A Cost Based Approach to Project Management: Planning and Controlling Construction Project Costs

Cover
Half Title
Title
Copyright
Dedication
Contents
Abbreviations
Preface
1 Defining a Project
Introduction
Project Definers
Triple Constraints
Scope
Cost
Duration
Time and Money Complications
Do the Triple Constraints Sufficiently Define a Project?
Uniqueness
One-Time Event
Comprised of and Breakable to Tasks
Task Interdependence
Other Requirements and/or Expectations
Can Value Be a Project Definer?
What Happens If It Is Not a “Project”?
Construction Projects
Types of Construction Projects
Public and Private Construction Projects
Buildings: Residential and Nonresidential Building Projects
Heavy and Civil Engineering Construction Projects
Stakeholders and Key Participants
Stakeholders’ Differing Project Perspectives
Basic Functions of the Stakeholders
The Operator as the Fourth Stakeholder
Project Delivery Systems
Most Common Project Delivery Systems
Construction Contract Pricing Options
Unit Price Contracts
Lump Sum Contracts
Variations of Cost Plus Fee Contracts
In Summary
2 Management, Project Management, and Construction Projects
Introduction
Modern Management
Why Study Management?
Who Are Managers?
Everybody Manages Something
What Do Managers Do?
Where Do Managers Work?
Management Levels and Titles
Accountability and Dependency
Roots of Modern Management
Managerial Roles
Interpersonal Roles
Informational Roles
Decisional Roles
Managerial Skills
Conceptual Skills
Interpersonal (Human) Skills
Technical Skills
Management Practices
Managers Have to Make Decisions
Common Decision-Making Mistakes
Management Process
Planning
Organizing
Leading
Controlling
Most Common Managerial Mistakes
Project Management
Construction Project Management
Cost and Time Considerations at Initial Stages of a Construction Project
In Summary
3 Understanding Cost and Its Elements
Introduction
Cost Is More Than a Dollar Amount
Elements of a Cost
Price
Unit Cost, Unit Price
Assembly Unit Costs
Cost Line Items
Example for Unit Cost Conversions, Assembly Unit Cost, and Performance Assumptions
Unit Cost Conversion for Materials
Labor and M/E Unit Costs
Labor and M/E Quantities
Output Rate
Resource (Labor or M/E)- Hours
Output Rates, Resource-Hours and Activity Durations
Managing a Cost Requires Knowing Both of Its Elements
Tax, Price, and Cost
Can the Price Be Less Than Its Cost?
Defining Value
Value, Quality, and Cost
Types of Values
Value Priorities of Stakeholders and Key Participants
Value as a Measure of Project Success
Considerations for Setting Value Goals for Projects
In Summary
4 Cost Types and Components
Introduction
Types of Costs
Direct and Indirect Costs
Fixed and Variable Costs
Examples
Fixed Direct Costs
Fixed Indirect Costs
Variable Direct Costs
Variable Indirect Costs
Identifying Cost Types Example
Components of a Cost
Material Component
Labor Component
Machinery, Equipment, and Other Direct Costs (M/E) Component
Overhead (O/H) Component
Depreciation Is Not a Cost
What Do Cost Types and Components Indicate?
