cost control process for construction

i

Helwan University

Faculty of Engineer matarya

Civil Department

Cost Control Process for Construction Projects

Dissertation Research in Partial Fulfillment of the Requirements for the Degree of master

Prepared By

Yasser M. Abouzeid

Supervision by

Prof. Dr. Adel El-Samadony

Prof. Dr. Randa kamel

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ACKNOWLEDGMENTS

First and foremost, I would like to extend my heartiest gratitude to Prof. Dr. Adel El‐Samadony, as my supervisor during obtain M.SC degree. He

gave me the chance to finish the study and with his guidance, the study can finish smoothly. Besides that, his patience and encouragement leads me to complete this study in time.

In addition, I would like to thank Eng. Amr Dawood, as the representative from the staff in Rowad modern Engineer (RME) for their kindly advised and assistance in giving the information to complete this study.

Not forgetting to present this research to spirit of my father. Mother, brothers and sister, for their full support and coaching throughout this research.

Lastly but not the least, to all my friends for their support, advise and their help when the time I need them.

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ABSTRACT

With the competition in the construction market is fierce increasingly, profit margin of construction enterprises is getting smaller and smaller, and cost control of construction projects become more and more important. The control of construction project cost becomes one of the cores in project management.

Construction project management is a systematic, comprehensive, dynamic subject, requiring construction project manager to regularize and standardize the organization, goal, quality, safety, and cost of construction project. In order to achieve the project cost control effectively and create greater economic benefits. A study is carried out to study the cost control method in a constructions project, to identify the cost control process method frequently used by contractors in controlling the cost of projects.

From the study, the main problem faced by contractors are shortage of material, Labor costing more than estimated, difficulty in collection of cost data, ever-changing environment of construction work ,qualified expertise ,duration of project and additional costs to carry out the cost control.

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INTRODUCTION

The cost control is a process that should be continued through the construction period to ensure that the cost of the project is kept within the agreed cost limits. The cost control can divide into two major areas; the control of cost during design stages and the control of cost by the contractors once the constructions of project have started.

Cost control of a project involves the measuring and collecting the cost record of a project and the work progress. It also involves the comparison of actual progress with planning. The main objective of cost control of a project is to gain the maximum profit within the designated period and satisfactory quality of work

Purpose: Due to the ever increasing competition and current climate in the construction industry, this has lead construction companies to become more competitive in their projects. The aim of this research was to highlight the importance of proper monitoring construction and examine what cost control Process that is in place. This will help all staff realise the importance of monitoring constructions and cost control system by suggesting recommendations to implement in future projects.

Objectives: The objective for this research is:

1- To study cost control Process in a construction project. 2- To identify the cost control method frequently used by contractor

during the construction stage. 3- To identify the main problem faced by contractor in controlling the

cost on site.

Methodology: A comprehensive review was under taken to get a better understanding of cost control system knowledge transfer. For the current research a case study was conducted on medium scale contractors by means of semi- structured interview and questionnaire to look at how their cost control system we monitored and any recommendation for improvement the research will illustrate the basic process used in cost control of construction project, in each process we explain the basic information need to this process and who is responsible to do this process and the form need to do the process (spreadsheets controls).

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CONTENTS

Title Page Number

INTRODUCTION iv

1 State of Art 1.1 Project Cost Control 1

1.1.1 Purposes of Project Evaluation 1 1.1.2 Cost Control Definition 2

1.2 Important Questions 3 1.2.1 Why we need Cost Management? 3 1.2.2 What the Project Manager Controls? 3 1.2.3 Who Needs Cost Management? 5

1.3 Project Life Cycle and Project Cost 5

1.4 Characteristics of a Project Control System 7 1.4.1 Elements of A Planning And Control System 8

2 Proposed approach to construct model of cost control

2.1 What Information do you need to construct the model?

10

2.1.1 Estimating/Budgeting 10

2.1.2 Work Breakdown Structure (WBS) 33 2.1.2.1 Types of Work Breakdown Structures 36 2.1.2.2 Work Breakdown Structure Development 39

2.1.3 Cost Codes 41

2.1.4 Depreciation 44

2.2 Construct model template –Excel-Format 47 2.2.1 WBS template sheet 47

2.2.1.1 WBS sheet template Consist 47 2.2.1.2 WBS sheet template Form 49

2.2.2 Expenses template sheet 50

2.2.2.1 Expenses template sheet Consist 50

2.2.2.2 Expenses template sheet Form 51

2.2.3 Storage template sheet 53

2.2.3.1 Storage template sheet Consist 53 2.2.3.2 Storage template sheet Form 54

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3 the application steps & methods 3.1 Collect Actual Cost data 55

3.1.1 Sources of information 55

3.1.2 Data Required From Procurement Department 59

3.1.3 Data Required From Storages 63

3.1.4 Data Required From Projects 68

3.1.5 Data Required From Finance Department 83

3.2 Actual Cost Allocations 85 3.2.1 WBS Sheet template form 85

3.2.1.1 Client Invoices 86 3.2.1.2 Variations Order 87

3.2.2 Expenses Sheet template form 88

3.2.3 Finance Report 90 3.2.4 Storage sheet template form 91

3.2.4.1 Storage Report 92

3.3 How do you make sure you are getting good information?

93

4

Techniques of outputs & reports

4.1 The Earned Value Measurement System (EVMS) 96

4.1.1 Variance and Earned Value 98

4.1.2 Methods for Physical Progressing 100

4.1.3 Example – Synthetic EVA 104

4.2 Reporting Techniques 108

4.2.1 Report Content 108

4.2.2 Reporting Considerations 109

4.2.3 Sample Reports 110 4.2.4 Responses on Reports 125

4.3 Construction Cost Control Software 126

4.3.1 Advantages of Used Software in Construction Cost Control

127

4.3.2 The Disadvantages of Used Software in Construction Cost Control

130

5 Conclusions 5.1 Common Causes of Cost Control Problems 131

5.2 Keys to Effective Project Cost Control 134

References

144

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List of Table

Table number

Title Page number

2.1 Calculating the Estimate 21 2.2 Subcontractor /vendor list 23 2.3 Estimate summary for Office Building 24 2.4 General Overhead 25 2.5 Straight Line Depreciation 45 2.6 Sum of the Years’ Digits 46 2.7 Double Declining Balances 47 2.8 WBS sheet forms 49 2.9 Direct Expenses sheet forms 51 2.10 indirect Expenses sheet forms 52 2.11 Storage sheet forms 54 3.1 Time Cards 57 3.2 Log of material imported 60 3.3 Quotations Comparison Sheet 61 3.4 Recommended Subcontractors for Quotations list 62 3.5 Monthly Report about store movement 65 3.6 Monthly Report about material distributions 66 3.7 Monthly Report about material distributions and

location 67

3.8 Daily man power for Sub contractor 70 3.9 Daily man power for self performed time card 71 3.10 Weekly man power for self performed time card 71 3.11 Subcontractor productivity by location 72

3.12 man power daily production report 73 3.13 man power estimation & actual quantity 73 3.14 man power distribution by work package 74 3.15 Monthly Status log for manpower 75 3.16 Daily Equipment time card 76 3.17 Equipment distribution by work package 77 3.18 Monthly Status log for Equipment 78 3.19 Value of rent Equipment by work package 79 3.20 log for Concrete Casting 80 3.21 Report about Performance by activity 81 3.22 Monitor Report for Finishing item (masonry) 81 3.23 Cost report include labor, Equipment and material 82 3.24 Monthly Report for Finance department 83

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3.25 WBS Sheet Form 85 3.26 Sample of Client Invoice 86 3.27 Sample of Cover for Variation Order 87 3.28 Sample of Variation Order 87 3.29 Direct Expenses sheet forms 88 3.30 indirect Expenses sheet forms 89 3.31 Finance Report forms 90 3.32 Deduction /Increase Storage Sheet Form 91 3.33 Storage Sheet Form 92 3.34 equate of (client/subcontractor) quantity 93 3.35 Concrete Casting Report 94 3.36 Steel losses Report 95 4.1 Example of Earned value report 107 4.2 Variance analysis Report 113 4.3 Overall Progress Report 114

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List of Figure

Figure

number

Title

Page number

1.1 Project Manager Controls 4

1.2 Project Control Cycle 7 1.3

Project Planning and Control System 9

2.1 Types of Estimates 13 2.2 the Estimating Process 15 2.3 the Estimation Build 16 2.4 Cost estimation Process 27 2.5 Forms of Cost Estimate 28 2.6 Forms of Cost Estimate 29 2.7 Forms of Cost Estimate 30 2.8 Forms of Cost Estimate 31 2.9 Forms of Cost Estimate 32 2.10 Diagram of WBS hierarchy 35 2.11 Product-based WBS 36 2.12 Example of OBS 37 2.13 example of a process-oriented WBS 38 2.14 The cost account intersection 43 2.14 Cost Account code breakdown 43 3.1 data flow between Procurement team and other 59 3.2 step of enter material to the project 63 3.3 data flow between Storage team and other

department 64

3.4 data flow between Projects team and other department

69

3.5 data flow between Finance team and other department

83

4.1

Determining the Status

96 4.2 Controlling both project schedule and cost 97 4.3 Earned value formulae 99 4.4 Analysis showing use of 50/50 rule 102 4.5 Cost data contractual 103 4.6 Physical progress versus time expended 103 4.7 Methods for physical progressing 104 4.8 Representation of Variance on a S- curve 105 4.9 graphical project status 106 4.10 Schedule Performance index 107

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4.11 Graphical status reports 111 4.12 Data accumulation 111 4.13 Cost control and report flow 112 4.14 Performance Report 112 4.15 Progress Trends Report 113 4.16 Sample cost report 115 4.17 Cumulative cost report 115 4.18 Cumulative cost report 116 4.19 Cumulative cost line graph 117 4.20 Schedule status report 118 4.21 Summary Schedule status report 118 4.22 Weeks Status Performance 118 4.23 millstones Summary report 119 4.24 Sample report instructions 119 4.25 Event report 120 4.26 note on performance report 120 4.27 Critical Issues Report 121 4.28 Traffic signal as indicator of project status 121 4.30 Project Performance metric Definitions 122 4.31 Project Performance report 122 4.32 Sample of other Report 124

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LIST OF APPENDIX

APPENDIX

Title Page number

A Cost Control Process Flow Chart 136

B Responsibility Matrix for Cost Control Process 143

Chapter 1 State of Art""

1-State of Art

Chapter 1 "State of Art"

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1-State of Art

1.1-Project Cost Control

1.1.1-Purposes of Project Evaluation Sports teams that practice without reviewing performance may get really good at playing very badly. That is why they review game films to see where they need to improve; there are two kinds of organizations those that are getting better and those that are dying. An organization that stands still is dying. It just doesn’t know it yet. The reason? Your competitors are not sitting by idly. In fact, good project management can give you a real competitive advantage, especially in product development. If you are poor in managing your projects, you don’t have good control of development costs. That means that you have to sell a lot of product or else charge large margins to cover your development costs so that the project is worth doing in the first place. If you can’t sell a lot of widgets, then you have to charge the large margin. In order to learn, people require feedback. Furthermore, people tend to learn more from mistakes than from successes, painful though that may be to admit. If your competitors, on the other hand, have good cost control, they can charge smaller margins and still be sure that they recover their investment and make money. They have a competitive advantage over you because of their better control of project work. In order to learn, people, like the team reviewing game films, require feedback. The last phase of a project should be a final audit so that the management of future projects can be improved. However, such an audit should not be conducted only at the end of the project. Audits should be done at major milestones in the project so that learning can take place as the job progresses. Another reason to do periodic audits is that, if a project is getting into serious trouble, the audit should tell the difficulty so that a decision can be made whether to continue or to terminate the work. Periodic audits should enable you to:

• Improve project performance together with the management of the Project.

• Ensure that quality of project work does not take a back seat to

schedule and cost concerns.

• Reveal developing problems early so that action can be taken to deal with them.

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• Identify areas where other projects (current or future) should be managed differently.

• Keep client(s) informed of project status. This can also help ensure

that the completed project will meet the needs of the client.

