COST CONTROL IN CONSTRUCTION PROJECT OF THE SITE

KOH WEE LIANG

UNIVERSITI TEKNOLOGI MALAYSIA

PSZ 19:16 (Pind. 1/97)

UNIVERSITI TEKNOLOGI MALAYSIA

BORANG PENGESAHAN STATUS TESIS

JUDUL:

COST CONTROL IN CONSTRUCTION PROJECT OF THE SITE

SESI PENGAJIAN : 2002/2003

Saya

KOH WEE LIANG

(HURUF BESAR)

mengaku membenarkan tesis (PSM/Sarjana/Doktor Falsafah)* ini disimpan di Perpustakaan Universiti

Teknologi Malaysia dengan syarat-syarat kegunaan seperti berikut:
1.
2.
3.
4.

Tesis adalah hakmilik Universiti Teknologi Malaysia.

Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan pengajian
sahaja.
Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara institusi
pengajian tinggi.
**
Sila tandakan ( )
(Mengandungi maklumat yang berdarjah keselamatan atau
SULIT
kepentingan Malaysia seperti yang termaktub di dalam
AKTA RAHSIA RASMI 1972)
TERHAD

(Mengandungi maklumat TERHAD yang telah ditentukan

oleh organisasi/badan di mana penyelidikan dijalankan)

TIDAK TERHAD
Disahkan oleh

(TANDATANGAN PENULIS)

(TANDATANGAN PENYELIA)

Alamat Tetap:
9, JLN PUTRI JAYA 18,
TAMAN PUTRI JAYA,
83000, BATU PAHAT, JOHOR
Tarikh:
13/3/2005

CATATAN:

ENCIK BACHAN SINGH

Nama Penyelia
Tarikh:

13/3/2005

* Potong yang tidak berkenaan.

** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak
berkuasa/organisasi berkenaan dengan menyatakan sekali sebab dan tempoh
tesis ini perlu dikelaskan sebagai SULIT atau TERHAD.
Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara
penyelidikan, atau disertasi bagi pengajian secara kerja kursus dan
penyelidikan, atau Laporan Projek Sarjana Muda (PSM).

Saya akui bahawa saya telah membaca karya ini dan pada pandangan
saya karya ini adalah memadai dari segi skop dan kualiti untuk tujuan
penganugerahan Ijazah Sarjana Muda Kejuruteraan Awam
(Pengurusan Pembinaan).

Tandatangan

_________________________

Nama Penyelia

ENCIK BACHAN SINGH

Tarikh

13 /3/2005

COST CONTROL IN CONSTRUCTION PROJECT OF THE SITE

KOH WEE LIANG

A report submitted in partial fulfilment of the

requirements for the award of the degree of
Bachelor of Civil Engineering
(Construction Management)

Faculty of Civil Engineering

Universiti Teknologi Malaysia

MAC, 2005

ii

Saya akui karya ini adalah hasil kerja saya sendiri kecuali nukilan dan ringkasan yang
tiap-tiap satunya telah saya jelaskan sumbernya.

Tandatangan

_________________

Nama Penulis

KOH WEE LIANG

Tarikh

13/3/2005

iii

To my Beloved Parents

iv

AKNOWLEDGEMENT

First and foremost, i would like to extend my heartiest gratitude to Mr. Bachan
Singh, as my supervisor during this Projek Sarjana Muda. He gave me the chance to
finish the study and with his guidance, the study can finish smoothly. Besides that, his
patience and encouragement leads me to complete this study in time.

In addition, I would like to thank Mr. Cheng Jiunn Woei, as the representative
from the contractor and staff in Drainage and Irrigation Department (DID) for their
kindly advised and assistance in giving the information of class F contractor.

Not forgetting my parents, sisters and brother, for their full support and coaching
throughout this research.

Lastly but not the least, to all my friends for their support, advise and their help
when the time I need them.

ABSTRAK

Kawalan kos merupakan suatu isu yang penting dalam pengurusan pembinaan. Ia
banyak dilakukan oleh kontraktor di Malaysia dan perlu dijalankan dari semasa ke
semasa sehinngga suatu projek tamat. Suatu temuduga yang ringkas dilakukan dengan
kontraktor kelas F mendapati mereka tidak mempunyai pengetahuan yang cukup dalam
sistem pengawalan kos.Oleh sebab itu, suatu kajian dilakukan untuk mengkaji cara-cara
kawalan kos dalam suatu projek, mengenalpasti cara-cara kawalan kos yang biasa
dijalankan oleh kontraktor kelas F semasa fasa pembinaan dan mengenalpasti masalah
yang dihadapi oleh kontraktor kelas F untuk pengawalan kos semasa pembinaan di
tapak. Kajian ini dilakukan di daerah Batu Pahat. Sebanyak 20 borang soal selidik
dihantar kepada kontraktor kelas F dan data yang diperoleh dianalisis menggunakan
kaedah purata indeks dan relatif indeks.Daripada kajian yang dilakukan, didapati
masalah utama yang dihadapi oleh kontraktor kelas F adalah kekurangan bahan, pekerja
atau loji pembinaan, kesusahan pengumpulan kos data, persekitaran kerja pembinaan
yang sentiasa berubah, professional yang berkelayakan, tempoh projek dan kos yang
berlebihan dalam menjalankan sistem pengawalan kos.

vi

ABSTRACT

Cost control is an important issue in construction project management. It

is widely practiced by contractors in Malaysia and needs to carry out throughout
the life of a project. A brief interview with a class F contractor found out that the
contractor lack the knowledge of cost control system.Hence, a study is carried
out to study the cost control method in a construction project, to identify the cost
control method frequently used by class F contractor during the construction
stage and to identify the problem faced by the class F contractor in controlling
the costs on site. The study is carried out in the district of Batu Pahat. A total of
20 questionnaires were sent to the class F contractor and the data analyzed using
the average index and frequency analysis.From the study, the main problem
faced by the class F contractor are shortages of material, labor or mechanical
plant, difficulty in collection of cost data, ever-changing environment of
construction work, qualified expertise, duration of the project and additional
costs to carry out the cost control system.

vii

CONTENTS

CHAPTER

CHAPTER I

ITEM

PAGE

TITLE

DECLARATION

ii

DEDICATION

iii

ACKNOWLEDGEMENT

iv

ABSTRACT

ABSTRAK

vi

CONTENTS

vii

LIST OF TABLES

xi

LIST OF FIGURES

xii

LIST OF SYMBOLS

xiv

LIST OF APPENDIX

xv

INTRODUCTION
1.1

Introduction

1.2

Statement of Problems

1.3

Objective

1.4

Scope of Study

viii
CHAPTER II

LITERATURE REVIEW
2.1

2.2

2.3

Introduction

2.1.1

Definitions

2.1.2

Statement of facts in cost control

The use of cost control

2.2.1

Unit costs

2.2.2

Reporting systems

Control of Materials and Mechanical

11

Plants
2.3.1

Control of materials

11

2.3.2

Standard Cost and Variance

12

2.3.3

Labor Variances

14

2.3.4

Overhead Variances

15

2.3.5

Control of Mechanical Plant Costs

16

2.3.6

Other Factors Influencing Costs

19

2.4

Cost Control Methods

20

2.5

Time as the Important Variable in Cost

21

Control System
2.5.1
2.6

Time, Cost Control Influence Curve

Time-Cost Optimization with Network

22
23

Analysis
2.6.1

Costs on a Network

25

2.7

The Budget

28

2.8

Cost Control Codes

32

2.8.1

A Simple Coding System

33

2.8.2

The allocation of costs

35

ix

CHAPTER III

RESEARCH METHODOLOGY
3.1

Introduction

37

3.2

Interviews

38

3.2.1 Questionnaire

38

3.2.2

Data Analysis and Documentation

39

3.2.2 1 Example of Calculating

40

Frequency Analysis
3.2.2 2 Examples of Calculating

41

Relative Index (R.I.)

