Project Cost Control

• The lecture covers cost control and strategies for measuring project performance.
• This week's learning objectives include describing the cost control process, assigning cost codes, creating cost control reports, discussing cost control challenges and using Earned Value Management (EVM).

What is Cost Control?

• Cost control is the continuous process of comparing actual job costs with committed costs, tracking work progress against budget, and managing corporate and project issues.
• Cost control involves checking how costs are being handled, identifying underpaying or overpaying scenarios, and ensuring the projected budget is on track.

Sources of Cost

• Costs can be derived from labour (time sheets), material and rentals (invoices), and subcontracts (variances signal future costs and applications for payment).

The Cost Control Process

• The cost control process involves several steps to manage and monitor project expenses.
• First, tabulate estimated costs.
• Next, assign cost codes to all work activities.
• Capture actual costs: from time sheets, material and equipment invoices, and subcontractor applications for payment.
• Then, generate reports to compare estimated costs (from the bid estimate) to actual costs.
• Lastly, use this information for managerial purposes.
• Cost control in construction involves a cycle of estimating, planning, controlling, and accounting, linking budgeting, scheduling, and cost analysis.

Activity (Cost) Codes

• Activity codes are a numerical method that identifies and tracks work activities to facilitate cost reports.
• Produce a Work Breakdown Structure (WBS) to list activities typical of construction projects.
• Assign a numerical cost code to each activity, often using MasterFormat numbering.
• There should be enough detail about the activity's inclusion in the description.
• Ensure everyone cites cost codes in all relevant correspondence like purchase orders, time sheets, waybills, invoices, and payment applications.

Sample Activity Codes

• Example: 03 00 00 CONCRETE-LABOUR
  • 03 25 00 - 1 Form Footings

Activity Code Description

• 03 25 50 is the code for Miscellaneous Anchors and Inserts.
  • This includes layout, protection, installation, and cleaning of all temporary and permanent metal. -Includes anchor bolts, embedments, kick bars, pre-formed reglets, and fasteners.
  • Does not include masonry anchor and tie systems (04 05 19), structural metal framing or fabrications (05 41 00 and 05 50 00), or wood nailers (06 05 23).

Cost Coding Example

• A cost coding example is 202205 04 032550 01.
  • 202205 represents the project number, year of award, and the fifth by date of award.
  • 04 indicates the area, location, building, or floor. 032550 is the work type code based on the MasterFormat.
  • It refers to 03 25 50 – Miscellaneous Anchors and Inserts.
  • 01 signifies the category of expense, where 01 is labour, 02 is material, 03 is subcontractor, and 04 is equipment.

Cost Report Types

• Cost reports include labour, material, equipment, and subcontract costs.
• Additional report types are used for productivity, total cost, profitability forecasts, cash position, profit centre performance, executive overviews, and reporting to clients/bonding/banking entities.

Cost Report Input

• Cost report inputs are activity and activity codes.
• Quantity, the estimate.
• Furthermore, costs include budgeted (from estimate or CO quote), committed (from subcontracts, PO's), and actual costs (from time sheets, material invoices, or subcontractor applications for payment).
• Work completed is assessed through progress measured on site.

Common Causes for “Negative” Variances

• Negative variances may occur for a number of reasons.
• Estimating-caused problems include quantity measurement, productivity and pricing errors, and waste allowances or a lack thereof.
• Project manager-caused problems stem from buying-out errors, with subcontract scope omissions, poor subcontract and PO documents, and inappropriate quality/quantity or untimely delivery.
• Further variances are poor scheduling and inadequate coordination with superintendents.
• Superintendent-caused problems arise from disorganization, inefficient crews, wrong sequencing, sizing or skill sets, poor material management, oversight, damage, waste, theft, and inadequate coordination with the project manager.
• Additional causes for negative variances: bad weather and interference by others.

Cash Position Report

• Cash position reports include costs to date, labour, material and subcontracts, less subcontracts holdback, and percentage of fee earned.
• Revenue to date includes invoiced and received amounts less any holdback.

Why Monitor Job Costs?

• Job costs are measured by comparing actual costs to estimations and by the corporate executives. This allows for tracking project and corporate cash flow as well as profits for corporate planning. This assists in establishing volumes, staffing levels and capital investments.
• The estimating staff can generate unit prices, furthermore, the accounting staff can asses cash flow requirements and ensure timely payment to employees and vendors.
• Monitoring allows project managers to track costs related to project profitability and work scopes
• Highlighting negative variances enables corrective action where project managers can identify "hawkish" subs, resulting in improved subcontract documents, development of preventative initiatives, and avoidance of problematic situations if necessary.

Project Reporting ‘Challenges’

• Reporting irregularities include incorrect time sheets and improper cost coding.
• Varying the timing of reported costs is a challenge, with labour reported bi-weekly, materials monthly, and subs on the 25th.
• Cash flow challenges come from contractual payment terms, holdbacks, and backcharges.
• Problems stem from the measurement of quantities and the determination of cost
• Change orders provide additional measurement and cost challenges.