1.1.2-COST CONTROL Definition Cost control is the process of comparing actual expenditures to the baseline cost plans to determine variances, evaluate possible alternatives, and take appropriate action. To effectively control costs, be sure cost plans are prepared with sufficient detail.

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1.2- Important Questions

1.2.1-Why We Need Cost Management? The project manager is primarily concerned with the direct cost of the project, but the trend in project management is that the role of the project manager in cost control will increase to include more of the nontraditional areas of cost control. In the future it will be expected that more project managers will have a great deal of input into the indirect costs and expenses of the project. Regardless of what the project manager is or is not responsible for, it is critical that the project be measured against what the project manager is responsible for and nothing else. If the project manager does not have responsibility for the material cost of the project, then it makes no sense for the project manager to be measured against this metric. Timing of the collection of cost information is also important to the cost measurement system. The project budgets must be synchronized with the collection of the project’s actual cost. For example, if a project team is responsible for material cost, should the budget show the expenditure when the commitment by the project team to buy the product is made, when the item is delivered, when it is accepted, or when it is paid for? Timing issues like these can make project cost control a nightmare. If the project team does not properly control cost, the project will invariably go out of control, and more money will be spent

1.2.2-What the Project Manager Controls? The project manager has to measure many things during the course of a project, and he or she must take actions to guarantee that control (see Figure 1.1). The project manager must.

• Measure and review the project schedule progress against the plan

• Measure and review the project cost progress against the plan

• Measure and review project quality

• Anticipate possible changes and alternatives

• Manage issues and risks

• Control scope creeps through a change management process

• Ensure that delivery of milestones takes place according to client expectations

• Coordinate the project team

• Monitor physical resources by controlling the scheduling of resources during the project

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1.2.3-Who Needs Cost Management? In every firm, cost management will exist in some form, usually under the control of the finance function. Our problem as project managers is that often that form is not consistent with the project management function, and that the cost data cannot be integrated with the other project data. As a result, many of the critical management questions concerning cost go unanswered. For instance, if the monthly accounting report notes that Omega Project has accumulated costs of $123,999, is this good or bad? Without integrating the accounting data with the other project data, much of the data is worthless. How do we go about answering such common questions as?

• How much are you going to spend?

• How much did you spend? Is this good or bad?

• How much will you have spent when the project is over? Is this good or bad?

• If I’m in trouble on costs, what can I do to turn things around?

• How shall the costs be distributed?

• How can I control my resource costs?

Effective cost management must address such questions. This requires an integrated schedule and budget plan. It also requires integrated participation by leaders of the projects, resources, and financial disciplines.

1.3-Project Life Cycle and Project Cost

Construction is a dynamic process, and no two projects are ever alike. Even if you have years of experience, every job presents a new set of circumstances and challenges no matter how good a job you do preparing during the pre-construction stage. The project manager and superintendent work together to come up with the best plan they can, trying to anticipate every obstruction and difficulty that might delay progress and put at risk the successful completion of the project, but they still can’t foresee every contingency. Even with this entire expert planning, the project must be monitored from beginning to end to ensure that all of the targets for time, cost, and quality are met. The whole process must be properly managed through a project control system that utilizes the plans, specs, estimate, and schedule. All of these documents taken together establish the road map for getting from the start of construction to the final completion of the project. Using this road map, the project manager and superintendent must maneuver all of the resources in the right direction, making

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adjustments as they go, to keep the project on track and on target. Project control requires continuous monitoring and evaluation of actual performance relative to the estimated performance for all aspects of the job that have an impact on cost, time, and quality. The project control cycle begins with the project plan and ends with the final project debriefing and evaluation. There are seven fundamental steps to the process:

• Develop the project plan.

• Establish the project benchmarks.

• Monitor the project performance.

• Identify performance deviations.

• Evaluate corrective options.

• Make adjustments as needed.

• Document, report, and evaluate results. (see Figure 1.2) It is important to track every aspect of project performance all the way back to the planning stage. This is where every project begins, and it is where every project should end with a complete debriefing and evaluation of what worked and what didn’t work. It is also a time to resolve actual costs and labor productivity information to update existing company records in preparation for the next cycle of project planning and estimating. It is an excellent opportunity to capture lessons learned and to create some best practices for future implementation. Unfortunately, many construction teams fail to complete the last step in the cycle and never properly assess their project’s overall performance. Everyone is usually worried to move on to the next project, and it’s very tough to get all of the parties together for even a couple of hours at the end of the job. It takes a great deal of discipline to consistently take advantage of this opportunity and learn from it. In my experience, I have found the project debriefing to be one of the most effective training mechanisms for every member of the team, from the project engineer to the project manager.

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2. A system for taking corrective action.

A control system should focus on response. If control data do not result in action, then the system is ineffective. That is, a control system must use deviation data to initiate corrective action; otherwise, it is simply a monitoring system, not a control system.

3. An emphasis on timely responses. The response to control data must be timely. If action occurs too late, it will be ineffective. This is frequently a serious problem. Data on project status are sometimes delayed by four to six weeks, making it useless for taking corrective action. Ideally, information on project status should be available on a real-time basis. In most cases, however, that is not possible. For many projects, weekly status reports are adequate. Ultimately, you want to find out how many hours people actually work on your project and compare that figure to what was planned. This means that you want accurate data. Some people may fill out weekly time reports without having kept track of their daily working times. since most of us cannot remember with any accuracy what we did a week ago. When people fill out time reports each week without having written down what they did daily, they are writing fiction. Such made-up data are almost worse than none at all. As difficult as it may be, you need to get people to record their working times daily so that the data will mean something when you collect them. What’s in it for the workers? Perhaps nothing. However, their better estimates (made as a result of collecting accurate information on this project) will help everyone who works on the next project. In any case, you need accurate data, or it isn’t worth the effort at all. When information collection is delayed for too long, the manager may wind up making things worse instead of better

1.4.1-Elements of Planning and Control System Figure 1-3 shows a generic model for a project planning and control system that allows a project to react to the changing conditions of the world.

• Define the problem or opportunity. The first phase of project planning is to clearly define the problem to be solved by the project or the opportunity of which the project will take advantage. This includes understanding the business reasons for the project and the client’s motive in requesting it.

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2-Proposed approach to construct model of cost control

2.1-What Information do you need to construct the model?

So exactly what kind of information should you be gathering to create your system of control which will maintain control of your Project? Below are listed the specific pieces of information you should be requesting

2.1.1-Estimating/Budgeting

What Is an Estimate? An estimate is an educated guess. We are all familiar with estimates. We have obtained estimates for work on our car, for getting our house painted, or for closing costs on a mortgage. And most of us have actually engaged in doing an estimate. We’ve guessed or estimated or calculated how many gallons of paint we needed to paint the living room. The main differences between these simple estimating activities and the estimates used to price construction are the complexity and what’s at stake. When you estimate how many gallons of paint are needed to paint your living room and you are off by a gallon or two, the stakes are pretty small. But when you estimate the cost to build a nuclear plant or a super highway or a hospital or even a house, the stakes are much, much higher. The estimate is a summary, based on the best information available, of probable quantities and costs of materials, labor, equipment, and subcontracts to complete a project, including taxes, overhead, and profit. It is the number used to develop the project bid price. The bid price is what goes in the contract, and the contract obligates you to perform all work needed to complete the project in accordance with the plans and specifications. The consequences of any errors or omissions in the estimate are borne by the contractor, and the contractor will not actually know what the true cost of the construction is until the project is complete. If the estimated cost is equal to or greater than the actual cost, the project makes money for the contractor. If the estimated cost is less than the actual cost, the contractor loses money on the project. As you can see, estimators have an awesome responsibility. First, they must come up with an accurate but competitive estimate that will win the job. Second, their planning and calculations set the stage for the overall management targets for the entire project. Once the estimator turns the project over to the project manager and the on-site team, the estimator shifts to a support role and really has no direct management duties

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possible. An experienced estimator can help out in a situation like this by offering a rough order of magnitude (ROM) estimate. These estimates are based upon a cost per primary unit for the facility. For example, for hospitals, the primary unit of measure would be beds, and you would multiply the proposed number of beds by the appropriate unit cost. For a school, the calculation would be cost per pupil; for a highway, the estimate would be based on a cost per mile. Once the owner suggests how many primary units they would like to build, an estimator can whip out a rough order of magnitude estimate within minutes; however, the accuracy is limited.

2. Preliminary Estimates If you have a preliminary set of drawings with overall dimensions, you can move to the next level of estimating. Preliminary estimates provide a somewhat higher level of accuracy and may be used to establish initial budgets and preliminary financing scenarios. However, these estimates should never be used to commit to a contract price because too many factors can influence the reliability of the numbers. Although there are numerous preliminary estimate methodologies, the most common is probably the square foot method. In its simplest form, the estimator calculates the area of the floor plan and multiplies that number by a unit price. There are various levels of skill and detail that can be applied to the square foot estimating method, and the degree of accuracy increases with each step up, as will the time it takes to calculate the price.

3. Detailed Estimates Whenever you have a complete set of plans and specs, you should do a detailed estimate. This is where you count every brick and stick, so to speak. Quantities and costs are calculated for every aspect of the project, and this is by far the most reliable estimate if the contractor is being asked to give a firm bid on a project. Detailed estimates are the most accurate. But keep in mind that as the accuracy increases, so does the time, effort, and skill required to complete the estimate. Although computerized estimating has reduced the time needed to compile project costs, it can still take two to three weeks and a team of estimators to put together a detailed estimate for a large, multistory commercial building such as an office or retail complex. The estimators still have to put the bid packages together and spend time soliciting subcontractor and vendor pricing. Throughout the rest of this chapter, I will be talking about detailed estimates.

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1. thoroughly reviewing the plans and specs 2. developing a list of questions and needed clarifications 3. attending the pre bid meeting 4. visiting the project site

1. Reviewing the Plans and Specs

It is important to get a “big picture” perspective of the project before you get into the details of the work. Having an overall understanding of the difficulty of the construction will assist the estimator when making judgment calls that inevitably affect the accuracy of the estimate. Ideally, the plans and specs are reviewed in detail before any estimating takes place. Among the first things to look for when making the initial review are any special conditions, clauses, or criteria that could adversely affect the project schedule or cause unusual risks to be taken. Such items should be highlighted during this process and red flagged for the project team when the job is passed from the estimator to the project manager. Remember the earlier example regarding the imported Italian marble tile. Many of these red flag clauses are found at the front end of the project manual in the instructions to bidders and supplemental conditions. Taken into account during the estimating process.

2. Developing a list of Questions and needed Clarifications In addition to discovering red flag issues, the plan and spec review provides an opportunity for the estimator to uncover details that require clarification or questions about the project that are not addressed in the contract documents. As the estimator thumbs through the drawings, they will prepare a query list in anticipation of the pre bid meeting, site visit, or phone conference with the designer. The designer typically responds to each of the questions in writing. Those responses that result in a change to the original plans and specifications become official addendum to the contract. Checklists are a common tool used to make sure that nothing gets left out or overlooked.

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Organizing the Work of the Estimate Estimating the cost of a multistory office building, high-tech manufacturing facility, or state-of-the-art concert hall is no easy task. It is a big job and takes great deal of planning and organization. So, how do you conquer this challenge? Well, the same way you eat an elephant—one bite at a time! Although the CSI Master Format 2004 gives us an overall outline to follow, thousands of activities and materials must be considered before you can begin to price the project. As large as the task may seem, there actually is a logical method for organizing all of the work activities, materials, and labor associated with a project. Let’s take a look at just how you eat this elephant!

1. The Work Breakdown Structure The primary organizational tool utilized by the construction estimator is the work breakdown structure (WBS). The work breakdown structure establishes the basic building blocks of both the estimate and the schedule. The purpose of the work breakdown structure as it applies to the estimate is to organize and identify the work of the project by breaking each division of work into a separate work package or bid package. The work package identifies each step in the process of that work item. Work packages are usually assembled around the work activities typically performed by a single subcontractor or work group. Obviously, being familiar with construction materials and methods is pretty important here. One of the primary goals in creating a work package is to not overlook any of the steps needed to complete the work. A sample work package looks something like this: Work Package—Concrete Floor Slab

• Excavate the footings. • Install the edge forms. • Install under slab fill. • Install vapor barrier. • Install the reinforcing. • Place anchor bolts. • Place the concrete. • Finish the concrete. • Strip the form work.