CHAPTER IV

RESULT AND DATA ANALYSIS

4.1

Introduction

44

4.2

Narrative of the data acquired

44

4.3

The understanding of contractors

45

in cost control system in construction

4.4

Cost control reporting system used by

46

the contractors
4.5

The interval time of contractors to prepare

47

the cost reports

4.6

Cost control methods frequently use

48

by contractors
4.7

Problems face by class F contractors in

controlling the costs on site

51

x
CHAPTER V

CONCLUSION
5.1

Introduction

53

5.2

Conclusion

54

REFERENCE

56

APPENDIX

58

xi

LIST OF TABLES

TABLE
NUMBER

TITLE

PAGE

2.1

Definitions terms used in cost control procedures

2.2

Weekly cost record

4.1

Breakdown of various groups responding

45

4.2

The Relative Index and ranking of main problems

in controlling the costs on site.

52

xii

LIST OF FIGURES

FIGURE

TITLE

PAGE

NUMBER
2.1

Graphical presentation of the information

10

2.2

The relationships between the percentage of opportunity

22

to influence cost as function of job time and job phases.

2.3

Time-cost relationship

24

2.4

Optimum Project Cost

25

2.5

S-curve envelope

27

2.6

Example of graphical form of financial budget

29

2.7

The individual curves and cumulative curves for

30

different items
2.8

S-curve as a means through control of work

31

3.1

Five ordinal measure of agreement of Likert scale

39

3.2

Research Methodology Flowchart

43

4.1

The percentages of the understanding of contractors in

46

cost control system in construction

4.2

The percentages of the types of cost control reporting

47

system use by the contractors

4.3

The percentages of the interval time contractors prepare

48

their cost reports.

4.4

The percentages of frequently use by contractors in overall

49

profit or loss method.

4.5

The percentages of frequently use by contractors in unit

rates method.

50

xiii
4.6

The percentages of frequently use by contractors in profit or

loss base on progress payment method

51

xiv

LIST OF SYMBOLS

Sum

nx

variable expressing the frequency of response for i = 1,2,3,4,5

percentage

xv

LIST OF APPENDIX

APPENDIX
A

TITLE
Questionnaire form

CHAPTER I

INTRODUCTION

1.1

Introduction
The cost control is a process that should be continued through the construction

period to ensure that the cost of the building is kept within the agreed cost limits. The
cost control can divide into two major areas; the control of cost during design stages and
the control of cost by the contractors once the construction of project has started.
According to Nunnally (1998), cost control of a project involves the measuring and
collecting the cost record of a project and the work progress. It also involves the
comparison of actual progress with the planning. The main objective of cost control of a
project is to gain the maximum profit within the designated period and satisfactory
quality of work.

1.2

Statement of Problem
A brief interview with a class F contractor found out that they faced problem in

carrying out the cost control system. Lack of knowledge and training is main problem
faced. Thus, a study is carried out to know the how is the situation of cost control system
in class F contractor in construction project of the site.

2
1.3

Objectives

The objectives for this research are:

a) To study the cost control method in a construction project.

b) To identify the cost control method frequently used by class F contractor
during the construction stage.
c) To identify the main problem faced by the class F contractor in controlling
the costs on site.

1.4

Scope of study
The study is carried out in the district of Batu Pahat and involves the
class F contractor. The study only covers during the construction phase and not
in bidding and design phase.

CHAPTER II

LITERATURE REVIEW

2.1

Introduction

The cost control is a process that should be continued through the construction
period to ensure that the cost of the building is kept within the agreed cost limits. All
expenditure limit control must be related to the functional requirements of the particular
building type, but it is perhaps less obvious that functional cost limits may be expressed
in a variety of units.

The cost control can divide into two major areas; the control of cost during
design stages and the control of cost by the contractors once the construction of project
has started. In most cost control procedures, the limit on the expenditure is coupled to a
requirement that the building will provide some specified minimum area, to ensure that
the building will contain sufficient accommodation to meet its brief. Where control is
based on schedules of accommodations, these schedules are usually expressed in terms
of the net areas of the usable or scheduled rooms.

The main aims of the cost control are probably:

a) To give the building client good value for money- a building which is
soundly constructed, of satisfactory appearance and well suited to perform

4
the functions for which it is required, combined with economical
construction and layout.

b) To achieved a balanced and logical distribution of the available funds

between the various parts of the building. Thus, the sums allocated to

c) cladding, insulation, finishing, services and other elements of the building

will be properly related to the class of building and to each other.

d) To keep total expenditure within the amount agreed by the client, frequently
based on an approximate estimate of cost prepared by the quantity surveyor
in the early stages of the design process. There is a need for strict cost
discipline throughout all stages of stages of design and execution to ensure
that the initial estimate, tender figure and final account sum are all closely
related. This entails a satisfactory frame of cost reference (estimate and cost
plan), ample cost checks and the means of applying remedial action where
necessary (cost reconciliation).

2.1.1

Definitions
It is better if we look in detail in definitions of the terms used in control

procedures since it is widely used and have a different meaning. The following are the
definitions of terms related with cost control procedures:

5
Table 2.1: Definitions terms used in cost control procedures
Terms

Definitions

Budget

A plan for future against actual results can be measured

Cost

Value for a purchaser to pay for goods or a service.

Cost analysis

Subdivision of cost under different elements of the contract or

construction.

Costing

Analysis of the expenses so it can be allocated to different

contracts, processes, or services, with the aims of ascertaining cost

Cost control

The process of controlling the expenses of cost in a project, from

the starting of clients idea to the completion and final payment on
site.

Standard costs

Costs of standard outputs for plant or labor under particular

conditions of environment.

Unit costing

Estimating the cost per unit, whether this is a square meter of

formwork, a cubic meter of concrete or a cubic meter of
excavation.

2.1.2

Statement of facts in cost control

According to Nunnally (1998), cost control of a project involves the measuring

and collecting the cost record of a project and the work progress. It also involves the
comparison of actual progress with the planning. The main objective of cost control of a
project is to gain the maximum profit within the designated period and satisfactory
quality of work. A systematic procedure of cost control will give a good result in
collecting important cost data in estimating and controlling of the costs of the coming
projects in future.

6
Kwayke (1997) explain that the cost control can define as a process where
construction cost of a project is manage with the best method and systematic in order
that the contractor would not suffering the loss when doing the activities of the project
and the cost construction of a project would not be over-estimated by the developer.
Mueller (1986) states that the cost control is the ability to influence the final cost of
project positively with modifying negative performance trends.

According to Ritz (1994), cost control though namely easy, but it gives a
different meaning to different people. Some people engage it with engineering costs;
some states that it is a cost report, value engineering, cost management etc. Cost control
involves all the activities above in different time. All the parties involved in a project
have their own responsibilities and roles in reducing and controlling the costs.

Austen and Neale (1984) states the main purpose in cost controlling for a
construction project should be active controlling of final costs for owner, and not just to
record and registering the payment.

2.2

The use of cost control

Amount of detail and the time interval between cost control reports must be

considered, which is different according to the level of management for which they
prepared. For a site manager, it is necessary to receive the cost report on weekly basis.

After preparing the reports based on the cost data collected, it is important to
project the costs into future and to estimate or re-estimate the cost of the work yet to be
completed. Any new information must take into account since the commencement of the
contract. Thus, a suitable reporting system is important part of a cost control system.
The estimator would become more reluctant in the future to use cost data that have been

7
fed back from the site if an adequate reporting system is used. In addition, the estimator
can save some time to determine sufficient detail about the data and conditions they
acquired.

There are two areas within to check whether the cost control reporting system is
efficient or not. First, is to check on the profitability of the work. The value of the work
that will be returned is compare with the cost of the work that was carried out. This is a
straightforward comparison between the valuation figure and the total expenditure to
check on profit or loss if no detailed cost control is used.

The second would be check on efficiency, carried out against the standard of the
output rates that were used by the estimator in compiling the estimate. Efficiency is
concern with the site management and supervisory staff, whereas the profitability is
concern with the contract management level and above.

