SHEFFIELD HALLAM UNIVERSITY INTERNATIONAL COLLEGE OF BUSINESS AND TECHNOLOGY

Project Cost Control

Integrated Project

Lecturer: Mr. S. R. Chandratilake Student: N.M.Infaz Student No: SHU/QS/MT/15/05, 20054591 Module: Integrated Project Assignment No: 02

Project Cost Control Integrated Project

Acknowledgement
Firstly i would like to express my thanks to our construction professional studies and integrated project lecturer Mr. S.C. Ravihansa to guiding us to achieve the goals in this assignment and all other course works.

Next I would like to thank Sheffield Hallam University and International College of Business and Technology for offering us the course in local and also for providing enough details and course materials

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Project Cost Control Integrated Project

Table of Contents
Acknowledgement ............................................................................................................... ii Table of Contents ................................................................................................................ iii Introduction ........................................................................................................................... 1 1.0 Importance of Interim Valuation in Post Contract Cost Control Process and Differences with Respect to the Client and Contractors Objectives ..................................... 2 2.0 Final Accounts ................................................................................................................ 4 2.1 Aspects Concerned Under Final Accounts Technique ............................................... 4 2.2 Final account in Post Contract Cost Control Process ................................................. 5 3.0 Elementary Cost Control in Building Construction Project ........................................... 6 3.1 Pre-Contract Stage ...................................................................................................... 6 3.2 Post contract cost control ............................................................................................ 8 4.0 Income and Expenditure Curve (S Curve) ...................................................................... 9 Conclusion .......................................................................................................................... 11 Reference list ...................................................................................................................... 12

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Project Cost Control Integrated Project

Introduction
Cost is one of the key aspects of all industries. The cost can make a significant change throughout the project as well as the changes in the project can make a significant change in the cost. Always a cost is spent to get a valuable output. Cost control is a process of controlling over the cost throughout the project where cost controlling is not a practice of cost cutting. Interim valuation and final accounts show the financial part of the work done and performance of the contractor and the amount which the client should pay to the contractor. The final account can be said in another way as, the total summary of financial transactions between two parties or the total summary of the interim payments.

Project Cost Control Integrated Project

1.0 Importance of Interim Valuation in Post Contract Cost Control Process and Differences with Respect to the Client and Contractors Objectives
According to the conditions of contract, most of them stated about the interim valuations which is a payment to the contractor from the client at intervals throughout the project. The intervals can be on time basis, stage basis and percentage basis. The types of interim payments are agreed in the stage of tender agreements. Also the time period to the client to pay the bill once it submitted also being agreed upon the conditions of contract. As from the contractors side it is prepared as interim payment application and after reviewing and checking by the client and when it is being approved it is called interim payment certificate. Mostly with these process contractors quantity surveyor and clients quantity surveyors are involved. The payment methods can be changed even according to the procurement methods agreed between two parties.

Importance
It is a must to make payments regularly (agreed upon the conditions of contract) to ensure the contractors work done, where the contractor gets his actual expenditure and the profit. The client can have a hold which is called retention from each bill (according to the conditions of contract it hold a certain percentage) to ensure the contractors performance at the defects liability period. Also the advance paid at the initial stage of construction also recovered through these interim payments. Interim valuations can make a clear path towards the cash flow and the overall work done up to now and work to be done in the future. It also can ensure the work progress in percentage or work progress relating with total cost in percentage. The client can make a clear view towards the gradual increase and decrease of cash flow. Interim valuations documents can be a good source of evidence in case of disputes between both parties in future. The documents of interim payments will be an essential document at the stage of final account, where the interim valuation shows the total picture of the performance throughout the project.

Project Cost Control Integrated Project

Differences
The interim valuation (the work carried out by the contractors own work force relating with bill of quantities) is prepared as the interim payment application and sent to the client, where the application contains the work done by the contractor and the profit. Through this application the contractor expects to get paid for the work he has been doing. The clients partys duty is to ensure the application made by the contractor is correct or if there any discrepancies it should be informed to the contractor and issue the interim payment certificate before the due date as mentioned in the tender documents. The clients representatives must ensure the deductions (retention, advance payment bond, etc) are being done properly in the documents sent by the contractor. The contractors objective by sending an interim valuation application to get the payments for the work done by his party and the clients objective would stand with, a payment to the contractor for the output for the client.

Project Cost Control Integrated Project

2.0 Final Accounts

2.1 Aspects Concerned Under Final Accounts Technique
The final account is prepared by the quantity surveyor, where the document shows the final amount of the contract and also it will be the document relating to the cost of the project. The following aspects are necessary to consider at the time of final account preparation. The form of contract Original priced bill of quantities Variations Drawings Agreed contractor claims

For the government projects/public sector projects final account is the final accounts audit, which contains all the financial transactions relating to the project will be clearly interrelated with the bills of quantities. It can be lengthy and time consuming process. For private sector projects it differs when considering with public sector. According to the nature of the industry, full detailed final accounts are not requested always, as long as the value for money is delivered to the client. Also most of the time it is less time consuming.

