The reason for this survey is to explain the value of cost control in engineering projects and its function. THE PRICE Control is an important process in structure project. It is widely used by contractors and needs to perform throughout the life of job.
The main target of cost control of a job is to get the maximum earnings within the designated period within the budget. To monitor and control real expenditure against the estimated project budget. The job budget is symbolized by the tender price / contract sum.
According to Nunnally (1998), cost control of a job entails the measuring and collecting the cost record of an project and the work progress. In addition, it involves the evaluation of actual improvement with the look. The main purpose of cost control of a task is to gain the maximum profit within the designated period and acceptable quality of work. A organized method of cost control will give a good result in collecting important data in estimating and managing of the price tag on the coming jobs in future.
After setting up the reports based on the real costs, it's important to distribute the remaining budget for the future periods and estimation or re-estimate the price tag on the task yet to be completed. Any new information must consider because the commencement of deals.
It is important to ensure that there should not be any under claim or over promise of the task done. That is necessary to maintain a steady cash flow. Also it helps the client and the contractor to manage their expenses and income.
The cost control techniques generally found in construction tasks are: Cost Value Reconciliation, Control of Project Cash flow, Period of time Even Examination, Budgetary Control, and Contractors cost Control, Cost Comparability, Routine Control and Asset Register
The cost control is a process that should be extended through the structure period to ensure that the price of the building is retained within the arranged cost limits. The cost control can be split into major areas: the control of cost during design stages and the control of cost by the contractors after the construction task has began.
According to Nunnaly (1998), cost control of tasks includes the measuring and collecting the cost record of a project and the task progress. It consists of the assessment of actual improvement with the planning.
The main seeks of the cost control:
a) To gain the maximum income within the selected period within the budget.
b) To keep carefully the total expenditure within the amount agreed by consumer, frequently based on approximate estimate of cost made by the number surveyor in the first stages of the look process. There's a need for rigid cost willpower thought all periods of design and execution to ensure that the original estimate, tender figure and final consideration sum all are strongly related.
c) To provide the building consumer good value for the money a building which is soundly made, of reasonable appearance and well suited to execute the functions for which it is necessary, combined with inexpensive construction and structure.
d) To achieve a balanced and logical distribution of the available cash between the differing of the building.
The cost handling system we may use as an instrument for estimating the new tasks based on previous experience. To get a fresh project
As a variety surveyor for a construction company to analyze this project, I have started out with reading text message literature to get theoretical knowledge of the topic. Thereafter I've discussed the strategy of cost control with my colleague and professionals to get sensible understanding of this software.
3. WHAT IS COST CONTROL?
Controlling how much is allocated to a certain item on project. Anything above a certain amount needs approval of higher authority
The process of controlling the bills of cost in a task, from the starting of consumers idea to the conclusion and final payment on site
An lively process to regulate the sources of the price changes, to document those cost changes, and monitor cost fluctuations within the project
4. STATEMENT OF FACTS IN COST CONTROL
According to Nunnally (1998), cost control of a project consists of the measuring and collecting the price record of your project and the task progress. In addition, it involves the evaluation of actual improvement with the look. The main purpose of cost control of a project is to get the maximum income within the designated period and reasonable quality of work. A systematic method of cost control gives a good bring about collecting important data in estimating and handling of the price tag on the coming assignments in future.
5. THE GOAL OF COST CONTROL
To screen and control actual expenditure contrary to the estimated job budget
The project budget is symbolized by the tender price / contract sum.
6. THE NEED FOR COST CONTROL
There has in recent years been great need for an understanding of development economics and cost control, particularly during the design stage of jobs.
The importance of this due typically to the next:-
* The increased speed of development on the whole has led to clients being less likely to tolerate delays caused by redesigning buildings when tenders are too high.
