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Importance Of Cost Control In Construction Projects

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The intent of this study is to explicate the importance of cost control in building undertakings and its map. The Cost Control is an of import procedure in building undertaking. It is widely practiced by contractors and demands to transport out throughout the life of undertaking.

The chief aim of cost control of a undertaking is to derive the maximal net income within the designated period within the budget. To supervise and command existent outgo against the estimated undertaking budget. The undertaking budget is represented by the stamp monetary value / contract amount.

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Harmonizing to Nunnally ( 1998 ) , cost control of a undertaking involves the measurement and roll uping the cost record of a undertaking and the work advancement. It besides involves the comparing of existent advancement with the planning. The chief aim of cost control of a undertaking is to derive the maximal net income within the designated period and satisfactory quality of work. A systematic process of cost control will give a good consequence in roll uping of import informations in estimating and controlling of the cost of the coming undertakings in future.

After fixing the studies based on the existent costs, it is of import to administer the staying budget for the hereafter periods and estimation or re-estimate the cost of the work yet to be completed. Any new information must take into history since the beginning of contracts.

It is of import to guarantee that there should non be any under claim or over claim of the work done. This is required to keep a steady hard currency flow. Besides it helps the client and the contractor to pull off their outgo and income.

The cost control techniques by and large used in building undertakings are: Cost Value Reconciliation, Control of Project Cash flow, Break i?? Even Analysis, Budgetary Control, and Contractors cost Control, Cost Comparison, Schedule Control and Asset Register

2. Introduction

The cost control is a procedure that should be continued through the building period to guarantee that the cost of the edifice is kept within the in agreement cost bounds. The cost control can be divided into major countries: the control of cost during design phases and the control of cost by the contractors once the building undertaking has started.

Harmonizing to Nunnaly ( 1998 ) , cost control of undertakings involves the measurement and roll uping the cost record of a undertaking and the work advancement. It involves the comparing of existent advancement with the planning.

The chief purposes of the cost control:

a ) To derive the maximal net income within the designated period within the budget.

B ) To maintain the entire outgo within the sum agreed by client, often based on approximative estimation of cost prepared by the measure surveyor in the early phases of the design procedure. There is a demand for rigorous cost subject thought all phases of design and executing to guarantee that the initial estimation, stamp figure and concluding history amount all are closely related.

degree Celsius ) To give the edifice client good value for money i?? a edifice which is soundly constructed, of satisfactory visual aspect and good suited to execute the maps for which it is required, combined with economical building and layout.

vitamin D ) To accomplish a balanced and logical distribution of the available financess between the assorted parts of the edifice.

The cost commanding system we can utilize as a tool for gauging the new undertakings based on old experience. To win a new undertaking

As a measure surveyor for a building company to research this undertaking, I have started with reading text books to acquire theoretical apprehension of the topic. Thereafter I have discussed the technique of cost control with my co-worker and directors to acquire practical cognition of this application.

3. WHAT IS COST CONTROL?

Controling how much is spent on a certain point on undertaking. Anything above a certain sum demands blessing of higher authorization

The procedure of commanding the disbursals of cost in a undertaking, from the starting of clienti??s thought to the completion and concluding payment on site

An active procedure to command the causes of the cost alterations, to document those cost alterations, and to supervise cost fluctuations within the undertaking

4. STATEMENT OF FACTS IN COST CONTROL

Harmonizing to Nunnally ( 1998 ) , cost control of a undertaking involves the measurement and roll uping the cost record of a undertaking and the work advancement. It besides involves the comparing of existent advancement with the planning. The chief aim of cost control of a undertaking is to derive the maximal net income within the designated period and satisfactory quality of work. A systematic process of cost control will give a good consequence in roll uping of import informations in estimating and controlling of the cost of the coming undertakings in future.

5. THE PURPOSE OF COST CONTROL

To supervise and command existent outgo against the estimated undertaking budget

The undertaking budget is represented by the stamp monetary value / contract amount.

6. THE IMPORTANCE OF COST CONTROL

There has in recent old ages been great demand for an apprehension of building economic sciences and cost control, peculiarly during the design phase of undertakings.

The importance of this due mostly to the followers: –

* The increased gait of development in general has resulted in clients being less likely to digest holds caused by redesigning edifices when stamps are excessively high.

* The clientsi?? demands today are more complex than those of their Victorian opposite numbers. A more effectual system of control is hence desirable from origin up to the completion of the concluding history, and thenceforth during cost-in-use.