Upper levels of management will usually paid attention to the contracts that
show minimum or negative profitability. It is because they will have to investigate the
costs in more detail to locate the particular operations through inefficiency or under
pricing, are the cause of the problem.

2.2.1

Unit costs
Unit cost is a noteworthy way of using cost information. The unit cost for any

item or operation is the direct cost for one unit of measurement for that item. In this
way, it is important to make sure that the actual work carried out directly and the
quantity is measured accurately.

8
Consideration in give and take method of interim measurement must be taken
in order to avoid the clash with the calculation of unit rates and results in temporarily
high or low unit cost for a particular item. In calculating the unit rates must be solely to
the work under consideration. It is important that the supervisory staff do not allocate
the hours when their operatives are not properly and efficiently employed on productive
work. It may result in unavoidable poor unit cost for that work if it is allocated.

Another problem is that to identify whether unit costs should be stored in termr
of money or man-hours. If in terms of money, it is always a risky and approximate
business. In terms of man-hours will be remain constant with the same conditions over
the years. For the managers involved in controlling the costs money has more impact
than man-hours in measuring the efficiency of an operation in progress when the data
are collected.

The terms of money is usually for immediate use whereas the man-hours as the
historical data and feedback for use in future estimating work. Nevertheless, it will
rarely necessary for details of every single operation involved in a contract to be fed
back to estimating department. The 80/20 rule is often excerpt regarding to bill of
quantities. It means that 80 per cent of the value of the work is often in 20 per cent of the
items in the bill. Evidently, this 20 per cent hold an important consideration in tendering
procedure and in subsequent cost control.

2.2.2

Reporting systems
Weekly cost record is one of the basic reports for the control of costs on site. It

gives a full record of the quantities of work which have been carried out in the week
previous to the date of the report, together with the lump sum total costs of the labor and
plant that have been acquired regarding those operations, that is shown in Figure 2.2.

Each of the quantity, cost and unit cost are prepared on the basis of the work
carried out during the week. There are four total areas are to be recorded; there are the
total amounts of work carried out in this and previous weeks, the total work carried out
to date, and an estimated total work that has to be carried out in order to complete the
operation.

Table 2.2: Weekly cost record

ABC Contracting Ltd

Weekly Cost Record

Sheet 1 of 1
Week ending 23/12

Contract Power Station

Code

Oper.

Unit

Contract No H 1234
Quantity

Week program 5

Cost (RM)

Unit Cost (RM)

This

Prev.

Total

Est.

This

Prev.

Total

Est.

This

Prev.

Total

Est.

week

total

to

overall

week

total

to

overall

week

total

to

overall

date

total

date

total

date

total

For the weekly cost record, only the major operations involving large quantities
and significant cost would be prepared, because it involves a great deal of time and cost.
In normal events, checking costs in less than one week would be too expensive an
operation, unless the costs and quantities can be measured accurately and the operation
on site is carried out at an extremely fast rate. Usually, the cost of materials used in a
week would not be recorded.

In preparing the weekly cost record, the information provided should be as

simple, brief and accurate as possible. The staff would only ignore the cost record sheets
if there were too much impertinent information. The record should make a quick and
lasting impression that would take consideration to the significant features of the
condition.

10

The information in Figure 2.2 and the variations can be illustrated in graph
forms. Graphs give a good indication of trends, with comparison of previous and present
unit costs and indicate an action by the management in controlling costs is effective or
not. Graph can indicate which specific action is taken and relate to it in the progress
made in the reduction of costs.

Average cost

2 more bulldozers hire

Unit cost

Weekly cost

Estimated rate
Average weekly output
Cumulative
total (m3)
Cumulative total
Average weekly
output (m3)
Time (weeks)

Figure 2.1 Graphical presentation of the information

The broken line in the upper graph indicated the trend of the unit cost per week,
that is the average cost over the period to date. Cumulative total indicates the amount of
work in the operation carried out at either in uniform rate or some variation. The
averageweekly output can be plotted in the same or different scale from the cumulative
total output.

11

It is important to keep a graph of the number of operatives used on the work on

each week, plotting on the same graph the cumulative total for the feedback for
estimating for future works and controlling costs. The graph is used to compare with the
one in the planning stage to see whether the number of operatives used on the contract is
roughly the same as the originally thought. It is much easier to read than the tabulated
figures such as in Figure 2.2. Trends are easier to mark and understand in graph.

There is no reporting system, in controlling costs will be effective if it is hard to

read and understand for the person intended to. Charts and graphs in simple and easy to
read aims for these objectives than tabulated figures.

2.3

Control of Materials and Mechanical Plants

2.3.1

Control of materials
Controls of materials are not highly considered in creating cost control systems.

This is because that labor and plant are the areas that more variations exist, and most
probably profit acquire or losses over the original estimated costs. Controls for materials
should be in terms of unit measurement and not in terms of cost.

In cases of deficit, one cannot not be sure, if that the cost is basis, whether the
materials bought at prices lower than estimate have a high wastage, or whether materials
are used economically, with little wastage but bought in prices over the estimate. The
cost comparison alone made for materials would only indicate no true quantity of the
rate of usage for the materials.

12

One easy way in controlling materials is to draw a graph of the quantities of

various materials that should have been used, which is calculated from present
measurement of the quantities of work carried out. A graph like this would be drawn for
major items only. Against this graph for each individual material can draw a second
graph, indicates the quantities of materials that have been delivered to the site.

The information can get from the invoice received and a running total can easily
be maintained. The intercept on vertical ordinate between two graphs should be equal in
quantity of the materials on site. It is necessary to check the stock on the site to make the
comparison effective, usually once a month. In large difference, it is necessary to check
more often.

2.3.2

Standard Cost and Variance

To provide useful analyses of cost data that has collected, there must be a

standard available. Estimating possible outcome from historic performance and

experience usually sets standards in construction, or in special cases from the use of
work measurement techniques.

From estimated costs the initial budget can be ascertain and the variances
between actual and estimated is calculated. The variance is negative or unfavorable if
the actual cost is greater than the standard and in reverse situation the variance is
favorable.

Variance can occur in two reasons:

13
a) the actual price paid for resources is greater or less than estimated in the
standard.
b) the actual quantity of resource used is greater or less than estimated in the
standard.

The two factors deserve consideration if the work is to be carried out at its
budgeted cost. Inefficiencies are important in terms of cost, and attention can be paid on
limited areas where these inefficiencies exist when using the variance analysis. It also
differentiates between variance that occur because of price differences and quantity
differences.

Actual cost (AC)

= actual quantity (AQ) x actual price (AP)

Standard cost (SC) = standard quantity (SQ) x standard price (SP)

Total cost variance = standard cost (SC) actual cost AC)
= (SQ x SP) (AQ x AP)

Variance analysis will first of all be applied to the purchase and use of materials.
There will usually be either a material price variance or material usage variance. The
material price variance will amount to the difference between the standard and actual
prices for the quantity of materials used whereas the material usage variance will be the
difference between the standard and actual quantities of materials used.

Material price variance = AQ(SP- AP)

Material usage variance = SP(SQ-AQ)
Material cost variance = SC- AC
= (SQ x SP) (AQ x AP)

14
2.3.3

Labor Variances
There are two variances in labor costs. There are labor rate and labor

efficiency variances. The labor rate variance occurs from the difference between the
standard wage rate and the actual wage rate paid.

Labor rate variance = actual time worked (standard-actual rate)

= AH(SR-AR)

The labor efficiency variance occurs from the difference between the actual time and the
standard time to do a job, which is measured at the standard rate.

Efficiency variance = standard rate (standard time actual time)

= SR(SH-AH)

Therefore,

Labor cost variance = standard cost- actual cost

= SC-AC
= labor rate variance + labor efficiency variance
= AH(SR-AR) + SR(SH-AH)
= (standard hours x standard rate) ( actual hours x actual
rate)

15
2.3.4

Overhead Variances
The overhead cost variance is variance that acquired from calculating the

difference between the actual overhead costs acquire on an operation and standard
overhead cost set for that operation related to the production funds to be accomplish.
The units can vary from the funds based to establish standards. They can be units of
production or of time and the time can be in hours, days, weeks, months or even years.

