Importance Of Cost Control In Construction Projects

Importance Of be reserve In Construction proposalsThe childbed of this report is to explain the importance of woo falsify in social organization communicates and its function. The appeal hold back is an Coperni ground train cognitive process in aspect objectify. It is astray practiced by avowers and needs to carry out throughout the livelihood of labor.The of import accusatory of toll instruction of a project is to hit the maximum riposte in at bottom the intentated hitch within the budget. To varan and learn actual pulmonary tuberculosis against the viewd project budget. The project budget is represented by the tender hurt / commence sum.According to Nunn entirelyy (1998), apostrophize misrepresent of a project involves the measuring and collecting the address record of a project and the play arm. It too involves the parity of actual progress with the planning. The main objective of appeal control of a project is to gain the maximum profit within the designated period and alright quality of consort. A outlineatic cognitive process of hail control lead violate a true expiry in collecting serious data in estimating and despotic of the personify of the coming projects in future.After preparing the reports based on the actual embodys, it is important to distri alonee the persevereing budget for the future periods and estimate or re-estimate the address of the pass away yet to be completed. Any upstart entropy mustiness take into account since the commencement of contracts.It is important to ensure that there should non be any under conduct or over claim of the work done. This is requi set to maintain a steady capital light. similarly it helps the node and the declarer to rule their expenditure and income.The exist control techniques in general utilize in winding projects be Cost Value Reconciliation, Control of Project hard cash accrue, Break Even Analysis, Budgetary Control, and Contr actors appeal Control, Cost Comparison, Schedule Control and Asset Register2. INTRODUCTIONThe follow control is a process that should be continued through the radiation patterntion period to ensure that the approach of the twist is kept within the agreed personify limits. The exist control can be divided into major atomic number 18as the control of greet during design levels and the control of address by the contractors once the construction project has started.According to Nunnaly (1998), price control of projects involves the measuring and collecting the cost record of a project and the work progress. It involves the comparison of actual progress with the planning.The main aims of the cost controla) To gain the maximum profit within the designated period within the budget.b) To keep the total expenditure within the totality agreed by client, frequently based on approximate estimate of cost busy by the quantity surveyor in the early stages of the design process. th ere is a need for strict cost discipline apprehension all stages of design and execution to ensure that the initial estimate, tender check and final account sum all are closely related.c) To oblige the building client good esteem for money a building which is soundly constructed, of satisfactory appearance and well suited to perform the functions for which it is required, whole of measuremente with economical construction and layout.d) To achieve a balanced and logical dissemination of the available funds amidst the various parts of the building.The cost despotic outline we can use as a tool for estimating the new projects based on previous experience. To win a new projectAs a quantity surveyor for a construction company to search this project, I concord started with reading text books to get theoretical judgment of the subject. Thereafter I have discussed the technique of cost control with my comrade and managers to get practical knowledge of this application.3. WHAT IS apostrophize aver?Controlling how a lot is spent on a certain item on project. Anything to a higher place a certain occur needs approval of higher officeThe process of controlling the expenses of cost in a project, from the starting of clients idea to the expiration and final payment on investAn active process to control the causes of the cost changes, to document those cost changes, and to monitor cost fluctuations within the project4. STATEMENT OF FACTS IN COST deemAccording to Nunnally (1998), 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 the 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. A systematic procedure of cost control willing give a good result in collecting important data in estimating and controlling of the cost of the coming pro jects in future.5. THE intent OF COST CONTROLTo monitor and control actual expenditure against the estimated project budgetThe project budget is represented by the tender price / contract sum.6. THE IMPORTANCE OF COST CONTROLThere has in new-fangled years been great need for an understanding of construction economics and cost control, especially during the design stage of projects.The importance of this due largely to the undermentioned-* The change magnitude pace of development in general has resulted in clients universe less likely to tolerate delays caused by redesigning buildings when tenders are too high.* The clients requirements immediately are more than complex than those of their Victorian counterparts. A more efficacious system of control is therefore desirable from inception up to the completion of the final account, and thereafter during cost-in-use.