Project Cost Control Integrated Project

2.2 Final account in Post Contract Cost Control Process

The final account is a useful tool in post contract cost control process if it is commenced as project begins and it is updated in regular intervals. The intervals can be in Monthly At every interim valuations Percentage Stage

Actually it cannot be the final account but it will be a draft for the final account. While the draft of the final account is being updated the conditions of the project and the parties involved are fresh and active. As the final account is being drafted regularly re-measurement of work, variations, day works, claims and any discrepancies can be dealt with as early as possible. It allows reducing the time period when the final account is prepared at the final stage of the contract. Whenever there is an involvement of time there is also a cost involved. If it is to be done in the final stage of the project it may lead to disputes, where the involved parties minds are out of the particular work. When it is done during the on-going construction process the risk towards dispute is less and the minds are fresh towards the work. The draft of final account process can be helpful to submit the final account in a shorter period after the completion of the project. While the final account is updated it makes a clear path towards the cash flow and the final expenditure.

Project Cost Control Integrated Project

3.0 Elementary Cost Control in Building Construction Project

3.1 Pre-Contract Stage
At the pre contract stage there are two ways of cost control. Element cost Amplified cost

The element cost is the analysis of the cost by the elements and amplified cost analysis is the detailed version of the element cost where it contains most of the details about the element. Sub totals are shown in major element breakdowns such as; Sub structure Super structure Internal finishes Fittings and furnishings Services and external works

Through this method it is possible to identify the cost element by element. It can be very useful at the design stage, where there is a design requirement for a design for a cost. Whenever a cost control to be take place, it can directly focus on the particular element itself. The following table (example) shows the summary of element cost GIFA gross internal floor area

Project Cost Control Integrated Project Element Sub structure Super structure Frame Upper floors Roof Stairs External wall Group element total Internal finishes Wall finishes Floor finishes Ceiling finishes Group element total Fittings and finishes Services External Works Total Total cost of element Cost per m2 GIFA Element unit quantity Element unit rate

Project Cost Control Integrated Project

3.2 Post contract cost control

Relating the elemental cost control in post contract stage is most suitable for the cost control within the elements In this process when a cost increase occur the amount of increased cost are shared among the available elements. This helps to ensure the elements quality rather than cutting them down to survive with the cost. When there are cost savings on other elements it can be used or the cost shared among the elements mostly want make a significant change within the elements. When sharing among the elements the cost becomes a smaller share each element.

Example;
There is a cost increase of 5% from the total elemental cost. The cost are equally shared among the element

Total cost increased

element 1

element 2

element 3

element 4

element 5

Each element should bear the cost of 1% of the increased elements total cost

Project Cost Control Integrated Project

4.0 Income and Expenditure Curve (S Curve)

120

100

80

60

40 planned expenditure 20 actual expenditure

0 0 20 40 60 80 100 120 140

The Y axis shows the work completed in percentage

The X axis shows the percentage of the budgeted expenditure

The above kind of chart should be maintained from the initial stage of the construction to final stage of the construction.

This will help to identify the cost increases or cost saving time to time. According to the given chart above the symbol X indicates the increase of the project cost at the end of the project.

Project Cost Control Integrated Project Also it is possible to identify the increase of the cost in percentage with the help of the chart

While maintain this graph from the initial stage of construction it helps to identify the cost overruns each time.

Also in another way this graph can be drafted as a chart which indicates cost and value. Where the blue mark would be the value and red mark would be the actual cost spent to the project. At this case the symbol X indicate the profit of the contractor. The gradient of the curve would possibly show the retention

Mostly according to the nature of the industry the gradient is high peak at the middle point.

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Project Cost Control Integrated Project

Conclusion
The main target of performing interim valuation is to identify the performance or the work done by the contractor for a certain time period. The interim valuations are under the conditions of contract and the both parties are agreed upon the time frame at the tender stage. The interim valuation time periods and valuating methods differ according to the agreed procurement method between both parties. Final accounts are the final statement which shows the financial transactions and the summary of the project. A draft for the final account can be maintained throughout the project to complete the final account as soon after the completion of construction. Final account statement also prepared according to the need of the client, where the public sector clients requires a comprehensive report and the private sector client mostly requires a simple final account statement when the value for the money is given. Cost control should be done in the both stages of construction. At the pre contract stage it would be the element cost and the detailed version of it is called amplified analysis. At the elementary cost control, the cost is viewed in relation with the elements of the building or construction. The S curve is very famous graph in the construction industry where the various factors are derived from that especially the actual cost and the budgeted cost are related and the percentage or the total amount is calculated through the curves

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Project Cost Control Integrated Project

Reference list
Frank, H. Ronald, M and Francis, E, F (2006). modern construction management, 6th edition. Oxford: Blackwell Publishing.

Duncan, C (2009). Quantity surveyors pocket book. 1 st. ed. Great Britian: elsevier ltd.

Jack, R. Simon, B and Phil, G (2006). Contract Practice for Surveyors. 4th. ed. Italy: Elsevier ltd.

n/a (2003). Standard form of cost analysis. n/a. ed. London: BCIS

Martin, B (2004). Estimating and tendering for construction work. 3rd. ed. Burlington: Elsevier Butterworth-Heinemann.

Tung, A and Chris, H (n/a). Project management for construction. n/a. ed. n/a: n/a.

Seely, I, H (1997). Quantoty surveying practice. 2nd. ed. London: Macmillan press ltd.

Ashworth, A (2004). Cost studies of buildings. 4th. ed. England: Pearson education ltd.

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