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12.2 The Project Budget
For cost control on a project, the construction plan and the associated cash flow estimatescan provide the baseline reference for subsequent project monitoring and control. Forschedules, progress on individual activities and the achievement of milestone completionscan be compared with the project schedule to monitor the progress of activities. Contractand job specifications provide the criteria by which to assess and assure the requiredquality of construction. The final or detailed cost estimate provides a baseline for theassessment of financial performance during the project. To the extent that costs are withinthe detailed cost estimate, then the project is thought to be under
.Overruns in particular cost categories signal the possibility of problems and give anindication of exactly what problems are being encountered. Expense oriented constructionplanning and control focuses upon the categories included in the final cost estimation. Thisfocus is particular relevant for projects with few activities and considerable repetition suchas grading and paving roadways.For control and monitoring purposes, the original detailed cost estimate is typicallyconverted to a
, and the project budget is used subsequently as a guide formanagement. Specific items in the detailed cost estimate become job cost elements.Expenses incurred during the course of a project are recorded in specific job cost accountsto be compared with the original cost estimates in each category. Thus, individual job costaccounts generally represent the basic unit for cost control. Alternatively, job cost accountsmay be disaggregated or divided into
which are related both to particularscheduled activities and to particular cost accounts. Work element divisions will bedescribed in Section 12.8.In addition to cost amounts, information on material quantities and labor inputs within each job account is also typically retained in the project budget. With this information, actualmaterials usage and labor employed can be compared to the expected requirements. As aresult, cost overruns or savings on particular items can be identified as due to changes inunit prices, labor productivity or in the amount of material consumed.The number of cost accounts associated with a particular project can vary considerably. Forconstructors, on the order of four hundred separate cost accounts might be used on a smallproject.These accounts record all the transactions associated with a project. Thus,separate accounts might exist for different types of materials, equipment use, payroll,project office, etc. Both physical and non-physical resources are represented, includingoverhead items such as computer use or interest charges. Table 12-1 summarizes a typicalset of cost accounts that might be used in building construction.Note that this set of accounts is organized hierarchically, with seven major divisions (accounts 201 to 207) andnumerous sub-divisions under each division. This hierarchical structure facilitatesaggregation of costs into pre-defined categories; for example, costs associated with thesuperstructure (account 204) would be the sum of the underlying subdivisions (ie. 204.1,204.2, etc.) or finer levels of detail (204.61, 204.62, etc.). The sub-division accounts inTable 12-1 could be further divided into personnel, material and other resource costs forthe purpose of financial accounting, as described in Section 12.4.