixed Budget Approach for Fixed

Price Contract

Budget works hours are redistributes within the

available (fixed) budget

There will be budgeted

unit rate and required unit

rate

therefore, PI and CPI are

different

Case # 2 - Variable Budget Approach for FixedPrice Contract

same unit rate

Budget(original) unit hour

and revised budget is used

Variance is compared

between Original budget

and Actual

Case # 3 Variable Approach with Variable Budget

Variance is equal to revised

budget and actual work

done

Ch 15 Earned Value for Variable Budget.mmap - 02-06-2010 - Mindjet

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Performance

and

Productivity

Management

Success Index

Overall performance issue

the challenge

losses through inefficiency

other time wasters

Waste through rework

the solution

The Productivity Issue

the challenge

variability

sociological (area) factors

location factor

project and contract

characteristics

Human factor

Field organization and

management factor

accounting and estimate

Promoting productivity

Incentives

Why incentive

The stimuli

Reward within the winning scenario

Example of incentive programmes

Open-Book Management

good news bad news fully

share with employees

the theory being employee

will make better decisionand perform better if they

know exactly how the

company operates and what

contribute to profit and

loss

The Green Stamp

Programme

employee earn credits for objective such as zero defect,

no accidents, no late start/early quits, absenteeism

credit are allowed to

accumulate in the

employee's account for

conversion to gift

certificates

employee can pick up reward

the accumulation features

stimulates continuingachievement

employee family comes in

the influence

its open to all the

employee

Suggestion Programme

employee suggests

committee reviews

adopted suggestion are

reward-> money or letter

Sharing savings

much Fixed or target price

contract

field employee shall share

in any saving realized

basis shall be their salary

no penalty for overruns

programmes promotes teamwork and crew balancing, safety,

conservation of material and improved productivity

target bonusesBy owner knowing that exceptional efforts would be required

sum of money kept aside

honoraria

to individuals for specific

achievements relating to

professional development

like professional

registration, writing paper

etc.

based on length of service

Productivity Index

Evaluation Worksheet

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Project Organization Structure

Matrix Structure

Demingism and Total

Quality Management (TQM)

Project Organization Chart

Project Manager Authority

Project Control Function Reports

Directly to Project or Business Manager

Ch 19 Project Organization Structure.mmap - 26-05-2010 - Mindjet

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Project Labor Cost Control

Why manage labor costlabor cost is most variable cost element of construction project

contractor is more concerned to control the labor cost, howeverif the project is cost plus owner two is concerned.. owner to look

into the cost of his in-house works

Labor cost and Productivity

labor cost is function of worker hourlywage rate and worker productivity

hourly rate are easy to predict, thru variableis productivity

labor cost control methods are applicable to those

organizations which are at risk due to labor inefficiencies

factor affecting construction craft productivity include-

crew size and craftcomposition

craft density (area per worker)

interference with other crew

scheduling

material availability

equipment and toolavailability

rework due to design

site layout

weather

Constructibility

cost control of cost control technique

implementing labor costcontrol can be costly

cost of cost control shouldbe less than money saved

by using it

pareto law is applied ---monitor the cost which has

got greatest impact onfinal cost

ultimate goal of labor costcontrol is to expend the

fewest dollor to complete

the project

project management must

measure the efficiency orcost effectiveness of each

dollar spent

labor input is measured by

workhour or by dollarspent

large number of measure

are used for output

cum of excavation, sqm offormwork etc.

cost control requiresmatching of output to input

each required category of

output requires separatecost code

how to improve cost

accounting

train all to use costaccounting time card

checking time card forcorrect cost codes beforerecording it to cost control

system

developing and maintaining

a well documented WBS

it is more difficult tomeasure when quantities

i t ll d i l

two way variance analysis

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Leadership and Management ofProject People

Leadership Style

Today leaders must work to promote a team cultureand establish partnership with customer and suppliers

communication is needed

leaders are team players

does not control team but obtain commitment from them tosupport goal and objective by fostering open communication

Douglas McGregor

Human side of Enterprise

2 theoretical construct of humannature in relation to work

X theory

a person .... dislike work... will avoid... must be coerced,controlled, directed threatened with punishment

person prefers... to controlled and directed from outside

Y theory

people are self-motivated... will exercise self direction

average person will apply and accept responsibility

people are capable of high degree of imagination, ingenuity,and creative in solving organizational problems

average person intellectual is only partially used

Federick Herzberg

he studied work and working condition

motivation hygiene theory based on concept of satisfiers and dissatisfiers

real motivation resulted from worker involvement in accomplishing an interesting

task, not from the working condition or environmental factors

however the hygiene

factor must adequate

job enrichment ----> by increasing the challenging content of the job wouldcause employee to grow both in skill and in a feeling of accomplishment

