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Literature Study
Cost control for the project estimation is an important role to manage the overhead costs and
contingency costs. Due to the alarming increase of variable cost, duration of the project might
have delay in accomplishing the construction. For this reason, cost estimators use different
methods and doing regular research in all mega projects. Now a days, the mega projects needs
unit price method than lump sum to predict the life cost and variable cost of the project.
Because of the demand for the materials, it will be the safer side. The article is about the
discussion of cost control methods and techniques in different regions in the world.
Keywords: Construction, Overhead and Contingency costs, Variable costs, Mega projects,
This is the study of cost control techniques in the construction project and how the estimators
managing overhead and contingency costs in the construction projects. In every firm, the
annual accounts (Profit and loss) plays an important role for the master control for the budget
costing and easy maintenance of the costs. In the same way, construction projects needs more
accurate cost estimation in every step like planning, design, construct and maintenance till the
demolition of the structure. This is called as life costing in the project. Before executing the
project, cost estimation is the prediction of the quality and delivery time. Also, it depends on
how the project is going to construct which mean the kind of project like innovation, quality
and fast delivery. These three kinds based on the cost estimation of lump sum, unit price and
cost price in contracts. However, it depends on the designer and owner’s choice. In lump sum
costs, the estimation is mere to precise with the approximate overhead cost. This method is
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easy to provide for residential and some commercial buildings with the normal design and
contractors and Tenderers. After estimation, its better to procure the materials to avoid the
market rate fluctuations. By the way, unit price is the approximate rates without market prices.
(Rasdorf & Abudayyeh, 1991). This is because, some of the materials are very difficult to fix
the price. In that case, they use unit price. For the new design projects and the innovation
projects, cost price is the best way to calculate the future. This is because, its impossible to
calculate the accurate duration and productivity per day. The reason is that they will concentrate
and performance of the structure (Ashworth & Perera, 2015). The success of the project is
defined by the objectives and scope which is prescribed by the technical performance,
maintaining the scheduling and the cost remained in the budget. The scope of project is
involved in managing the workers, machineries, materials and the methods which we need to
DEFINITIONS
1. Overhead Costs
This can be identified during the time of project completion by the simple formula which
is given below:
Life time cost is defined as the whole value of project which includes the cost from the
planning stage to demolition stage. But, in some projects, demolition cost will not include.
Because, those building are estimate for long term sustainability. For example, Church,
mosque.
Maintaining + Demolishing)
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3. Contingency Costs
normal execution of a project, for example, labour rates and design development.
4. Cost Performance
If the overhead cost of the project does not exceeds the 10% of the initial budget, then the
Cost Performance = Final value exceeds less than or equivalent to 10% of initial budget
ü Techniques used for controlling the overhead and contingency costs in some countries
ü Problems arise by the cost overrun and how it affects the duration of the project with the
LITERATURE REVIEW
Cost of the Construction projects are optimized and reviewed by various methods. By the way,
Delphi method is the familiar way to research about the cost estimation of the projects which
helps to rectify the errors which are happened in the previous projects. In this method, the
research is about asking questions which are sorted as questionnaire in an instrument. The
experts were asked to provide the feedback and comments. These questions are normally
involved with several iterations. In the final round, the comments and feedbacks are
summarized and analysed by the researchers. This will give the information about the cost
control techniques and to accomplish with cost performance by the errors of previous project
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According to Jackson (2003), Cost control is accompanied by the contingency plan which mean
the alternative route for the primary procurement to manage the cost and quality of the
material. This is because of the cost for the unplanned expenses or unpredictable increase of
market rates in a particular material. Sometimes, this will give risk to the contractor which
leads to the cost overrun. For this, Literature gives the suggestions and experimental advices
to consider the contingency costs to the control the cost of the estimated project. It was an case
study conducted in Australia. This will be benefit for the contractor to reduce risks and avoid
Other authors suggested the monitory system to control the project cost in the construction
industry. With the help of periodic analysis of the cost by using various statistical formulas, we
can find out the point where the excessive cost escalation and underperformance of the cost
occurs. By using earned value analysis and earned schedule methods from the accounting
strategy, we can monitor each and every pennies in conventional approach which focused on
planned expenditure and actual costs. When comparing to the other methods, this method have
more subtle. The errors might occur. But, those are negligible (Al-Jibouri, 2003). In some
projects, the variable cost might be difficult to predict. It’s due to the material availability and
less transportation options will affect the estimation. For this case, some Canadian construction
company officials and Canadian contractors are designed the ‘Cost Estimate Variance Matrix’
with different classes of estimation to find the issues affecting the precise cost estimation in
every stage (Planning, Designing, Estimating and Constructing) and update the expenses in
terms of percentage in all classes. Also, it explains about the risk factors for the contractor and
owner in that project (Canadian construction association, 2012). For example: Tamil Nadu
Public Works Department (TPWD) Maintenance Projects, India having more critical
conditions for estimation. Because, 30% of the cost estimation is unpredictable due to the
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METHODOLOGY
This study having the qualitative inductive approach by using different kind of methods used
by researchers for the cost control analysis. Also, the cost control method having different
approaches for various countries among the world. Sometimes, it depends on the type of project
like Residential, Commercial, Canal, Check dam etc. Also, the study is included with the
discussions of different methods to control the cost within the initial cost value of the project,
risks for owner and contractor during the tender, assumptions about how the risks will happen
During the stage of procurement, there is lot of risks which is related to cost of the material
might happen due to the market values. To discuss with that, we need a solid proof for the
variable cost from the cost estimation of previous projects. From the author’s side, some of the
unpredictable estimations are discussed with the appropriate study and analysis from the Indian
According to Ojedokun (2012), Variable cost of the project will occur in different parameters
such us labour cost (Skilled, Semi-skilled), Procurement costs (Primary procurement and
To manage all these parameters, the contractor and client should choose the right market
consultant for costing and experienced project manager. Contractor need to have good
relationship with the project manager to negotiate with all sub-contractors with good
communication which helps to accompanied the alarming escalation of the cost. For that
survey, experienced contractors, consultants, quantitative engineers are chosen to get response
about the cost control technique. In the first round, they asked from the market values with
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basic costs and how frequent, the inflation will happen. In that second round, the asked for the
perspectives on high cost variable in a project. At the end of the survey, the feedback and
comments are summarized to analyse the point of survey. The paper is done with the survey
from the Indian construction project which is related to the PPP Delivery method and how the
contractor managed the overhead costs and planned the contingency costs.
