Introduction Cost Control in Construction: Cost control is one of the important elements to determine the successful of a construction.

It involved all of cost control methods form planning stage, design and construction until completion. Cost Control is an obvious objective in Construction Management and Construction Scheduling. It should be recognized that no amount of paperwork achieves this construction cost control. The actual control is achieved through the ultimate decision of the manager that something should be done differently and the translation of that decision into practice. Cost control is an important issue in construction project management. It is widely practiced by contractors in Malaysia and needs to carry out throughout the life of a project. It is a process that should be continued through the construction period to ensure that the cost of the building is kept within the agreed cost limits. The cost control can divide into two major areas; the control of cost during design stages and the control of cost by the contractors once the construction of project has started. According to Nunnally (1998), cost control of a project involves the measuring and collecting the cost record of a project and the work progress. It also involves the comparison of actual progress with the planning. The main objective of cost control of a project is to gain the maximum profit within the designated period and satisfactory quality of work.

The cost control is a process that should be continued through the construction period to ensure that the cost of the building is kept within the agreed cost limits. All expenditure limit control must be related to the functional requirements of the particular building type, but it is perhaps less obvious that functional cost limits may be expressed in a variety of units. The cost control can divide into two major areas; the control of cost during design stages and the control of cost by the contractors once the construction of project has started. In most cost control procedures, the limit on the expenditure is coupled to a requirement that the building will provide some specified minimum area, to ensure that the building will contain sufficient accommodation to meet its brief. Where control is based on schedules of accommodations, these schedules are usually expressed in terms of the net areas of the usable or scheduled rooms. The main aims of the cost control are: a. To give the building client good value for money - a building which is soundly constructed, of satisfactory appearance and well suited to perform the functions for which it is required, combined with economical construction and layout. b. To achieved a balanced and logical distribution of the available funds between the various parts of the building. Thus, the sums allocated to c. Cladding, insulation, finishing, services and other elements of the building will be properly related to the class of building and to each other.

d. To keep total expenditure within the amount agreed by the client, frequently based on an approximate estimate of cost prepared by the quantity surveyor in the early stages of the design process. There is a need for strict cost discipline throughout all stages of stages of design and execution to ensure that the initial estimate, tender figure and final account sum are all closely related. This entails a satisfactory frame of cost reference (estimate and cost plan), ample cost checks and the means of applying remedial action where necessary (cost reconciliation).

Definitions of Cost Control It is better if we look in detail in definitions of the terms used in control procedures since it is widely used and have a different meaning. The following are the definitions of terms related with cost control procedures:

Terms Budget Cost

Definition A plan for future against actual results can be measured Value for a purchaser to pay for goods or a service.

Cost analysis

Subdivision of cost under different elements of the contract or construction.

Costing

Analysis of the expenses so it can be allocated to different contracts, processes, or services, with the aims of ascertaining cost

Cost control

The process of controlling the expenses of cost in a project, from the starting of clients idea to the completion and final payment on site. Costs of standard outputs for plant or labor under particular conditions of environment.

Standard costs

Unit Costing

Estimating the cost per unit, whether this is a square meter of formwork, a cubic meter of concrete or a cubic meter of excavation.

Table 1: Definitions terms used in cost control procedures

The Use of Cost Control

Amount of detail and the time interval between cost control reports must be considered, which is different according to the level of management for which they prepared. For a site manager, it is necessary to receive the cost report on weekly basis. After preparing the reports based on the cost data collected, it is important to project the costs into future and to estimate or re-estimate the cost of the work yet to be completed.

Any new information must take into account since the commencement of the contract. Thus, a suitable reporting system is important part of a cost control system. The estimator would become more reluctant in the future to use cost data that have been fed back from the site if an adequate reporting system is used. In addition, the estimator can save some time to determine sufficient detail about the data and conditions they acquired.

There are two areas within to check whether the cost control reporting system is efficient or not. First, is to check on the profitability of the work. The value of the work that will be returned is compare with the cost of the work that was carried out. This is a straightforward comparison between the valuation figure and the total expenditure to check on profit or loss if no detailed cost control is used.

The second would be check on efficiency, carried out against the standard of the output rates that were used by the estimator in compiling the estimate. Efficiency is concern with the site management and supervisory staff, whereas the profitability is concern with the contract management level and above.

Unit Costs Unit cost is a noteworthy way of using cost information. The unit cost for any item or operation is the direct cost for one unit of measurement for that item. In this way, it is important to make sure that the actual work carried out directly and the quantity is measured accurately. Consideration in give and take method of interim measurement must be taken in order to avoid the clash with the calculation of unit rates and results in temporarily high or low unit cost for a particular item. In calculating the unit rates must be solely to the work under consideration. It is important that the supervisory staff do not allocate the hours when their operatives are not properly and efficiently employed on productive work. It may result in unavoidable poor unit cost for that work if it is allocated.

