Project Cost Management

Total Project Cost

• Refers to the total financial expenditure required to complete a project.
• Encompasses all expenses associated with initiation, planning, execution, and closure.
• Includes direct and indirect expenses.
• Covers a wide range of categories like labor, materials, equipment, and overheads.
• All needed resources to deliver the project's objectives are included.

Professional Engineering Cost

• Encompasses the expenses associated with hiring engineers and technical professionals.
• This covers their expertise, design, and oversight throughout the project.
• Costs are part of the overall project budget.
• Contributes to successful planning, design, and execution of projects.

Cost Engineering

• The application of scientific principles and techniques to:
  • Estimation
  • Cost control
  • Business planning
  • Project management
  • Profitability analysis
  • Planning and scheduling
• The practice of managing costs involved in a construction project.
• Involves:
  • Cost control
  • Budgeting
  • Forecasting
  • Estimating
  • Investment appraisal
  • Risk analysis

AACE International Constitution and Bylaws

• Article 1 - Section 2
• Dedicate the tenets of furthering the concepts of Total Cost Management and Cost Engineering.
• Total Cost Management is the effective application of professional and technical expertise.
  • To plan and control resources, costs, profitability, and risk.
• A systematic approach to managing cost throughout the life cycle.
  • Any enterprise, program, facility, project, product, or service.
• Accomplished through:
  • Cost engineering
  • Cost management principles
  • Proven methodologies
  • The latest technology in support of the management process.
• Article 1 Section 2
  • Total Cost Management is where engineering judgment and experience are used in application of scientific principles and techniques.
  • Problems of business and program planning
    • Cost estimating
    • Economic and financial analysis
    • Cost engineering
    • Program and project management
    • Planning and scheduling
    • Cost and schedule performance measurement
    • Change control

Cost Elements for Cost Management

• Cost Estimating predicts the quantity and cost of resources to accomplish an activity or create an asset.
• Cost Budgeting allocates estimated costs to different project phases or tasks.
• Cost Monitoring & Reporting regularly reviews performance and generates reports.
• Cost Control tracks actual cost versus budget.
  • Implements corrective actions to prevent cost overruns.
  • Utilizes tools like Earned Value Management (EVM).
• Financial Risk Management identifies potential risks.
  • Inflation
  • Resource shortages
  • Unexpected delays
• Lifecycle Costing considers cost over the entire project lifecycle.
  • Maintenance and disposal

Construction Cost

• The total expenditure incurred to complete a construction project.
• Encompasses all activities from planning and design through completion and handover.
• It is essential to accurately estimate, manage, and control costs.
  • Ensure the project is completed within budget and to required standards.
• Varies depending on the type, size, location, complexity, and timeline.

Components of Construction Costs

• Direct cost is the charges related to the work in building.
  • Labor Costs: Salary, wage, and fringe benefit.
    • Each laborer and contractor working in the project is included
    • General laborer, skilled technicians, engineers, and supervisors.
    • The cost of laborers in the form of subcontractors used on specialized assignments.
  • Material Costs: Total expenditure of purchasing raw materials.
    • Concrete
    • Steel
    • Lumber
    • Tiles
    • Glass
    • Paints
    • And other project components
  • Equipment Costs: The costs of hiring or buying.
    • Construction equipment
    • Machines
    • Cranes
    • Bulldozers
    • Excavators
    • Scaffolding
    • Power tools
• Indirect costs are necessary for the completion of the project but are not directly tied to the physical construction work.
  • Site Overheads
    • Managing and maintaining the construction site.
    • Utilities
    • Temporary offices
    • Site security
    • And temporary facilities (toilets or storage).
  • Project Management
    • Managing and overseeing the project
    • Including project managers, engineers, architects, and administrative staff.
    • Project scheduling, monitoring, and reporting.
  • Insurance
    • Obtaining various insurance policies.
      • Including worker's compensation, liability insurance, property insurance, and professional indemnity insurance to cover potential risks and liabilities.
  • Legal and Regulatory Fees: Fees for securing permits, licenses, and approvals.
    • needed to comply with local zoning laws, building codes, and safety regulations.
• Additional cost
  • Contingency Cost: Funds set aside.
    • To cover unforeseen circumstances, such as unexpected design changes or weather delays.
  • Financing Cost: The project is financed through loans or credit.
    • Interest payments, loan fees, and associated costs are considered a part of the construction budget.