* The clients of the industry frequently represent big organisations and fiscal establishments. This is a consequence of coup d’etats, amalgamations and some public ownership. De-nationalization has frequently meant that these big organisations remain integral as a individual entity. There has therefore been an increased accent on answerability in both the populace and the private sectors of industry. The efficiency of these organisations at building work is merely every bit good as their advisors.

* Contractori??s net income borders have in existent footings been reduced well during the past decennary. This resulted in their greater cost-consciousness in an effort to right possible losingss and remain competitory.

* There has, in general, been move towards the riddance of waste, and a greater accent on the efficient usage of the worldi??s scarce resources. This has necessitated a desire for improved methods of prediction and control of costs.

* There is a general tendency towards greater cost-effectiveness, and therefore a demand to analyze building cost, non entirely in the context of initial costs, but in footings of whole-life costs.

* World recession has by and large produced a deficit of financess for capital intents and building in general. This has been coupled with high rising prices and involvement charges, ensuing in an addition in the cost of building. Although the comparative costs compared with other trade goods may be similar, the evident high costs have resulted in greater cautiousness, peculiarly on the portion of clients.

7. POST i?? CONTRACT COST CONTROL

Undertaking cost control commences at undertaking origin phase by the client. Thereafter costs are controlled continuously and at every phase of the undertaking up to finalisation of the building contract.

8. THE PROJECT BUDGET

For cost control on a undertaking, the building program and the associated hard currency flow estimations can supply the baseline mention for subsequent undertaking monitoring and control. For agendas, advancement on single activities and the accomplishment of milepost completions can be compared with the undertaking agenda to supervise the advancement of activities.

The concluding elaborate cost estimation provides a baseline for the appraisal of fiscal public presentation during the undertaking. To the extent that costs are within the elaborate cost estimation, the undertaking is considered to be under fiscal control. Overruns in peculiar cost classs signal the possibility of jobs and give an indicant of precisely what jobs are being encountered. Expenses oriented building planning and control focal point upon the classs included in the concluding elaborate cost estimation/cost program prepared by the contractors.

For cost control supervising intent, the original item cost estimation is typically converted to a undertaking budget, and the undertaking budget is used later as a usher for direction. Specific points in the elaborate cost estimation become occupation cost elements. Expenses incurred during the class of the undertaking are recorded in specific occupation cost histories to be compared with the original cost estimation in each class.

In add-on to costs, information on stuff use and labour inputs and productivenesss within each cost codification is besides typically monitored in the undertaking budget. With this information, existent stuffs use and labour employed can be compared to the expected demands. As a consequence, cost overproductions or nest eggs on peculiar points can be identified as due to alterations in unit monetary value, labour productiveness or in the sum of stuff consumed.

The figure of cost codification associated with a peculiar undertaking can change well. For contractors, on the order of four 100 separate cost histories might be used on a undertaking.

In developing or implementing a system of cost histories / cost codifications an appropriate enumeration or cryptography system is indispensable to ease communicating of information and proper collection of cost information. Particular cost histories are used to bespeak the outgos associated with the specific undertakings and to bespeak the outgos on peculiar point throughout an organisation.

Cost cryptography is besides used for comparing the budget with existent outgo, which is typically referred to as cost/value rapprochement.

Sample of stuff requisition signifier demoing the cost codification with the allowance and staying allowanceSample of undertaking budget sum-up

9. TECHNIQUES AND WAYS FOR CONTROLLING COSTS

The most of import of all the cost control techniques is to name a little squad of qualified and experient people good versed in the fiscal direction squad to pull off the day-to-day fundss of the company in a really professional and systematic mode.

The cost control package can be helpful in making the work in relatively less clip and with more truth.

A. COST VALUE RECONCILATION

The cost and value of the undertaking must be reconciled and monitored on a regular basis. This allows a contractor to pull off and command existent against estimated outgo.

This will besides let the contractor to supervise costs and value motion and significantly besides monitor net income degrees.

For the intent of cost control, it is non sufficient to see merely the past records of costs and grosss incurred in a undertaking. Good undertaking commercial directors should concentrate upon future grosss, future costs and proficient jobs. For this intent, traditional fiscal accounting strategies are non equal to reflect the dynamic nature of edifice undertaking. Histories typically focus on entering everyday costs and past outgos associated with activities. W.H.Lucas and T.L.Morrison, i??Management Accounting for building Contracts, Management Accounting, 1981, PP- 59 i?? 65.

Sample of a typical cost/value Reconciliation

B. CONTROL OF PROJECT CASH FLOW

A positive hard currency flow is critical to any concern. On constructing undertakings hard currency flow is typically generated from the periodic payment for plants completed, i.e. interim payments.

