COST CONTROL PROCESSES

 COST CONTROL PROCESSES
Introduction

The main aim of the report is to elaborate the cost control process for a construction project. To this end, it will explore the operating cycle, budgets, earned value measurement system and strategies that will be adopted to address a possible cost overrun dilemma. The cost control process will entail cost monitoring, data recording and data analysis, which will in turn enable the management to take corrective action before it is too late (Kerzner, 2013). To achieve this, all the personnel incurring costs in the organization will be involved in the cost control process as opposed to merely involving the personnel in the project office.

Operating Cycle

The construction project is expected to span over a three month period during which all the project deliverables will be met.

Budgets

Two budgets will be used to determine the cost of executing the project deliverables, the estimate and the project budget (Uher & Loosemore, 2003). The estimate is a static document that reflects the quantity of inputs that will be required for the project and their prices before the commencement of the project (bid time). The actual project budget will on the other hand continuously evolve throughout the projects lifecycle (AICCCC, 2005). This budget reflects the actual scope of the project at the site and the actual quantities of inputs that will be used for the construction project and a standard productivity rate. Unlike the estimate, the project budget is not static because it includes extra work orders and change orders that will result in a significant alteration of quantities and costs. The project budget will therefore reflect the actual quantities utilized and a standard unit rate for each work activity.

In order to determine the cost effectiveness of the project, the project budget will be compared to the estimate (DelPico, 2013). This comparison will `specifically be made in the project cost summary report, which will highlight the discrepancies between the estimated quantities, work hours and the actual and projected costs.

Earned Value Measurement System

The earned value measurement system will mainly constitute the earned work hour, which can be defined as the budgeted work hours earned for the quantity placed using the budgeted standard. This will be calculated by finding the product of the quantities placed and the budgeted standard work hours per unit rate (whr per unit) as illustrated below

The budgeted quantities will be computed by an individual within the organization with the capacity to determine the quantities for each work item from the construction blueprints. This is because these quantities will reflect the actual project being built. It is also imperative that the budgeted quantity takeoffs for each work item are tabulated elaborately so that the quantity can easily be identified. The quantity tabulation form will particularly identify the takeoff by revision numbers, drawing number, equipment item numbers, area numbers, system numbers and evaluation. These quantity tabulation sheets are used by field officers to keep track of the work completed.

Cost Control Reports

Three cost control reports will be utilized during the execution of the project, the labor cost report, the earned work hour report and the aforementioned project cost summary report (AICCCC, 2005). These reports will mainly be used to compare the budgeted costs and actual expenditures by the cost code assigned to each of the resources that will be needed for the project as outlined in the work breakdown structure.

Earned Work Hour Report

This report will be used by the project manager to monitor the productivity of the individual work activities. It will particularly be used to compare the rate of the budgeted work hours per unit to the rate of the actual work hours per unit either daily or weekly for each activity. The contractor’s for daily outputs and crew sizes will be used to determine the budgeted work hour per unit rate for all the work items. The standard unit rate may or may not be incorporated in the estimate. However, for the sake of productivity, it will be imperative that all the superintendents are compared to the same rate. In order to determine the standard unit rate, the base year, daily output for each activity and standard crew size will have to be established. Even though the budgeted standard will remain fixed throughout the project, it might be adjusted for each job due to the location, working conditions and trade agreements. The Earned Work Hour Report will mainly be used to facilitate the comparison between the budgeted work hours and actual work hours expended and the projection of the final work hours for the individual activities. The contents of this report are highlighted below:

Cost code: Unique code assigned to each activity
Activity Description: Short description of the resources that will be required for each activity
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