Understanding Cost Control in Construction Industry - KSN ...

Cost control methods in construction projects is a process through which project and program managers maintain project expenses from crossing the limits. UnderstandingCostControlinConstructionIndustry ConstructionCostControl Costcontrolmethodsinconstructionprojectsisaprocessthroughwhichprojectandprogrammanagersmaintainprojectexpensesfromcrossingthelimits.Itcanbedoneinvariousways,suchascontrollinglaborexpensesandmaterialandoverheadcostmonitoring.Themanagersensurethatinnowaydoprojectexpensesgooverthebudgetlimitations.  Theprimarythingaboutcostcontrolinconstructionmanagementisthatitheavilyreliesonsoundestimatesandconstantmonitoringthroughouttheprojecttoseehowefficientlyitisdone.Understandingthepurposeandimportanceofcostmanagementofconstructionprojectsiscrucialbecausetheprojectquicklyoverrunsitsbudgetwithoutasolidcostcontrolmechanism.Worstcasescenario,itcanmaketheconstructionfirmsinvolvedwiththeprojectgobankrupt. HowToControlConstructionCosts? Beforekickingofftheplanningphaseofconstructionprojects,itisadvisabletodevisecostestimates.Manyhigh-levelprojectmanagerssometimesfeelaneedforanotherdesignationtohelpthemoutwiththeseestimates.Itisalsoworthwhiletoinvestinaconstructionmanagerbecausetheycanhaveagoodtrackrecordofcostestimationtechniquesandexpertiseinthefield,onewhichisoftenlackingbyothermanagementstakeholders.Hiringacostmanagercanbethefirststeptowardsconstructioncostcontrol,andawiseoneatthat. Anothersmartmoveaconstructionprojectmanagercanmakeistousesoftwaretechnologyfortheiruse.SoftwareusageinconstructionmanagementhasstartedtogrowrapidlyinIreland,anditcanprovetobeveryhelpfulifthemanagersknowtheirbasicswell. Anotherwaytocontrolcostsistoupdatethecostplanconstantly.Analyzeandreevaluatecostplanstodetermineifcostsarehigherthanexpectedinsomepartsoftheproject.Balanceitoutbycostreductioninotherpartsoftheprojects.Similarly,whenitcomestoprocurement,amanagercantryandbargainwiththeconstantvendorsorsellerstobringdownthepricesanotchwithoutcompromisingthequalityofthegoods. TypesofCostControl 1.Budgetmaking Theprojectbudgetisafinancialplanforallthecosts.Successinprojectbudgetmanagementdependsprimarilyonthecreationofacomprehensiveandreliableprojectbudget.  Managersneedtoremindthemselvesthat,bydefinition,theprojectbudgetcannotbeaccurateasitisonlyanestimate.Normalrangesofprojectbudgetvariabilitydependontheproject,theconstructionfirm’scompanyculture,thetypeofconstruction,andmanyotherfactors,butusuallyfallswithin+/-10%(estimate).  AccordingtotheProjectManagementBodyofKnowledge(PMBOK),constructionbudget-makingcomprisesCostEstimationandDeterminingtheBudget.Eventhoughboththeseprocessessoundthesameandareoftenerroneouslyusedinterchangeably,theyarevastlydifferent.  TheCostEstimationprocessestimatesthecostforeachelementandrecordsthebasisofthatcost,whereasDetermineBudgetisaprocessthathelpscostestimationupwards.Moreover,itappliescostaggregation,projectcontingencyandmakesacashflowestimatefortheprojecttofinallyhaveadetailedbudgetforvariousWBSlevelsandoverall. 2.CostTracking Thebestwaytotrackcostsisusingatime-basedbudgetingtechnique.Thishelpsinkeepingtrackofthebudgetofaconstructionprojectineachofitsphases.Theactualcostswillhavetobetrackedagainsttheperiodictargetsthathavebeensetoutinthebudgetandapprovedbythestakeholders. Thisismucheasiertoworkwithratherthanhavingonecompletebudgetfortheentireperiodoftheproject.Ifanynewworkisrequiredtobecarriedout,constructionmanagersonlyneedtomaketheestimationsforthatnewpartandnotthewholeoftheprojectjusttoaccommodatethenewchange. 3.EarnedValueMethodandVarianceAnalysis OneotherverypowerfultoolthathelpsanalyzeprojectbudgetperformanceistheEarnedValueMethod(EVM).EVMevaluatesprojectbudgetperformanceandcalculatesaCostPerformanceIndex(CPI),whichrepresentstheeffectivenessofprojectspending.EVMcancalculateaCostVariance(CV),whichisthedifferencebetweenthevalueoftheworkcompletedandthenumberoffundsexpendedtoaccomplishthatwork.Thesevaluestellaconstructionmanageriftheyareoverorunderthebudget. Varianceanalysisisanothertooltohelpmanagersunderstandwhyconstructionelementsareoverorunderbudget.Understandingwhyprojectphasesareoverrunningrequiresmanagerstocomeupwithactionplanstobringtheprojectbackwithinbudget. Conclusion Simplycomingupwithaprojectbudgetisnotadequateduringyourprojectplanningsessions.Projectmanagersandteammemberswouldhavetokeepawatchfuleyeonwhetherthecostsremainclosetothefiguresintheinitialbudget.Notjustthat,buttheyshouldpayattentiontotheapprovedcosts,forecastedvs.actualcost,andcommittedcosts. PagesBlog Dashboard EmbodiedEnergy Ireland’sBuiltEnvironment KerriganSheanonNewman KSN KSNEnergy KSNPM Media News TimelineofSustainability UNSustainabilityGoals UpgradingourHomes WhereDoesIrelandStand? 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