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Literature Review of Cost Control Techniques used in the Construction Industry

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    Subject: The Cost control Techniques Used in ConstructioNIndustrY

    1.1 Objectives

    Undertaking cost control weaken the common job. Strengthen cost control, change the efficiency of endeavors is cardinal the endurance and development undertakings in a market economic system. Many companies have recognize the importance cost control, some companies development of relevant cost control system, some endeavors in implementing cost control duty, and made valuable experience of cost control. However, from the overall position, Project cost control related to the success or failure of concern cost control. From the position of cost control manner, the bulk of companies still use traditional cost control methods, develop building budget, cost control based on this budget, every bit long as it does non transcend the cost of the budget is the effectual control of costs, rough, simple control costs, no so that the undertaking cost to accomplish optimal control. Therefore, the demand to foster better the method of cost control, better the economic efficiency companies.

    Definition of the undertaking cost:

    Undertaking costs are happening the undertaking of resources around the money reflects the cost, including the resource-consuming phase of the undertaking life rhythm. Undertaking costs are normally measured in pecuniary units. Undertaking costs are divided into direct costs, indirect costs in two ways. Direct costs from labour costs, stuffs, mechanical royalties and other direct costs constituent

    1.2 Differenttypes of undertaking in Hong Kong

    The undertaking type was deemed appropriate for categorising.The classs dwelling of span, route building, resurfacing, care, traffic and traffic care are characterized by noteworthy differences in direction patterns due to the nature of the classs. pull offing costs on a broad assortment of new edifice undertakings and constructions, such as residential developments, athleticss bowls, roads and Bridgess, schools, infirmaries, offices and mills.

    To quote“ For the Major Infrastructure Projects the advancement in the past twelvemonth. In clip, many of these have entered the building stage they including:

    • Hong Kong-Zhuhai-Macao Bridge
    • Hong Kong subdivision of the Guangzhou-Shenzhen-Hong Kong Express Rail Link,
    • South Island Line ( East )
    • Sha Tin to Central Linkadvance plants of the Tuen Mun-Chek Lap Kok Link
    • Xiqu Centre of the West Kowloon Cultural District, etc.

    Apart from the major substructure undertakings, the DEVB will go on be aftering other public works to better people ‘s quality of life.The undertakings including incline safety, fresh H2O supply, bar inundation, green and heritage preservation work.”

    Development Bureau,Imperativeness Releases/Wednesday, April 2, 2014hypertext transfer protocol: //www.devb.gov.hk/en/sdev/press/index_id_8215.html

    Chapter 2Common Project Sources of Founds

    2.1Government,Developer, Contractor

    To cite ”Sources and signifiers of finance a concern program is cardinal to satisfactory fiscal planning and finally the program will necessitate to be formulated in fiscal footings. When approved and adopted, the concern program forms a footing for control and comparing. When it is set up, after blessing and acceptance, consideration of its funding must take topographic point. This may be short term, such as a bank overdraft or long term as debt finance.A concern program must be designed so that it provides the replies to all the inquiry probably to be raised by prospective loaners.

    The chief beginnings of finance for a concern are the undermentioned:

    a ) Banks

    B ) Share issues

    degree Celsiuss ) Internal company finance

    vitamin D ) Hire purchase and leasing

    vitamin E ) Factoring

    Thyminehe most commonsignifiers of organisation

    • The function bargainer: from of concern which one individual owns and operates for his /she exclusive benefit
    • The partnership: must dwell of at least two and non more than twenty spouses
    • Limited liability companies: can be either private or public
    • Public sector ownership organisation: by the authorities and accountable
    • Unincorporated association: normally societal organisation who may or may non hold aim of doing a profit.”

    1Roy Plicher ( 1985,1994 ) Undertaking Cost control in ConstructionP.15,17,18, Blackwell scientific Publication

    The Hong Kong Government basic on the building self-financing beginnings, including the fiscal and excess budgetary topographic points mobility particular fund such as financial revenue enhancements the Fund.