Once each step associated with a particular item of work is identified, it can be quantified and priced. But let me stop here and back up a minute to make sure that you remember how the work of the project is actually accomplished. The contractor has two options:

• self-perform the work with their own forces • Subcontract the work to various trade contractors.

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The contractor will have to do all of the quantifying and pricing of each step of the work if the contractor decides to self-perform a particular section of work. If the contractor decides to subcontract out some of the work, then the subcontractor will quantify and price the work and submit a bid to the general contractor. The greatest challenge either way is to make sure that nothing gets overlooked or left out of the estimate. Sometimes the general contractor calculates their own quantities and estimates for subcontracted work even though the subcontractor will be submitting a bid. This is called a fair value estimate; it’s done as a check to guard against inaccurate quantity surveying by the subcontractor and unreasonable pricing.

2. Calculating Quantities Now that you have assembled all of your work packages and identified all of the steps necessary to do the work, you can start doing your quantity takeoff. You must quantify all of your materials, labor, and general conditions before you can price any of the work. You need to calculate “how many” before you can calculate “how much.” Once you determine the quantities, you can apply a unit price factor to the equation. Junior estimators often start off as quantity surveyors. The primary attributes of a good quantity surveyor are the ability to read and interpret plans, knowledge of common units of measure for construction materials and labor, and basic estimating mathematics. You will use algebra to measure ratio and proportion, plane geometry for lineal and area measurements, solid geometry for cubic measurements, and plane trigonometry for lineal, area, and cubic measurements.

3. Quantifying Materials Quantifying materials is the least risky of all the estimating activities. You are simply counting and calculating all of the parts and pieces that will go into the project. Quantity surveying represents more of the science of estimating. That’s because you are working with known sizes and dimensions depicted in the drawings. If the plans are drawn correctly and include all of the information needed to do the takeoff, the estimator should be able to come up with very accurate quantities, assuming the estimator doesn’t overlook anything and doesn’t make mathematical errors. The estimator reviews the plans, the elevations, the sections, and the details; pulls the dimensions needed to make the appropriate calculations; and comes up with the lengths, areas, and volumes of work and material required for the project. Probably the most difficult part of the quantity survey is making sure that the quantity is taken off in the proper unit of measure. The unit of measure

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11. General Overhead I’ve already mentioned job-specific overhead. These costs include such things as the job site office trailer, portable toilets, and job photographs. They are estimated item by item relative to a specific job. General overhead is a different story. Basically, general overhead represents the cost of doing business. These are expenses that would be incurred by the company whether they had a job to build or not, such as office expenses, executive salaries, and automobile insurance. General overhead is applied to the estimate as a percentage of total cost. This percentage will vary from company to company see Table (2-4).

Table 2-4 General Overhead

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12. Profit The goal for every project is to make a profit. Profit is what’s left after all costs and expenses associated with the job have been paid. The estimate represents the contractor’s best guess as to what those costs and expenses are going to be. Profit is expressed as a percentage of the total estimated cost. Profit is rarely a fixed percentage in construction. The estimating team will make a determination as to how much that percentage should be for any given job. As previously stated, when times are tight in construction and there is very little work to bid, profit margins may be quite small. On the other hand, when there is a lot of construction going on in a particular market and demand is high, profit margins will be adjusted upward. Either way, profit is an estimated number just like every other number in the bid. It is highly unusual for the actual cost of the project to exactly match the estimated cost of the project. If we consider each division of our estimate summary, and each of our add-ons, the most likely scenario will be that some divisions (and add-ons) will be over the individual division estimates, and some will be under the individual estimates. However, it’s the final number that you are most concerned with. The goal is to have the actual overall cost of the project at the estimate or under after all point we described we can illustrate the cost estimation in figure (2-4).

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2.1.2- Work Breakdown Structure (WBS)

To plan the project we must convert these into individual pieces of work that must be done to complete the project. For this we need the ‘‘work breakdown structure,’’ or WBS .The work breakdown structure is the most central item in the project plan. Without it we do not have a definition of the work that has to be done to complete the project. Without knowing the work that has to be done we cannot possibly determine the cost of the project or determine the schedule of the project. Without knowing the cost or schedule of the project how will it be possible to control the project or determine how much should be spent to complete it? The amount of resources that must be used on the project and when they must be made available cannot be determined without knowing the schedule. Funding to do the project cannot be scheduled to be in place when the project needs it without a time-phased budget for the project. According to the Guide to the PMBOK, the definition of a work breakdown structure is: ‘‘a deliverable oriented grouping of project components that organizes and defines the total scope of the project work. To create a WBS is a simple task: the project is first broken down into a group of subprojects. Each of these subprojects can be broken down to sub subprojects. The sub-subprojects can be broken down again and again until the desired level of detail is reached. The level of detail is termed the' work package’’ level. The work package is the lowest level of management that the project manager needs to manage. Below the work package other project team members may break down their parts of the project into additional levels .Work packages can be broken down into ‘‘activities,’’ and activities can be further broken down into ‘‘tasks.’’ The reason that technique is so effective is that it follows the principle of ‘‘divide and conquer. 'So, initially the project is broken up into a group of subprojects. These subprojects are further broken down into sub-subprojects, and so on. In this way the largest project we can imagine could be broken down into subprojects. Since each of these subprojects could be considered to be a project in its own right, any large project can be thought of as a family of smaller projects that are interrelated. The important thing about project management is that it is a powerful Methodology that adapts to any size project or program. The tools and methodology that are used are similar in all projects. The WBS is the tool that allows all projects to be broken down into smaller, more manageable projects. The end result of the WBS is a group of individual pieces of work defined. Each of these small individual pieces of work must be assigned to. It is then

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possible to break the work packages down further before the actual work assignments at the detail level are made. The WBS is a hierarchical structure in which all of the major phases of project work are organized in a logical manner. Simply stated, it is a layout of how the work of the project ought to be performed and managed. The WBS links together the project scope, the schedule, and the cost elements, and forms the basis for the entire project information structure. It provides the framework that captures the project’s work information flows, as well as the mechanism for tracking the project’s schedule and progress. It also provides the basis for summarizing and reporting the project’s cost data. In essence, the WBS creates a common framework that.

• Presents the entire project as a series of logically interrelated elements

• Facilitates project planning

• Provides the basis for estimating and determining project costs and

budgets

• Provides the mechanism for tracking project performance, cost, and schedule

• Provides the basis for determining the resources needed to

accomplish project objectives

• Provides the mechanism for generating project schedule and status Reports

• Triggers the development of the project network and control

systems

• Facilitates the assignment of responsibilities for each work element of the project

• Graphically, we can imagine a WBS along the lines shown in Figure

2.10

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2.1.2.2 Work Breakdown Structure Development

Before any Work Breakdown Structure can be produced, it is essential that careful thought is given to the number and size of networks required. Not only is it desirable to limit the size of network, so we should be considered in relation to the following aspects:

1. The geographical location of the various portions of the project.

2. The size and complexity of each Project.

3. The process or work being carried out in the Project when the plant is complete.

4. The engineering disciplines required during the design and construction stage

5. The erection procedures.

6. The stages at which individual Project or systems have to be

completed.

7. The site organization envisaged.

8. Any design or procurement priorities. So Constructing a WBS is a group effort. The responsibility for the top three levels usually lies with the project manager, who typically works with other managers to develop the major deliverables found there. At the lower levels, however, input into the details should come from that Responsible for the day-to-day work. In addition to the project team, each person responsible for a specific work package must be consulted. There are no universal standards as to the number of levels to use in a WBS. This is typically dictated by the complexity of the project, and the number and nature of the activities. Most have three or four levels at a minimum, although more may be needed if there are significantly more sub deliverables and work packages. As a rule, the greater the number of work packages, the greater the amount of time, effort, and cost incurred in developing the WBS. However, the increased number of packages also significantly enhances the accuracy of project status monitoring and reporting. On the other hand, larger but fewer work packages reduce the cost of WBS development, but the accuracy of project status monitoring and reporting suffers. In most practical situations, a compromise on the number and size of work packages is struck. The most important levels in the WBS development process are the top few levels, which represent the project and associated major deliverables, and the lowest levels, which represent the work activities that are to be scheduled and resourced.

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/4531

Typically, the intermediate levels are an aggregation of the lower-level activities, and serve as the mechanism for reporting. The intermediate levels can also be used to set up cost accounts through which cost and budgetary information can be gathered and monitored. A WBS should be constructed by separating the total work, in a hierarchical framework, into discrete and logical sub elements that reflect completeness, compatibility, and linkage to the project’s end item. This hierarchical structure facilitates the aggregation of budget and actual costs incurred into larger cost accounts. In this way, the total value of the work at one level is an aggregation of all the work completed one level below, which enables project work and cost performance to be monitored. The WBS should also reflect all of the project requisites, as well as functional requirements, and should incorporate both recurring and nonrecurring costs. In a WBS, the lowest level consists of tasks of short duration that have a discrete start and end point. Because they consume resources, costs are often reported at this work package level. Work packages serve as control point mechanisms for monitoring and reporting performance, in terms of whether associated tasks were completed according to specifications, on time, and within budget. The responsibility for completing work Packages should be assigned to the appropriate organizational units and individuals, and the resulting WBS should reflect the reporting requirements of the organization. We can develop a WBS by one of two methods:

• Top-down approach begins with the total work required to produce the project’s end product. This is successively broken down, First into major work blocks and then into more detailed work package levels until a required level of detail has been achieved.

• Bottom-up approach begins with a comprehensive list of all the

activities or tasks required to complete the project. Then it moves up, in a hierarchical format, first to work packages, then to cost accounts, and so on, until the top level represents the total work to be performed. It is highly unlikely that the first version of the WBS will be the last.

More often than not, it will undergo frequent revisions in response to Feedback that works must be broken into more detailed tasks. Clearly, only individuals who have a thorough knowledge of the work to be performed can conduct the appropriate level of detailed breakdown. In addition, it is impossible to establish estimates of task duration, resource requirements, and the network of precedence relationships among activities without complete agreement on details at the lowest level.

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/4532

2.1.3- Cost Codes

Once the budget, WBS is confirmed, each activity in the budget is assigned a cost code. Cost codes are used to track all items of work contributing to the overall project Costs. That includes material, labor, equipment, subcontracts, and overhead. All job information regarding cost is tracked via these cost codes as shown in Figure 2.14 Every item on a material invoice, every man-hour logged on a time card, and every subcontractor payment are assigned a cost code and recorded. These codes are used to compare actual job costs with the estimated job costs throughout the construction process. These cost codes usually start with the original CSI reference number associated with the activity, and then for further detail another number is assigned that represents the type of cost. For example: Activity Code

• Material 1 • Self-performed labor 2 • Subcontracted labor 3 • Equipment 4 • Job site overhead 5

So, if I were the job superintendent tracking building insulation cost on a project, I would assign the following cost codes to the invoices that came across my desk: Item Cost Code (CSI Number — Type of Cost)

• Material invoice 07 21 00-1 • Subcontractor bill 07 21 00-2 • Equipment rental 07 21 00-3

Larger contractors will also assign a year and job number to the cost code. For example, assuming that the previous project was a large contractor’s 14th job of this year, the material invoice might be coded as follows:

• Year project started: 2010 • Project no.: 14 • CSI division: 07 21 00 • Type of cost: 1 (material) • Cost code: 2010 14 07 21 00-1

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/4533

Smaller contractors might simply identify each of the invoices by the client name along with the cost code. Smith 07 21 00-1 the point is to make the codes as user-friendly as possible while still providing the level of detail needed to properly analyze the project costs. Each invoice amount would be recorded according to the cost code assigned to it by the superintendent. Material costs, labor costs, and equipment costs could be tracked separately, or you could combine them into a single work package total. Either way, you could compare the actual cost to do the building insulation with the budgeted amount and note any discrepancies. All invoices and subcontractor billings are eventually transferred to the contractor’s cost accounting department. The accounting department also tracks the project according to the cost codes and submits reports identifying total material, labor, subcontract, equipment, and overhead costs incurred on the job. The project manager uses these and other reports to monitor the project performance from a big-picture perspective. Spot Check the Cost Coding It’s not uncommon for a vendor to list more than one cost code item on a single invoice. For example, the same invoice could have materials that fall under three different divisions — let’s say lumber (Work packages 6), mortar (Work packages 4), and rebar (Work packages 3). When this happens, it is important to make sure that someone is taking the time to separate the material costs according to their respective Codes as shown in Figure 2.14. Unfortunately, people get lax, and they start lumping all of the material under one code. This, of course, taints the accuracy of the information, which results in faulty reporting. As a construction manager, I was always vigilant about doing random checks on job tickets just to make sure everything was being properly coded. It was part of my management systems quality assurance program.

