PROJECT COST CONTROL

Contents

1. ACKNOWLEDGEMENT ............................................................................................................... 2

2. INTRODUCTION ........................................................................................................................... 3

3. IDENTIFY THE IMPORTANCE OF INTERIM VALUATION IN POST CONTRACT

COST CONTROL PROCESS AND EXPLAIN THE DIFFERENCE WITH THE RESPECT

TO THE CLIENT AND THE CONTRACTOR OBJECTIVES. .................................................... 4

4. IDENTIFY WHAT ARE THE ASPECTS CONCERNED UNDER AGREEMENT OF THE

FINAL ACCOUNT TECHNIQUE AND EXPLAIN HOW THEY CONTRIBUTING TO

THE POST CONTRACT COST CONTROL PROCESS. .............................................................. 6

5. EXPLAIN WITH AN APPROPREATE EXAMPLES HOW ELEMANTORY COST

CONTROL WORKS IN A BUILDING CONSTRUCTION PROJECT. ....................................... 8

6. EXPLAIN WITH AN APPROPREATE EXAMPLE HOW INCOME & EXPENDITURE

CURVE (PARTICULARLY S CURVE) HELP CONTRACTOR TO CONTROL OVER

THE PROJECT COST................................................................................................................... 11

Table Content

1. Elemental Cost Table ....................................................................................................................... 9

Figure Content

1. Figure 01. S Curve ..................................................................................................................... 11

2. Figure 02. S Curve...................................................................................................................... 11

3. Figure 03. S Curve...................................................................................................................... 12

4. Figure 04. Expenditure Curve ........................................................................................................ 13

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ACKNOWLEDGEMENT
I would like to express the deepest appreciation to my lecturers, Mr. Ravinhasa
Chandrathilaka who has the attitude and the substance of a genius: they
continually and convincingly conveyed a spirit, regard to this assignment. And
an excitement in regard to teaching. Without His guidance and persistent help
this report would not have been possible.

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INTRODUCTION
Every project in present construction industry facing the biggest problem that is cost over
runs. So the cost control is playing a great role in modern construction industry. This report is
mainly discuss about the project cost control including interim valuation, agreement of final
account, elementary cost control, income and expenditure curve contributing to the cost
control. Those are the major areas can be used in cost controlling and elemental cost control
is the best method of cost controlling.

This is not only about the cost over runs but also about the full utilization of the scare
resources. That is why cost control is mostly use in modern construction industry. The main
aim of this report is to collect and learn new factors relating to tasks explained.

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TASK 01

IDENTIFY THE IMPORTANCE OF INTERIM VALUATION IN POST CONTRACT

COST CONTROL PROCESS AND EXPLAIN THE DIFFERENCE WITH THE
RESPECT TO THE CLIENT AND THE CONTRACTOR OBJECTIVES.
What is Interim Valuation?

While construction is going on employer has to pay to the contractor to maintain contractors
cash flow. This payments can be made based on two ways, those are; stage payment and
interim payment. On stage payment basis, contractor will receive money according to the
completed stage such as substructure, superstructure, finishes etc.. Based on interim
payment method contractor will receive money in a curtain period, mostly once month. For
that purpose contractors quantity surveyor has to calculate the value of total work done up to
date. It is call the interim valuation and employers quantity surveyor will evaluate the
valuation for errors and acceptability. This also can use as a post contract cost control tool.

Cost Control & Interim Valuation

Post contract cost control is an essential factor of any project that will monitor the impact of
changes due to the necessary requirements over the scope of the project and the cost of the
project. The most suitable method for cost control is the elemental cost control, it breaks
down cost for each element, and so it easy to find out which element will over run the cost.

Interim valuation is another most important factor when considering employers and
contractors objectives. Those are as follows;

Employer wishes to know: BOQ + Extra Material + Cost

Contractor wishes to know: Cost + Profit

Interim valuation is important to employer, because that will reveal the cost involvement of
the project up to date of payment according to the estimate and the additional material
involved than estimate that can be occur due to variation or improper cost control.

So employer can make decision about future variation or additional works. So this is most
useful as cost control tool also. Most importantly employer can assure contractor will receive
what he deserved and not more or less.

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Interim valuation most important to contractor because of following reasons:

Cash flow monitoring & prediction contractor has to maintain his cash flow as
project progress otherwise there is a risk of facing to financial problems that will
affect to project duration as well.

Variation that are addition pricing & negations contractor will entitle to claim for
time extension for variations as same as cost of construction and able to give advice
on cost of variation to the client.

Final account preparation at the final day it will make easy to prepare final account
using interim valuation and contractor can make sure he is receiving appropriate
construction cost with profit.

Able to notify sub-contractors that payment can be expected.