Units that are selected should be suitable to the nature of work that is carried out.
The units chosen are usually for convenience and economy of calculation and data
collection. The intention of the analysis and the accuracy and the form in which the
ultimate information required are also important factors that influenced the choice
chosen.

There are fixed and variable costs need to be recognize when starting the
overheads. Fixed costs do not alter with changing levels of production, but they might
alter after a certain level of production has achieved for example the overhead of the site
supervision. One foreman can be used for many levels of production and number of
operatives. However, if the levels of production have reached, or the numbers of
operatives exceed a maximum level, then the second foreman is needed.

When there is a difference in the recovery of the related overhead the overhead
volume variance would happen. It is because the estimated production or the time taken
to produce the budgeted quantity is greater or less than the actual production or the
production time. An unfavorable volume variance happen when a fixed overhead is not
fully utilized. A favorable volume variance happened when the production time bearing
a fixed overhead is in excess of the budgeted.

An overhead budget variance is the difference between the actual cost of

overhead incurred and the overhead cost budgeted for that level of production. An

16
overhead efficiency variance is the difference between the hours actually worked to
achieve a specific production target and the standard hours budgeted to be used to
achieve that production target.

2.3.5

Control of Mechanical Plant Costs

The total costs of the owning and operating mechanical equipment must be

recovered from the valuation of the work carried out and if the plant is unoccupied,
allowance must be made. To achieve all these, obtaining a comprehensive hire rate per
unit of time is necessary, applied whether the plant is used internally or externally for
the owning company.

The factors influence the cost of owning and operating a mechanical plant in the
construction activity are:

a) Cost of capital
b) Tax allowances
c) The use of the equipment and obsolescence
d) Residual or resale value or scrap value
e) Capital cost
f) Fuel
g) Erection and dismantling, where it can be used
h) Operators wages
i) Transport to and from site of work
j) Insurance and license where payable
k) Site maintenance and overhead costs
l) Grease and oil for lubrication and other consumables
m) Return on capital that is wanted
n) Depot repair, overhaul costs and overheads.

17

The price paid for the hiring of the plant must be well established and recorded
over a period. Many other factors influence its full recovery and recovery rate, which
cannot be established with such certainty at the time that the hire rate needs to be
calculated. The foreseen life and the estimated resale value of the equipment are two
important factors in establishment of proper recovery of capital.

The assumed cost of capital influences the economic hire rate to be charged. It
must be differentiate from the rate of return on capital used. Cost of capital is the interest
rate payable on capital that can be made available to buy the plant. The rate of return the
ratio of profit per capital used and calculated in many ways.

When taking the cost of capital into account in establishing a hire rate, it is
unrealistic to charge interest on full capital cost of the plant for each years if its life. The
interest should be calculated on the outstanding capital balance, at each year-end.

Many contractors are making greater use of plant with the continual rise in
labour costs, both direct and indirect. The use of machinery rarely exceeds seventy
percent of its working capacity. Thus, the contractor requires an intimate knowledge of
all types of plan, when each can be used most profitably and of the fullest advantage
utilization of plant. A contractor sometimes has to decide whether to hire or purchase
plant, and the decision will be influenced by the likely future demand for the particular
item of plant.

The advantage of owning the plant:

a) plant can be transferred from one site to another without great difficulty
b) plant is readily available at all times

18
c) in emergency situations machines can be taken off less important work as the
contractor has complete control of the plant
d) plant may be retained on a particular site if necessary

Plant hire offers a wide variety of plant types and the contractor is free from the
liabilities attached to the purchase of plant, especially a contractor is short of capital.
Hiring plant often ensures maximum economy with full plant utilization and is an aid to
quicker building.

The factors needed to be considered when deciding of buying or hiring plant:

a) sufficiency of capital available for purchase

b) accessibility of personnel for controlling and operating plant holdings
c) forecasts of commitments to assess plant requirements
d) cost of transporting plant to sites
e) availability of workshop facilities for servicing plant; and
f) length of time for which plant will be required; if it is only required for a
short period of time with little prospect of use in the foreseeable future then it
is better to hire than purchase

Costs of owned plant are depreciation, capital costs, overheads, maintenance,

repairs and replacements, interest on capital, haulage to sites, licenses and insurance,
fuel and operating costs. The total annual costs have to be spread over the period of
effective use to give an inclusive hourly or daily cost.

The principal methods of charging for plant:

a) Hire charge is the most usual whereby the plant is charged to the site by the
unit of time employed. The primary advantages are ease of control over

19
economic use of plant, adequate information accessible for estimating
purposes and for providing a check on plant operations.

b) Percentage of the contract price, whereby total plant costs are allocated to
each contract in proportion to the overall cost of the job. It is simple in
calculation but it is lack of comparative information for preparing tenders

c) and costing, lack of incentive to obtain maximum use of plant and lack of
information to use as a check on plant operations as a whole.

d) Direct cost to contract, where the size and nature of the job and expected use
of the plant justifies charging an item of plant completely to the job. This
method is also easy to apply but runs into difficulties if the plant is used on
other contracts.

2.3.6

Other Factors Influencing Costs

A contractor can influence the cost of a job by his selection of constructional

methods and by adjusting these methods to increase the efficiency of the resources used.
The free choice of method is however inhibited by the design of the building, the
accessibility of the numbers and types of resources needed for each method and by the
comparative cost of employing each one of these sets of resources.

Quantity of materials wasted on building sites is also another important cost

aspect. Cost of wastage of generally in excess of the allowances made by estimators and
the total wastage could reduce to half by effective supervision (Abbott, 1970).

20

2.4

Cost Control Methods

It is necessary to decide which control is required and amount of detail that will
be in entered into the construction stage. Many cost control methods have been used in
the past in different companies and have not survived. The cost itself is a major
difficulty in operating a detailed cost control system. It is an expensive operation in the
time of cost clerks, etc, for a large contract to carry out a detailed cost control system.
There are three types of cost control system; they are by comparison with a cost
standard, by subdivision by detail and by integration with other functions.

In comparison with a cost standard method, the standard set up by estimator is

compared at the time of tender. There are also other standards efficiency can be judged
include set up by the work study department of a company, previous outputs achieved
within the company or within the knowledge of the companys employees in the past,
and standards that have been published in books primarily for use of estimator, giving
data on recommended outputs for labor and plant.

In the subdivision by detail method, it is usually practiced by small scale of

contractors compares the amount of money received with the amount of money he has
had to pay out to complete the contract at the end of the contract. It is not expensive but
a risky operation, involves little or no control of costs. It is also inaccurate since
estimator often omits some contentious items from a valuation, even though payment
will result from them.

In integration with other functions method, the cost control system will combine
with some other necessary operation in the administration of a contract and not as a
separate entity. For example, it may be combined with a labor utilization scheme, in
which the control is kept on the optimal utilization of the labor employed.

21

2.5

Time as the Important Variable in Cost Control System

Time is an important tool for the cost control. The parts of job costs are one of a

way to influence the cost control, which are time related differentiate from those
quantity related. Supervision, project management, temporary facilities, utilities such as
field office and storage trailers, and similar items are included in time related general
requirements items.

If a project is to be completed in 12 months, each month will represent 8.33 % of

the time related general requirements cost. It should be directed to controlling time of
the project as a whole, though principal effort should be directed to realistically planning
the schedule and budgeting these items. If a project can reduce its schedule by one
month, an 8.33 % of cost of these items can be reduced. Similarly, one-month delay
would increase the cost of items by 8.33 %. Thus, time control is the most effective tool
for controlling the cost of time related items.

