Establishing a Cost Control System
It is seldom that the original bid estimate to perform a particular construction activity is the same as the actual cost to do the work. It will always be higher or lower because of any number of unforeseeable factors. It is essential, therefore, if a contractor is to make a profit, to keep current on a project’s cost by maintaining a reliable cost control system.
Changes in labor wages or productivity, labor shortages, increased cost of materials, delays in deliveries, accidents, weather conditions, etc., will affect both the cost and the original schedule. In all likelihood, both the cost and time will be greater than planned, scheduled, and estimated.
Bar charts or Critical Path Method (CPM) planning systems are ideal for project control by timely updating. Maintaining a cost control system enables the contractor to analyze the productivity of workers, the performance and efficiency of equipment, and the proper allocation of overhead expenses.
Traditional bar charts show the activities of work and a calendar covering the start and estimated completion dates of a project. Bar charts have been used for many years in scheduling construction, but are limited in clearly showing the relationship between activities.
The Critical Path Method (CPM) is a more advanced system for planning and scheduling than using bar charts. It graphically shows each activity and its interrelationship from start to completion with other activities. The CPM also shows the status of a project at any time.
Another major component in a project cost control system is an identifying set of cost codes for the many items of work that comprise a job. The Uniform System for Construction Specifications, published by the CSI serves as an ideal cost code system for both bidding and accounting purposes.
Cost control accounting and progress estimating are also necessary functions in project cost control. In addition to bookkeeping, including the recording of accounts receivable, accounts payable, payroll, taxes, and other financial accounts, progress estimating also requires the appointment of a responsible superintendent, regular job meetings to discuss problems and solutions, the determination of work quantities produced, a continuous analysis of project costs, and the filing of meaningful daily and weekly progress reports.
Job meeting reports allow for the documentation of daily activities of the work force, number of workers in each trade on the job, scope and quantity of work produced, recording of delays along with reasons why, materials and equipment deliveries including shortages, substitutions, or failures, and the recording of decisions made at the meetings or instructions received.
A reliable cost control system allows for changes as a project progresses. If construction costs are running higher than the bid estimate, or are different than scheduled, corrections can be made while the project is still in progress, therefore increasing the chances that a project will be financially successful.
It is seldom that the original bid estimate to perform a particular construction activity is the same as the actual cost to do the work. It will always be higher or lower because of any number of unforeseeable factors. It is essential, therefore, if a contractor is to make a profit, to keep current on a project’s cost by maintaining a reliable cost control system.
Changes in labor wages or productivity, labor shortages, increased cost of materials, delays in deliveries, accidents, weather conditions, etc., will affect both the cost and the original schedule. In all likelihood, both the cost and time will be greater than planned, scheduled, and estimated.
Bar charts or Critical Path Method (CPM) planning systems are ideal for project control by timely updating. Maintaining a cost control system enables the contractor to analyze the productivity of workers, the performance and efficiency of equipment, and the proper allocation of overhead expenses.
Traditional bar charts show the activities of work and a calendar covering the start and estimated completion dates of a project. Bar charts have been used for many years in scheduling construction, but are limited in clearly showing the relationship between activities.
The Critical Path Method (CPM) is a more advanced system for planning and scheduling than using bar charts. It graphically shows each activity and its interrelationship from start to completion with other activities. The CPM also shows the status of a project at any time.
Another major component in a project cost control system is an identifying set of cost codes for the many items of work that comprise a job. The Uniform System for Construction Specifications, published by the CSI serves as an ideal cost code system for both bidding and accounting purposes.
Cost control accounting and progress estimating are also necessary functions in project cost control. In addition to bookkeeping, including the recording of accounts receivable, accounts payable, payroll, taxes, and other financial accounts, progress estimating also requires the appointment of a responsible superintendent, regular job meetings to discuss problems and solutions, the determination of work quantities produced, a continuous analysis of project costs, and the filing of meaningful daily and weekly progress reports.
Job meeting reports allow for the documentation of daily activities of the work force, number of workers in each trade on the job, scope and quantity of work produced, recording of delays along with reasons why, materials and equipment deliveries including shortages, substitutions, or failures, and the recording of decisions made at the meetings or instructions received.
A reliable cost control system allows for changes as a project progresses. If construction costs are running higher than the bid estimate, or are different than scheduled, corrections can be made while the project is still in progress, therefore increasing the chances that a project will be financially successful.
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