In Summary
5 Structuring Project Cost
Introduction
Project Planning Process
Initiator of the Project Planning Process: Scope
Detailing Scope by Breaking It Down to Tasks: Work Breakdown Structure (WBS)
WBS Should Cover the Entire Scope
Example: Dinner Party Project
Compiling Detailed Task Information: Work Package Dictionary (WPD)
Structured Project Cost:Project Cost Breakdown (PCB)
PCB and Project Price Breakdown
Different Perspectives for PCB
WBS Examples for Different Stakeholders
In Summary
6 Cost Estimating
Introduction
Cost Estimating in the Construction Industry
Types of Estimates and Estimate Accuracies
Cost Estimating Process for Line Items
Quantity Take-Offs (QTO)
QTO for Materials
Labor and M/E QTOs and Durations
Estimate Preparation Duration and Accuracy
Expert Opinion in Estimating Costs
Step-by-Step Cost Estimating Process
Project Delivery Systems, Contract Pricing, and Cost Estimating
Technology and Reference Data for Estimating
Updating WPD With Estimated Cost Data
WPD and Project Resource Schedule (RBOQ)
Example: Hotel Building Superstructure
Quantity Take-Offs, BOQ, WPD Update, and Project Resource BOQ
STEP 1. Prepare (or Check if Available) Quantity Take-Offs
STEP 2. Update the WPD for This Activity
STEP 3. Assign Resources and Determine Durations
STEP 4. Calculate the Cost by Applying Unit Costs to the Quantities
STEP 5. Check Cost and Schedule Acceptability
Option 1. Increasing Crew Size
Option 2. Keeping the Initial Crew Size and Paying Overtime as Needed
Decision
STEP 6. Finalize by Updating WPD
Remarks on Cost and Duration Correlation for the Example
Estimating Overhead(s)
Task O/H
Project O/H
Head Office O/H
Estimating the O/H
In Summary
7 Contingency as a Part of Cost
Introduction
Certainty, Uncertainty, Risk, and Contingency
The Known and Unknown Risks
The Known-Unknowns
The Unknown-Unknowns
Contingency at Several WBS Levels
Both Cost Elements May Include Contingencies
Typical Uses of Contingencies
To Cover for Errors
Systematic Errors
Random Errors
To Cover for Omissions
Escalation
Using a Provisional Sum to Avoid a Contingency
Dealing With Unknown-Unknown Scope Changes
Contingency and Profit
Contingency and Change Orders
Hidden Contingencies
How Much Is Enough?
Management Reserve and Project Manager
In Summary
8 Project Cost Budget
Introduction
Project and Operational Budgets
One-Time Occurring and Not Repetitive
Covers the Entire Project Duration
Requires Unique and Project-Specific Resources
Project Cost Budget Includes and Reveals All Required Resources
Project Cost Budgets and Schedules Are Interrelated
Project Budgets Include All Known-Unknowns
Preparing and Reporting Cost Budgets
Budgeting Activity Costs
Budgeting Project Cost
Budgeting for Project Resources
Budget Formats
Monitoring Cost Budgets
Budget Format for Performance Monitoring
Budget Format for Futuristic Projections
Monitoring Project Resources and Output Rates
Revising Budgets
Budget–Schedule Integration: Expense Flows and Resource Schedules
Preparing the Bid Price
In Summary
9 Controlling Cost
Introduction
Cost Accounting Versus Cost Control
Major Differences
Accrued Expense Versus Committed Cost
Step-by-Step Cost Controlling Process
Cost Control Is Not a Process of Reducing Cost
Monitoring Progress
What to Monitor
Monitoring Frequency
How to Monitor
Reporting
Daily Reports
Project Progress Reports
Processing Progress, Invoices, and Payroll
Sorting and Distributing Accounting Cost Data
Calculating/Verifying Actual Quantities
Interpreting Monitored Performance
Root Causes of Variances
Common Reasons for Quantity Variance
Take-Off Errors
Scope Creep
Excessive Waste
Damages
Adverse Conditions
Changes
Scope Changes
Design Changes
Changes in Regulations
Differing/Unforeseen Site Conditions
Failure of a Stakeholder
Force Majeure
Unit Cost Variance
Errors, Inflation, Changes, Market, and Adverse Conditions
Unit Cost Variance and Quantity Implications
Labor and M/E Performance Variances
Remedial Action Considerations
Variance Accountability and Remedial Action
Categorical Remedial Action Options
Remedial Action and Delivery Method/Contract Pricing Complications
What Is the Right Remedial Action?
Implementing Remedial Actions
Keeping Records
Disputes Related to Variances
Cost Control Process Schematics
In Summary
Appendixes
Appendix A: Cost Budget Forms for Hotel Project Stakeholders
A.1: For Owners
A.2: For Contractors
A.3: For Hotel Operators
A.4: Design WBS
Appendix B: Sample Work Package Dictionary Form
Appendix C: Typical Progress Report Forms
C.1: Sample Daily Report
C.2: Monthly Reports
About the Author
Index