Secondly, the influence of the cost related to time is during the subcontracting
and purchasing phase. The most influence the cost control time is during the bidding and
negotiating phase. But until the time the project reaches contract phase, an important
part of the opportunities to influence the cost has already spent. As the project moving
through the planning and scheduling phase to the contract phase, the opportunities to
influence the cost remain available relating to production. These opportunities formed
by careful negotiating and awarding of the subcontracts and purchase orders to principal
vendors as closely to fair value as is possible.

22
2.5.1

Time, Cost Control Influence Curve

Figure 2.4 shows the graphically the relationships between percentage of

opportunity to influence cost as a function of job phase and job time.

Primary Cost Influence

Curve

Percentage of
opportunity to
influence cost
Secondary Cost
Influence Curve
during Field

0.0

Bid

Pre-construction Construction
& Purchasing

Substantial Job closes

completion

out

Job time/phases

Figure 2.2 The relationships between the percentage of opportunity to

influence cost as function of job time and job phases.

From the figure, it is clearly shown that the maximum opportunity to influence
the cost of the project is during the bid phase and pre-construction and purchasing phase.
From the curve, the ability to influence cost control moves from positive to negative
with the progression of time and completion of each phase.

23
The secondary curve shows the effects of the items that are difficult to control,
which, costs cannot be fixed, for example, random material supplier purchases,
equipment rental and on-site labor. As the projects moves into construction phase, the
pre-construction and purchasing phase will have fixed the cost on most of the items,
which the costs can be fixed.

The logical consequences from the curve are any lack of control on non-fixed
cost items will become progressively more negative with the progression of time.

2.6

Time-Cost Optimization with Network Analysis

It is important to consider two major types of cost related to construction that is

direct cost and indirect cost in considering the optimization cost using the network.
Direct costs include labor, plant and material costs to carry out the construction activity.
The costs to employ the subcontractor are also included in the direct costs. Indirect costs
include costs incurred in direct proportion to the length of time that the contracts takes
such as the salary of the site staff or the head offices expenses and penalty or bonus
clause in the terms of the contract.

If the construction activities are rushing, all operatives who are currently
working, on an overtime basis and increasing the amount of plant available are to be
done. Critical path method shows that such way of measurement can be very expensive
in two respects. First, overtime is paid and plant made available to finish many works
that have float on them and activity in network are speed up unnecessarily. Second, it is
in the middle or second half program when the rushing is clearly. It is in this stage that
maximum resources are being used, that is in terms of labor and plant.

24
The contractor usually intends to minimize the direct costs for a project, due to
get the contract in the first instance. Some balance to minimize the costs and duration
must be done. It is because minimizing the duration of construction increases the costs,
whereas minimizing the costs increases the duration and indirect costs.

The normal time for time-cost optimization is on the basis of the minimum
direct cost for the activity that is calculated. It is usually estimated for the initial
preparation of a construction network.

Calculating the cost in the least time is much easier entails a lot of overtime,
increased sizes of gang, additional equipment, and etc. There is usually a minimum
duration, known, as crash time below an activity cannot be reduced. The cost of this
activity will increase due to the inefficiencies from the crowding of the operation with
labor, plant and non-productive overtime paid. Increasing of the costs because of the
crash time is known as crash cost.

Crash Point
Crash cost
Cost curve
Activity direct
costs
cost

Normal point

Normal
cost

Crash time

Normal time

Activity duration
time
Figure 2.3 Time-cost relationship

25

Least total cost

Total Cost
Cost
Direct Cost
Overhead Cost

Time (Project Duration)

Figure 2.4 Optimum Project Cost

2.6.1

Costs on a Network
The network diagram can be used as a basis for cost control. A construction

manager is able to do the following with the use of network diagram:

a) Find the areas over-spending of the budget taking place

b) Ensure all estimates of cost are related to the practical and accepted
proposals for carrying out the work, with special regard to the resources that
will be used.
c) Find other methods of carrying out the work before any one method is used.
d) Check resources that are planned and made available for work are in best
use.
e) Check the remainder of the contract program can be carried out for the
estimated costs and the magnitude of any errors that result from the work.

26
A network plan and schedule must be set up, showed the logic of the activity sequences
and the estimated durations of each activity before such a system can be used.

Work packages are set up by breaking the network into single activities or into
groups of activities, against which are placed the estimated of materials, employees, and
plant that will be necessary to carry out the work. The cost concerning these resources
necessity is estimated.

The sizes work packages whether in calendar time or cost, depends upon the
detail required. It is the smallest unit formed in the breakdown process. It can be
represented in single activity in small projects but in large projects, several activities
may be formed into a group within one work package. It may cause the costing
procedures and unnecessary effort if there is too much detail in it.

The work packages are the subdivisions of the end item subdivisions in which
the project end item are the subject of the complete network. The number of subdivided
project end item depends on the amount of the detail required and the level of the detail
is concerned with the managers judgment.

The hammock activity in a network is the first node of the activities flows to the
last node without connecting to any intermediate nodes. It is used to represent indirect
costs in general because of the difficulty. The hammock activities do not necessarily
have to cross the whole network as a single activity. They may span a group of activities
to which they particularly refer and represent any resource allocated in this way.

The S-curve can show the cost expenditure of a project. It illustrated at early start
and horizontal portions of the cases, which represent periods where no cost is incurred
for this work package. The upper horizontal portion of the curve is due to the early start
situation and could be eliminated by the use of total float to move some of the early

27
activities later in the program. The use of float can bring the linear curve and actual
curve closer together.

Early start
curve

Cost
(RM)

Actual cost
curve

Late start curve

Value of work done curve

Time (weeks)
Figure 2.5 S-curve envelope

S-curve envelope is formed by early-start and late-start curves. A little

horizontal space between two curves means a project requires close attention to its
progress because there is only a little float to give leeway. Similarly, if the horizontal
spaces were much further or narrow envelope, then the control would not be necessarily
so rigid. The actual cost curve is the actual amount of cost incurred in doing the
activities. The value of work done curve is the actual value, that is the payment due for
the work completed. If the margin for profit, risk etc is included in the value curve,
then the curve should always above the cost curve if the work is proceeding profitably.

28
If the envelope curves are drawn for the cost then the cost curve should start off
and remain within the envelope provided the activities is proceeding to program. If the
curves were for value then it would be value start off and remain within the envelope. If
the actual cost curves breaks through upper, early start curve, then the project is ahead
of the program. If it breaks through the lower, late start curve, then the project is behind
the program and the entire float has probably used up.

Figure 2.7 shows that the curves are drawn for cost. The project is ahead of the
program though more cost is used up than repaid by the value received. The increased in
cost might due to more resources used up to accelerate the project unnecessarily.

2.7

The Budget
The budget is used in construction work to determine the amount of liquid cash

that will be required over the various periods of a contract, as a measurement against
which actual progress can be measured. The budget is a financial forecast and important
tool of management, inasmuch as the trading position of a construction company can be
established by having budgets for all of the work on hand.

It is also a means of insuring against the risk of overtrading. The overtrading

occurs when the current liabilities of the company exceed the current assets, even
though the business is in profit. In this kind of circumstances, the company requires
more working capital.

It may be shown in graphical form as in Figure 2.8. The schedule shows the
starting and completion date for the contract, and a curve is plotted of the estimated
progress of the work in terms of money. The estimated progress is usually shown a
smooth curve and will be based upon the experience of the particular company carrying

29
out that type of construction work. As shown in the Figure 2.8, a slow acceleration of
the rate of working in the first few months, a steady but faster rate during the middle
period, and a gradual tailing-off of the rate of working towards the end of the contract.

The individual curves and the cumulative curve for materials, labors and plant
are shown in Figure 2.9. A second line plotted against the estimated progress line,
representing the forecast of money that will be received by the contractor for work
already completed.

Margin
Cumulative
Expenditure
(RM)
Cumulative
costs

Project Duration (months)

Figure 2.6

Example of graphical form of financial budget

30

Profit
Cost

Total value
Total cost

Materials
Labor
Plant
Overheads
Subcontracts
Time
Figure 2.7 The individual curves and cumulative curves for different items

An S-curve can be useful as a means through which control of work can be

affected. The minimum necessary information for this purpose is illustrated in Figure
2.10. The cumulative budgeted expenditure, that is the cost to be incurred by a
contractor in construction is represented by the full-line of S-curve. The actual
expenditure curve shows the current cumulative cost at any point in time up until the
present or time now.