* The clients requirements today are more complex than those of these Victorian counterparts. A more effective 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 symbolize large organizations and financial institutions. This is due to takeovers, mergers and some public possession. De-nationalization has often designed that these large organizations continue to be intact as an individual entity. There has thus been an increased emphasis on accountability in both the general public and the private sectors of industry. The efficiency of these organizations at structure work is only as effective as their advisers.
* Service providers profit margins have in real conditions been reduced significantly during the past decade. This led to their increased cost-consciousness so that they can redress possible losses and continue to be competitive.
* There's, generally, been move into the elimination of misuse, and a larger emphasis on the reliable use of the worlds scarce resources. It has necessitated a desire for improved methods of forecasting and control of costs.
* There's a general pattern towards better cost-effectiveness, and so a need to examine development cost, not exclusively in the framework of initial costs, however in conditions of whole-life costs.
* World recession has generally produced a shortage of cash for capital purposes and engineering in general. This has been in conjunction with high inflation and interest charges, resulting in an increase in the expense of construction. But the relative costs weighed against other goods may be similar, the apparent high costs have resulted in greater caution, particularly for clients.
7. POST Deal COST CONTROL
Project cost control commences at task inception stage by your client. Thereafter costs are managed continuously with every level of the task up to finalization of the building contract.
8. THE PROJECT BUDGET
For cost control over a project, the structure plan and the associated cashflow estimates can offer the baseline research for subsequent project monitoring and control. For schedules, progress on specific activities and the achievements of milestone completions can be weighed against the project schedule to monitor the improvement of activities.
The final comprehensive cost estimate provides a baseline for the diagnosis of financial performance through the project. To the level that costs are within the precise cost estimate, the project is considered to be under financial control. Overruns in particular cost categories indicate the likelihood of problems and give a sign of just what problems are being came across. Expenses oriented building planning and control emphasis upon the categories included in the final precise cost estimation/cost plan prepared by the contractors.
For cost control monitoring purpose, the original detail cost estimate is normally converted to a task budget, and the job budget is employed subsequently as helpful information for management. Specific items in the thorough cost estimate become job cost elements. Expenditures incurred during the course of the job are registered in specific job cost accounts to be compared with the original cost estimate in each category.
In addition to costs, information on material utilization and labor inputs and productivities within each cost code is also typically checked in the task budget. With these details, actual materials usage and labor utilized can be compared to the expected requirements. Because of this, cost overruns or cost savings on particular items can be recognized as anticipated to changes in product price, labor productivity or in the amount of material consumed.
The number of cost code associated with a particular project can vary noticeably. For contractors, on the order of 500 different cost accounts might be used on a job.
In producing or implementing a system of cost accounts / cost codes a proper numbering or coding system is essential to accomplish communication of information and proper aggregation of cost information. Particular cost accounts are used to point the expenditures associated with the specific projects and indicate the expenditures on particular item throughout a business.
Cost coding is also used for looking at the budget with real expenditure, which is typically known as cost/value reconciliation.
Sample of materials requisition form exhibiting the cost code with the allowance and left over allowanceSample of project budget summary
9. TECHNIQUES AND WAYS FOR CONTROLLING COSTS
The most significant of all the cost control techniques is to appoint a little team of qualified and experienced people well versed in the financial management team to manage the daily budget of the business in an exceedingly professional and systematic manner.
The cost control software can be helpful in doing the work in comparatively less time and with more accuracy.
A. COST VALUE RECONCILATION
The cost and value of the project must be reconciled and watched regularly. This allows a contractor to control and control actual against estimated expenses.
This will also allow the contractor to monitor costs and value movements and importantly also monitor earnings levels.
For the purpose of cost control, it is not sufficient to consider only days gone by documents of costs and earnings incurred in a project. Good project commercial managers should focus upon future profits, future costs and complex problems. For this purpose, traditional financial accounting techniques are not sufficient to indicate the dynamic dynamics of building task. Accounts typically focus on recording regular costs and earlier expenses associated with activities. W. H. Lucas and T. L. Morrison, Management Accounting for engineering Contracts, Management Accounting, 1981, PP- 59 65.