    To cite ” ( Baumal 3 ) , for illustration, argues that directors of houses runing in markets with really few challengers will seek to maximise gross instead than net income. Nevertheless they are constrained by the demand to keep a minimal degree of net income as demanded by stockholders. Other authors such as ( Marris 4 ) and ( Williamson 5 ) take different attack to growth.Nevertheless, what they have in common is that troughs are seen to prosecute their ain opportunism at the disbursal of the stockholder. This is in complete contrast with the neoclassical theory” .

    3.BAUMAL W.J ( 1967 ) business BEHAVIOUR, VALUE AND GROWTH.Harcourt Brace Jovanovich.

    4.MARRIS R.L. ( 1964 ) The economic theory of “ managerial ” capitalism.Macmillan.

    5.WILLLIAMSON J. ( 1996 ) Net income, growing anf gross revenues maximisation.Econcmica, Februart

    To quote”Harris and McCaffer 12, Fine and other agree with this position by puting truth in gauging as the key variable in finding the successful result of commands

    building ecomomics: is there such a thinf? by D.K Rutter MBA MSc MCIOB MBIM CDipAF”;HARRIS F and McCAFFER ( R.1997 ) Modern building management.Granada Publication

    To quote”A undertaking can non continue without equal funding, and the cost of supplying equal funding can be rather big. “

    by Chris Hendrickson, Department of Civil and Environmental Engineering, Carnegie Mellon University, Pittsburgh, PA l52l3 Copyright C. Hendrickson 1998

    First Edition originally printed by Prentice Hall, ISBN 0-13-731266-0, 1989 with co-author Tung Au.

    Second Edition prepared for universe broad web publication in 2000.

    hypertext transfer protocol: //pmbook.ce.cmu.edu/07_Financing_of_Constructed_Facilities.html

    Chapter 3Construction Cost Control Principles

    The cost contral is include the Time-Cost Relationship

    To quote”Chitkara ( 2005 ) said the relationship between clip and cost is a really of import facet in the control of costs on site as any fluctuation in clip has automatic deduction on cost. It is of import to describe and enter all the plants affecting stuffs, works and labor on sites. This enables the

    contractor be able to cognize the costs and disbursals of the resources used on site and comparison with the initial cost budget. Assorted study techniques used include ; day-to-day or hebdomadal and monthly recording, agenda control, site day-to-day diary study and the undertaking budget.”

    Chitkara, K, K. , 2005. Construction Project Management: Planning, Scheduling, and Controlling. Tata McGraw Hill Publishing Company Ltd.

    Poor Project Management

    Harmonizing to User’s Guide, ( 2005 ) , a hapless undertaking direction construction will hold an impact at all phases of the building procedure taking to:

    • Lack of planning and coordination ;
    • Poor communicating between members of the undertaking squad and the undertaking patron ;
    • Failure to place jobs and establish necessary and timely design and scheduling alterations ;
    • Lack of control over clip and cost inputs ;
    • Lack of terminal user engagement

    A good undertaking direction manages costs by gauging, programming, roll uping and analysing cost informations, and eventually implementing steps to rectify jobs related to cost.

    BY FETENE NEGA(2008)CAUSES AND EFFECTS OF COST OVERRUN ON PUBLIC BUILDING CONSTRUCTION PROJECTS,IN ETHIOPIA

    A“S” line curve

    line of balance

    Figure.1 To cite in: hypertext transfer protocol: //www.cpmtutor.com/c02/earnedvalue.html

    Construction Poject Cost Control Method Construction cost control method of many, this high spots divergence analysis. Deviation

    refers to the existent value of the building costs with the planned value of the

    difference. Deviation analysis may be used to a saloon chart method, signifier method, curve method

    Curve is a entire building cost curve ( S line curve ) for the partial building costs differential analysis methods. A figure which indicates the existent value of the building cost curve, p. building cost of the strategy said the value curve, the curve between two perpendicular distances between building cost divergences. The method used is the same image analysis, and ocular features, but this is really hard to direct for quantitative analysis of quantitative analysis can play a function.

