dammam - module 3

7/30/2019 Dammam - Module 3

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Construction Cost Management &Construction Cost Management &

The Impact of the Project Schedule on CostThe Impact of the Project Schedule on Cost

Part 3: Cost Management FundamentalsPart 3: Cost Management Fundamentals

By Ted Garrison

Garrison Associates

www.TedGarrison.com

www.StrategicPlanningforContractors.com

www.NewConstructionStrategies.com
http://www.tedgarrison.com/http://www.strategicplanningforcontractors.com/http://www.newconstructionstrategies.com/http://www.newconstructionstrategies.com/http://www.strategicplanningforcontractors.com/http://www.tedgarrison.com/


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2(c) 2008 Garrison Associates

Module 1: Cost ManagementModule 1: Cost Management

FundamentalsFundamentalsIdealism increases in direct proportion to ones

distance from the problem.

John Galsworthy

Therefore, the people performing the work should

be part of the planning process.

Project cost management is concerned about the

cost of the resources need to complete the project.


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Concerns of Project CostConcerns of Project Cost

ManagementManagement Project cost management is concerned

about the cost of the resources need to

complete the project. Project decision should be concerned with

the following: Short-term costs versus long-term costs

Life-cycle costs

Energy costs

Cost impact to the various stakeholders


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5 Phases of PM

D e f i n e

P la n

E x e cu t e

M o n it o rA d j u s t

C o m p le te

E va lu a te

T h e

L o o p


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Keys to Successful Cost PlanningKeys to Successful Cost Planning

Focus on whats most important

Approach planning as an art more than ascience

Create a plan that accommodates change

Treat the plan as an alive and growing

document


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A Vision is a Guide for DecisionsA Vision is a Guide for Decisions

A plan should be a description of currentstrategies and tactics to achieve the vision.

The vision provides the bases to adapt strategiesand tactics to achieve the vision as thingschange.

The master plans strategies and tactics allow

subs and workers to develop their strategies andtactics to obtain the results they must achieve inorder for the vision to be accomplished.


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An Overview of theAn Overview of the

Planning ProcessPlanning Process

1. Create the project vision (Definition)

2. Outline the plan

3. Gather up all the information available

4. Identify what parts of the plan must beproduced


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An Overview of theAn Overview of the

Planning ProcessPlanning Process5. Conduct a planning meeting with the project

team this includes subs Get them excited

Makes sure the vision is clear

Let them know what they must do and when

6. Prepare, review and revise the plan based onteam input avoid analysis paralysis

7. Produce a final plan

8. Create a process for building change in theproject plan


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Steps to Planning

Analyze the project objectives

Create a list of the necessary tasks.

Match the tasks with the availableresources.

Develop a schedule and budget.

Adapt to the project priorities.

Work out the details.


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Key Elements of a

Project Plan Project requirements (Project Definition)

Work Breakdown Structure (WBS)

Schedule Gantt Chart

Network Diagram

Budget

Identify potential risks

Organizational chart identify all stakeholders

Operating Procedures (systems or processes)


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Major Processes of ProjectMajor Processes of Project

Cost ManagementCost Management

Resource Planning

Quantities of people, equipment, materials

Inputs Work breakdown structure (WBS)

Historical info

Scope statement

Resource description

Organizational policies (i.e. Rental vs. purchase)

Outputs Resource requirements


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Cost ManagementCost Management Cost Estimating

Estimating cost of each resource

Inputs WBS

Resource requirements

Resource rates

Activity duration estimates

Historical info

Outputs Cost estimate

Supporting detail

Cost management plan (describes how cost variance will bemanaged)


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Cost Budgeting

Creating budget for each work item

Inputs

Cost estimates

WBS

Project schedule

Outputs

Cost baseline


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Cost Control Control changes to the project budget

Monitor costs

Ensure proper charges

Inform stakeholders of variances

Inputs

Cost baseline

Performance reports

Change requests

Cost management plan

Outputs Revised cost estimate

Budget updates

Corrective Action

Final estimate

Lessons learned


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Module 2: Work Breakdown

Structure (WBS)

It isnt what you know that counts,its what you think of in time,

which is why the WBS is so important.

Ted Garrison


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What is a WBS?

The WBS is the most important projectmanagement tool it is the basis for all otherproject management planning.

The WBS gives the entire construction processstructure.

Its the list of tasks necessary to complete the

project.

In construction the specifications are thebasis of the WBS.


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Why Use WBS?

Its the backbone for the entire projectmanagement process:

Providing a way ofidentifying the necessary tasks.

Providing a method ofidentifying the necessary

resources and skill sets.

Providing the necessary structure to plan yourschedule.

Providing the necessary structure to prepare your costestimate.

It helps manage expectations and risk.

It provides a visual way to understand what needs to bedone.


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Tricks to Getting the WBS to

Work for You Get the key people involved (buy in).

Brainstorm with your team when you are doing

something different.