Interim valuation also provides a clear picture of project progress and both parties can
satisfy by achieving their objectives by interim valuation.

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TASK 02

IDENTIFY WHAT ARE THE ASPECTS CONCERNED UNDER AGREEMENT OF

THE FINAL ACCOUNT TECHNIQUE AND EXPLAIN HOW THEY
CONTRIBUTING TO THE POST CONTRACT COST CONTROL PROCESS.
Aspects Concerned Under Agreement of Final Account

Re-measurement of works

Re-measurement of works require based on various reasons. First one is most of

contracts will require variation as work progress. So re-measurement will reveal
variations according to terms of contract and identifying the variation allows to
determine the additional cost or savings of the project and that is useful to have some
control over the project cost.

Correction of previously undetected errors occurs in document can also check when
re-measuring works and also useful to calculate the actual cost of provisional sums
undertaken by the contractor to cost control over the elements.

Adjustment for the Prime Cost sums

Prime Cost Sums include the cost of nominated sub-contractors & suppliers.
Contractor has to supply special and general attendance to them accordance with
conditions of contract, so he will entitle for a profit as well. Adjustment to PC sums
will allow to determine cost involve in that items and savings or extra expenses. So
the cost control of PC sums items will make easy by this method.

Day work accounts

Cost will calculate on day work basis, when unforeseen or immeasurable item
discovered and the cost will depend on applicability, time, material, quantity and
pricing. All projects are allowing some percentage for these items. By day work
accounts cost involve in day works can be determine and can have idea about cost
control over day work items.

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Increase cost for inflation

Inflation can calculate by using traditional method or formula method and this is most
affecting to cost control because every element of the project can affect by this. So
calculations of inflation of project will useful to recognize the additional cost requires
for certain element and it is useful for cost controlling.

Preparation or evaluation of contractual claims

Contractual claims also affecting to project cost specially claims by the contractor
increase the project cost. So evaluating contractual claims will enable to fiend cost
increased due to claims.

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TASK 03

EXPLAIN WITH AN APPROPREATE EXAMPLES HOW ELEMANTORY COST

CONTROL WORKS IN A BUILDING CONSTRUCTION PROJECT.
Elementary method is the most appropriate cost control for building, because buildings are
involving with lots of element. This will ensure that a given project is executed within the
estimated cost budget or target cost without reducing the quality of construction as stated.
Considering every element separately will make cost control over those elements more
accurately as estimated. So it will prevent the cost over runs and cost savings from some
elements can use for other elements those require additional amount of money thane
estimated.

In modern construction industry most of construction industries professional are using the
online databases of elemental cost such as Building Cost Information System (BCIS) and
BCIS provide the standard elemental breakdown of building.

Elemental cost control must be carried out from the beginning of the functional elements and
those can be divided in to two groups.

Space Delimiting walls, floors, roofs etc.

Space Equipping sanitary, electrical, AC etc.

Khan, T.H. (2003) http://www.neduet.edu.pk, [Online], Available:

http://www.neduet.edu.pk/Arch_2Jne/Arch11/JRAP-2003/JRAP%203/Tareef.pdf [1 Sep 2011].

BCIS divided the building elements in to nine major categories such as; substructure,
superstructure, finishes, fittings & furnishing, services, external works, preliminaries,
contingencies and design fees. These are again dividing to sub categories till individual
element. So this method will ensure the cost involvement in each element separately.

For example lets consider staircase under BCIS superstructure 2D. It is again divide in to sub
categories as follows.

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Item Element Resources Cost Cost Cost Actual Expected Over/

No. Incurred Committed Exposure Under
2D Stair
Case;
a. Structure Material

Formwork
7,000.00 9,000.00 12,000.00 24,500.00 28,000.00 3,500.00
Reinforcement
5,000.00 6,000.00 18,000.00 31,000.00 29,000.00 (2,000.00)
Concrete - -
30,000.00 - 30,000.00 30,000.00

Labour -
10,000.00 20,000.00 20,000.00 30,000.00 10,000.00
Plant
1,500.00 1,000.00 3,000.00 2,000.00 4,500.00 2,500.00

b. Finishes Material

Mortar - - -
8,000.00 8,000.00 8,000.00
Marble with - - -
grout 200,000.00 200,000.00 200,000.00

Labour - - -
8,000.00 8,000.00 8,000.00
Plant - - -
2,000.00 2,000.00 2,000.00

c. Hand Material - - -
Rails 50,000.00 50,000.00 50,000.00

Labour - - -
10,000.00 10,000.00 10,000.00
Plant/tools - - -
2,000.00 2,000.00 2,000.00

Over Head -
3,000.00 12,000.00 10,000.00 15,000.00 5,000.00

Total Costs 13,500.00 29,000.00 375,000.00 87,500.00 416,500.00 329,000.00

Table 01. Elemental cost control for staircase

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As shown in above example it is easy to control over the cost of element. This staircase
completed up to reinforcement level so the cost incur or committed for the staircase are left
blank and material require for finishes and handrail are not purchased or received yet.