Cash flow prognosiss are remarkably prepared and based on the plan of plants for internal intents and for usage by the client.

Sample hard currency flow prognosis

C. BREAK _- EVEN ANALYSIS

A interruption even analysis determines the point at which one method becomes superior to another method of carry throughing some undertaking or nonsubjective. Interrupt even analysis is a common and of import portion of cost control.

Example: –

One illustration of interruption even analysis would be compare two methods of route building for a route that involves a limited sum of cut-and-fill Earth work. It would be possible earthwork by manus or by bulldozer. If the manual method were adopted, the fixed costs would be low or nonexistent. Payment would be done on a day-to-day footing and would name for direct supervising by a chief. The cost would be calculated by gauging the clip required and multiplying this clip by the mean rewards of the work forces employed. The work forces could besides be paid on a piece-work footing. Alternatively, this work could be done by a bulldozer which would hold to be moved in from another site. Let us presume that the cost of the manus labour would be $ 0.60 per three-dimensional metre and the bulldozer would be $ 0.40 per three-dimensional metre and would necessitate $ 100 to travel in from another site. The move-in cost for the bulldozer is a fixed cost, and is independent of the measure of the earthwork handled. If the bulldozer is used, no economic system will ensue unless the sum of earthwork is sufficient to transport the fixed cost plus the direct cost of the bulldozer operation.

Breakeven Example for Earthwork Excavation

If, on a set of coordinates, cost in dollars is plotted on the perpendicular axis and units of production on the horizontal line analogue to the x i?? axis. If variable cost per unit end product is changeless, so the entire cost for any figure of unit production will be the amount of the fixed cost and the variable cost multiplied by the figure of units of production, or F+NV. If the cost informations two procedures or methods, one of which has higher variable cost, but lower fixed cost than the other are plotted on the same graph, the entire cost lines will cross at some point. At this point the degrees of production and entire cost are the same. This point known as the i??breakeveni?? point, since at this degree one method is every bit economical other. Mentioning the above Figure the breakeven point at which measure the bulldozer alternate and the manual labour alternate become equal is at 500 three-dimensional metres. We could hold found this same consequence algebraically by composing F+NV = Fi??+NVi?? , where F and V are the fixed and variable costs for the manual method and, Fi?? and Vi?? are the corresponding values for the bulldozer method. Since we all values are known except N, we can work out for N utilizing the expression N = ( Fi?? i?? F ) / ( V-Vi?? )

D. BUDGETARY CONTROL

Budgets are used for planning and commanding the income and outgo in many different organisations. It is through the budget that a companyi??s programs and aims can be converted into quantitative and pecuniary footings. Without these a company has small control. The budget may stand for a entire amount divided among a figure of subheadings or work bundles. It is of import that the assorted sub headers include a timescale, since the outgo by both the contractor and the client needs to be matched against income or the handiness of financess. While the contractor will hold a work plan for the undertaking and this can be costed, the process may be disrupted by holds on the portion of all those involved and through alterations ( fluctuations ) to the original strategy.

This information will give a rate of outgo and a rate of income throughout the undertaking, and by subtracting income from outgo the sum of capital required at the different times can so be calculated. The contractor will necessitate to aggregate this information from all undertakings in order company place the company place. For budgeting purpose these informations are prepared in progress of work being carried out on site. The information will besides be collected after the executing of the plants in order to set up the i??as donei?? place and to ease a comparing with the budget. This known as budgetary control. In common with other control techniques, budgetary control is a uninterrupted procedure undertaken throughout the contract continuance. When discrepancies from the budget occur, the contractor will necessitate to measure the ground for them.

E. CONTRACTORS COST CONTROL

The contractor, holding priced successfully plenty to win the contract through tendering, must now guarantee that the work can be completed for the estimated costs. One of the responsibilities of the contractori??s measure surveyors is to supervise the outgo and advice site direction of action that should be taken. This procedure besides includes the costs of subcontractors, since these signifiers a portion of the chief contractori??s entire outgo. The contractori??s surveyors besides comment on the profitableness of different site operations. Where loss-making state of affairss are encountered, determinations need to be taken to change by reversal this place if at all possible.

The fact that calculators can be broad of the grade when estimating, even with common points, the contractor would seek ground for such a broad fluctuation between costs and monetary values. This will be done for two grounds ; foremost, in an effort to reimburse some of the loss ; 2nd, to debar such mistakes in future work. This state of affairs may hold arisen for one of the undermentioned grounds.