Another problem is that to identify whether unit costs should be stored in termr of money or man-hours. If in terms of money, it is always a risky and approximate business. In terms of man-hours will be remain constant with the same conditions over the years. For the managers involved in controlling the costs money has more impact than man-hours in measuring the efficiency of an operation in progress when the data are collected.

The terms of money are usually for immediate use whereas the man-hours as the historical data and feedback for use in future estimating work. Nevertheless, it will rarely necessary for details of every single operation involved in a contract to be fed back to estimating department. The 80/20 rule is often excerpt regarding to bill of quantities. It means that 80 per cent of the value of the work is often in 20 per cent of the items in the bill. Evidently, this 20 per cent hold an important consideration in tendering procedure and in subsequent cost control.

Reporting Systems Weekly cost record is one of the basic reports for the control of costs on site. It gives a full record of the quantities of work which have been carried out in the week previous to the date of the report, together with the lump sum total costs of the labor and plant that have been acquired regarding those operations, that is shown in Table 2. Each of the quantity, cost and unit cost are prepared on the basis of the work carried out during the week. There are four total areas are to be recorded; there are the total amounts of work carried out in this and previous weeks, the total work carried out to date, and an estimated total work that has to be carried out in order to complete the operation.

Table 2: Weekly Cost Record

For the weekly cost record, only the major operations involving large quantities and significant cost would be prepared, because it involves a great deal of time and cost. In normal events, checking costs in less than one week would be too expensive an operation, unless the costs and quantities can be measured accurately and the operation on site is carried out at an extremely fast rate. Usually, the cost of materials used in a week would not be recorded. In preparing the weekly cost record, the information provided should be as simple, brief and accurate as possible. The staff would only ignore the cost record sheets if there were too much impertinent information. The record should make a quick and lasting impression that would take consideration to the significant features of the condition.

Cost Control Elements

The elements of a cost control system are: i. ii. iii. Observation Comparison of observation with some desired standard Corrective action to take if necessary.

A construction cost control system should enable a manager to observe current cost levels, compare them with a standard plan or norm, and institute corrective action to to keep cost within acceptable bounds. Most construction cost control systems have an inordinately long response time. Even the best cost control system would provide information on what was happening last week or last month. Since, in construction projects some activities might finish in a week or a month, then nothing could be done if the performance of such activities was reported to overrun estimates of respective costs.

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Developments in Cost Control Systems There are three developments in construction management which show promise of improving cost control system in the construction industry: 1. Short term scheduling and control. This system was developed at Loughborough University in association with a contractor. It aims to merger the planning and supervision and hence to obtain a more or less zero response time. 2. Project Cost Model. This a system developed by Dr Martin Barnes for simulating future actions and thus guiding the manager in his choice between them. 3. Quantitative Scheduling One of the unique Construction Software that provides a futuristic construction cost control tool for construction management is the CFF3 for cash flow forecasting. Version three has taken into consideration the possible deviations from estimates of cost as well as cash in patterns and provided a means to return back to the original estimate by damping out these deviations through the remaining period of construction. Updated estimates are provided each time an actual figure is added such that the end cost remain same as was originally estimated.

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It provides an excellent guide for managers through the construction project to capture the best possible actions in each period activity. Labor rate and efficiency constitute the core of Quantitative Scheduling which is highly recommended if cost minimization in respect of productivity rates is sought. Also Construction Cost is directly related to Material price, Material usage and waste, Fixed and varied overhead expenditure. These are the areas where managers should seek action for future adjustments in order to get back to original estimate or practically as near as possible.

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Cost Control Methods It is necessary to decide which control is required and amount of detail that will be in entered into the construction stage. Many cost control methods have been used in the past in different companies and have not survived. The cost itself is a major difficulty in operating a detailed cost control system. It is an expensive operation in the time of cost clerks, etc, for a large contract to carry out a detailed cost control system. There are three types of cost control system; they are by comparison with a cost standard, by subdivision by detail and by integration with other functions. In comparison with a cost standard method, the standard set up by estimator is compared at the time of tender. There are also other standards efficiency can be judged include set up by the work study department of a company, previous outputs achieved within the company or within the knowledge of the companys employees in the past, and standards that have been published in books primarily for use of estimator, giving data on recommended outputs for labor and plant. In the subdivision by detail method, it is usually practiced by small scale of contractors compares the amount of money received with the amount of money he has/had to pay out to complete the contract at the end of the contract. It is not expensive but a risky operation, involves little or no control of costs. It is also inaccurate since estimator often omits some contentious items from a valuation, even though payment will result from them.

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In integration with other functions method, the cost control system will combine with some other necessary operation in the administration of a contract and not as a separate entity. For example, it may be combined with a labor utilization scheme, in which the control is kept on the optimal utilization of the labor employed.