    During the executing stage of your undertaking, you will necessitate to supervise the position of the activities. Any divergence to agenda, quality, or range for an activity will most probably have a cost impact. For this ground, undertaking cost control requires you to look into the overall position of each activity

    3.1 Budget estimating based on a client’s, contractor..

    To quote” The Government cost estimations should be prepared like the Government more cautious and full-equipped contractor gauging the undertaking. Therefore, all costs, which a prudent, experient contractor would anticipate to bear, should be included in the cost estimation. This doctrine widespread throughout the full undertaking rhythm – from programming through completion of building. Each estimation should be developed every bit accurately as possible, every bit item as possible be assumed, and be based upon the best information available. This aim is to be maintained so that, at all phases of the undertaking scheduling, design, and during building, the cost estimation in each facets representation the “ just and sensible ” cost to the Government.”UNIFIED FACILITIES CRITERIA ( UFC ) HANDBOOK: Construction Cost ESTIMATING;hypertext transfer protocol: //www.wbdg.org/ccb/DOD/UFC/ufc_3_740_05.pdf

    To cite “Clients will normally place their demands in footings of commercial or societal force per unit area

    1. Space demands: the demand to better production degrees, attention deficit disorder to production capacity, suit new procedures or supply domestic or societal adjustment ;

    2. Investing: to work chances to put in edifices ;

    3. Identity: to heighten the single ’ s or organisation ’ s standing in its market or society ;

    4. Location: could take to a better usage of resources, capture a new market or better agreeableness ;

    5. Politicss: chiefly in the public sector.”

    Fourth edition( 2008 )Martin Brook BEng ( Tech ) FCIOB,ESTIMATING AND TENDERING FOR CONSTRUCTION WORK

    3.2 Analysis Special concept method

    Construction Enterprise Project Cost Control Analysis

    • Labour – Workers can be to the production and operation, but the monthly rewards, allowances, and fillips can pass less. Artificially expand the outgo of financess.
    • Material direction – Some sort of technology stuffs and book a difference to 1000s of dollars, 10s of 1000s or even 100s
    • Construction machinery -efficiency is non high for illustration, Monthly renting machinery and equipment.

    To quote” The purpose of such a control system for usage by contractor or subcontractor on site are to:

    • Supply a clear definition of the merchandises to be produced
    • Determine the method and activity to merchandise ;
    • Work bundle activities ;
    • Assign duties for work ;
    • Plan and schedule the work ;
    • Prepare resource budgets to hold with the programme ;
    • Measure the work completed ;
    • Collect cost and resource outgo day of the month ;
    • Analysiss informations and take remedial action if necessary ;
    • Supply an historical input to a day of the month base”

    By A T Baxendale ( 1992 ) ,Integrationsof clip and cost control, BSc ( Hons ) , MPhil, MCIOB

    Judge the economic worth of independent undertakings

    If a budget holder has proposals for several independent undertakings, so

    whole-life bing analysis can assist make up one’s mind the order in which undertakings

    should be given the go-ahead to vouch the maximal degree of nest eggs

    in operation, care and fix costs.

    3.3 Alife rhythm bing

    To cite “A life rhythm bing attack, that is an attack that takes expressed history of the life rhythm cost of assets, is indispensable to effectual determination devising in the undermentioned ways a whole or entire. ( Flanagan et al.,1983 )

    • Life rhythm costing is a whole or entire cost attack undertaken in the acquisition of any capital -cost undertaking or plus, instead than simply concentrating on the initial capital costs entirely.
    • Life rhythm bing allows for an effectual pick to be made between viing proposals of a declared aim the method will take into history the capital, fix running and replacing cost and show these in consistent and comparable footings. It can let for different solutions of the different variables involved and setup hypotheses to prove the assurance of the consequences achieved.
    • Life rhythm costing is an plus direction tool that will let the operating cost of premises to evaluated at frequent intervals.
    • Life rhythm costing will enable those countries of edifice to be identified as a consequence of alterations in working patterns, such as hours of operation, debut of new works or machinery, usage of care analysis etc.”