* The character of the work is different from that envisaged at the clip of stamp.

* The conditions for put to deathing the work have changed.

* Adverse conditions conditions badly disrupted the work

* There was inefficient usage of resources.

* There was inordinate wastage of stuffs.

* Plant had to stand idle for long periods of clip.

* Delaies had occurred because of a deficiency of accurate design information

F. COST COMPARISION

In pattern it is ever hard make to comparison between costs and ratings, since either the full points of outgo are unavailable or the rating has merely been about prepared. However, the contractor does necessitate to find which contracts are profitable and which are non, and besides to find which operations gain or lose money. The information which is the generated may be used to organize the footing of contractual claims or to help in future tendering and the contractori??s choice of undertakings for which to tender.

Both the existent net income and per centum on cost can be calculated from the given tabular array. This offers the contractor an indicant of the fiscal Trent, although in order to mensurate this realistically these figures need to be compared with their several budgets. It is ill-defined from these informations entirely whether the contract was successful. By illation it can be suggested that the undertaking reached its most successful phase in footings of net income entirely at month 7. The net income i??expenditure ratio, nevertheless, had been diminishing since the beginning of the contract. This is besides typical characteristic of fixed monetary value contracts if the awaited net income has been disturbed equally throughout the undertaking. Towards the terminal of the contract the undertaking was likely losing money. For illustration compare the outgo with the rating for the month 9. This may propose that work has been intentionally overvalued during this early phase.

Calendar month

( Valuation i?? outgo )

G. SCHEDULE CONTROL

In add-on to be control, commercial directors must besides give considerable attending to monitoring agendas. ( E.g. fluctuation agendas ) Construction typically involves a deadline for work completion, so contractual understandings will coerce attending to agendas. More by and large, holds in building represent extra costs to the client due to late installation tenancy or other factors. Merely as costs incurred are compared to budgeted costs, existent activity continuances may be compared to expected continuances. In this procedure, calculating the clip to finish peculiar activities may be required.

The methods used for calculating completion times of activities are straight correspondent to those used for prediction.

For illustration, a typical estimating expression might be: Df = Wht

Where Df is the prognosis continuance, W is the sum of work, and ht is the ascertained productiveness to clip t. As with cost control, it is of import to invent efficient and cost effectual methods for garnering information on existent undertaking achievement.

Planned Vs Actual Expenditures

H. ASSET REGISTER

A portion of Cost control techniques maintain and updating the registry of the companyi??s stock list of assets, e.g. works and equipment. The stock list should name all of the points that have been purchased by the company, their day of the month of acquisition, initial value, current value ( approximative ) , and/or depreciation, age and expected reclamation day of the month. The location of the plus and, if appropriate, the manufactureri??s consecutive figure should be included.

This registry will stay an active papers and be invariably updated. The stock list provides an accurate checklist for insurance intent and to confirm claims should these be necessary.

The plus registry can besides be employed for revenue enhancement intents in regard of depreciation and replacing support. It acts as a fiscal registry for the companyi??s assets.

10. ILLUSTRATIONS ( TABLES AND GRAPHS )

A. PROPORTION COMPLETION Vs EXPENDITURE FOR AN ACTIVITY

B. PLANNED VS ACTUAL PROGRESS OVER TIME ON A PROJECT

C. COST CODE SAMPLE

D.

VARIATION SCHEDULE SAMPLE

E. LIGHT FITTINGS TRACKING SCHEDULE

11. Decision

The chief aim of cost control is to minimise and cut down the undertaking costs. Cost control is necessary for all types of undertaking ignoring its sizes. Most of the contractors have their ain cost control system.

The sum of item and clip interval between cost control studies must be considered, which is different harmonizing to degree of direction for which they have prepared largely, it will be on monthly footing.

After fixing the studies based on the existent costs, it is of import to administer the staying budget for the hereafter periods and estimation or re-estimate the cost of the work yet to be completed. Any new information must take into history since the beginning of contracts.

It is of import to guarantee that there should non be any under claim or over claim of the work done. This is required to keep a steady hard currency flow. Besides, it helps the client and the contractor to pull off their outgo and income.

The cost control techniques by and large used in building undertakings are: Cost Value Reconciliation, Control of Project Cash flow, Break i?? Even Analysis, Budgetary Control, and Contractors cost Control, Cost Comparison, Schedule Control and Asset Register.

Cite this Importance Of Cost Control In Construction Projects

Importance Of Cost Control In Construction Projects. (2016, Nov 25). Retrieved from https://graduateway.com/importance-of-cost-control-in-construction-projects/

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