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Objectives of Cost Analysis Control

The objectives of cost analysis and control are to ensure best use of resources, control costs within the approved budget during design and construction, and achieve balanced costs throughout the project. Costs that are analyzed and controlled include materials, labor, subcontractors, plant, and other expenses. Successful cost control is achieved when the contract sum is within budget, the tender sum equals the final account, and value for money is provided.

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106 views19 pages

Objectives of Cost Analysis Control

The objectives of cost analysis and control are to ensure best use of resources, control costs within the approved budget during design and construction, and achieve balanced costs throughout the project. Costs that are analyzed and controlled include materials, labor, subcontractors, plant, and other expenses. Successful cost control is achieved when the contract sum is within budget, the tender sum equals the final account, and value for money is provided.

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precious omokhaiye
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© © All Rights Reserved
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OBJECTIVES OF COST ANALYSIS

& CONTROL
QUESTIONS:
 Q1. If you were a Client, what would you expect your project Q.S. to
provide in respect of cost planning, analysis and control ?
 Q 2. How do you define a successful cost analysis and control ?

LET US INVESTIGATE
Objectives of Cost Analysis and
Control
 Best use of resources to gain the good value for money during the design and
construction processes.
 Controlling measures exercised in the design and construction processes, to ensure
the total construction cost / final sum does not exceed the client’s approved budget.
 Cost as an element of design during the design and construction processes to
achieve a suitably balanced costs throughout all parts of the Project.
Concept of Cost Analysis &Control

What are the costs to be analyzed and controlled?


Materials: Direct cost and Indirect cost;
Labour;

Sub-contractors;

Plant

Other expenses.
Material
 Direct: traceable to one particular process, job or product identified with
each unit of product
 Example: manufacturing an apparel
 Cloth, collar, buttons, cufflinks, thread
 Primary packing material (e.g., carton, wrapping, cardboard, boxes, etc.).
 Fuel, lubricating oil etc for operating & maintenance of machine
 Small tools
 Materials used for repairs & maintenance
Labour
 Inspectors
 Supervisors
 Internal transport staff
 Storekeeper, maintenance staff
 Skilled
 Unskilled
Expenses
 Expenses leading to a job or contract
 Traveling expenses for negotiation
 Special pattern, design
 Special tools for executing the contract

 Rent
 Insurance
 Canteen, hospital, power , lighting, maintenance
Main Elements of a Control Process
 The preparation of a plan that will achieve the objectives of the work.
 The recording of the plan in terms of the inputs to or the outputs from the system.
 The definition of the quantities and organization of the resources that will be
necessary for the conversion of inputs to outputs.
 The use of feedback in order to compare what is happening in practice with that
which was planned.
 The evaluation of variances arising from the comparison, leading to decisions as to
whether corrective action is required and whether a change in resources allocation is
necessary.
Implementation of Cost Control
In order to achieve the cost control function, there are three elements needed
to be executed:

1. Cost Planning – to formulate the realistic cost plan for the project.

2. Cost Monitoring – continuous process to compare the actual cost with the
planned cost.

3. Action – the effective cost rectification or cost reconciliation action to


review the overall construction cost against the client’s approved budget.
Cost Control during Pre-contract Stage
A narrower definition of pre-contract cost control is :
“the total process which ensures that the contract sum is within the client’s
approved budget or cost limit”.
Pre-contract cost control tasks are exercised at different stages
as follows:
i) Feasibility stage – confirmation of cost limit.
ii) Outline proposals stage – prepare possible solutions for cost plan and agree
with an outline cost plan.
iii) Scheme design stage – to exercise the cost checks based on the scheme
design drawings.
iv) Detail design stage – to exercise the final cost check based on the detailed
design drawings.
v) Tender Stage – to exercise the cost analysis against the approved budget.
Cost Control during Post-Contract Stage
What is the post-contract stage ?
That is: The time from signing of the contract until the final certificate.

What is the main cost control function of an employer’s quantity surveyor during post-contract
stage ?
To ensure that :
Tender Sum (Contract Sum) = Final Account (Final Contract Sum).

What is the main cost control function of a contractor’s quantity surveyor during post-contract
stage ?
To ensure that :
Actual Expenditure <= Budget (maintain the same or better profitability).
Cost Control during Post-Contract Stage
Activities include the following:
Interim valuation and certificates for payments.
Cash flow control and forecasts through budgetary control.
Financial statements showing the current and expected final costs for the project.
Final account, the agreement of the final certificate and the settlement of claims.
Attendance at site meetings.
Preparation of documentation for subcontractors and suppliers, examination of
quotations and invoices and making recommendations.
Advising on contractual implications.
Negotiation.
Preparation of special reports on cost implications.
Cost Control during Post-Contract Stage

Activities Contd.
Confirmation of payments to domestic /nominated subcontractors (NSC).
Advising on the implications of extensions of the contract period.
Completion of documentation which may be required for some clients,
particularly government departments.
Working with accounting department.

Contractor’s Cost Control :


Comment on profitability of different site operations.
Advise on how to reverse a loss-making situations.
Record cost details of site operations.
Advise on the cost implication of alternative construction methods.
Cost Control during Post-Contract Stage
 Cashflow control :-
• Cash flow : the actual movement of money in and out of a business.
• Cash deficit : money out > money in, contractor requires FUNDING.
• Cash surplus : money in > money out, the contract is SELF-FINANCING

 Cash flow problems can be reduced by :-


• Realistic monthly assessment of preliminaries from fully documented and priced
preliminaries schedules.
• Increased costs under contracts with fluctuation kept up to date in monthly valuations.
• Variations to the contract accurately assessed and included in valuations.
• Day work sheets completed and cleared for monthly payment.
• Collection of all money properly due to the contractor.
Cost Control during Post-Contract Stage

Question to think about:

“How can an employer’s quantity surveyor control the cost during the post-
contract stage, with the understanding that he has no authority under the
Contract to issue instructions ?”
Cost Control during Post-Contract Stage
 At an early stage, agree with the Contractor for a suitable arrangement for
dealing with day work vouchers and claims for increased costs.
 Maintain effective cost control arrangements by keeping a constant check on
costs and by supplying cost advice to the Architect for any proposed variations.
 Control the use of contingency sum, make sure that the majority of it is to cover
the cost of extra work that could not be reasonably foreseen at the design stage,
rather than to cater for design alterations.
Cost Control during Post-Contract Stage
 Ensure that the probable cost of all variations should be computed before
the Architect formally issues variation orders.
 Early consideration should be given to expenditure against provisional and
prime cost sums and the contingency fund, and the examination of sub-
contractors and suppliers 'quotations.
 Produce monthly forecasts of final expenditure, and predict and monitor
cash flow.
Cost Analysis and Control
Successful Cost Control

1. The contract sum is within the client’s approved budget or cost limit.
2. Tender Sum (Contract Sum) = Final Account (Final Contract Sum).
3. Value for money.

Q&A

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