Time as the Important Variable in Cost Control System Time is an important tool for the cost control. The parts of job costs are one of a way to influence the cost control, which are time related differentiate from those quantity related. Supervision, project management, temporary facilities, utilities such as field office and storage trailers, and similar items are included in time related general requirements items. If a project is to be completed in 12 months, each month will represent 8.33 % of the time related general requirements cost. It should be directed to controlling time of the project as a whole, though principal effort should be directed to realistically planning the schedule and budgeting these items. If a project can reduce its schedule by one month, an 8.33 % of cost of these items can be reduced. Similarly, one-month delay would increase the cost of items by 8.33 %. Thus, time control is the most effective tool for controlling the cost of time related items.

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Secondly, the influence of the cost related to time is during the subcontracting and purchasing phase. The most influence the cost control time is during the bidding and negotiating phase. But until the time the project reaches contract phase, an important part of the opportunities to influence the cost has already spent. As the project moving through the planning and scheduling phase to the contract phase, the opportunities to influence the cost remain available relating to production. These opportunities formed by careful negotiating and awarding of the subcontracts and purchase orders to principal vendors as closely to fair value as is possible.

Cost Control Code The estimator or project manager as feedback for future use will use the information from the cost control coding system. The client may have requirement for cost information, maybe for subsequent insurance purposes. The information being fed into a cost control system is most likely to originate, from people who have received little training in construction management. Therefore, it is essential that a coding system should be simple enough for ready understanding by those who will be allocating the hours of labor, plant and quantities of materials against the individual codes. However, it is unlikely even with the simplest and most straightforward system that errors will not arise in the allocation.

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A universal coding system should be designed to suit all the contracts under operation. The system must be clear and precise in its term and it is necessary that it should be flexible. It is due to the nature of construction work, that additional item and operations are likely to arise throughout the progress of the work. There will be also new sections of work given that were not predicted in the starting of the work. The inaccuracy of the original assessment will also require the flexibility of the system. A great care is necessary to ensure that a distinction is made between certain operations if the information to be acquired is to provide a feedback for the estimator, which may appear to be similar but in practice be quite different. The cost control code must be allocated to all those employees who will be expected to use it during the course of their work. The employees include the estimators, buyers, accountants,

clerks, timekeepers, engineers, and supervisory staff in the construction, such as foremen. The cost code used must have a clear explanation why it was adopted and its purposes. The cooperation of the site supervisors is absolutely necessary for a cost control system to be success.

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A Simple Coding System It is use in a small company and is primarily concern with direct costs only. Labor costs are the biggest variable in this type company, the overheads as relatively fixed, and materials not requiring the same scale of supervision as plant and labor. The use of plant by the contractor is comparatively limited and special provision in a coding system, not necessary need to be made. The following example system is based largely upon alphabetical notation, using possible the initial letter of the operation under consideration. This system quickly becomes familiar to the employees allocating the labor. Alphabetical code B C D E F M O P R S - Bricklaying - Concreting - Drain lying - Excavation - Formwork - Mechanical Equipment - Preliminaries - Piling - Road works - Structural steel

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Example of the subdivision of the code: B BBZ BC - Bricklaying - laying 215- mm blocks - laying common bricks

BEM - laying engineering bricks in manhole BF BFZ BFY BP - laying facing bricks - laying facing bricks in 215- mm wall - laying facing bricks in 255-mm wall - pointing

C- Concreting CB CC CF - concreting beams - concreting columns - concreting floors

CFX - concreting floors 150 mm thick CFO - concreting footings or foundations CW - concreting in walls

CDB - concreting to drain bed

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D- Drain lying DC3 DE2 DJ DT - laying 300-mm-diameter concrete pipes - laying 225-mm-diameter earthenware pipes - jointing pipes - laying drains in tunnel

This system is broken down into major divisions under trades. The first letter of any particular trade is used as the first part of the code; whereas the second letter of the code represents the operation being carried out within the trade. Under other trades the second letter of the code is used to indicate a location for the work, which is being carried out. A further refinement can be made to such a system by appending either an additional letter or a number to the code to give further detail. This type of system is suitable for small contract, where the foremen, who will be allocating the costs, will be familiar with the names of subordinates and will be aware of the area of the contracts in which they are working.

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The allocation of costs

It is the job of a cost engineer or a cost clerk to coding the allocation of costs in the construction field. The person dealing with this matter must be familiar with the program of work for the contract and the terms used in construction work to be able to code allocations correctly. The person must also familiar with the materials and the way in which they are used in the work. The supervisor of such operations should be a construction engineer, not only regard to the site cost control system, but because the engineer responsible for the work will also have a better idea of the use to which feedback will be put. Thus, the controlling engineer should have a sound knowledge of the estimating process. It is important that in setting out a coding system and subsequently allocating the costs, the accuracy of the system will be in direct proportion to the accuracy of the original allocation costs in the field. There are a number of external influences that can in the first place affect the allocation of cost. The costs may tend to be allocated in the construction field in order to give a healthy picture to work that is being the bonus on an output and time basis.