    John W.Bull ( 1993 ) Life rhythm bing for building, BLACKIE ACADEMIC & A ; PROFESSIONAL

    Chapter 4Relationship ofBuilding Contractand Costing

    Contract and information direction

    The contract are clear rights the understanding of both parties duties, the two sides is liquidation the cardinal footing on the undertaking personnel cost control baseline. After the sign language of the contract should be organized project direction staff contract analysis, contract study, contract execution. Particularly clear claims and counter-claims conditions in a timely mode to alter the file. The contract information direction into cost control.

    The Construction undertakings Lump Sum Contract has become widely used in the universe of the pricing method, the Construction undertaking are recommended or required in the signifier of Bill of quantities Characteristics of Lump Sum Contract with measure:

    Lump Sum Contract with measure list rating to truly recognize the “ measure ” , “ monetary value ” rule of separation. For bidders to offer Bill of measures provided as a platform, based on their proficient, fiscal and direction capableness to transport out the stamp offer so that bidders can to the full take into history many other factors, such as: command building strategy for its ain agenda, hazards, resource programming, and so on. So the bidder can be flexible accommodations for these quotation marks, so quotation marks can accurately co-occur with the undertaking. This rating method of technology building hazard and sensible distribution of tendering party “ measure ” hazard bidders bear the “ monetary value ” of hazard. While traditional fixed pricing method, which no bidder ‘s proficient advantage and monetary value advantage. Engineeringchangemanagementisthekeyofconstructioncontractmanagementofengineeringchangesinprocessengineeringisinevitable, butconstructionshouldtry toreduce engineeringchange, becausechangeisoftenin additionto thecostsoftheprojectitself, butalsowillbringalotofmachinesorthedurationof aclaim.

    Costinrealsettlementcontract ( Cost ReimbursementContract )

    Cost plus honoraria contract ( Prime Cost and Fee ) cost plus honoraria contract is bid people by stamp file provides early estimated undertaking of unreal, and stuff, and mechanical of cost monetary value, and by demands ( audiences ) take early estimated cost of per centum value or fixed costs as command people of honoraria ( contains costs and net income ) , constitute probationary contract monetary value, remain technology completed shi , by existent occurred of cost colony, but honoraria proportions or entire non variable.Suchcontracts applytotightdeadlines, exigency rescueand catastrophe reliefwork.NosuchcontractinHong Kongstandardcontractforms

    Reasons of Undertakings over Budget:

    • Inexperience of Project Leader
    • Poor Communication/Management of Personnel
    • Loss Through Damage or Malfunction
    • Human Error
    • Employee Absenteeism
    • Vendor Relationship Issues
    • Environmental Factors
    • Poor Workmanship
    • Lack of Foresight

    Decision

    Construction undertaking cost control is complicate system technology. Actual operation an application and flexibleness of needed to accommodate applications under the local conditions, assorted sizes, different building company and different administrative systems are different, However in under any fortunes the building of production and operations of sum of human resources and stuffs resources and costs, counsel, supervising, monitoring and limitations. Therefore, the “ to increase production and preservation, addition gross and cut down outgos, ” is a common edifice building endeavor, which requires changeless pattern in reexamining and bettering cost control, methods and means to guarantee that the undertaking costs. As a concern that merely intensify the fiscal direction system, advanced cost direction centre, to foster strengthen cost direction and stringent cost negative, complete execution of, the whole procedure of cost control and invariably accommodate to the overall market competition, to get the better of of hardship to accomplish mark of cost control

    Literature Review of Cost Control Techniques used in the Construction Industry. (2016, Dec 07). Retrieved from https://graduateway.com/literature-review-of-cost-control-techniques-used-in-the-construction-industry/

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