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2.1.4- Depreciation

Depreciation is a necessary function in financial management, because without Depreciation the irregularities in the fundamental financial reports of a company would vary considerably and make it difficult to compare one year or one quarter to the next. This is because large investments in assets do not occur on a regular basis.

If the total cost of an investment were reflected in the financial time period in which it occurred, the effect on net profits would be considerable in this period, and then the net profit would rise significantly in the next period. What is done with depreciation? The cost of the new asset is spread out over the life of the asset. This allows the company to claim some of the cost each year rather than the total cost of the asset all at one time.

• Straight Line Depreciation

Straight line depreciation is the depreciation method that allows an equal amount of depreciation to be taken each year. The amount of depreciation is determined by subtracting the salvage value of the asset at the end of its useful life from the purchase price of the asset. The remaining value is called the book value. The book value is divided by the number of years, and this amount is expensed from the asset each year.

For example, a company buys a large machine for $1 million. The purchase is made with cash. In the accounts for this transaction, the cash account is reduced by $1 million, and the machine account is increased by the amount of $1 million. There is no effect on the liabilities or owner’s equity side of the accounting equation and it remains balanced.

The cost of this machine must eventually be recognized. The machine has a useful life of ten years and is worth $100,000 at the end of its useful life in terms of scrap value or the ability to sell the machine to someone else. This means that the value of the machine that must be depreciated is $900,000. Since the life of the machine is ten years, the value depreciated each year is $90,000. This is known as straight line depreciation (table 2-5).

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/4538

2.2- Construct model template –Excel-Format

2.2.1- WBS template sheet

2.2.1.1- WBS sheet template consist:

The sheet consist of a group of column which we will fill it with date which we will knowing later the kind of date but first we will know the format of data but before illustrate the sheet format we must know the difference between budget & price

Budget: it consist of dry cost only the direct cost of item

Price: it consist of direct cost, percentage of in direct cost & over head

1- The first set will consist of WBS code according to BOQ 2- The second set will consist of item description and unit of measure 3- Third set it will consist of rate the budget rate (direct cost) & price rate 4- it will the Quantities column that is:

• Contract Quantity which we sign our contract about this Quantity • Actual Quantity it describe the situation of our quantity if it is above or

below the contract quantities • Invoice Quantity it describe the quantity we take from the client • Provision Quantity it describe we are execute but it doesn't add to the

invoice quantity

5- it will the Budget / price column that is • Contract Amount it describe the amount of money according to Price this

by multiply the contract rate with contract quantity • Budget Amount it describe the amount of money according to budget this

by multiply the budget rate with contract quantity • budget Forecast Amount it describe the amount of money according to

budget after change of quantity this by multiply the budget rate with Actual Quantity

• budget Allowance Amount it describe the amount of money according to budget but for invoice quantity this by multiply the budget rate with Invoice Quantity and Provision Quantity

• invoice Amount it describe the amount of money according to Price but for invoice quantity this by multiply the Price rate with Invoice Quantity and Provision Quantity

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2.2.

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2.2.2- Expenses template sheet

2.2.2.1- Expenses sheet template consist:

Expenses sheet it contain with every pent we spend on the project which consist of two major item

1- Direct Expenses which are • first set of column it describe the codes which we used with direct

expenses • The second ser will consist of item description and unit of measure • the third set of columns it describe the monthly expenses (unit, cost) • that last set is the cumulative cost , units

2- indirect Expenses which are

• first set of column it describe the codes which we used with direct expenses

• The second ser will consist of item description and unit of measure • the third set of columns it describe the monthly expenses (unit, cost) • That last set is the cumulative cost , units

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2.2.3- Storage template sheet

2.2.3.1- Storage template sheet consist:

1- material storage • first set of column it describe the codes which we used with material

• The second ser will consist of item description and unit of measure

• the third set of columns it describe the amount of material that will

deduct or increase about expenses sheet (unit, cost) this material that doesn't include in work

2- Subcontractors reserve • first set of column it describe the codes which we used with material

• The second ser will consist of item description and unit of measure

• the third set of columns it describe the amount of work that will deduct

or increase about expenses sheet (unit, cost) but to Subcontractors

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Chapter 3 " the application steps & methods "

3- the application steps & methods


/421

3- The application steps & methods

3.1-Collect Actual Cost data Once project work begins, the project manager systematically collects status information according to the methods and frequency previously determined. When status information is collected, the project manager compares it with the schedule, budgets, and scope identified in the project plan to determine the variances.

So before the project begins, the project manager should consult with the project team, the customer, and the client to determine the information needs, data collection methods, and frequency of data collection.

3.1.1- Sources of information

At the heart of every project control system are information and a good reporting process. Successful construction management and project control depend on sound information, which comes from actual project performance data. This data originates in the field and is reported on a daily, weekly, and monthly basis. The following are some of the sources of information used to track job performance and feedback into the project control system:

1. Job logs 2. Diaries 3. Daily field reports 4. Time cards 5. Visual Records 6. Correspondence 7. Subcontractor billing statements

However, this information serves two critical functions: It is used to detect variances between the actual cost, time, and productivity performance and the planned estimate and schedule. It is used to develop the historical estimating databases and productivity factors used on future projects. Let’s take a look at some of these mechanisms now.

1. Job Logs

Logs are used to track a number of regular activities occurring on the job site.

• Transmittal logs track the dates and addressees of all transmittals as well as the actual information being transmitted, such as shop drawings; product cut sheets, samples, or some other submittal.

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• Delivery logs help keep up with all of the material and equipment deliveries that are made to the site. The log contains the date of the delivery and the material received, and it notes any problems with the order and the actions taken.

• RFI logs track all requests for information submitted to the project participants and their responses. The date the RFI was sent and the date that the response was received are also noted in the log.

2. Diaries

Every member of the project team, but especially the superintendent, should be encouraged to keep a project diary. The diary is used to track all of the day’s events in a summarized fashion and in the individual’s own words. Diaries are used to note daily work activities, conversations, observations, and any other information worth recording. It is important that each member of the team keeps their own diary, because different people will have different interactions and conversations throughout the day. The diaries provide a reliable historic record and can become very important when disagreements or discrepancies arise on the job. Handwritten diaries are often permissible in courts as evidence of actual events and conversations.

3. Daily Field Reports

In addition to the informal project diaries, most construction companies require that a more formal record be kept. These field reports are intended to simplify the capture of some fundamental information needed to track job progress and confirm that various project requirements are being met the following are the types of information recorded:

• The name of the individual making the report • The date, project name, and location • A brief description of the day’s activities • The temperature and general weather conditions • The contractor’s own work forces on the job • The subcontractors’ personnel on the job site • Materials or equipment delivered • Equipment used on the job • Visitors to the job site • Other notable events

Daily reports are often summarized into weekly or monthly reports that are distributed to upper management within the company. These reports make up some of the data used to analyze project performance and make adjustments to the overall project plan.

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communicetters, andowner repnizations, espondencoject. The

sts

ormation

" the a

/424

picture is wn. There ajob site. Pand captu

ations ared faxes fly s, building governmece must betypes of d

applicatio

worth a thre many rrogress ph

ure problem

e generate back and g officials, ent agencie field andocuments

on steps &

housand wreasons fohotos helpm areas, a

d among t forth amo subcontraes, and co recorded

s that mus

& method

words.” Thir visually

p documenand supple

the projecong the actors, maommunity througho

st be saved

ds "

is is

nt ement

ct

aterial ut d

57/144


/425

3.1.2- Data Required From Procurement Department

1. Requirements

• Log every 15 days with all material imported to each project log contain (material item ,code of material , supplier name , unit of price & quantity of PO)

• List of material that finished its finance benefits to double check on the

data from finance department.

• The procurement team shall record every material item in this log and attached with statement.

• The sub contractor contract shall be review by control team and soft copy of the contract shall be send to our team.

2. Flow chart It describe the process between Procurement team and other department as shown in figure (3-1)

58/144

Cha

3. ForWe we

pter 3

rms will descr shown in

ribe differe table (3-2

Figure

ent form re2), (3-3), (

e (3-1) data

" the a

/426

equired fr(3-4)

a flow betw

applicatio

om Procur

ween Procu

on steps &

rement De

rement tea

& method

epartment

am and othe

ds "

as

er

59/144

Chapter 3

Taable (3-2) L

" the a

/427

Log of mate

applicatio

erial import

on steps &

ted

& methodds "

60/144

Chapter 3

Taable (3-3) Q

" the a

/428

Quotations

applicatio

s Compariso

on steps &

on Sheet

& methodds "

61/144

Chapter 3

Table (3--4) Recommfor Quo

" the a

/429

mended Suotations list

applicatio

bcontractot

on steps &

ors

& methodds "

62/144

Cha

3.1.3-

1. Req

• da

• T

2. Ste

• H

i.

ii.

iii.

iv.

v.

• O

i.

ii.

iii.

• T

i.

ii.

pter 3

- Data R

quiremen

deliver perasset in pr

The import

eps of wo

How we en

Record th The man

The storaafter chec

The storamanger

The accoumaterial d

Out of mat The sign The place The purp

The roll of Get daily The accoumust invo

Require

nts

riodic reporoject and

tant of thi

ork

nter the m

he importe

on the ga

age man reck of exist

age make

unt take tdaily ,wee

terial from

of the For

e will take

ose of tak

site accou

report fro

unt make olve the co

Figure (3

ed From

ort from th date of in

s report to

material to

ed materia

ate sign off

eceive thet the sign

material c

he informaekly month

m the stora

rman or en

it

ken materi

unt

om the sto

every 15 ode of ma

-2) step of

" the a

/4210

m Storag

he storagen and out t

o specify t

the projec

al on the e

f the bill o

e material of entranc

card and ta

ation and hly

age

ngineer

al

orage abou

day reporterial the

enter mate

applicatio

ges

e team conthe value o

the accura

ct see figu

entrance g

or receiving

and take cce gate

ake the ap

make the

ut in/out m

t about in amount of

erial to the

on steps &

ntain the cof bill if it

ate losses o

ure (3-2)

ate

g balance

copy of th

pproval fro

report of

material

/out matef money fr

project

& method

code of ma exist.

of materia

e bill or PO

om the pro

received

erial the rerom the b

ds "

aterial , all

al

O

oject

eport ill

l

63/144

Cha

iii.

iv.

3. Flo

It dsho

pter 3

The accoreceived The reporraises to

ow chart

describe thown in figu

ount makeand purpo

rt will raiscontrol m

he processure (3-3)

e every 15ose of usag

es to the anger

s between

Figure

" the a

/4211

day reporge.

project ma

Storage t

(3-3) datao

applicatio

rt about o

anger then

eam and o

a flow betwother depar

on steps &

ut materia

n after app

other depa

ween Storagrtment

& method

al the plac

proval will

artment as

ge team and

ds "

ce of

l

s

d

64/144

Cha

4. For

We sho

pter 3

rms

will descrown in tab

ribe differele (3-5), (

Table

ent form re(3-6), (3-7

e (3-5) Monm

" the a

/4212

equired fr7)

nthly Repormovement

applicatio

om Storag

rt about sto

on steps &

ge Departm

ore

& method

ment as w

ds "

we

65/144

Chapter 3

Table (3-6) Momaterial

" the a

/4213

nthly Repo distributio

applicatio

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on steps && methodds "

66/144

Cha

pter 3

Tablemate

e (3-7) Monerial distribu

" the a

/4214

nthly Reporutions and

applicatio

rt about location

on steps && methodds "

67/144


/4215

3.1.4- Data Required From Projects

1. Requirements

• Site send to the control team the client invoices with its supported survey.