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Therefore, if the overall allocations of time are to agree with those on the wage sheets in total then costs must be allocated elsewhere to meet the deficit. Thus, in such a system, the accounts should be kept to an absolute minimum so the abuse will be minimum too.

Purpose of Cost Control The purpose of cost control can be generally identified as follows: i. To limit the clients expenditure to within the amount agreed. In simple terms this means that the tender sum and final account should approximately equate with the budget estimate. ii. To achieve a balanced design expenditure between the various elements of the buildings. iii. To provide the client with a value-for-money project. This will probably necessitate the consideration of a total-cost approach. The client may stipulate the maximum initial cost expenditure, or provide a detailed brief to the design team who will then determine the cost. Most schemes are a combination of these two extremes.

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Importance of Cost Control There has in recent years been a great need for an understanding of construction economics and cost control, particularly during the design stage of projects. The importance of this is due largely to the following: i. The increased pace in society in general has resulted in clients being less likely to tolerate delays caused by redesigning buildings when tenders are too high.

ii.

The clients requirements today are more complex than those of their Victorian counterparts. A more effective system of control is therefore desirable from inception up to the completion of the final account, and thereafter during costs-inuse.

iii.

The clients of the industry often represent large organizations and financial institutions. This is a result of takeovers, mergers and some public ownership. Denationalization has often meant that these large organizations remain intact as a single entity. There has thus been an increased emphasis on accountability in both the public and the private sectors of industry. The efficiency of these organizations at construction work is only as good as their advisers.

iv.

There has been a trend towards modern designs and new techniques, materials and methods of construction. The designer is able to choose from a far wider range of products and this has produced variety in construction. The traditional methods of estimating are unable to cope in these circumstances to achieve value for money and more balanced designs.
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v.

Several major schemes in the UK and abroad in construction and other industries have received adverse publicity on estimated costs. Even after allowing for inflationary factors, the existing estimating procedures have been very inadequate. It is not a valid diversion to suggest that projects in other industries such as the Nimrod Early Warning System, Concorde or space exploration have produced considerably more inaccurate estimates than those in the construction industry.

vi.

Contractors profit margins have in real terms been reduced considerably during the past decade. This has resulted in their greater cost-consciousness in an attempt to redress possible losses.

vii.

There has, in general, been a move towards the elimination of waste, and a greater emphasis on the use of the worlds scarce resources. This has necessitated a desire for improved methods of forecasting and control of costs.

viii.

There is a general trend towards greater cost-effectiveness, and thus a need to examine construction costs not solely in the context of initial costs but in terms of whole-life costs, or total-cost appraisal.

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ix.

World recession has generally produced a shortage of funds for capital purposes and construction in general. This has been coupled with high inflation and interest charges, resulting in the costs of construction soaring to high levels. Although the relative costs compared with other commodities may be similar, the apparent high costs have resulted in greater caution, particularly on the part of clients.

Cost Control Implementation Cost control focuses on the ability of costs to change and on the ways of allowing or preventing cost change from happening. When a change does occur, the project manager must document the change and the reason why the change has occurred and, if necessary, create a variance report. Cost control is concerned with understanding why the cost variances, both good and bad, have occurred. The behind the variances allow the project manager to make appropriate decisions on future project actions. Ignoring the project cost variances may cause the project to suffer from budget shortages, additional risks, or scheduling problems. When cost variances happen they must be examined, recorded, and investigated. Cost control allows the project manager to confront the problem, find a solution, and then act accordingly.

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Specifically, cost control focuses on these activities: Controlling causes of change to ensure the changes are actually needed Controlling and documenting changes to the cost baseline as they happen Controlling changes in the project and their influence on cost Performing cost monitoring to recognize and understand cost variances Recording appropriate cost changes in the cost baseline Preventing unauthorized changes to the cost baseline Communicating the cost changes to the proper stakeholders Working to bring and maintain costs within an acceptable range

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References 1. http://www.clp.com/Construction-Cost-Control 2. http://www.worldconstructiontoday.com/knowledgebank/articles/338-cost-control-inconstruction 3. http://www.fao.org/docrep/T0579E/t0579e03.htm 4. www.misronet.com/cost_control.htm 5. http://constructionprocurement.gov.ie/standard-forms-for-cost-planning-cost-control/ 6. http://www.bruceshaw.com/index.php/cost_management_quantity_surveying/cost_ control_during_construction 7. http://it.wikipedia.org/wiki/Cost_control

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