The actual expenditure just exceeds the budgets at time now in the Figure 2.10.
However, it may or may not represent better progress than that expected. From the
Figure 2.10, the conclusion is that over budget has been incurred than was budgeted at
time now. The progress is behind the budget. Cost is expended at a faster rate than
budgeted and may cause cash flow problems.

Thus, overall attention needs to be paid to the efficiency of the work methods,
productivity and financing. From Figure 2.10, it will be seen that a forecast of

31
expenditure to complete the work shows a likely final overrun, but will cause delay in
completion of the project. The vertical axis of the S-curve graph is usually expressed in
units of money. However, it is also can be expressed in terms of work content, for
example, cubic meters of excavation, tones of structural steel erected, or man hours of
work content for a particular operation or a group of activities.

For a project with a number of major activities, it is much easier to use an Scurve for each one, to ensure that progress advances as required. It is practicable and
useful to use a scale of percentages, the whole of the particular work under consideration
expressed as 100 percent in addition to using units of work on the vertical scale. These
types of scale obviate the need to change the total quantity of work involved when
variations to its scope occur.
Under run
Time
now
Contract
Sum

Budget
expenditure

Delay

Actual
expenditure

Over budget
Current overrun

Valuation
Time
Figure 2.8 S-curve as a means through control of work

32
2.8

Cost Control Codes

The estimator or project manager as feedback for future use will use the

information from the cost control coding system. The client may have requirement for
cost information, maybe for subsequent insurance purposes. The information being fed
into a cost control system is most likely to originate, from people who have received
little training in construction management.

Therefore, it is essential that a coding system should be simple enough for ready
understanding by those who will be allocating the hours of labor, plant and quantities of
materials against the individual codes. However, it is unlikely even with the simplest
and most straightforward system that errors will not arise in the allocation.

A universal coding system should be designed to suit all the contracts under
operation. The system must be clear and precise in its term and it is necessary that it
should be flexible. It is due to the nature of construction work, that additional item and
operations are likely to arise throughout the progress of the work. There will be also new
sections of work given that were not predicted in the starting of the work. The
inaccuracy of the original assessment will also require the flexibility of the system.

A great care is necessary to ensure that a distinction is made between certain

operations if the information to be acquired is to provide a feedback for the estimator,
which may appear to be similar but in practice be quite different. The cost control code
must be allocated to all those employees who will be expected to use it during the course
of their work. The employees include the estimators, buyers, accountants, clerks,
timekeepers, engineers, and supervisory staff in the construction, such as foremen.

33
The cost code used must have a clear explanation why it was adopted and its
purposes. The cooperation of the site supervisors is absolutely necessary for a cost
control system to be success.

2.8.1

A Simple Coding System

It is use in a small company and is primarily concern with direct costs only.

Labor costs are the biggest variable in this type company, the overheads as relatively
fixed, and materials not requiring the same scale of supervision as plant and labor. The
use of plant by the contractor is comparatively limited and special provision in a coding
system, not necessary need to be made.

The following example system is based largely upon alphabetical notation, using
possible the initial letter of the operation under consideration. This system quickly
becomes familiar to the employees allocating the labor.

Alphabetical code
B- Bricklaying
C- Concreting
D- Drain lying
E- Excavation
F- Formwork
M- Mechanical Equipment
O- Preliminaries
P- Piling
R- Road works
S- Structural steel

34
Example of the subdivision of the code:

B- Bricklaying
BBZ - laying 215- mm blocks
BC

- laying common bricks

BEM - laying engineering bricks in manhole

BF

- laying facing bricks

BFZ - laying facing bricks in 215- mm wall

BFY - laying facing bricks in 255-mm wall
BP

- pointing

C- Concreting
CB - concreting beams
CC - concreting columns
CF

- concreting floors

CFX - concreting floors 150 mm thick

CFO - concreting footings or foundations
CW - concreting in walls
CDB - concreting to drain bed

D- Drain lying
DC3- laying 300-mm-diameter concrete pipes
DE2- laying 225-mm-diameter earthenware pipes
DJ-

jointing pipes

DT- laying drains in tunnel

35
This system is broken down into major divisions under trades. The first letter of
any particular trade is used as the first part of the code; whereas the second letter of the
code represents the operation being carried out within the trade. Under other trades the
second letter of the code is used to indicate a location for the work, which is being
carried out.

A further refinement can be made to such a system by appending either an

additional letter or a number to the code to give further detail. This type of system is
suitable for small contract, where the foremen, who will be allocating the costs, will be
familiar with the names of subordinates and will be aware of the area of the contracts in
which they are working.

2.8.2

The allocation of costs

It is the job of a cost engineer or a cost clerk to coding the allocation of costs in

the construction field. The person dealing with this matter must be familiar with the
program of work for the contract and the terms used in construction work to be able to
code allocations correctly.

The person must also familiar with the materials and the way in which they are
used in the work. The supervisor of such operations should be a construction engineer,
not only regard to the site cost control system, but because the engineer responsible for
the work will also have a better idea of the use to which feedback will be put. Thus, the
controlling engineer should have a sound knowledge of the estimating process.

It is important that in setting out a coding system and subsequently allocating the
costs, the accuracy of the system will be in direct proportion to the accuracy of the

36
original allocation costs in the field. There are a number of external influences that can
in the first place affect the allocation of cost. The costs may tend to be allocated in the
construction field in order to give a healthy picture to work that is being the bonus on an
output and time basis.

Therefore, if the overall allocations of time are to agree with those on the wage
sheets in total then costs must be allocated elsewhere to meet the deficit. Thus, in such a
system, the accounts should be kept to an absolute minimum so the abuse will be
minimum too.

CHAPTER III

RESEARCH METHODOLOGY

3.1

Introduction
Primary information and secondary information were collected to achieve the

objectives of the project report. The first beings were interviews with representatives of
the Construction Company and professionals working in the construction industry to
collect the information. A questionnaire survey was conducted to obtain feedback from
the construction industry. Then, the next step is the discussion with the supervisor of the
project. The entire information gather are categorized as Primary Information.

Next were the literature review to gather information about research topic and
challenges faced by construction industry. It is obtain from the Internet, articles in
journals and papers and also some other published research works. From literature
review, a clearer framework of this research was established. Information gather from
this ways are known as Secondary Information. The references taken from Secondary
Information are all listed in the appendix.

38
3.2

Interviews

The findings were further strengthened by interviews with experienced personnel from
the construction company to collect the information and perspectives regarding the
aspects in the objectives of the research. The procedure from the interviews is listed in
subtopic below.

3.2.1

Questionnaire
A questionnaire survey was carried out to gather information from technical

professionals who are involved in the construction industry. It is to get the opinion and
understanding from the experienced respondents regarding the cost control. The
questionnaire are all categorized as below:

a) Respondents information
b) General information about the cost control
c) Purpose, principle, philosophy and objectives of the cost control
d) Weakness/Mistakes

The questionnaire handed out needs the level of agreement from the respondents
and its importance according the ordinal scale numbering from 1 to 5. The respondents
need to choose from one of the ordinance scale according to the understanding and
acceptance of the respondents. the questionnaire are based on Likerts scale of ordinal
measures of agreement towards each statement as in Figure 3.1:

39

Ordinal scale 5 to 1 in descending order

5

Decreasing degree of agreement

Figure 3.1 Five ordinal measure of agreement of Likert scale

Each scale represents the following rating

Ordinal scale

Level of agreement

Very high degree of agreement/importance

High degree of agreement/importance

Neutral in agreement/importance

Low degree of agreement/importance

Very low degree of agreement/importance

3.2.2 Data Analysis and Documentation

The data collected from the questionaire survey was analysed using frequency
analysis and Relative Indices (RI) technique. This RI technique has been used by
Nesan (1997) and Holt et al. (1996) in the same context of application. RI was
calculated using the following formula:

RI =

(1n

+ 2n2 + 3n3 + 4n4 + 5n5 )

5(n1 + n2 + n3 + n4 + n5 )

where, nx = the number of respondent agreeing with the x choice

40

The computation of RI using this formulae yield the value of RI ranging from
point two to one, where point two represent minimun strenght and one the maximun
strenght ( Holt et al., 1996)

3.2.2 1 Example of Calculating Frequency Analysis

Note:
Ordinance Scale,
1

Very important

Important

Moderate important

Less important

Least important

Frequency Analysis (F.A.)