* The clients of the industry often represent large organizations and financial institutions. This is a result of takeovers, mergers and whatever public ownership. De-nationalization has often meant that these large organizations remain intact as a single entity. There has thus been an make upd emphasis on accountability in both the public and the hugger-mugger sectors of industry. The efficiency of these organizations at construction work is only as good as their advisers.* Contractors profit margins have in palpable toll been reduced considerably during the past decade. This resulted in their great cost-consciousness in an attempt to redress possible losses and remain competitive.* There has, in general, been give the sack towards the elimination of waste, and a greater emphasis on the cost-efficient use of the worlds scarce resources. This has necessitated a desire for meliorate methods of accounting and control of be.* There is a general trend towards greater cost-effectiveness, and thus a need to examine construction cost, not just in the context of initial be, but in terms of whole-life costs.* gentlemans gentleman recession has generally produced a shortage of funds for capital economic consumptions and construction in general. This has been coupled with high inflation and interest charges, resulting in an increase in the cost of construction. Although the relative costs compared with other commodities whitethorn be similar, the apparent high costs have resulted in greater caution, particularly on the part of clients.7. POST CONTRACT COST CONTROLProject cost control commences at project inception stage by the client. Thereafter costs are controlled continuously and at every stage of the project up to finalization of the construction contract.8. THE PROJECT BUDGETFor cost control on a project, the construction plan and the associated cash flow estimates can provide the baseline reference for subsequent project observe and control. For schedules, progress on individual activities and the achievement of milestone completions can be compared with th e project schedule to monitor the progress of activities.The final luxuriant cost estimate provides a baseline for the assessment of financial performance during the project. To the achievement that costs are within the detailed cost estimate, the project is considered to be under financial control. Overruns in particular cost categories signal the surmise of problems and give an indication of exactly what problems are being encountered. Expenses oriented construction planning and control focus upon the categories included in the final detailed cost estimation/cost plan prepared by the contractors.For cost control monitoring purpose, the fender detail cost estimate is typically converted to a project budget, and the project budget is used afterward as a guide for management. Specific items in the detailed cost estimate become job cost elements. Expenses incurred during the course of the project are recorded in specific job cost accounts to be compared with the genuine cost es timate in each category.In addition to costs, schooling on material utilization and labor inputs and productivities within each cost edict is also typically monitored in the project budget. With this reading, actual materials customs duty and labor employed can be compared to the evaluate requirements. As a result, cost overruns or savings on particular items can be identified as due to changes in unit price, labor productivity or in the mensuration of material consumed.The number of cost code associated with a particular project can vary considerably. For contractors, on the drift of four hundred separate cost accounts might be used on a project.In developing or implementing a system of cost accounts / cost codes an appropriate numbering or coding system is essential to promote communication of information and proper aggregation of cost information. Particular cost accounts are used to record the expenditures associated with the specific projects and to indicate the expen ditures on particular item throughout an organization.Cost coding is also used for comparing the budget with actual expenditure, which is typically referred to as cost/value reconciliation.Sample of material requisition form showing the cost code with the allowance and remaining allowanceSample of project budget summary9. TECHNIQUES AND slipway FOR CONTROLLING COSTSThe most important of all the cost control techniques is to ap agitate a small team of qualified and experienced good deal well versed in the financial management team to manage the daily finances of the company in a very master and systematic manner.The cost control software can be implemental in doing the work in comparatively less time and with more accuracy.A. COST VALUE RECONCILATIONThe cost and value of the project must be reconciled and monitored regularly. This allows a contractor to manage and control actual against estimated expenditure.This will also allow the contractor to monitor costs and value straw ma n and importantly also monitor profit levels.For the purpose of cost control, it is not sufficient to consider only the past records of costs and r chargeues incurred in a project. Good project commercial managers should focus upon future r level offues, future costs and technical problems. For this purpose, traditional financial accounting schemes are not competent to reflect the dynamic nature of building project. Accounts typically focus on recording routine costs