• Sub contractor invoices.

• The pouring log for concrete to get the actual losses and for sure the quantity we pied to the supplier

• Bar binding list for steel to get the actual quantity &looses for steel and comparison with tender quantity.

• Summary for labor work during the period every 15 day with their activity attached with labor time card.

• Summary for the rent equipment and the activity the make during the period attached with their invoices.

• The equivalent between the client invoices and sub contractor.

• Periodic report for finishing item to know the actual quantity this will help us and the tender to make actual estimate for this items.

• The technical office update the quantity of the contract to get good forecasting to this contract.

• The technical office will submitted every variation order.

68/144

Cha

2. Flo

It dsho

pter 3

ow chart


he processure (3-4)

Figure (

s between

(3-4) data ot

" the a

/4216

Project te

flow betwether depart

applicatio

eam and o

een Projecttment

on steps &

ther depa

ts team and

& method

rtment as

d

ds "

69/144

Cha

3. For

We

• La

Rep(3-

pter 3

rms

will descr

abor

ports requ12), (3-13

ribe differe

ired for la3), (3-14),

Table

ent form re

bor as we, (3-15)

e (3-8) Dai

" the a

/4217

equired fr

shown in

ly man pow

applicatio

om Projec

table (3-8

wer for Sub

on steps &

ct Team

8), (3-9),

b contractor

& method

(3-10), (3

r

ds "

3-11),

70/144

Chapter 3

Ta

Table

able (3-10)

(3-9) Daily

Weekly m

" the a

/4218

y man powe

an power f

applicatio

er for self p

for self perf

on steps &

performed t

formed tim

& method

time card

e card

ds "

71/144

Cha

pter 3

TTable (3-111) Subcontr

" the a

/4219

ractor prod

applicatio

uctivity by

on steps &

location

& methodds "

72/144

Chapter 3

Tab

Table

ble (3-13) m

e (3-12) ma

man power

" the a

/4220

an power d

r estimation

applicatio

daily produc

n & actual q

on steps &

ction repor

quantity

& method

rt

ds "

73/144

Cha

pter 3

Tabble (3-14) mman power

" the a

/4221

distributio

applicatio

on by work

on steps &

package

& methodds "

74/144

Cha

pter 3

Taable (3-15)

" the a

/4222

Monthly St

applicatio

tatus log fo

on steps &

or manpowe

& method

er

ds "

75/144

Cha

• Eq Re18

pter 3

quipment

eports req8), (3-19)

t

uired for E

Table

Equipment

e (3-16) Da

" the a

/4223

t as we sh

aily Equipm

applicatio

hown in tab

ent time ca

on steps &

ble (3-16)

ard

& method

), (3-17),

ds "

(3-

76/144

Chapter 3

TTable (3-177) Equipme

" the a

/4224

nt distribut

applicatio

tion by wor

on steps &

rk package

& method

ds "

77/144

Chapter 3

Table (3--18) Month

" the a

/4225

ly Status lo

applicatio

og for Equip

on steps &

pment

& methodds "

78/144

Cha

pter 3

Table (3-199) Value of

" the a

/4226

f rent Equip

applicatio

pment by w

on steps &

work packag

& method

ge

ds "

79/144

Cha

• Rep

Re(3

pter 3

port

eports req3-22), (3-2

uired for D23)

Table (3

Different it

-20) log fo

" the a

/4227

tems as w

r Concrete

applicatio

we shown i

Casting

on steps &

n table (3

& method

-20), (3-2

ds "

21),

80/144

Cha

pter 3

Ta

Tab

able (3-21)

ble (3-22)

Report abo

Monitor Re

" the a

/4228

out Perform

eport for Fin

applicatio

mance by a

nishing item

on steps &

ctivity

m (masonry

& method

y)

ds "

81/144

Cha

pter 3

Tabble (3-23) CCost report

" the a

/4229

t include lab

applicatio

bor, Equipm

on steps &

ment and m

& method

material

ds "

82/144

Cha

3.1.5-

1. Req

• Thexpr

• Fix

• Fode

2. Flo

It dsho

pter 3

- Data R

quiremen

he finance xpenses onroject duri

xed asset

or fully depepartment

ow chart


Require

nts

departmenly the exng the mo

and the a

preciated at.

he processure (3-5)

Figure

ed From

ent gives tpenses heonth maxim

mount of

asset we p

s between

e (3-5) data

" the a

/4230

m Financ

the controe had the smum after

depreciate

put rent a

Finance te

a flow betw

applicatio

ce Depa

l departmsupported r 7 day of

ed per mo

mount wit

eam and o

ween Finan

on steps &

artment

ent the ex document the new m

onth.

th help of

other depa

ce team an

& method

t

xpenses nots-of the month.

procureme

artment as

nd other de

ds "

ot all

ent

s

partment

83/144

Cha

3. ForRep

pter 3

rms ports required for Di

Table (3-24

ifferent ite

4) Monthly

" the a

/4231

ems as we

Report for

applicatio

e shown in

r Finance de

on steps &

table (3-2

epartment

& method

24)

ds "

84/144

Cha

3.2-Ac

Nowtypthe

3.2.As

pter 3

ctual Co

w after wee of data cost cont

1- WBS s2- Expens3- Storag

1-WBS shown in T

ost Allo

e create thhow we altrol model

heet ses sheet

ge sheet

Sheet tTable (3-2

ocations

he model fllocate this in

templat25)

Table (3-2

" the a

/4232

s

for cost cos data in o

te form

25) WBS Sh

applicatio

ntrol and our model

m

heet Form

on steps &

we get the before we

& method

e differente summari

ds "

t ize

85/144

Cha

3.2

AfteWBupdlast

pter 3

.1.1-cli

er we get BS form wedate to thet invoice th

ient inv

the client e put the fe cost conthis shown

T

voices

invoices wfinal quanttrol we rep in Table (

Table (3-26

" the a

/4233

we start totity in the place the o(3-26)

6) Sample o

applicatio

o take the form of Wold quanti

of Client Inv

on steps &

data and WBS sheet

ty with ne

voice

& method

fill it into and in evew quantit

ds "

the ery

ty in

86/144

Cha

3.2

pter 3

.1.2-Va

In casevariatiquantitcolumn28)

ariation

e of approons activaty columnn in WBS f

Table (3-

Ta

ns Order

oved changate in WBS and we pform the v

27) Sample

ble (3-28)

" the a

/4234

r

ge order (vS form andput zero quvariation o

e of Cover f

Sample of

applicatio

variationsd put the nuantity in order show

for Variatio

Variation

on steps &

) we insernew quantcontract q

wn in table

on Order

& method

rt the tity in actuquantity e (3-27), (

ds "

ual

3-

87/144

Cha

3.2.2• DiW

pter 3

2- Expeirect expene put the

enses Snses Direct exp

Ta

Sheet te

panses in t

able (3-29)

" the a

/4235

emplate

that form

) Direct Exp

applicatio

e form

that show

penses she

on steps &

wn in table

eet forms

& method

(3-29)

ds "

88/144

Cha

• InW

pter 3

ndirect expe put the

penses indirect ex

Tabl

xpanses in

le (3-30) in

" the a

/4236

n that form

ndirect Exp

applicatio

m that sho

enses shee

on steps &

own in tab

et forms

& method

le (3-30)

ds "

89/144

Cha

3.2.3

Thewe this

pter 3

3-Finan

e finance d take this s shown in

nce Rep

departmendata and p

n table (3-

T

port

nts make tput it in th31).

Table (3-31

" the a

/4237

the report he expense

1) Finance R

applicatio

of monthes sheet if

Report form

on steps &

ly expensef it direct o

ms

& method

es for projor indirect

ds "

ject t

90/144

Cha

3.2.4

It is cor valshown

pter 3

4-Stora

ontain theue of workn in table (

Ta

age She

e deduct ok for sub c(3-32)

able (3-32)

eet tem

r increasecontractor

) Deduction

" the a

/4238

plate F

e value of m that will d

n /Increase

applicatio

orm

money if ideduct fro

e Storage S

on steps &

t material om expens

Sheet Form

& method

in store ases sheet t

ds "

area that

91/144

Cha

3.2.4

pter 3

4.1-Sto

The stothe stotake frFinanc

orage R

orage deporage thatrom ce departm

Ta

eport

partment s you dedu

ment that s

able (3-33)

" the a

/4239

sent monthuct from yo

shown in t

Storage Sh

applicatio

hly report our month

table (3-33

heet Form

on steps &

about thehly expens

3)

& method

e quantity ses that yo

ds "

in ou

92/144

Cha

3.3- HInform

1-yandtak

a-co

b-cocli

pter 3

How Do mation?

you must ed the subce less tha

- you increontractor a

- You deduolumn thatient.

You Ma?

equate betontractor n the subc

ease the qand the ad

uct from tht in case y

ake Sur

tween the invoice ascontractor

uantity of dd quantity

he sub conyou are su

Ta(client

" the a

/4240

re You A

quantity ys Shown inr so you ha

client till y putted in

ntractor core that yo

able (3-34)t/subcontr

applicatio

Are Get

you puttedn table (3-ave to two

it equivalen the prov

olumn in su will take

) equate ofractor) qua

on steps &

tting Go

d in the cl-34) in somo solutions

ent to the vision colum

storage shee this quan

f ntity

& method

ood

ient invoicme cases ys.

sub mn.

eet in dedntity from

ds "

ce you

uct the

93/144

Cha

2-ytoldthesupputincr

3-yconof squathe

pter 3

you must sd you wha project sh

ppler impot still you drease the

you must tncrete quasteel rebarantity of st same cas

sure that tt we paid hown in tart the statdon’t paid quantity o

take the suntity in clir as shownteel imporse of concr

Table

the quantit almost eqable (3-35tement de so you mof concrete

urvey of stient invoicn in table rted to therete

e (3-35) Co

" the a

/4241

ty of concqual to the) this hap

elayed so aust sure fre in storag

teel rebar ce you ma(3-36) als

e site and t

oncrete Cas

applicatio

rete in thee pouring lpen becauactually yorom this pge sheet

in case ofke this to

so you musthe quanti

sting Report

on steps &

e Finance og that youse some tou poured point in thi

f RFT incluget the acst sure thaity of stee

t

& method

report thaou take frotime the this quanis case you

ude in ctual losseat from thl in financ

ds "

at om

tity u

es e

ce it

94/144

Cha

4 - aquyoyode

5 - afin

6 - yty

7 - fdaan

pter 3

also you muantity in sou must mou take froecision

also you mnance repo

you must ype of work

final to maate to comnalysis

must trackstorage re

make someom them t

must trackort and nu

have repok package

ake sure ompare and

Tab

k and compeport and fe communthe inform

k and compumber of la

ort that Dise

of date you reach to t

ble (3-36) S

" the a

/4242

pare betwefinance reication betation to m

pare betweabor you g

stributed t

u must havthe accura

Steel losses

applicatio

een the daport and itween the

make sure

een the nuget from p

the non sk

ve greaterte data yo

s Report

on steps &

ate you han case of

e different and get th

umber of lproject

kill labor o

r than oneou based o

& method

ave like thany conflic party thathe final

labor from

n different

e source ofon it your

ds "

e ct t

m

t

f

95/144

Chapter 4 "Reporting Techniques"

4- Reporting Techniques

Cha

4.1- T

In tmabelishowerwanfor,abilmo Simuseusesmaplottabnegschsch It mmame

Fi

pter 4

4- T

he Earn

the early ynagers weieved thatown in (Figre managinted costs, or reportlities to mment's no

mply put, e to monitoe is not limall and metting both le. Once u

gative variedule alonedule and

may very wking it unpasured sim

igure (4-1)

Techn

ned Val

years of prere havingt status cogure 4–1).ng costs os to be mted. Projeconitor and

otice. Earn

earned vaor, track,

mited just tedium size the projeused, the pances. Thne and mad that the

well be theprofitable.multaneou

iques

lue Mea

roject mang difficulty ould be det The critic

or just momanaged ct managed report aced value o

alue is a prand reportto the suped projectsct schedulproject mae project

ake the asproject is

e case tha This is w

usly to gain

" Tech

5/31

of ou

asureme

nagement determinitermined ocal questionitoring co rather th

ers need toccurately ooffers this

roject techt on the p

per projects. The techle and cosanager canmanager csumption doing wel

t the projehy both scn a more a

hniques o

utputs

ent Sys

, it becaming projectonly by a on was whosts. The han just o have theon their pr ability.

hnique thaerformancts, as it aphnique lenst values on very quicannot justhat projel.

ect is excechedule anaccurate p

of output

s & rep

stem (E

me evident t status. Smystical aether proj project mmonitorede necessarroject perf

at project mce of any ppplies equands itself ton an S-cuckly highlist measureect tasks a

eeding prond cost hapicture (se

ts & repor

ports

EVMS)

that projeSome peo

approach, ject managmanagers d, accountery tools anformance

managers project. Itally to boto jointly rve chart ight positive the projeare ahead

oject costsve to be

ee Figure 4

rts"

ect ople as gers ed

nd at a

can ts h

or ve or ect of

s,

4.2).