Ordinance Scale
Ordinance Scale
(S)
No. Of
Respondents
(NR)
Total
Respondents
Percentage of
agreement
Level of
agreement

1+3

7+9

16

20

64

Very important

Moderate
important

Least important

41
From the Frequency Analysis of this example, there are 16 % of respondents
consider very important, 20 % moderate important and 64 % least important. All the
data collected from questionnaire will be divided into each category using Relative
Index and Frequency Analysis.

3.2.2 2 Examples of Calculating Relative Index (R.I.)

Relative Index (R.I.)

RI =

(1n

+ 2n2 + 3n3 + 4n4 + 5n5 )

5(n1 + n2 + n3 + n4 + n5 )

where nx = no. of respondents

1,2,3,4, and 5 are the ordinance scale of importance

Ordinance Scale

No. of Repondents

Therefore,
R.I.= [1(1) + 2(3) + 3(5) + 4(7) + 5(9)]/ 25(5)
= 95/125
= 0.76 (Less important)

Relative Index (R I)

02

04
Very

Degree of importance

important

06
Important Less
important

08
Least
important

10

42
Note:
Ordinance Scale,
1

Very important

Important

Moderate important

Less important

Least important

43

Problem Statement

Identify Objectives

Objective 1

Objective 3

Objective 2

Information collection

Primary Information

Secondary Information

Interviews/Questionaire

Literature Reviews

Data Analysis /Information

Tables

Graphs and Figures

Final Research

Conclusion
Figure 3.2 Research Methodology Flowchart

CHAPTER IV

RESULT AND DATA ANALYSIS

4.1

Introduction

This chapter reports the analysis of the research. The major topics in this chapter
include the cost control method carried out by contractor class F during construction
stage and identify the problem faced by the contractor in controlling the costs on site.
This analysis will focus on contractor class F alone and not the rests of the professionals.

4.2

Narrative of the data acquired

Table 4.1 indicates the various groups responding. Out of a total of 30

questionnaires sent, 20 responded to the questionnaire. In this case, it represents the
participation of 66.6 percent.

45
Table 4.1: Breakdown of various groups responding
Sources : Questionnaire

Group

Number of Respondents

Percentage (%)

Developer

10.00

Contractor

16

80.00

Consultant

10.00

Project manager

Total

20

100

From the Table 4.1, there are 2 developers (10.00 percent of total respondents),
16 contractors (80.00 percent of total respondents), 2 consultants (10.00 percent of total
respondents) and none project managers in it.

4.3

The understanding of contractors in cost control system in construction

The understanding of contractors can divide into five types for data analysis,
they are totally understand, understand, average understand, do not understand and
totally do not understand. There are no contractors totally understand the cost control
system, 8 contractors understand the cost control system (50.0 percent of total
contractors, 6 contractors average understand the cost control system (37.5 percent of
total contractors, no contractors do not understand the cost control system and 2
contractors totally do not understand the cost control system (12.5 percent of total
contractors). Figure 4.1 shows the percentages of the understanding of contractors in
cost control system in construction.

46

50
50
45
37.5

40
35
30
25
20

12.5

15
10
5
0

0
Totally understand

Understand

Average understand Do not understand

Totally do not
understand

Figure 4.1 The percentages of the understanding of contractors in cost control

system in construction
Sources: Questionnaire

4.4

Cost control reporting system used by the contractors

There are three types of cost control reporting system use by the contractors for
data analysis; they are profitability of the work (compare total expenditure with values
of the work done), efficiency of the work (compare the standard with the output rates)
and unit costs (direct costs for one unit or operation of measurement). There are 8
contractors use the profitability of the work (50.0 percent of total contractors), 4
contractors use the efficiency of the work (25.0 percent of total contractors) and 4
contractors use the units cost system (25.0 percent of total contractors). Figure 4.2
shows the percentages of the types of cost control reporting system use by the
contractors.

47

50
50
40
30

25

25

20
10
0
Profitability of Efficiency of
the work
the work

Unit costs

Figure 4.2 The percentages of the types of cost control reporting system
use by the contractors.
Sources: Questionnaire

4.5

The interval time of contractors to prepare the cost reports

The contractors prepare their cost reports in three types of interval time; they are
weekly, monthly and quarterly for data analysis. There are no contractor prepare their
cost reports weekly, 8 contractors prepare their cost reports monthly (50.0 percent of
total contractors) and 8 contractors prepare their cost reports quarterly (50.0 percent of
total contractors). Figure 4.3 shows the percentages of the interval time contractors
prepare their cost reports.

48

50

50

50
40
30
20
10
0
0
Weekly

Monthly

Quarterly

Figure 4.3 The percentages of the interval time contractors prepare their
cost reports.
Sources: Questionnaire

4.6

Cost control methods frequently use by contractors

There are three types of cost control methods frequently use by contractors class
F for data analysis; they are overall profit or loss (overall costs of project compared to
the money received), unit rates (compare the actual unit rate to the estimate unit rate)
and profit or loss base on progress payment. There frequently use of each method can
divide into five types; they are most frequently use, frequently use, average use, not
frequently use and totally not frequent use.

In overall profit or loss method, there are 6 contractors most frequently use (37.5
percent of total contractors), 2 contractors frequently use it (12.5 percent of total
contractors), 8 contractors average use it (50.0 percent of total contractors), no
contractor not frequently use it and no contractor totally not frequent use it. Figure 4.4
shows the percentages of frequently use by contractors in overall profit or loss method.

49

50
50.0
45.0
40.0

37.5

35.0
30.0
25.0
20.0
12.5

15.0
10.0
5.0

0.0
Most
frequently
use

Frequently
use

Average

Not
frequently
use

Totally not
frequently

Figure 4.4 The percentages of frequently use by contractors in overall profit or

loss method.
Sources: Questionnaire

In unit rates method, there are 4 contractors most frequently use (25.0 percent of
total contractors), 2 contractors frequently use it (12.5 percent of total contractors), 8
contractors average use it (50.0 percent of total contractors), 2 contractors not frequently
use it (12.5 percent of total contractors) and no contractor totally not frequent use it.
Figure 4.5 shows the percentages of frequently use by contractors in unit rates method.

50

50
50.0
45.0
40.0
35.0
30.0

25

25.0
20.0
12.5

15.0

12.5

10.0
5.0

0.0
Most
frequently
use

Frequently
use

Average

Not
frequently
use

Totally not
frequently

Figure 4.5 The percentages of frequently use by contractors in unit rates method.
Sources: Questionnaire

In profit or loss based on progress method, there are no contractor most

frequently use, 8 contractors frequently use it (50.0 percent of total contractors), 6
contractors average use it (37.5 percent of total contractors), 2 contractors not frequently
use it (12.5 percent of total contractors) and no contractor totally not frequent use it.
Figure 4.6 shows the percentages of frequently use by contractors in profit or loss base
on progress payment method.

51

50

50.0
45.0
37.5

40.0
35.0
30.0
25.0
20.0

12.5

15.0
10.0
5.0

0.0
Most
frequently
use

Frequently
use

Average

Not
frequently
use

Totally not
frequently

Figure 4.6 The percentages of frequently use by contractors in profit or loss base
on progress payment method.
Sources: Questionnaire

4.7

Problems face by contractors class F in controlling the costs on site

There are 6 problems face by the contractors class F in controlling the costs on
site for the purpose of data analysis; they are ever-changing environment of construction
work (e.g. weather), duration of the project, qualified expertise, additional costs to carry
out the system (not beneficial), difficulty in collection of standard data and shortages of
material, labor or mechanical plant. They are all given the equal importance in analysis.

