1.1 Construction Costs and Profits_ AR 591A-ARCH51S1 - Specialization 2_ Cost Management.pdf

9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management 1.1 Construction Costs and Profits CONSTRUCTION INDUSTRY: The branch of manufacture and trade based on the building, maintaining, and repairing structures. T...

9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management 1.1 Construction Costs and Profits CONSTRUCTION INDUSTRY: The branch of manufacture and trade based on the building, maintaining, and repairing structures. This includes drilling and solid mineral exploration. httpswww.buildingenclosureonline.com.jpg httpswww-1.gettyimages.com.jpg REFERENCES: https://www.hq.nasa.gov/ (https://www.hq.nasa.gov/) Data CONSTRUCTION INDUSTRY images: https://www.buildingenclosureonline.com/ (https://www.buildingenclosureonline.com/) ; https://www.gettyimages.com/ (https://www.gettyimages.com/) CONSTRUCTION INDUSTRY IN THE PHILIPPINES On the second quarter of 2021, Philippine gross domestic product (GDP) posted an 11.8% growth, according to the Philippine Statistics Authority (PSA). The construction industry is one of the main contributors to the growth. Construction posted the highest growth rate for the quarter at 25.7%. The construction industry likewise substantially contributed 69.6 percent to overall capital investments or gross capital formation (GCF) in the country. Construction share to GDP by expenditure is equivalent to 16.6%. Amidst the pandemic, the construction industry placed second with 1.7% points as one of the top contributors to GDP growth for Q2 2021. The share of construction to total employment of 45.075 million as of June 2021, was equivalent to 9.6%. The construction industry continues to provide job opportunities, employing on the average a total of 4.337 million workers. REFERENCE: https://www.dti.gov.ph/ INDUSTRY SECTORS (https://www.dti.gov.ph) httpswww.mylaporetimes.com.jpg RESIDENTIAL Residential construction addresses the housing needs of a BUILDING society. Housing construction takes many forms: individual homes, apartments, condominiums, townhouses, and prefabricated units such as modular and manufactured https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 1/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management homes. Residential construction is typically funded by private individuals or developers for their own use or for sale. Builders of individual homes generally fall within one of three categories: they are custom builders constructing one-of-a-kind homes for specific customers on specific lots, they are single-family small-volume builders who build 25 or fewer homes a year, or they are single-family production builders who build more than 25 homes a year. This sector of the industry primarily addresses the needs of commerce, trade, and government and makes up about a third of the total construction market. This is the category that includes banks, schools, office buildings, hotels, shopping malls, religious facilities, baseball stadiums, theaters, universities, amusement parks, hospitals, COMMERCIAL courthouses, government buildings, and other facilities BUILDING where people gather. These projects may range in size from a small medical office to large high-rise office buildings to state-of-the-art biotechnology facilities. The building costs are significantly higher than with residential construction, and the project duration is much longer. It is not uncommon for a commercial project to last three years or more. HEAVY CIVIL This sector of the industry impacts all of society in a very CONSTRUCTION big way. Often referred to as horizontal construction, the heavy civil sector includes roadways, bridges, tunnels, dams, airports, and railways. Basically, any work that is associated with infrastructure, transportation, and how we move about involves the heavy civil construction market. Similar to the industrial sector, heavy civil projects are complex, usually expensive endeavors that take special engineering know-how. This market is huge and growing larger every day. The need for building and rebuilding of our nation’s roadways, airports, sewage plants, and bridges is great. These projects are typically designed by civil engineers, and often the construction management team has a strong background in civil engineering as well. Heavy civil construction firms are generally very large operations that can offer opportunities nationally and internationally. However, the heavy civil sector of the industry is difficult to enter because of the huge capital https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 2/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management outlay required for entry, not to mention the specialized knowledge required to be successful. This sector of the industry is highly specialized and requires firms with vast resources and significant construction and engineering expertise. The number of contractors qualified to work within the industrial sector is INDUSTRIAL limited. The project types included in this category are CONSTRUCTION defined primarily by the production activities that occur within the facility. Manufacturing plants, electrical generating facilities, oil refineries, pipelines, steel mills, and chemical processing plants are all examples of industrial construction projects. Although some people may lump environmental construction under the heavy civil category, it is unique enough to have its own classification, especially considering the increase in market share that this sector is currently experiencing and probably will for some time to come. Generally, this sector of the industry is comprised of ENVIRONMENTAL projects that improve the environment, maintain public CONSTRUCTION health, and contribute to a community’s quality of life. Think clean water, sanitary sewers, and waste management. And although these projects may not seem very glamorous at first glance, in reality they represent one of the most vital sectors of the industry and one that demands a significant investment in order to sustain our communities. CONSTRUCTION ECONOMICS: Like pure economics, its