96/144

Cha

ThisEarplanvaluthema The

• a• E• E• B

The

• W• W• W• W• W

Figur

pter 4

s need resrned valuenning to ue manag primary tnagement

e EVMS p

accurate dEarly and aEarly and aBasis for c

e EVMS c

What is thWhat are tWhat can bWhat is thWhat are t

re (4-2)

sulted in the is a m schedulesement (EVtool for intt? Without

provides t

isplay of paccurate idaccurate idourse corr

an answe

e true statthe problebe done toe impact othe presen

he creatioanagemens and tecVM) is a sytegrating ct using the

the follow

project stadentificatidentificatirections

er the fol

tus of the ms? o fix the pof each pront and futu

" Tech

5/32

n of the Ent techniqchnical peystematic cost, schede EVMS, de

wing bene

atus on of trenon of prob

lowing qu

project?

roblems? oblem? ure risks?

hniques o

VMS. The que that erformance process thdule, and etermining

efits:

ds blems

uestions:

of output

basis for relates rese requiremhat uses etechnical g status ca

:

ts & repor

the EVMSsource ments. Eaearned valperformanan be diffic

rts"

.

arned ue as nce cult.

97/144

Chapter 4 " Techniques of outputs & reports"

5/33

4.1.1- Variance and Earned Value

The EVMS emphasizes prevention over cures by identifying and resolving problems early. The EVMS is an early warning system allowing for early identification of trends and variances from the plan. The EVMS provides an early warning system, thus allowing the project manager sufficient time to make course corrections in small increments. It is usually easier to correct small variances as opposed to large variances. Therefore, the EVMS should be used continuously throughout the project in order to detect the variances while they are small and possibly easy to correct. Large variances are more difficult to correct and run the risk that the cost to correct the large variance may displease management to the point where the project may be canceled.

A variance is defined as any schedule, technical performance, or cost deviation from a specific plan. Variances must be tracked and reported. They should be mitigated through corrective actions and not eliminated through a baseline change unless there is a good reason. Variances are used by all levels of management to verify the budgeting system and the scheduling system.

The budgeting and scheduling system variance must be compared because:

• The cost variance compares deviations only from the budget and does not provide a measure of comparison between work scheduled and work accomplished.

• The scheduling variance provides a comparison between planned and actual

performance but does not include costs.

• Budgeted cost for work scheduled (BCWS) is the budgeted amount of cost for work scheduled to be accomplished in a given time period.

• Budget cost for work performed (BCWP) is the budgeted amount of cost for

completed work, within a given time period. This is sometimes referred to as “earned value".

• Actual cost for work performed (ACWP) is the amount reported as actually

expended in completing the work accomplished within a given time period. BCWS represents the time-phased budget plan against which performance is measured. For the total contract, BCWS is normally the negotiated contract plus the estimated cost of authorized but UN priced work.

It is time-phased by the assignment of budgets to scheduled increments of work. For any given time period, BCWS is determined at the cost account level by totaling budgets for all work packages, plus the budget for the portion of in-process work.

● Cost variance (CV) calculation:

CV = BCWP - ACWP

A negative variance indicates a cost-overrun condition.

● Schedule variance (SV) calculation:

98/144

Cha

S

A necostworpro

C

S

TheAs afirst$32alon

Howschesimform

Fig

pter 4

SV= BCWP

egative vart and schedrds, the schblem, the v

Cost varian

Schedule va

e schedule van examplet four week25K. Therefne, there ar

wever, if BCedule and oultaneously

mulae show

gure (4-3)

– BCWS

riance indicdule, costs hedule variavariances a

ce % (CVP

ariance % (

variance me, consider ks of the prfore, BCWSre several p

CWP is nowoverrunningy monitor a

wn in (Figur

cates a beh are used aance is givere usually c

) =CV/BCW

(SVP) =SV/

ay be repre a project troject. The S $400K andpossible ex

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4.1.2- Methods for Physical Progressing (The 50-50 and 0–100 Rules)

Many project managers traditionally report project schedule progress by using an incremental estimation method. This method normally starts by estimating tasks at levels such as 15 percent, 40 percent, 78 percent, or 98 percent, incrementally moving forward until 100 percent complete.

This process is based on no proper quantitative measurement and is often inaccurate. Additionally, this information is, in turn, submitted to either the project office or executives to review, and perceptions at the senior level are based on inaccurate project data. Project managers could possibly consider adopting a more accurate method of reporting on project progress.

In the project world, two of these methods are the 50-50 and 0–100 rules. However, the 50-50 rule is more commonly used. The important thing to remember is to keep it simple .Remember that keeping the schedule variance simple on the progress reporting side makes calculating the EV easier to manage.

The way to implement the 50-50 rule is fairly straightforward.

• Assign 50 percent of the BCWP to the task the moment the task is started. At this point it is assumed that half the work has been done already.

• Assign 100 percent of the BCWP the moment the task ends. This is only allocated once the task actually finishes.

The cost variance relates to the real cost. However, the problem with SV is how it relates to the real schedule. The schedule variance is determined from cost account or work package financial numbers and does not necessarily relate to the real schedule. The schedule variance does not distinguish between critical path and non–critical path work packages.

The schedule variance by itself does not measure time. A negative schedule variance indicates a behind-schedule condition but does not mean that the critical path has slipped. On the contrary, the real schedule (i.e., precedence networks or the arrow diagramming networks) could indicate that the project will be ahead of schedule. A detailed analysis of the real schedule is still required irrespective of the value for the schedule variance.

Permitted variances may be dependent on such factors as:

• Life-cycle phase • Length of life-cycle phase • Length of project • Type of estimate • Accuracy of estimate

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By using both cost and schedule variance, we can develop an integrated cost/schedule reporting system that provides the basis for variance analysis by measuring cost performance in relation to work accomplished. This system ensures that both cost budgeting and performance scheduling are constructed on the same database. In addition to calculating the cost and schedule variances in terms of dollars or percentages, we also want to know how efficiently the work has been accomplished.

The formulas used to calculate the performance efficiency as a percentage of EV are:

Cost performance index (CPI) =BCWP/ACWP

Schedule performance index (SPI) =BCWP/BCWS

The difficulty in performing variance analysis is the calculation of BCWP because one must predict the percent complete.

The simplest formula for calculating BCWP is:

BCWP = (% complete) X BAC

Most people calculate “percent complete” based upon task durations. However, a more accurate representation would be to calculate “percent work complete.” However, this requires a schedule that is resource loaded. To eliminate this problem, many companies use standard dollar expenditures for the project, regardless of percent complete.

For example, we could say that 10 percent of the costs are to be “booked” for each 10 percent of the time interval. Another technique, and perhaps the most common, is the 50/50 rule: Half of the budget for each element is recorded at the time that the work is scheduled to begin, and the other half at the time that the work is scheduled to be completed.

For a project with a large number of elements, the amount of distortion from such a procedure is minimal. (Figures 4-4, 4-5 and 4–6 illustrate this technique.) One advantage of using the 50/50 rule is that it eliminates the necessity for the continuous determination of the percent complete.

However, if percent complete can be determined, then percent complete can be plotted against time expended, as shown in (Figure 4–6). There are techniques available other than the 50/50 rule:

• 0/100: Usually limited to work packages (activities) of small duration (i.e., less than one month). No value is earned until the activity is complete.

• Milestone: This is used for long work packages with associated interim milestones, or a functional group of activities with a milestone

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4.2–Reporting Techniques

4.2.1- Report Content

The program team member may receive a team critical variance report that lists variances in his organization at the lowest level of the work breakdown structure at the division cost center level by cost element. Upon request of the program manager, analyses of variances contributing to the variances on the team critical variance report are summarized by the responsible program team member and reviewed with the program manager. The preparation of status reports, whether they are for internal management or for the customer, should, at minimum, answer fundamental questions: • Where are we today (with respect to time and cost)? • Where will we end up (with respect to time and cost)? • What is the problem causing the variance? • What is the impact on time, cost, and performance? • What is the impact on other efforts, if any? • What corrective action is planned or under way? • What are the expected results of the corrective action?

The information necessary to answer these questions can be obtained from the following formulas:

• Budgeted cost for work scheduled (BCWS) • Budgeted cost for work performed (BCWP) • Actual cost for work performed (ACWP) • Estimated cost at completion • Budgeted cost at completion • Cost and schedule variances/explanations • Traceability • Percent complete • Percent money spent • Estimate at completion (EAC) • the remaining critical path • SPI (trend analysis) • CPI (trend analysis)

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We can use CPI and SPI to forecast the expected final cost and the expected end date of the project. We can express the cost at completion, EAC, as:

EAC =BAC/CPI The time at completion uses SPI for the forecast and can be expressed as: ETC New project length = original project length/SPI

Care must be taken with the use of SPI to calculate the new project length because a favorable vale for SPI (i.e., 1.0) could be the result of work packages that are not on the critical path. Once EAC and the new project length are calculated, we can calculate the variance at completion (VAC) and the estimated cost to complete (ETC) using the following two formulas:

VAC = BAC - EAC and ETC = EAC – ACWP Percent complete and percent money spent can be obtained from the following formulas:

Percent complete =BCWP/BAC Percent money spent =ACWP/BAC

Where BAC is the budget at completion. The program manager uses this information to review the program status with upper level management. This review is normally on a monthly basis on large projects.

4.2.2- Reporting Considerations

As you prepare reports, use the following guidelines: Maintain concise, top-quality project plans and status reports. Be sure everything you publish is accurate. Keep all stakeholders appropriately informed, including team members, customers, clients, functional managers, and senior management. Determine for each audience what information they need to perform their functions and design reports accordingly. Keep them informed—but not over-informed—with the information they need to make decisions and take corrective action. Use exception reporting by including only major variations from the plan. Stakeholders don’t have time to digest pages and pages of project information, and there is little need to report on items where status matches the plans. Use software programs to analyze project information and report on variances from the project plans. Establish problem-reporting thresholds. Determine how significant a variation from the plan needs to be before you report on it. For example, establish thresholds for how many dollars over budget or how many days late. Choose the best format for the report, such as a table, line graph, histogram, or bar or Gantt chart. On each report, clearly state the purpose of the report and the action to be taken.

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4.2.3- SAMPLE REPORTS

1. STATUS REPORTING

One of the best ways of reducing executive meddling on projects is to provide executives with frequent, meaningful status reports. Figure 4–11 shows a relatively simple status report based upon data accumulation in the form of Figures 4–12, 4–13, 4-14 and 4-15. These types of status reports should be short and concise, containing pertinent information only. Status can also be shown graphically. As the available project management software becomes more sophisticated, so does project reporting. There are four types of reports that are generally printed out from the earned value measurement system: • Performance Reports: These reports indicate the physical progress to

date, namely, BCWS, BCWP, and ACWP. The report might also include information on material procurement, delivery, and usage, but most companies have separate reports on materials.