Sample of a typical cost/value Reconciliation
B. CONTROL OF Job CASH FLOW
A positive cashflow is crucial to any business. On building projects cash flow is typically produced from the regular payment for works completed, i. e. interim payments.
Cash stream forecasts are unusually prepared and based on the program of works for interior purposes and for use by the client.
Sample cash flow forecast
C. BREAK _- EVEN ANALYSIS
A break even examination determines the point at which one method becomes superior to another method of accomplishing some job or objective. Period of time even evaluation is a common and important part of cost control.
One illustration of break even examination would be compare two methods of road construction for a street 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 achieved on a daily basis and would call for direct supervision with a foreman. The price would be calculated by estimating enough time required and multiplying this time by the common wages of the men used. The men could also be paid over a piece-work basis. Alternatively, this work could be achieved with a bulldozer which would have to be shifted in from another site. Let us assume that the price tag on the hands labor would be $0. 60 per cubic meter 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 also independent of the level of the earthwork taken care of. In case the bulldozer is used, no overall economy will end result unless the amount of earthwork is enough to transport the set cost in addition to the direct cost of the bulldozer operation.
Breakeven Example for Earthwork Excavation
If, on a set of co-ordinates, cost in us dollars is plotted on the vertical axis and items of development on the horizontal line parallel to the x axis. If varying cost per unit end result is constant, then your total cost for just about any number of device production would be the amount of the set cost and the varying cost multiplied by the amount of units of production, or F+NV. If the price data two procedures or methods, one which has higher changing cost, but lower fixed cost than the other are plotted on a single graph, the total cost lines will intersect sooner or later. At this time the degrees of production and total cost will be the same. This point known as the breakeven point, since at this level one technique is as economical other. Referring the aforementioned Physique the breakeven point of which quantity the bulldozer alternative and the manual labor option become equal is at 500 cubic meters. We could have found this same consequence algebraically by writing F+NV = F+NV, where F and V will be the fixed and adjustable costs for the manual method and, F and V will be the corresponding worth for the bulldozer method. Since most of us principles are known except N, we can solve for N using the formula N = (F F) / (V-V)
D. BUDGETARY CONTROL
Budgets are being used for planning and handling the income and expenditure in numerous organizations. It is through the budget a companys strategies and targets can be changed into quantitative and financial conditions. Without these a company has little control. The budget may represent a total sum divided among a number of subheadings or work plans. It is important that the many sub headings include a timescale, because the expenditure by both the contractor and your client needs to be matched against income or the option of funds. While the contractor will have a work program for the job which is costed, the task may be disrupted by delays for all those engaged and through changes (variations) to the original scheme.
This information will give an interest rate of expenditure and a rate of income throughout the job, and by deducting income from expenditure the amount of capital required at the several times may then be computed. The contractor will need to aggregate this information from all assignments to be able company position the business position. For budgeting goal these data are ready in advance of work being carried out on site. The info may also be collected following the execution of the works to be able to establish the as done position and also to facilitate an evaluation with the budget. This known as budgetary control. In common with other control techniques, budgetary control is a continuous process carried out throughout the contract length of time. When variances from the budget occur, the company should assess the reason for them.
E. CONTRACTORS COST CONTROL
The service provider, having priced effectively enough to get the deal through tendering, must now ensure that the task can be completed for the estimated costs. Among the tasks of the service providers volume surveyors is to monitor the costs and advice site management of action that needs to be taken. This technique also includes the costs of subcontractors, since these varieties an integral part of the main builders total costs. The service providers surveyors also comment on the profitability of different site functions. Where loss-making situations are experienced, decisions need to be taken to invert this position if possible.
The reality estimators can be extensive of the mark when estimating, even with common items, the service provider would seek reason behind such a wide variation between costs and prices. This may be done for just two reasons; first, in an attempt to recoup a few of losing; second, to avert such errors in future work. This situation may have arisen for one of the next reasons.