mainstream equivalent – is concerned with the allocation of scarce resources. OPPORTUNITY COST: The value of the alternative forgone by choosing a particular activity. REFERENCES: Jackson, B.J. (2010). Construction Management JumpStart. (2nd Edition); Myers, D. PROJECT MANAGEMENT (2008). Construction Economics: A New Approach. PROCESS GROUPS (2nd Edition) Data image: https://www.mylaporetimes.com/ (https://www.mylaporetimes.com/) PROCESS GROUP: A logical grouping of project management processes to achieve specific project objectives. https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 3/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management httpswww-1.projectengineer.net.png INITIATING PROCESS GROUP: Those processes performed to define a new project or a new phase of an existing project by obtaining authorization to start the project or phase. PLANNING PROCESS GROUP: Those processes required to establish the scope of the project, refine the objectives, and define the course of action required to attain the objectives that the project was undertaken to achieve. EXECUTING PROCESS GROUP: Those processes performed to complete the work defined in the project management plan to satisfy the project requirements. MONITORING AND CONTROLLING PROCESS GROUP: Those processes required to track, review, and regulate the progress and performance of the project; identify any areas in which changes to the plan are required; and initiate the corresponding changes. CLOSING PROCESS GROUP: Those processes performed to formally complete or close the project, phase, or contract. REFERENCES: Project Management Institute, Inc. (2017). Guide to the Project Management Body of PROJECT MANAGEMENT Knowledge (PMBOK Guide). (6th Edition) KNOWLEDGE AREAS Data image: https://www.projectengineer.net/ (https://www.projectengineer.net/) KNOWLEDGE AREA: A logical grouping of project management processes to achieve specific project objectives. project_management-2.png PROJECT INTEGRATION MANAGEMENT: Includes the processes and activities to identify, define, combine, unify, and coordinate the various processes and project management activities within the Project Management Process Groups. PROJECT SCOPE MANAGEMENT: Includes the processes required to ensure the project includes all the work required, and only the work required, to complete the project successfully. https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 4/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management PROJECT SCHEDULE MANAGEMENT: Includes the processes required to manage the timely completion of the project. PROJECT COST MANAGEMENT: Includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so the project can be completed within the approved budget. PROJECT QUALITY MANAGEMENT: Includes the processes for incorporating the organization’s quality policy regarding planning, managing, and controlling project and product quality requirements, in order to meet stakeholders’ expectations. PROJECT RESOURCE MANAGEMENT: Includes the processes to identify, acquire, and manage the resources needed for the successful completion of the project. PROJECT COMMUNICATIONS MANAGEMENT: Includes the processes required to ensure timely and appropriate planning, collection, creation, distribution, storage, retrieval, management, control, monitoring, and ultimate disposition of project information. PROJECT RISK MANAGEMENT: Includes the processes of conducting risk management planning, identification, analysis, response planning, response implementation, and monitoring risk on a project. PROJECT PROCUREMENT MANAGEMENT: Includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. PROJECT STAKEHOLDER MANAGEMENT: Includes the processes required to identify the people, groups, or organizations that could impact or be impacted by the project, to analyze stakeholder expectations and their impact on the project, and to develop appropriate management strategies for effectively engaging stakeholders in project decisions and execution. REFERENCES: Project Management Institute, Inc. (2017). Guide to the Project Management Body of Knowledge (PMBOK Guide). (6th Edition) DIALS OF PROJECT VALUE Data image: https://www.projectengineer.net/ (https://www.projectengineer.net/) In 1996, a group of owners, architects, contractors, and engineers gathered in San Francisco to discuss common goals and opportunities for collaboration in the building industry (Collaborative Process Institute). During their discussions, they came up with the best descriptors of the factors https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 5/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management that need to be managed and controlled on a construction project in order to produce a successful outcome for the owner and all parties involved. They referred to these factors as the six dials of project value. The idea is that each of these dials has a most advantageous setting for any given project, and it is the project team’s job to optimize these settings. As noted earlier, only the first four project values are within the traditional range of services provided by the construction management team: cost, time, quality, and safety. The last two, scope and function, are typically determined by the owner and their design team prior to the construction manager being involved. However, some project delivery methods bring the construction professionals onto the team early in the process so that they may assist with scope definition, overall function, and programming. httpswww.istockphoto.com (3).jpg httpswww.kindpng.com (3).png It is essential to predict and control what the construction project will cost. Costs are established, targeted, and controlled by means of an estimate or budget. As the work progresses, expenditures for materials, labor, equipment, and subcontracts are tracked and COST measured against the estimates. The fundamental goal is to maintain costs within or below budget parameters. The construction manager who can minimize cost while maximizing overall value to the owner will optimize the cost dial. As the saying goes, time is money. For