• Status Reports: These reports identify where we are today and use the information from the performance reports to calculate SV and CV.

• Projection Reports: These reports calculate EAC, ETC, SPI, and CPI as

well as any other forward-looking projections. These reports emphasize where we will end up.

• Exception Reports: These reports identify exceptions, problems, or situations that exceed the threshold limits on such items as variances, cash flow, resources assigned, and other such topics. Reporting procedures for variance analysis should be as brief as possible. The reason for this is simple: the shorter and more concise the report, the faster that feedback can be generated and responses developed. Time is critical if rescheduling must be accomplished with limited resources. The two most common situations providing constraints on resource rescheduling are that:

⎯ The end date is fixed

⎯ The resources available are constant (or limited) With a fixed end date, program rescheduling generally requires that additional resources be supplied. In the second situation, program slippage may be the only alternative unless a constant stream of resources can be redistributed so as to shorten the length of the critical path. Once the variance analysis is completed, both project and functional management must diagnose the problem and search for corrective actions. This includes: finding the cure for the problem & developing a plan to recover the position

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4.2.4- Responses on Reports

This by no means implies that all variances require corrective action. There are four major responses to a variance report:

• Ignoring it.

• Functional modification.

• Re planning.

• System redesign Permissible variances exist for all levels of the organization. If the variance is within these permitted deviations, then there will be no response, and the variance may be ignored.

In some situations where the variance is marginal (or even within limits), corrective action may be required. To avoid dual standards and red tape, management must establish the decision-making policies associated with cost and control systems. The following is a policy guide.

• Approving all estimates, and negotiating all estimates and the definition

of work requirements with the respective organizations.

• Approving the budget, and directing distribution and budgeting of available funds to all organizational levels by program element.

• Defining the work required and the schedule.

• Authorizing work release. The manager may not, however, authorize

work beyond the scope of the contract.

• Approving the program bill-of-materials, detailed plans, and program schedules for need and compliance with program requirements.

• Approving the procuring work statement, the schedules, the source selection,

the negotiated price, and the type of contract on major procurement.

• Monitoring the functional requirements.

• When cost performance is unacceptable, taking appropriate action with the affected organization to modify the work requirements or to stimulate corrective action within the functional organization so as to reduce cost without changing the contracted scope of work.

• Being responsible for all communications and policy matters on

contracted programs so that no communicative directives shall be issued without the signature or concurrence of the program manager.

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4.3– Construction Cost Control Software

Project control software enables real-time and historic job and project cost management designed for use by your operational teams. Project control provides performance indicators on all project cost areas providing valuable insight to make quick decisions resulting in profit margin increases on every job. Centralization of key information provides collaboration and reporting across multiple jobs, projects and organizational departments. The project control system is outside the company’s sensitive accounting system providing the flexibility and manipulation capabilities required for testing alternatives and maximizing profit outcomes. Project control provides integration to over 50 different accounting systems, out of the box, which eliminates re-entry of data between systems saving personnel time and eliminating reproduction errors. Although many construction companies are still using spreadsheets and shoeboxes to manage their projects, the use of industry-specific project management software is becoming more prevalent. One reason for this is that more construction software providers are developing integrated project management modules to compete with the leading stand-alone project management systems. In my experience, there are two important aspects of cost management that separate it from the other project management functions. The first is that each firm has a very specific way that they do it and a very specific set of terms that they apply. It would be difficult to apply a pre-defined practice and a canned program, out of the box, that would satisfy the firm’s accounting requirements. We need only look at the Enterprise Resource Planning (ERP) applications to see the effect of this situation. Firms such as Oracle, PeopleSoft, Baan, SAP, and J.D. Edwards sell project financial management systems for several hundred thousand dollars (or more) and then charge that much again to tweak the system to the client’s specific needs. now let's see some kind of cost control software like, Project Costing System (PCS), Construction Industry Software (COINS), and WinQS. The general purpose Microsoft Excel spreadsheet is also used by some professionals. In fact, the largest option is Bespoke/in-house Systems, which is used by 29% of contractors and 38% consultants in UK. Software packages used for project cost control in UK

Contractors Consultants

Bespoke/in-house Systems 29% 38%

Microsoft Project 20% 32%

Project Costing System (PCS) 15% 11%

Asta Power Project 15% 5%

Primavera SureTrak 8% 5%

Microsoft Excel 7% 3%

COINS 5% 3%

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4.3.1- Advantages of Used Software in Construction Cost Control

1- Timesheets and Time Management Tracking

Enter timesheets and daily diary information for projects from wherever they happen to be. Record hours worked by cost code, quantities completed, and daily diary notes, and synch that information with the home office using a laptop or handheld device. Analyze fresh data to optimize resources for the next day and provide real-time integration with accounting to accelerate cash flow for faster project billing.

2- Direct Accounting Integration

Collect and store timesheet data from jobsites, while sharing data electronically with accounting systems to eliminate double entry. Maintain time sheet standards with labor classifications, and other user defined tags. Import timesheet data from third-party systems or to any accounting system. Record notes for each cost item including assumptions, jobsite observations, and more. Increase communication for issues that include staging and additional information to the field operators. Provides crew based timesheets with pre-defined data streamlining foreman or supervisor completion.

3- Field Resource Tracking

Manage field resources efficiently. Analyze information about productivity and accurately track customer information including account status, equipment usage and service history. Easily make changes when a resource is identified with high performance. Ownership costs and operation costs can include information on depreciation, insurance, and other unique resource costs in order to determine true ownership cost as well as operational use cost.

4- Anywhere Project Analysis

Web-based reporting and dashboards make it easy to get information from anywhere. Meet with customers on-site to discuss projects with total access to historical information, as well as the ability to develop preliminary budget estimates for project or job budget creation on the fly. Eliminate printing unnecessary reports by remotely focusing what the customer is looking for.

5- Provide Progress, Resource and "Actual Cost" Updates

Updating Software with data from your other systems is easy when using the Software API. The Software API (Application Programming Interface) provides an automated method for updating Software with data from other systems to create new records, update existing records, or delete records automatically. By extracting the data from your other systems into an XML format supported by Software and submitting the XML data, Software will “listen” for the data and automatically update the appropriate projects. Currently, the Software API supports two types of data, Resource Rates and Job Tracking Details.

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6- Monitor "Actual" Project Costs without Accounting Delays

Stay up to speed on job and project progress on a daily basis without waiting for accounting information. Preliminary and actual cost data is available daily to assess the need to make potential changes while there's still time to have an impact on the project's success and gross profit margin. Recognize time and other valuable information the moment it is entered without waiting for accounting and not having to re-enter data into multiple systems.

7- Remote Time Management Tracking

Control and monitor vendor commitments and activity, including original contract project components, insurance and bond monitoring status, change orders, invoices, requisitions, retention processing, and payments.

8- Collaboration and Updates

Save valuable man-hours eliminating the need to hand off estimates from one team member to the next. Allow last-minute updates until the bid is due, leveraging last minute pricing changes on materials and resources, while allowing multiple estimators to work on a single, or multiple estimates simultaneously.

9- Remote Data Access

Save gas, time and frustration by accessing information from anywhere including the office, remote offices, home, or client sites. Leverage un-tethered information access with synchronization, putting everything at your fingertips without being connected to the internet or network. Updates are entered throughout the day into a laptop or handheld device, and when convenient, a connection is made to the network to receive and send changes. Entry straight from the field eliminates duplicate data entry into numerous systems. Provide remote project access to managers, foremen and superintendents providing complete access to critical information needed to manage jobs remotely in one central location. Track cost and productivity positions of projects, responsibilities of team members, related documents, and ongoing project activities.

10- Centralize Project Information

Eliminate storing project information on local drives and multiple network locations. Project job tracking data is conveniently stored in one location and shared for easy access to all team members. Multi-office estimating provides synchronization between team members to accommodate real-time estimation updates.

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11- You can access it from anywhere

To many people, the biggest advantage of cloud software is that it’s truly available on any computer or device anywhere in the world. This is particularly useful when the project team members are in the office, in the field and in a variety of geographical locations. There’s no hassle with synchronizing data or uploading changes to a centralized server. Everything is centralized already – so collaboration is built-in. You no longer face moments of not knowing if you’re looking at the most up-to-date version of a report; or those crushing times when you’re on your way to a customer meeting and, whoops, the report you need is on Dave’s laptop and, too bad, Dave’s in Mexico this week. Everything’s connected, integrated and constantly current

With Construction Cost Control Software solution you will have greater access to the following information:

Which materials are due during this week, and which ones are still on back order?

What's our profit margin for all approved change orders? Which change orders are pending on this project? We haven't received the new design changes for the final phase. When

was the last time we requested this information? Our actual labor hours are about the same as the original estimated

hours and yet we're not finished. Where can I find the "projected to complete" hours?

How many downtime hours (non productive time) did we accumulate last year? Are we doing any better this year?

Now that this project is complete, are all vendor invoices accounted for? I don't want to be blindsided with any "surprise billings" later on.

The bonding company is asking for future receivables, unbilled contract dollars, work-in-progress, contracts won but not started, current retained dollars, budgeted hours remaining on projects, and more. Is there one source that pulls all this information together?

Which workers have been assigned tools and equipment on this project? What's our percent complete vs. percent billed – can we do another

progress bill? What are the committed dollars remaining on this project? Can we attach job site pictures to the project so we can look at them

during our meeting with the owner? What's our total cost on returned materials for this project? Which items

were returned to the vendors for credit and which were returned to inventory?

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4.3.3- The Disadvantages of Software in Construction Cost Control

1- Disadvantages in Percentage-of-Completion

Points to problems in the percentage-of-completion method as a distinct

disadvantage of cost control. This method, used to estimate costs under

cost control, uses a mathematical formula to determine how much of a

project a company can finish in a period, usually a financial quarter or

year. Percentage-of-completion is based entirely upon estimation,

meaning gross differences may occur between projected goals and

actual achievement, giving rise to misleading figures in cost control

analysis. Furthermore, the government may elect to tax a company

based on estimated percentage-of-completion rather than actual

completion rates. If significant disparities arise between estimates and

actual completion, companies suffer tax problems.

2- Disadvantages in Interlocking Systems

Bhabatosh Banerjee, author of "Cost Accounting Theory And Practice,"

points to problems in interlocking cost control systems. These systems

create cost control budget estimates and actual totals for different

aspects of a company's business and production. The disadvantage of

this lies in bookkeeping methods. If a single cost or expenditure applies

to two areas of a company with separate cost control budgets, that cost

or expenditure appears twice in the company's books.

3- Mismanagement of Cost Control

Mismanagement in cost control can lead to severe problems for

companies. For instance, cost control requires the consideration of a

broad palette of variables. If a company uses the wrong variables in

creating estimates for cost control or when creating figures displaying

total expenditure and total profit, the system produces widely inaccurate

figures regarding the cost effectiveness of procedures and processes.

What's more, human error may lead to severe inaccuracies -- all

employees involved in the process of calculating cost control, which

includes managers, foremen and more, must understand the system and

its requisite procedures

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Chapter 5 Conclusions ""

5- Conclusions

Chapter 5 " Conclusions "

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5- Conclusions

5.1- Common Causes of Cost Control Problems

1. Poor budgeting practices, such as basing the estimates on vague information from similar projects rather than the detailed specifications of the project at hand.

2. Failure to plan sufficient contingency budget.

3. Failure to correctly estimate research and development activities.

4. Failure to consider the effects of inflation on the cost of materials or labor.

5. Receiving or analyzing status information too late to take corrective action.

6. A climate that does not support open and honest disclosure of information.

7. Indiscriminate use of the contingency budget by activities that overrun their budgeted cost.

8. Failure to re budget when flaws are discovered, technical performance

falls below performance standards, or changes in project scope are approved. During the course of the project.

9. Many small decisions are made that ultimately impact costs. For

example, when engineering decides on the final design of a product feature, conventional accounting reports may not show the impact of these design decisions on production costs. In that case, the project manager must make sure that the cost impact is known before such decisions are made.