The analysis will use the relative index (RI) technique. The computation of RI
using this formulae yield the value of RI ranging from 0.167 to 1.000, where 0.167
represent main problem and 1.000 the least problem. The summary of relative index of
all the problems is shown in Table 4.2.

52
The main problems from the RI are the shortages of material, labor or
mechanical plant with the RI of 0.479. The next relative important problems are
difficulty in collection of standard data, followed by ever-changing environment of
construction work with RI of 0.604. The next less important problem are qualified
expertise with the RI of 0.625. The least problem are the duration of the project and the
additional costs to carry out the system with the same RI of 0.646.

Table 4.2: The Relative Index and ranking of main problems in controlling the
costs on site.

Problems faced by contractors

No. of respondents in

Relative

class F in controlling costs in site

Ordinance Scale

Index

Rank

(RI)

0.604

Duration of the project

0.646

Qualified expertise

0.625

Additional costs to carry out the

0.646

0.500

0.479

Ever-changing environment of
construction work

system
Difficulty in collection of standard
data
Shortages of material, labor or
mechanical plants

CHAPTER V

CONCLUSION

5.1

Introduction

Interview and questionnaire is the first source in order to achieve the objectives.
Besides, literature review also helps to achieve the objectives. Data analysis using
relative index and frequency analysis is explained in Chapter IV.

Overall, the objectives of the study were achieved. The following are the
objectives that has been achieved:

d) To study the cost control method in a construction project.

e) To identify the cost control method frequently used by class F contractor
during the construction stage.
f) To identify the main problem faced by the class F contractor in controlling
the costs on site.

The study of the cost control method in a construction project was achieved by
literature review. The control method frequently used by class F contractor during the
construction stage and main problem faced by the class F contractor in controlling the
costs on site was achieved using the questionnaires.

54

5.2

Conclusion

From the study that was done, the conclusion of each objective was achieved.
The conclusions from the study that can be made are:

Objective 1: The cost control method of a construction project

From the study, three types of cost control methods use by contractor are:
a)

by comparison with a cost standard

b)

by subdivision by detail

c)

by integration with other functions

The main objective of cost control is to minimize and reduce the project costs.
Cost control is necessary for all types of project disregarding its sizes. Most local
contractors have their own cost control system.

Cost control is a process that should be carried out for all types of construction
stages and activities. Comparison with a cost standard method is complicated and
expensive but it is more accurate than other methods. Subdivision by detail is a method
that is not expensive but risky operation, involves little or no control of cost. The
integration with other functions method has to take account of other functions and not as
a separate entity and control is kept on the functions combined.

55
Objective 2: Cost control method frequently used by class F contractor

From the study, three types of cost control methods frequently used by class F
contractors are:

Overall profit or loss (overall costs of project compared to the money

a)

received)
b)

Unit rates (compare the actual unit rate to the estimate unit rate) and

c)

Profit or loss based on progress payment

Objective 3: The main problems faced by class F contractor in controlling the costs
on site

From the study, the 6 main problems faced by contractor class F in controlling the costs
on site by ranking are:

i)

Shortages of material, labor or mechanical plant

ii)

Difficulty in collection of cost data

iii)

Ever-changing environment of construction work (e.g. weather)

iv)

Qualified expertise

v)

Duration of the project

vi)

Additional costs to carry out the cost control system (not beneficial)

The shortage of materials, labor or mechanical plant is the main problem faced
by contractor class F in controlling the costs on site. The duration of the project and
additional costs to carry out the system are the least problem faced by contractor class F
in controlling the costs on site.

REFERENCES

Austin, A.D. (1992), Managing Construction Project, John Wiley & Sons, Inc.,
United

States.

Barrie, Donald. (1984). Professional Construction Management McGraw-hall Inc.

Collier, Keith. (1974). Fundamental of Construction Estimating and Cost Accounting
Prentice-Hall Inc., Englewood Cliffs, N.J.
Kharbanda, O.P., Stallworthy, E.A. & Williams L.F. (1987). Project Cost Control in
Action Gower Technical Press Ltd., England.
Kwakye, A.A. (1997). Construction Project Administration In Practice, Addison
Wesley Longman Limited, p 186
Lucey, T. (1996) Costing, Continuum, London and New York.
Mueller, Frederick Wm. (1986). Integrated Cost & Schedule Control for Construction
Projects. Van Nostrand Reinhold Company, New York.
Nunnally, S.W. (1998). Construction Methods and Managements, Prentice-Hall, Inc.,
New Jersey, p 501
Oxley R. & Poskitt J. (1996). Management Techniques Applied to the Construction
Industry Balckwell Science Ltd.
Parker, H.W. (1988). Method Improvement For Construction Project, Litton
Educational Publishing Inc., United States.

57

Quades, E.S. (1971). A history of cost-effectiveness, Rand Corporation Report, P-4457

Ritz, George J. (1994). Total Construction Project Management Mc Graw-Hill, USA,

pp 242-243

58

APPENDIX A

59
Koh Wee Liang
9, Jalan Putri Jaya 18,
Taman Putri Jaya,
83000 Batu Pahat, Johor.
(Tel. No. 016-7418356)
_______________________________________________________________________
_
Recipient: ________________________________________
________________________________________
Dear Sir/Madam,
I am a final year student undergoing Civil Engineering (Construction Management)
course in Universiti Teknologi Malaysia, Skudai. Currently, I am doing a thesis with the
title Cost Control in Construction Project of the Site.
The main objectives of this survey are:
i.

To study the contractors cost control method of a project.

ii.

To identify the cost control method carried out by contractor class F during
construction stage.

iii.

To identify the problem faced by the contractor in controlling the costs on site.

Your co-operation in answering this questionnaire and duly replying it is highly

appreciated.
Thank you.
Yours sincerely,__________________
(KOH WEE LIANG)
I/C No : 821022-01-5835

60
Please provide the personal details for the academic purposes. All the details are private
and confidential.
Company Name :
Address
:
Telephone No
:
Respondent Name:

_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________

1. What is the field are you involved in?

Developer
Consultant
Contractor
Project Manager

2. Overall, do you understand the cost system in construction?

Totally Understand

Understand
Average understand
Do not understand
Totally do not understand

3a. Do you carry out the cost control system during the construction stage?
Yes
No
b. If yes, please specify the methods used:
______________________________________________________

61
4. What is the cost control reporting system used?
Profitability of the work (compare total expenditure with value of the work done)
Efficiency of the work (compare the standard with the output rates)
Unit costs (direct cost for one unit or operation of measurement)

5. How often do you prepare the cost reports?

Weekly
Monthly
Quarterly
Others, please specify:
________________________________
6. What is the network analysis method used for the time-cost optimization?
Critical Path Method (CPM)
Program Evaluation and Review Technique (PERT)
Others, please specify:
___________________________________________________
7a. What is the cost control methods frequently used?

Overall profit or loss

(overall costs of project
compared to the money
received)
Unit rates (compare the
actual unit rate to the
estimated unit rate)

Most

Frequently

frequently

used

uses

Average

Not

Totally not

frequently

frequent

62
Profit or loss based
progress payment
Others, please specify

b. Please specify the reasons to use the most frequent method:

____________________________________________________________________
__________________________________________________________________________
______________________________________________________________
9a. Listed below are the problems faced by the contractor in controlling the costs on
site. Please rank the according problem using 1 to 6 scales, where 1= main problem and
6= least problems.
Ever-changing environment of construction work.
Duration of the project.
Qualified expertise.
Additional costs to carry out the system
Difficulty in collection of standard data.
Shortage of material, labor or mechanical plants.

b. Please specify the suggestion to solve the problems:

_____________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________