* The type of the task differs from that envisaged at the time of tender.
* The conditions for executing the task have transformed.
* Adverse weather conditions seriously disrupted the work
* There is inefficient use of resources.
* There is unnecessary wastage of materials.
* Plant needed to stand idle for extended periods of time.
* Delays possessed occurred due to a lack of accurate design information
F. COST COMPARISION
In practice it will always be difficult make to comparison between costs and valuations, since either the full items of expenditure are unavailable or the valuation has only been about prepared. However, the service provider does need to ascertain which agreements are profitable and that are not, and to determine which businesses gain or lose money. The info which is the produced enable you to form the basis of contractual cases or to help out with future tendering and the service providers collection of projects that to tender.
Both the genuine profit and ratio on cost can be calculated from the given table. This supplies the contractor an indication of the financial Trent, although in order to measure this realistically these figures have to be weighed against their respective costs. It really is unclear from these data together whether the contract was successful. By inference it could be suggested that the project reached its most successful level in conditions of profit together at month 7. The revenue expenditure proportion, however, have been decreasing because the commencement of the agreement. That is also typical feature of fixed price contracts if the expected revenue has been disturbed equally throughout the task. Towards the end of the agreement the project was probably losing money. For instance compare the expenses with the valuation for the month 9. This might suggest that work has been intentionally overvalued in this early stage.
G. Plan CONTROL
In addition to cost control, commercial managers must give considerable attention to monitoring schedules. (E. g. deviation schedules) Building typically involves a deadline for work conclusion, so contractual contracts will force attention to schedules. More generally, delays in construction symbolize additional costs to the client due to past due service occupancy or other factors. Equally 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 needed.
The methods used for forecasting completion times of activities are straight analogous to prospects used for forecasting.
For example, a typical estimating solution might be : Df = Wht
Where Df is the forecast period, W is the amount of work, and ht is the detected output to time t. As with cost control, it is important to devise effective and cost effective options for gathering information on actual project success.
Planned Vs Genuine Expenditures
H. Advantage REGISTER
A part of Cost control techniques maintain and updating the register of the companys inventory of property, e. g. plant and equipment. The inventory should list all the items that contain been purchased by the business, their particular date of acquisition, preliminary value, current value (approximate), and/or depreciation, get older and expected renewal night out. The positioning of the asset and, if appropriate, the suppliers serial number should be included.
This register will stay an active record and become constantly up to date. The inventory provides an accurate checklist for insurance goal and substantiate claims should these be necessary.
The advantage register may also be useful for taxation purposes in respect of depreciation and alternative funding. It functions as a financial sign up for the companys resources.
10. ILLUSTRATIONS (TABLES AND GRAPHS)
A. PROPORTION COMPLETION Vs EXPENDITURE FOR AN ACTIVITY
B. Prepared VS ACTUAL Improvement OVER TIME OVER A PROJECT
C. COST CODE SAMPLE
VARIATION Routine SAMPLE
E. LIGHT FITTINGS Traffic monitoring SCHEDULE
The main target of cost control is to reduce and reduce the task costs. Cost control is necessary for all types of project disregarding its sizes. A lot of the companies have their own cost control system.
The amount of aspect and time interval between cost control records must be looked at, which differs according to level of management that they have prepared mostly, it'll be on every month basis.
After preparing the reports predicated on the real costs, it's important to distribute the remaining budget for the near future periods and estimation or re-estimate the cost of the work yet to be completed. Any new information must take into account since the commencement of agreements.
It is important to ensure that there should not be any under state or over promise of the work done. That is necessary to maintain a reliable cash flow. Also, it helps your client and the company to manage their expenses and income.
The cost control techniques generally found in construction projects are: Cost Value Reconciliation, Control of Job Cash flow, Break Even Analysis, Budgetary Control, and Companies cost Control, Cost Evaluation, Plan Control and Advantage Register.