10. Weather conditions: Weather is probably the most common and

most obvious reason for work slowdown resulting in cost overruns. Work proceeds much more slowly under adverse weather conditions, and such conditions can impact the quality of the work as well.

11. Quality of the workforce: As a general contractor who hires

subcontractors, you don’t really have any control over the subcontractors’ workforce. Therefore, you have to trust that your subcontractors will provide experienced workers on your job. This is why, in my opinion, all subcontractors should be prequalified.

The risks associated with poor work quality are significant. If there is a problem, the poor quality will result in rework, and rework slows down job progress and can impact safety. The potential losses due to poor quality can put the entire project in a tailspin, and if this occurs, the project manager must take immediate steps to mitigate the situation.

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12. Quality of the supervision: Obviously, if you don’t have proper supervision on the job, there are going to be problems. Many issues have to be addressed every single day on the job, and everyone looks to the superintendent for direction and clarification regarding those issues. If you have an inexperienced superintendent who is not up to speed on the project, the type of work, or the systems in place to manage the project, you are going to have a disaster, plain and simple. As I’ve said before, this is why good superintendents are worth their weight in gold.

13. Incorrect sequencing of work: Unfortunately, there are times

when pressure from an owner or from the main office can cause a superintendent to schedule work out of sequence and before it is ready, just to appease some unrealistic demand for action. But no one knows better than the superintendent and the field personnel how the work needs to be scheduled to keep things on track. Sometimes a work activity is initiated just to give the appearance of making progress when in reality these artificial starts just waste time and cause all kinds of havoc on the job. If this occurs too often, the inefficiencies will eventually show up and expose the real story.

14. Change orders: Change orders can be one of the most insidious

factors influencing project performances. A little change here or there often seems like no big deal. Many contractors fail to ask for additional time when they process the cost of the change, thinking that they can wiggle the extra work into the existing schedule. Then all of a sudden, these seven or eight little change orders are causing the job to run two weeks behind, and then it is a big deal!

15. Overcrowded job site: One of the things that can actually hinder

work productivity is having too many people on the job. I have heard more than one subcontractor complain about packing too many workers in tight quarters trying to get a job done. It becomes so counterproductive that it actually slows down the job instead of speeding it up as planned.

16. Defective materials: Discovering that the material or equipment

that you were planning to install is defective is a real problem. It is certainly one that can be avoided with proper quality control. But in some cases, this defective material is not discovered until the workers are on the job ready to start the project. By this time, it is way too late. The time has already been wasted, and it will take time to reorder the material and reschedule the crews to install it.

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17. Inadequate tools and equipment: Having the right tools and equipment on a construction job may seem like a no-brainer. But again, when so much of the work of the contract is passed on to subcontractors, you don’t always have control over even these simple aspects of the job. I can’t tell you how many times I have seen work installed improperly because the craftspeople didn’t have the right piece of equipment

18. Late deliveries: Late deliveries are probably one of the most

frustrating causes of schedule delays and cost growth in construction. Once again, the contractor has very little influence or control over the manufacturing or fabrication processes involved in the making of many of the products or equipment used on the project. However, the stakes can be very high for the project if items arrive late. That’s why on projects with critical lead- time items, it is best to assign someone to do nothing but expedite deliveries and stay on top of the project buyout schedule.

19. Subcontractors Risks: Sometimes a subcontractor reneges on a

price before the subcontract is executed. When this happens, the general contractor has three options: contact one of the other original bidders and try to negotiate a price that both parties can live with; rebid the section of work altogether; or go out and negotiate on the open market, trying to secure the original pricing or better.

The most difficult situation to remedy is when a subcontractor gets into financial trouble and goes out of business before the job is complete. When this happens, it puts the project in a real tailspin, especially if the subcontractor in trouble ends up being one of your primary subcontractors such as steel or mechanical. Often the bonding company will step in and provide another specialty contractor to complete the work, but you can imagine what this sort of disruption does to the schedule and therefore the budget. The ramifications can be severe, and there may be no recovery from the damages. During a crisis like this, it is best for the owner, the contractor, and the architect to sit down and come up with a plan to mitigate the potential losses for everyone.

20. Quantity errors: When a simple quantity takeoff error into our

budget calculations. When this happens, it is best to find the error as soon as possible, preferably before you has committed to any purchase order or subcontract. If you find the error before committing to any pricing, you still have time to go out and negotiate your very best deal on the affected materials and labor in an effort to mitigate the obvious loss that you will suffer because of the inaccurate takeoff.

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21. Labor expenses are exceeding budget: The cause of this problem may be that phases are taking longer than estimated. Several actions should be taken:

22. Variable expenses are exceeding budgeted levels: This may occur because original assumptions were wrong or because you are not exercising enough control over spending. Consider these actions:

23. Out-of-sequence starting and completion of activities and events.

24. Inadequate work breakdown structure.

25. No management policy on reporting and control practices.

26. Poor work definition at the lower levels of the organization.

27. Management reducing budgets or bids to be competitive or to eliminate “fat”.

28. Inadequate formal planning that results in unnoticed, or often uncontrolled, increases in scope of effort

29. Poor comparison of actual and planned costs

30. Comparison of actual and planned costs at the wrong level of management.

31. Unforeseen technical problems.

32. Schedule delays that require overtime or idle time costing.

33. Material escalation factors those are unrealistic.

5.2-Keys to Effective Project Cost Control Effective project cost management is an extremely complex process that begins very early during a project life cycle, and long before its actual start. Among the factors that influence success is a reasonable and accurate system for estimating costs. Highlights some of the most important considerations when creating a cost management system.

1. A clear, complete, of the project and the scope of work involved.

2. A thorough assessment of the potential risks involved, with well

thought- out action plans to minimize their possible impact

3. A well-trained and competent project manager

4. A thorough understanding, by all stakeholders, of the various types of costs that are likely to be incurred throughout the life of the project

5. A project organizational culture where there is a free flow of

communication, so that all project participants clearly understand their responsibilities

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6. A well-defined project work structure where work packages are broken down into manageable sizes

7. Meaningful budgets, where each work package is allocated its

appropriate share of the total budget, adequate to the work involved

8. An accounting system and coding scheme that are well aligned with

the work breakdown structure and are compatible with the organization’s management information system

9. A cost accounting system that will accumulate costs and allocate

them to their relevant cost accounts as and when they are incurred

10.A prioritized and detailed work schedule, drawn from the work breakdown structure, which assigns and tracks the progress of individual tasks

11.Effective management of well-motivated staff, to ensure that

progress meets the work schedule

12.A mechanism for comparing actual and planned expenditures for individual tasks, with the results extrapolated to cover the entire project

13.The ability to bring critical tasks that are late back on schedule,

including providing for additional resources or taking other prompt remedial measures

14.Adequate and effective supervision to ensure that all activities are

done right the first time

15.Supervision of staff time sheets so that only legal times are booked to various cost codes

16.Proper drafting of specifications and contracts

17.Careful investigation to confirm that the customer is of sound

financial standing, with sufficient funds to make all contracted payments

18.Similar investigation, though not necessarily as discreet, of all

significant suppliers and subcontractors (especially those new to the contractor’s experience)

19.Effective use of competitive tendering for all purchases and

subcontractors to ensure the lowest cost adequate with quality and to avoid committing to costs that exceed estimates and budgets

20.Proper consideration and control of modifications and contract

variations, including charging all justifiable claims for price increases to the customer

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Appendix A

Appendix A

Cost Control Process Flow Chart

Gathering supporting document

Create cost Control model

Collect Current Cost data

Actual Cost Allocations

Analysis data with EV

Reporting

Decision making

Cost Control Processes for Construction Project

Basic Process of Cost Control in Construction Project

Level 1

Level 2

Level 3

Level 4

Level 5

Level 6

Level 7

1/7

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Baseline Contract Document

Contract ofSub Contractor

Time Baseline Cash flow Baseline BOQ Drawings Specification

Level 1Gathering supporting

document

Estimated Budget

Direct Cost Indirect Cost/ Overhead

2/7

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From BOQ, Budget Estimation, Sub

contractor, supplier contract

Create WBS

Fixed AssetSheet

Deprecations system

Expenses Sheet

Storage Sheet

Coding system

Develo

p

cost

Contro

l m

odel

Level 2 Create cost Control model

3/7

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Finances Department Report

Storage Department Report

Technical Office Report

Material Expenses Labor Expenses Other Expenses Material storage

Report

Concrete pouring logVariations orderClient Invoices/

SubcontractorLabor number & allocation report

Quantity survey according to shop drawing

Equipment Expenses

Level 3Collect Current Cost data

4/7

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Cost Control model

fixed assets sheet

WBS sheet Expenses sheet

Storage sheet

Technical Office Report

Equipment Expanses according to

Deprecations system

All Expenses Report

Subcontractor Invoices

Storage Report

Level 4

Client Invoices

Finances Department

Report

Finances Department

Report

Material storage Report

Actual Cost Allocations

5/7

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Earned Value Rule Earned Value Parameter

Earned Value Analysis

Earned Value Report

Analysis Data with Earned ValueLevel 5

6/7

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Project Summery original/update

Payment status according to client

invoice

Analysis of WBS Reason of profit or loose

Time Mony Direct Indirect

Decision making

Forecasting

ReportingLevel 6,7

7/7

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Appendix B

Appendix B

Responsibility Matrix for Cost Control Proces

References [1] Preparing for the Project Management Professional (PMP) Certification Exam Second Edition Michael W. Newell, PMP, ENP, pp. (25-30) & (77-102) [2] Project management step-by-step / Larry Richman pp.(49-51),(136-143)&(153,165) [3] Project Management Nation—Tools, Techniques, and Goals for the New and Practicing IT Project manager by Jason Charvat Copyright? 2002 by John Wiley & Sons, Inc., New York. (Chapter 7 - Controlling the Project) [4] Construction management jumpstart Second Edition by Barbara J. Jackson Copyright © 2010 by Wiley Publishing, Inc., Indianapolis, Indiana pp. (140-168) & (260-280) [5] Cost and Value Management in Projects. Ray R. Venkataraman and Jeffrey K. Pinto Copyright @2008 John Wiley & Sons, Inc. pp.(32-38),(43-56) ,(105-114) & (127-148) [6] Fundamentals of Project Management Third Edition by JAMES P. LEWIS [7] Practical Project Management Tips, Tactics, and Tools by Harvey A. Levine Copyright © 2002 by Harvey A. Levine.pp(159-162) [8] PROJECT MANAGEMENT A Systems Approach to Planning, Scheduling, and Controlling Tenth Edition by HAROLD KERZNER, P h. D. Senior Executive Director for Project Managenment, Copyright © 2009 by John Wiley & Sons, Inc.pp(633,685) [9] Project Management Gary R. Heerkens, PMP Copyright © 2002 by the McGraw-Hill Companies, Inc.(159,183)

[10] Project Planning and Control Fourth Edition Eur Ing Albert Lester, CEng, FICE, FIMechE, FIStructE, FAPM.pp(25-38)&(220-256) [11] Project Management for Facility Constructions A Guide for Engineers and Architects by Alberto De Marco.pp(119-136) [12] Skills & Knowledge of Cost Engineering Fifth Edition With New Appendix Listings Edited by Dr. Scott J. Amos, PE.

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Resource Responsibility

P - Primary Responsibility A - Approval Authority S - Supporting Responsibility (Contributor or Reviewer) I - Information Only

(Select from drop down list)

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Gathering supporting document

Time base line A S P IBudget base line I I P I I ICash flow A S A I P IBOQ I I P I I IDrawings P I I ISpecification P I I ISub contractor Contract A P I A I I

Cost Control model

Create WBS P S IFixed Asset Amount A P I I I IDeprecations system I S P A I SExpenses Amount I S P S I S SStorage Amount I I I S S PCoding system S S P I I

Collect data status

Material expenses I P S I S ALabor expenses I S I S POther expenses P S I SEquipment expnses P S I SSubcontracto/client invoices A S I PVariations order A I I I PQuantity survey I PConcrete pouring log I PLabor number & allocation report I I A PMaterial storage report I I I A P

Requirements Analysis

Actual Cost Allocations PAnalysis data with EV PReporting I I P I

1/1

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cost control process for construction

Documents