Project Cost Control CEIE370 PDF

Project Cost Control 1  Project Performance Project Performance: f(schedule, cost) Schedule Performance Production Rate Productivity (cy/hr, units/day) Cost Performance...

Project Cost Control 1  Project Performance Project Performance: f(schedule, cost) Schedule Performance Production Rate Productivity (cy/hr, units/day) Cost Performance Unit Cost ($/cy, worker-hour/ton) 2  Project Cost Control Cost control is defined as keeping expenditure within the authorized estimate while providing the desired quality of work within the specified time. To make any job profitable, the construction manager has to be continually aware of the costs of doing the work and exercise control over those costs. There are three major types of costs in construction projects: – Estimated cost – Actual cost – Projected and Target cost  Estimated Cost The estimated costs of a project establishes the budget for the job and serves as a tool for measuring progress. Most estimates state either a total direct cost of performing a specific job or a unit price based on the total quantity of material. For example, an estimate may state that 10,000 bricks will be installed for a total cost of $20,000, or $2.00/brick. This amount sets the limit of what can be spent in performing this job.  Actual Cost These are the costs that actually incurred in getting the job built. Cost overruns can occur and should be controlled. This can be done by keeping track on a regular basis of what the job is actually costing to build while it is being constructed. Back to the brick laying example, it is found that installing 4,000 bricks cost $9,000 or $2.25/brick. This information should alert the PM to take steps to bring the actual cost in line with the estimate.  Actual Cost If, on the other hand, the actual cost of placing the bricks is discovered to be less than the estimated cost, the reason should be determined whether it is because worker productivity is improved, the work is done quickly and sloppily, or the original estimate is not accurate. Continually tracking construction costs requires an effective job reporting system that provides regular comparisons of actual and estimated costs.  Projected and Target Cost Projected cost is the updated estimate (forecast) of the total cost of a specific job based on the analysis of its actual cost and progress. For the brick laying example, the projected cost of completing the job can be calculated by multiplying the actual unit cost ($2.25) by the total number of bricks (10,000). In this case, the PROJECTED cost of the job is $22,500, or $2,500 more than the budget.  Projected and Target Cost A new Target cost can be set to bring the job costs in line. Knowing that $11,000 of the original budget for placing the brick remains, and that 6,000 bricks must still be installed, one can calculate that the balance of the bricks must be placed for a TARGET unit cost of $1.83/brick.  Elements of Project Control – Scope Set Project Objectives – Budget – Schedule Measure project progress/performance – Actual progress, time elapsed, money spent Take Corrective Action - For example, allocate resources differently 9  Objectives of Project Control To create historical data for future use in estimating To compare actual progress with estimated baseline To motivate the project team to achieve higher productivity To place responsibility and credit where it belongs To identify methods for reducing costs and To alert management to the need for corrective actions during the job, not after it. 10 Cost and Schedule Analysis The analysis is performed at a specific point in time during the progress of the job. Most jobs start out relatively slow, pickup speed as labor and equipment productivity increases, and slow again near the end due to activities such as cleanup and demobilization. This analysis should provide an indication of where the job stands compared to the estimated schedule and cost.  Cost and Schedule Analysis Example Assume that the resource in question is carpenter man-hours required to complete a formwork job. The job requires 10,000 man-hours to erect 40,000 sq.ft. of formwork, and is to be completed in 8 months. (unit cost is 0.25 mhrs./sq.ft., productivity is 5,000 sq.ft./month) After 4.3 months, 4,700 mhrs. have been spent on this job. An inspection shows that 12,500 sq.ft. is in place. (unit cost is 0.38 mhrs./sq.ft.,productivity is 2907 sq.ft./month )  Cost Analysis Evaluate where the job stands relative to the estimated costs: 12,500 sq.ft./40,000 sq.ft. = 31% (percent complete) 31% * 10,000 mhrs. = 3,100 mhrs. After spending 4,700 mhrs., the job is over budget by: 4,700 - 3,100 = 1,600 mhrs.  