It is important to do elemental cost control as discuss before, day by day for critical items
such as items involve less quantity and high cost and costs savings from the some items can
be transfer to another items which require additional costs as example there are saving of
3500.00 from the formwork of above example and reinforcement required additional 2000.00
rupees than estimated. So that additional can be cover by extra from formwork. This way is
most easy and accurate cost controlling method in use.

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TASK 04

EXPLAIN WITH AN APPROPREATE EXAMPLE HOW INCOME &

EXPENDITURE CURVE (PARTICULARLY S CURVE) HELP CONTRACTOR
TO CONTROL OVER THE PROJECT COST.
S Curve is drawn cumulative cost against the project time that will show the income of the
contractor and it is take shape of letter S in most of projects. It will clear by following
figure.

Figure 01. S Curve

ltd, J. (2004) visitask.com, 28 May, [Online], Available: http://www.visitask.com/s-curve.asp [2 Sep

2011].

Figure 02. S Curve

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As shown in figure 01. At initial phase there is less opportunity to spend money when as
project progress most in execution and controlling phase it require more resources and the
cost of the project is increasing sharply. At the last stage when project is about to finish, most
of works were finished so the cost involvement in this phase is low as initiation phase. This
S curve or value curve provide image about the contractors earnings for construction
periods and contractor will able to understand which period the highest cost involvement is
occurring and based on that cost engineer or QS can prepare for cost control.

For example as shown in this graph 5th month has involve with highest cost, also 4th and 6th
month has considerable costs and it require more attention to cost control over that period. So
cost engineer or QS can make arrangement for elemental cost control or other method and
make sure not to exceed the amount have to be spend on that period for elements. S curve
also enables to understand the project Growth, slippage and project progress those are mostly
affecting to cost of project and by setting a baseline S curve and comparing target S curve
and actual S curve. That will be clear from following example figure.

Figure 03. S Curve

Concrete-Techgroup (2008) S-Curve, Sep, [Online], Available:

http://www.concretebasics.org/articlesinfo/scurve3.php [01 Sep 2011].

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These three factors are affecting to project cost directly; project growth will change if any
variation occur because of re-allocation of resources and it will affect to project cost, slippage
will show the delay of the project than the baseline so it require additional resources and
additional working hours to get it back to normal, progress of project will show the current
situation of the project and can determine future performances of the project.

So based on these factors S curve help contractor to control over the project cost and
contractors expenses can clearly identify by expenditure curve as shown below.

Figure 04. Expenditure curve

As shown in above graph contractor can move equilibrium point to more left then contractor
will entitle to recover his invested amount early by following methods;

Use sub-contractors & suppliers credit.

Forward bills as soon as possible
Use just in time method
Front loading not recommended

As discussed above contractor have opportunities to control over project cost control by using
income and expenditure curves.

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Conclusion

Above tasks discussed relating to the cost control including interim valuation in post contract
cost control based on employer and contractors objectives. Those are most useful for post
contract cost control as determine the cost involved up to date, work progress etc.

Second task discuss about the aspects concerned under agreement of final account like re-
measurement of the work, adjustment for the prime cost, day work accounts and increase cost
for inflation with contribution of them to cost control.

Elemental cost control discussed under the task 03 including examples. That is the mostly
using way of cost controlling in modern construction industry.

At last the income and expenditure curve discussed with examples and explained how it is
help the contractor to control over the project cost. These factors are mostly related to the
modern cost controlling and helped to understand further about cost controlling.

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Reference
1. Concrete-Techgroup (2008) S-Curve, Sep, [Online], Available:

http://www.concretebasics.org/articlesinfo/scurve3.php [01 Sep 2011].

2. Khan, T.H. (2003) http://www.neduet.edu.pk, [Online], Available:

http://www.neduet.edu.pk/Arch_2Jne/Arch11/JRAP-2003/JRAP%203/Tareef.pdf [1

Sep 2011].

3. ltd, J. (2004) visitask.com, 28 May, [Online], Available: http://www.visitask.com/s-

curve.asp [2 Sep 2011].

4. Nick French, R.C. (2000) 'Investment valuation models', Emerald , vol. 18, no. 2, Feb,

pp. 225-238.

5. Wee Li Woon, L.Y.M. (2010) 'Elemental cost format forbuilding cost control',

Emerald, vol. 28, no. 5, May, pp. 408-419.

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