Chris Argyris

highlighted dichotomy between individual and organization need

noted that the problem were due to org bureaucratic and hierarchical structure

early proponent of concept of ad hoc

groups, cross cut organization lines

climate of trust are needed

interpersonal competence and authenticity in relationship is needed

as interpersonal competence and authenticity can blockinformation flow and understanding

Rensis Likert

attitude measurement approach

developed concept of linking pin

shows that entire organization is viewed as aset of overlapping and interacting group

real authority of manager is what subordinates allows the

manager to exert over them regardless of his formal authority

degree of group commitment are based on extent to whichthe manager considers the opinion of subordinates in

reaching a decision whose outcome has impact upon group

leadership styes ---------------------------------------------------.>

exploitive and authoritative

benevolent and authoritative

consultative, and

participative group

Robert Blake and Jane Mouton

developed concept of managerial grid

there was unnecessary dichotomy in mind for'people problem' and 'production problem' both are interdependent

81 possible position on the their grid -these represent leadership styles ideally on grid manager should be 9,9

manager job is one of coach, advisor, or a consultant

Teams

team out performs individuals

team don't form because the people are associated but

but collective commitment andmutually accountability is required

wisdom of team comes with a focus on collective workproducts, personal growth and performance result

meaningful team us always a result ofpursing a demanding performance challenge

people can have different goals

some what to be part of team -- some not

some want to lead some follow

individual accountability must be merged mutual accountability

clear goal can help reduce the potential for future disruption

Cross Cultural Concerns

manager must be aware of cultural differences

birth culture has more effect on person than organization culture

wide range of challenges from language barriers

l d l d ff

challenges

uncertain organization resource support

for the projectextreme time pressure

first time challenges to solve unique andcomplicated problems

a wide variety of personnel and other

resources interdependencies

challenges in obtaining resources from seniormanager - who may not totally support the project

special skills for successful

apply both technical and managerial skill

motivate team

create group cohesion

think and thrive under pressure

drive theteam towardexcellence

Motivators and

De-motivators

What is motivations

that process, action, or intervention that serves as an incentive for ateam member to take the necessary action to complete a task within the

appropriate confines and scope of performance, time and cost

nature of motivation can be bothintrinsic or extrinsic

"intrinsic" - coming from inside

- stimulating challenges"extrinsic" - source is outside the

individual, peer recognition, pay increase

Motivational Challenges

continuing ongoing reduction in force

even successful organization are downsizing, those left havefeeling of anger and guilt that clearly decrease guilt

they are cynical and skeptic such environmentmakes motivation difficult

unspoken contract between employee and employer

now focus is if organization owning thejob employee has carrier

in past quality job performance andloyalty would be in turn rewarded

increase in number of team members from different backgroundsnorms of motivation can be different

knowledge is required as to what motivates each individuals

Other Motivational Considerations

baggage becomes impediment to the persons'positive engagement with the work to be done

baggage are the negative feeling, attitudes result ofprevious negative personal or professional experiencethese baggage are

previous or ongoing organization issues

industry changes

health issues

career stalling andpersonal problems

some motivational mistakes

what motive me will motivate other

money is primary motivator

everyone want to receive formal award

team member are motivated by quotas slogan

best leader is strong cheerleader

professional do not need motivation

motivate if there is problem

everyone should be treated the same

just find one thing that motivates each person and then stay with it

Theories of Motivations

Biological perspective

action or behavior that contribute favorably tothe preservation and expansion of species

most basic human nature

drive theories

drive are considered complex combinations of

internal stages of tension that causes the individualto take action to reduce the level of tensione.g. sex drive

goal is to reduce tension and achieve balance 'homeostasis

incentive theories

states that individual behaviors is pulled in certain directionbased on the e xternal conditions in specific settings

this approach can work in setting when the manager and teammember have the ability and the resources to identify a desired

behavior that can be awarded by providing the identified incentive

theory of needs

as humans challenging environments provides opportunities to achieveexcellence or to compete against other successful will provide motivation

people who value need for achievement are often those people who arethe leaders in the area of creativity and economic growth

fear of failuremotivational basis to act and succeed

hierarchical theory

Abraham Maslow

L1 - Physiological Needs (food, thirst)

L2- security and safety need (stability and survival)

L3- belonging need (affiliation, love)