and past expenditures associated with activities. W.H.Lucas and T.L.Morrison, Management Accounting for construction Contracts, Management Accounting, 1981, PP- 59 65.Sample of a typical cost/value ReconciliationB. CONTROL OF PROJECT CASH FLOWA arbitrary cash flow is critical to any business. On building projects cash flow is typically generated from the periodic payment for flora completed, i.e. interim payments. immediate payment flow forecasts are unusually prepared and based on the course of instruction of wor ks for internal purposes and for use by the client.Sample cash flow forecastC. BREAK _- EVEN ANALYSISA break even abridgment determines the point at which one method becomes superior to another(prenominal) method of accomplishing some task or objective. Break even analysis is a greenness and important part of cost control.Example- 1 illustration of break even analysis would be compare dickens methods of road construction for a road that involves a limited amount of cut-and-fill earth work. It would be possible earthwork by hand or by bulldozer. If the manual method were adopted, the fixed costs would be low or nonexistent. Payment would be done on a daily initiation and would call for direct supervision by a foreman. The cost would be calculated by estimating the time required and multiplying this time by the average out wages of the men employed. The men could also be paid on a piece-work stem. Alternatively, this work could be done by a bulldozer which would have to be mov ed in from another site. Let us assume that the cost of the hand labor would be $0.60 per cubic m and the bulldozer would cost $0.40 per cubic meter and would require $100 to move in from another site. The move-in cost for the bulldozer is a fixed cost, and is breakaway of the quantity of the earthwork handled. If the bulldozer is used, no economy will result unless the amount of earthwork is sufficient to carry the fixed cost plus the direct cost of the bulldozer operation.Breakeven Example for Earthwork ExcavationIf, on a set of co-ordinates, cost in dollars is plotted on the vertical axis and units of production on the horizontal line parallel to the x axis. If variable quantity cost per unit output is constant, then the total cost for any number of unit production will be the sum of the fixed cost and the variable cost multiplied by the number of units of production, or F+NV. If the cost data twain processes or methods, one of which has higher variable cost, but lower fixed cost than the other are plotted on the same graph, the total cost lines will intersect at some point. At this point the levels of production and total cost are the same. This point known as the breakeven point, since at this level one method is as economical other. Referring the above Figure the breakeven point at which quantity the bulldozer alternative and the manual labor alternative become equal is at 500 cubic meters. We could have found this same result algebraically by writing F+NV = F+NV, where F and V are the fixed and variable costs for the manual method and, F and V are the corresponding values for the bulldozer method. Since we all values are known except N, we can solve for N using the formula N = (F F) / (V-V)D. BUDGETARY CONTROLBudgets are used for planning and controlling the income and expenditure in many different organizations. It is through the budget that a companys plans and objectives can be converted into quantitative and monetary terms. Without these a com pany has little control. The budget may represent a total sum divided among a number of subheadings or work packages. It is important that the various sub headings include a timescale, since the expenditure by both the contractor and the client needs to be matched against income or the accessibility of funds. While the contractor will have a work program for the project and this can be costed, the procedure may be stop by delays on the part of all those involved and through changes (variations) to the original scheme.This information will give a rate of expenditure and a rate of income throughout the project, and by deducting income from expenditure the amount of capital required at the different times can then be calculated. The contractor will need to aggregate this information from all projects in hallow company position the company position. For budgeting purpose these data are prepared in advance of work being carried out on site. The information will also be collected after the execution of the works in order to establish the as done position and to facilitate a comparison with the budget. This known as budgetary control. In common with other control techniques, budgetary control is a continuous process undertaken throughout the contract duration. When variances from the budget occur, the contractor will need to assess the reason for them.E. CONTRACTORS COST CONTROLThe contractor, having priced successfully enough to win the contract through tendering, must now ensure that the work can be completed for the estimated costs. One of the duties of the contractors quantity surveyors is to monitor the expenditure and advice site management of action that should be taken. This process also includes the costs of subcontractors, since these forms a part of the main contractors total expenditure. The contractors surveyors also comment on the profitability of different site operations. Where loss-making situations are encountered, decisions need to be taken to r everse this position if at all possible.The fact that estimators can be simple of the mark when estimating, even with common items, the contractor would seek reason for such a wide variation between costs and prices. This will be done for two reasons first, in an attempt to recoup some of the loss second, to avert such errors in future work. This situation may have arisen for one of the sideline reasons.