Estimating Construction Cost:

• Unit Cost Estimating: Calculates the cost per unit of measurement.
  • Square foot, cubic meter, or linear meter.
  • Determines the cost of materials, labor, and overheads for each unit.
  • Multiply by the quantity for the entire project.
• Analogous Estimating: Uses historical data from similar projects.
  • Quick and useful method, but can not always account for unique factors.
• Parametric Estimating: Uses statistical models and data.
  • Cost estimates are based on certain project parameters.
  • Area of the building
  • Number of floors
  • It is efficient and relies on the past date to create cost estimates for similar types of projects.

Legal, Land, Administration, Staffing and Financial Cost

• Audits, the cost of issuing bonds, land costs, and interest for borrowed money during construction.
• Part of the probable total project cost and can be estimated in cooperation with the client.
  • They are usually outside of the knowledge and control of the Civil Engineer.

Legal Costs

• Expenses related to permits, contracts, legal advice, and potential litigation.

Land Costs

• The cost of acquiring land.
  • Including purchase price, taxes, and any associated legal fees for land transactions.

Administrative Costs

• Overhead expenses related to project management.
  • Salaries for project managers, office rent, utilities, and other administrative overhead.

Staffing Costs

• Salaries, wages, benefits, and other expenses related to the project team.
  • engineers, construction workers, and other staff.

Financial Costs

• Interest on loans, financing fees, and any other financial charges associated with the project.

Contingency Allowance

• A critical financial tool in construction project management.
• Provides a safety net for unexpected challenges
• Ensuring that a project can continue to progress without going over budget.
• Calculates an appropriate contingency allowance.
• Closes managing its use and monitoring any changes in the project.
• Project managers can maintain financial control and deliver successful projects on time and within budget.
• Helps to mitigate risks, manage uncertainties, and safeguard the overall project outcome.

Purpose and Importance

• A contingency allowance provides financial flexibility in the face of unexpected events.
• Construction projects are inherently prone to unforeseen risks and changes.

Types of Contingency Costs

• Construction Contingency: The most common form of contingency Intended to cover events/issues during the actual construction process. Essential for maintaining the project's financial stability due to exposure to a variety of risks including:
  • Site conditions, labor issues, and weather delays.
• Design Contingency: Set aside during the design phase to account for changes, revisions, or uncertainties related to the design. May be required as new information or issues arise that affect the original plans. Changes could be due to:
  • Client preferences
  • New regulations
  • Design conflicts

Estimating the Contingency Allowance

• Estimating the appropriate amount for a contingency allowance is a critical part of the budget planning progress.
• The amount allocated for contingency depends on several factors, including complexity, size, and risk profile.

Methods for Estimating the Contingency Allowance

• Percentage of Total Project Cost
  • Setting the contingency allowance as a percentage of the total project cost.
  • Typically ranges from 5% to 15%, but can be higher for complex or high-risk projects.
• Risk-Based Approach
  • Projects use a risk-based approach to calculate the contingency.
  • Involves identifying potential risks and likelihoods.
  • Estimate the likelihood and potential impact of each risk and analyzes to establish a contingency fund.

Common Risks Covered by Contingency Allowance

• Unforeseen Site Conditions: Unexpected soil, the discovery of hidden utilities, or the need for additional excavation work can increase costs.
• Material Price Fluctuations: market conditions impact the price of steel, lumber, and concrete, impacting the projects cost.
• Labor Issues: Labor shortages, strikes, or workforce inefficiencies and can cause delays and increase labor costs.
• Weather Delays: Heavy rainfall, snow, or extreme heat, can cause delays and increase costs.
• Regulatory Changes: building codes or environmental regulations that modifications the design process.
• Design Changes: Client-driven changes or the discovery flaws require adjustments to the project and contingency allowance.