many projects, the speed with which the building can be brought on line is more important than almost any other factor. Time is monitored and controlled by a detailed schedule, breaking each item of work down into its component parts. Once all of the purchasing, fabrication, TIME installation, and construction steps are identified, a time element is assigned to each step. The goal is to complete each of the work items within the time frame assigned. The construction management team that can guarantee the schedule and actually beat it is invaluable to the owner. Quality is the grab bag that covers all the aspects of the build_x0002_ing not addressed by the other five values, such as aesthetic impact, user perceptions, appropriateness of building materials, and so on. Quality is monitored and controlled by a QUALITY variety of means, including specifications, punch lists, inspections, tests, and user surveys. Special care must be taken to establish appropriate measures early in the project to focus attention and effort on the quality expectations of the team. https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 6/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management No matter how valuable a facility or structure may be, it is never more valuable than the health and welfare of the people who build and use the building. Care must always be taken to ensure that the building process and the building itself do not create unacceptable hazards to workers or users. These hazards range SAFETY from risks during the building process , e.g., falls, accidents, injury, and death) to risks from the completed buildings, e.g., toxic gases, biohazards, and structural failure. Safety is best monitored and controlled proactively by identifying potential risks and taking prudent steps to mitigate those risks. Scope is monitored and controlled by means of an architectural program, which identifies the space needs and tracks compliance of the building design with those needs. An optimal scope SCOPE outcome would match the end user’s needs to the facility design over the life of the building with no gaps in between. The ultimate goal is high end-user satisfaction. The best project teams try to meet all of the functional requirements of the end-user group. An optimal outcome would satisfy their short- and long-term needs, allowing for sufficient FUNCTION flexibility to adapt to changes in the market. Function is monitored and controlled by means of process flow diagrams and utilization analyses, which document the efficiency of the processes that will be performed in the completed facility. THEORY OF CONSTRAINTS: A way to solve problems inherent in your project that are preventing you from achieving more of your goals. Part of TOC is the methodology called the thinking processes, which is made for complex projects with many interdependencies. httpswww-1.clipartmax.com.png httpswww-2.clipartkey.com.png TRIPLE CONSTRAINT: A model of the constraints inherent in managing a project. Those constraints are threefold. TRIPLE CONSTRAINT: A model of the constraints inherent in managing a project. Those constraints are threefold. The financial constraints of a project, also known as the project COST budget SCOPE The tasks required to fulfill the project’s goals https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 7/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management TIME The schedule for the project to reach completion. httpswww-1.pmi.org.jpg VALUE TRIPLE CONSTRAINT (VTC): There is a relationship that guides all projects. It is relentless and honest. We can work against this relationship to our disadvantage or we can work to improve this relationship to our advantage. That relationship is the Value Triple Constraint. REFERENCES: Jackson, B.J. (2010). Construction Management JumpStart. (2nd Edition); https://www.projectmanager.com/ (https://www.projectmanager.com/) Data images: https://www.istockphoto.com/; (https://www.istockphoto.com/;) CONSTRUCTION COSTS AND https://www.kindpng.com/; PROFITS (https://www.kindpng.com/) https://www.clipartmax.com/; (https://www.clipartmax.com/;) https://www.clipartkey.com/; (https://www.clipartkey.com/) https://www.pmi.org/ (https://tensix.com/) PROJECT COST: The total funds needed to monetarily cover and complete a business transaction or work project. Costs that can be directly related to producing the DIRECT COST products and services of the project. Costs that are not directly related to the products or INDIRECT COST services of the project, but are indirectly related to performing the project. https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 8/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management RESERVES: Are monetary values included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict. Allow for future situations that may be partially CONTINGENCY planned for (sometimes called known unknowns) and RESERVES are included in the project cost baseline. MANAGEMENT Allow for future situations that are unpredictable RESERVES (sometimes called unknown unknowns) COST-BENEFIT ANALYSIS: A systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings. https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 9/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management REFERENCES: Project Management Institute, Inc. (2017). Guide to the Project Management Body of Knowledge (PMBOK Guide). (6th Edition); Cartlidge, D. (2009). Quantity Surveyor’s Pocket Book. (1st https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 10/11 9/20/24, 2:43 PM 1.1 Construction Costs and Profits: AR 591A-ARCH51S1 - Specialization 2: Cost Management Edition); Salvan, G.S. (2005). Architectural Practice & Construction Management. (3rd Edition); https://clockify.me; (https://clockify.me;) https://en.wikipedia.org; (https://en.wikipedia.org;) https://www.projectmanager.com (https://www.projectmanager.com) Data images: https://www.shutterstock.com/ (https://www.shutterstock.com/) (https://www.dmsplumbinglasvegas.com/) https://tip.instructure.com/courses/56768/pages/1-dot-1-construction-costs-and-profits?module_item_id=6545564 11/11