Schedule Analysis Evaluate where the job stands relative to the schedule: 12,500 sq.ft./40,000 sq.ft. = 31% (percent complete) 31% * 8 months = 2.5 months After 4.3 months, the job is delayed by: 4.3 - 2.5 = 1.8 months  Project Performance Example PROJECT BASELINE: CURRENT STATUS: Scope: 96 units 6 months into project Contract: $12 Million Spent $5 Million Duration: 12 months Completed 50 units. How is the project doing? Report the progress! 15  Cost & Schedule Analysis: % Complete PROJECT BASELINE: CURRENT STATUS: Scope: 96 units 6 months into project Contract: $12 Million Spent $5 Million Duration: 12 months Completed 50 units. Evaluate where the job stands relative to the schedule and cost 50 units / 96 units = 52% (percent complete) 52% * $12M = $6.25M. → The job is 6.25 – 5 = $1.25M under budget. 52% * 12 months = 6.25 months. → The job is 6.25 – 6 = 0.25 month ahead of schedule. 16  Earned Value Analysis True “Status” of the project can only be assessed when cost and schedule are examined together 17  Earned Value Elements Actual Cost of Work Performed (ACWP): is the actual expenditures to accomplish the work actually-completed at time x. Budgeted Cost of Work Performed (BCWP or Earned Value (EV)): is the budgeted cost to accomplish the work actually- completed at time x. Budgeted Cost of Work Scheduled (BCWS or Planned Value (PV)): is the value of the work that was scheduled to be completed at time x. 18  Earned Value Calculations Accomplished! CPI (cost performance index) = Spent! CPI > 1: Under budget; CPI < 1: Over budget SPI (schedule performance index) = The amount SPI > 1: Ahead of schedule; that should SPI < 1: Behind schedule have been done! 19  Earned Value Calculations CV (cost variance) = BCWP – ACWP CV > 0: Under budget, CV < 0: Over budget SV (schedule variance) = BCWP – BCWS SV > 0: Ahead of schedule, SV < 0: Behind schedule 20  Earned Value Calculations CPI & CV ACWP BCWP BCWS SPI & SV 21  EVMS Graphical Representation BCWS Cost ACWP Cost Schedule Deviation Deviation BCWP Time Planned Actual Earned 22  Back to The Example PROJECT BASELINE: CURRENT STATUS: Scope: 96 units 6 months into project Contract: $12 Million Spent $5 Million Duration: 12 months Completed 50 units. How is the project doing? Report your progress! 23  Formalize Judgment: $ Cost of each unit: $12Mill/96 units = $125,000/unit Performed= 50 units BCWP = ACWP = CV = CPI = 24  Formalize Judgment: $ Cost of each unit: $12Mill/96 units = $125,000/unit Performed= 50 units BCWP = 50 units X $125,000/unit = $6,250,000 ACWP = $5,000,000 CV = BCWP – ACWP = $1,250,000 CPI = BCWP/ACWP = 1.25 25  Schedule? 96 units/ 12 months = 8 units/month 8 units/ month * 6 months = 48 units BCWS = SV = SPI = 26  Schedule? 96 units/ 12 months = 8 units/month 8 units/ month * 6 months = 48 units BCWS = $125,000 X 48 = $6,000,000 SV = BCWP- BCWS = $6,250,000 - $6,000,000 = $250,000 SPI = BCWP / BCWS = 1.04 27  Project Performance Results Under Budget Ahead of Schedule What is our estimated final cost? 28  Forecasting EV Estimated Cost at Completion (EAC) EAC = ACWP + (BAC – BCWP) BAC = Budget at Completion (i.e., Original estimated project cost) Example: EAC = $5 Million + ($12 Million – $6.25 Million) = $10.75 Million 29  Original Budget & Schedule Activity Cost 1 2 3 4 5 6 7 8 9 10 11 12 Framing $1,000 Electrical Rough $500 Rock & Finish $800 Electrical Trim $400 Paint $500 CURRENT Date: End Of Day 5 COMPLETED: Framing, Electrical, ½ of Rock & Finish INCURRED COSTS: $2000 30  How is the Project Doing? ACWP SPI BCWS Cost Variance BCWP CPI Schedule Variance EAC 31  How is the Project Doing? ACWP = (Given costs incurred) = $2,000 BCWS = ($1000 + $500 + (1/5 * $800) = $1,660 BCWP = ($1000 + $500 + (1/2 * $800)) = $1,900 Status: Schedule Variance = (BCWP - BCWS) = $240.00 SPI = 1.14 *Ahead of Schedule*  32  How is the Project Doing? Cost Variance = (BCWP-ACWP) = -$100 CPI = (BCWP / ACWP) = 0.95 *Over Budget* Estimated Cost at Completion: BAC = (Budget at Completion) = $3,200 EAC = (ACWP + (BAC-BCWP)) = (2,000 + (3,200-1,900)) = $3,300.00 33