L4- esteem need (achievement and acquisition of recognition)

L5 - Cognitive need (knowledge)

L6- Asthetic need (beauty, order)

L7- Self actualization need

Carrier Stages

1 to 10 from.. early years of carrier to retirementvalues are

technical - functional

general and managerial

autonomy and independence

security and stability

entrepreneurial creativity

service and dedication to a cause

pure challenge

lifestyle

personal value affects our enjoyment andpursuit of various task in workplace

therefore motivation will be greatest when we pursuetask and functions consistent with our values

empowermentmeredith and mantel

Ethical theories and

applicationsethics is science of judging specifically human endsand the relationship of means to those end

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Quality

Management

HistoryRenewed Emphasis on

Quality Management

Productivity Paradox

Roles of Continuous

ImprovementPrograms

Why is traditional

Accounting failing

quality management

Bring fact no

hunches

What is quality

Impact of Poor Quality

Quality Planning

Quality Control

Quality Improvement

Categorizing quality cost

Where do quality cost resides in theaccountant's financial statements

Benefit of measuring total expenditure

when measuring quality

Goal and uses for the COQ information

Quantifying the magnitude of the

costs of quality

Continuous improvement with

benchmarking and unit costs

Deconstructing COQ categories

Ch 24 Quality Management.mmap - 02-06-2010 - Mindjet

16 Changes

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Contracting forCapital Projects

1. Requirement of Contract

Offer

Clear, unequivocal offer to perform the work or services

Offer must be definite, seriously intended and communicate other party

Acceptance

other party accepts the

offer - contract can be

formed

acceptance must be communicated to the party making the offer

if party (contractor) accepts the offer with

condition not included in the original offer - this is

rejection of original offer and a counteroffer

in this case offer is not

accepted and no contract

exists

Party receiving the counteroffer and thus form a contract

Legality of Purpose

to be an enforceable contract, the work and

services performed must involve legal activities

Competent Parties

Parties to be content

Legal and mental capacity

to form a contract

both parties executing the

contract should have legal

capacity to do so

in private contract is both

parties is presumed to

have legal authority, in

public contract risk shift

to party making the offer.

in public contract a party making the offer has responsibility

to check if public official asking for offer has the authority

to execute the contract and legal bind their public agency to

the terms and condition of the contract

contract with minors,

insane individuals,

intoxicated person,convicts and enemy aliens

is not legally binding

Consideration

Court will enforce contract only when there is consideration

is whatever one party demands and receives in

exchange for the work or services performed

2.

Mistakes that makes

contract defectives

Mistake as to the nature

of transactions

Mistake as to Identity of party

Mutual Mistake as to the

Identity of the subject matter

Mutual Mistake as to the

Existence of the subject matter

3.Mistakes that do notmake contract defective Mistake to value quality or Price

Mistake as to terms of Contract

4.

Other factor effecting

contract enforceability

5. Parties to Contract

6. Why have written Contracts?

Project Delivery Method and

Project Delivery methods

Design Bid Built Method

Design-Build Method

Indefinite Quantity

Contract Method

Single Prime Contractor

13. Decision to Bid

Expertise

Financial Capability

Bonding Capacity

Personnel

Equipment

Specialized Knowledge

Risk Analysis

Work Load and other potential projects

14. Key Contract Clauses

Audit

Changes

Contractor Responsibilities

Delays

Deferring site condition or

Changes Conditions

Dispute Resolution

Force Majeure

Governing Law

Indemnification

Insurance

Late Completion Damages

Limitation of Liability

No Damages for Delay

Order of Precedence

Owner Responsibility

Payments

Quantity Variations

Schedules

Suspension of Works

Termination

Time of Essence/Time of Performance

Warranty

Contract Notes

Constructive

15. Claims

Definition

Universe of Claims

Directed Changes

Constructive Changes

Differing site condition

Suspension of works

Constructive suspension of Works

Force Majeure

Delays

Acceleration

Constructive Acceleration

Termination for Convenience

Termination for Default

Successful Claims

Liability

Causation

Damages

Dispute Resolution

Negotiation

Mediation

Arbitration

Litigation

16. Changes

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Strategic

AssetManagement

TCM and Strategic

Asset Management

Performance Measurement

Performance Assessment

Planning

Implementation

Asset and Project System

Performance Measurement Asset Performance Assessment

Asset Planning

Implementation

Application - Capital

of Fixed Asset

Application -Products

Application - Software

Ch 26 Strategic Asset Management.mmap - 02-06-2010 - Mindjet