* The character of the work is different from that envisaged at the time of tender.* The conditions for executing the work have changed.* Adverse weather conditions severely disrupted the work* There was inefficient use of resources.* There was excessive wastage of materials.* Plant had to stand scant(p) for long periods of time.* Delays had occurred because of a lack of accurate design informationF. COST COMPARISIONIn practice it is always difficult make to comparison between costs and valuations, since either the full items of expenditure are unavailable or the valuation has on ly been approximately prepared. However, the contractor does need to determine which contracts are profitable and which are not, and also to determine which operations gain or lose money. The information which is the generated may be used to form the basis of contractual claims or to assist in future tendering and the contractors selection of projects for which to tender.Both the actual profit and percentage on cost can be calculated from the given table. This offers the contractor an indication of the financial Trent, although in order to measure this realistically these figures need to be compared with their various(prenominal) budgets. It is unclear from these data alone whether the contract was successful. By inference it can be suggested that the project reached its most successful stage in terms of profit alone at month 7. The profit expenditure ratio, however, had been fall since the commencement of the contract. This is also typical feature of fixed price contracts if the evaluate profit has been disturbed evenly throughout the project. Towards the end of the contract the project was probably losing money. For example compare the expenditure with the valuation for the month 9. This may suggest that work has been deliberately overvalued during this early stage.Month(Valuation expenditure)G. SCHEDULE CONTROLIn addition to cost control, commercial managers must also give considerable attention to monitoring schedules. (E.g. variation schedules) Construction typically involves a deadline for work completion, so contractual agreements will force attention to schedules. much generally, delays in construction represent additional costs to the client due to late facility occupancy or other factors. Just as costs incurred are compared to budgeted costs, actual activity durations may be compared to expected durations. In this process, forecasting the time to complete particular activities may be required.The methods used for forecasting completion times of activities are directly correspondent to those used for forecasting.For example, a typical estimating formula might be Df = WhtWhere Df is the forecast duration, W is the amount of work, and ht is the observed productivity to time t. As with cost control, it is important to devise efficient and cost effective methods for gathering information on actual project accomplishment.Planned Vs Actual ExpendituresH. ASSET scanA part of Cost control techniques maintain and updating the interpret of the companys inventory of assets, e.g. plant and equipment. The inventory should list all of the items that have been purchased by the company, their date of acquisition, initial value, current value (approximate), and/or depreciation, age and expected renewal date. The location of the asset and, if appropriate, the manufacturers serial number should be included.This register will remain an active document and be constantly updated. The inventory provides an accurate checklist for insurance pur pose and to substantiate claims should these be necessary.The asset register can also be employed for taxation purposes in respect of depreciation and replacement funding. It acts as a financial register for the companys assets.10. ILLUSTRATIONS (TABLES AND GRAPHS)A. PROPORTION utmost Vs EXPENDITURE FOR AN ACTIVITYB. PLANNED VS ACTUAL PROGRESS OVER succession ON A PROJECTC. COST CODE SAMPLED. mutation SCHEDULE SAMPLEE. LIGHT FITTINGS TRACKING SCHEDULE11. CONCLUSIONThe main objective of cost control is to minimize and reduce the project costs. Cost control is necessary for all types of project disregarding its sizes. Most of the contractors have their own cost control system.The amount of detail and time breakup between cost control reports must be considered, which is different harmonize to level of management for which they have prepared mostly, it will be on monthly basis.After preparing the reports based on the actual costs, it is important to circle the remaining budget for the future periods and estimate or re-estimate the cost of the work yet to be completed. Any new information must take into account since the commencement of contracts.It is important to ensure that there should not be any under claim or over claim of the work done. This is required to maintain a steady cash flow. Also, it helps the client and the contractor to manage their expenditure and income.The cost control techniques generally used in construction projects are Cost Value Reconciliation, Control of Project Cash flow, Break Even Analysis, Budgetary Control, and Contractors cost Control, Cost Comparison, Schedule Control and Asset Register.