WBS is designed to include all items to complete

the projectbut just as important to eliminate

items that dont need to be done.

Develop task lists for different types of projects

it will save time & avoid mistakes.


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Outline WBS

1.0 Project

1.1 Major Project Subsystem

1.1.1 Task 1

1.1.1.1 Subtask 1

1.1.1.2 Subtask 2

1.1.2 Task 2

1.2 Major Project Subsystem1.2.1 Task 1

1.2.2 Task 2


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Work Breakdown StructureWork Breakdown Structure

ABC

Trucking

Vapor

Barrier

Place

Concrete

Form

Slab

Install

AnchorBolts

Install

Reinforcing

Finish

Concrete

Slab

Concrete

Company

Frame

Garage

Install

Windows

Sheathing Trim

andSiding

Roofing

A-1

Carpentry

OH Door ACE

Electric

Jack the

Painter

Sample Garage


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Module 3: Budgets and the

Cost Constraints

One of the biggest causes of contractor failure is the

lack of business ability and training to estimatecosts accurately.

At the heart of any effective cost management

program is an:

Accurate Cost Estimate


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4 Phases of Estimating

1. Material quantity survey

2. Pricing material, labor and equipment

3. Analysis of subcontractor/vendor bids

4. Compute costs


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Purpose of Estimates

Get future work cost knowledge

Control present work compare costs to

progress

Control scope of work - dealing with

changes

Establish and control risk reflects on

risk.


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Estimating Challenges

Priority of the project (specs vs. contract)

The projects triple constraints

Flexibility in the schedule

Variables such as:

Weather, soil conditions, material availability, subavailability, and quality of project team.


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Typical Cost Problems

Making cost estimates for subs.

Inflated estimates by subs. Failure to obtain a firm commitment.

Poorly constructed WBS.


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3 Types of Construction

Estimates Preliminary (Conceptual) Estimates:

Usually used to determine budgets before drawingare completed.

Usually done on a square foot or system basis.

Approximate Estimate:

Detailed systems pricing based on drawing butnot pricing of individual items or tasks no

quotations.

Detailed Estimate:

Complete quantitative take-off along withquotations.


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The 9 Steps of an Estimate

1. Determine what will be self-performed and

what will be subcontracted.

2. Visit jobsite.

3. Do material take-off of all material.

4. Determine the labor & equip. requirements

and expected productivity for the project.

5. Price materials, equipment and labor.


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The 9 Steps of an Estimate

6. Determine job overhead general conditions.(toilets, signs, small tools, temp. water, temp electric, project

management, taxes and insurance etc.)

7. Obtain and analyze sub and vendor bids.

8. Summarize and review the costs of all items.

9. Add mark-up which includes general

overhead and profit.


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Project OverheadProject Overhead

Project overhead are all the items that arerequired to build the building but are not directlypart of the project such as direct labor ormaterials or equipment used to in that aspect.

Typical items such as the superintendent, projectmanager, waste removal, job office, phones,trucks, etc are charged to the project.

All corporate expenses that are directly related toa project should be charged to project overhead.

This helps determine true costs of project

More accurate than percentage of project


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General Overhead

These costs are from doing business andnot associated with a particular project.

When companies dont understand this

cost they under charge.

If too high will lose business.

It usually established on an annual basis,but the key factor is the annual volume.


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Tricks to Exceptional

Cost Estimating Develop standard forms its faster and

helps eliminate mistakes.

Use actual cost estimates from similartasks.

Involve the people most knowledgeable.

Research the history of vendors andsubcontractors.


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Tricks to Exceptional

Cost Estimating

Consult standard reference books.

Watch tasks that most directly affect theprojects final outcome build in extradollars when possible.

Train yourself to be an exceptionalestimator estimating is too critical to letit go to chance.


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Module 4: Activity and Task

Analysis

There is no job so simple that itcannot be done wrong.


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Keys to Task Analysis

Task analysis is the process of gathering

critical information necessary to predict

the project outcome

It is a great aid in delegating

Allow the key project team members toparticipate in the process


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The Task Analysis Process

Determine available resources.

Assign clear responsibilities.

Determine good enough.

Brainstorm effective strategies.

Determine ways to monitor progress.

Motivate early action.


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Task Analysis Worksheet

A good task analysis worksheet allows you

to keep in one place everything you need to

manage that task.

They should be adapted to meet your

specific needs.

Updating worksheets from previousprojects can save a great deal of time.


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A Sample Task Analysis

WorksheetProj ect Na me : Ta sk # Ta sk Na me :Person Responsible for Task: Contact Information:

Specifications:

Resources: People/Departme nt

Equipment/Materials/Supplies:

Time Estimate:

"Must Start" "Must Finish"

Milestones:

Optimistic: Pessimistic: Most Likely:

Cost Estimate:

Labor: $

Materials: $

Equipment: $

Contract: $

Overhead: $

Fee: $

Total: $

Other important comments:


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