v Demand of skilled labour costs (Due to the shortage of skilled labours, the contractor
v Increase of taxation rates from the materials by the government which are unexpected
CONTRACTUAL ISSUES
Due to the complications by the cost variable, some of the contractors having the tactics to plan
the alternatives before or during the inflation rates. In some cases, by the lack of cost
predictability issues which might affects the quality and duration, the chances for the stress are
At the same time, some risks will affect the owner from the design which is not mentioned in
the contractual agreement. This depends on the type of delivery which is selected for that
project. So, the addition of contingency cost is recommended during the tendering of the
system, Economic Ordering Quantity (EOQ) is the suitable option to take the control of the
cost in the way of statistic formulae to figure out the overrun cost which might happen in the
future (During the construction of the project). By this method, we can avoid the wastage of
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the materials during advance storage of materials, we can save up to 5% of the estimated final
(Cost Survey took from the Government school construction at Chennai, India, 2015)
At the stage of tendering, Indian contractors having the techniques to deal with the cost to
manage with the quality and cost at critical situations. As we studied before, they increase the
duration of the project and submitting the market rate fluctuations for the materials Which
indicate the variation in the fixed costs. Where, those fixed costs are mentioned by the
1. Aggregates: As per the rate of government, the fine aggregate rate is $50 per load which
is controversial rate as $80 per load with the transportation charge and government
taxes. These are managing by negotiating for the Bulk quantity with the two different
blue metals agencies (Blue metals agencies are the suppliers of fine and coarse
aggregate in India). The reason for two agencies is to increase productivity and
2. Cement: The rate given by the government for the cement is $5.5 per 25 kg and the
market price (Both for public and private projects) is $9 per 25kg. They managed by
giving the bulk order (excessive than the estimated loads) with the cost of
manufacturing rate. After that, the unused packs are sold to the retailers with the rate to
v Cost of bore well à Gone beyond the estimated cost given to the government due to
the unavailability of water in the underground. This cost was claimed from the
government by the contractor. They asked to submit the legal proofs with well
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documented from the supervisor of the bore well task. Because, the place of the bore
v Transportation of water due to the lack of water in Bore à This was compensated with
the claim amount received from the government. The water is used from the river which
v Machinery operation for the excavation to increase the productivity when the project
delay happened à Instead of recruiting extra machine, the excavator is operated for 22
hours per day (Before that, it operated only 10 per day). So, they saved about 40% for
v Bricks à In the tender document, they mentioned the red bricks for the construction.
Unfortunately, the rate of red brick is increased. So, they decided to use the fly-ash
bricks (Bigger size and having more strength). So, the quantity will decrease than the
red brick. So, they tested the red brick and fly-ash brick’s compressive strength to prove
v Sub Structure à As per the Geo-technical record, the condition of the soil is soft and
easy to excavate. On the contrary, after 2m, it having the rock which is hard to drill due
to strength of the rock. So, they withdraw the plan of deep excavation with proper
approval from the government. After that, with the consultation of structural engineer,
they mounting the concrete with reinforcement in that 2m dig (Instead of footing). So,
the cost of excavation and footing is saved. After finishing the super structure, non-
v Labour Productivity à The most vital role for the project is the recruitment of masonry
and skilled labours. To reduce the cost of the labour, it was given as sub-contract. It
helps to maintain the stability of the productivity even in the shortage of labours. Also,
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Cost Performance
S. No. Particulars Statement Contingency Plan Reason
(Final Cost)
Controversy of We can easy to
Bulk order with Excessive of 2% from the
1. Cement government estimated compensate with
manufacturing rate estimated cement cost
rate and market price government rates
2% of estimated aggregate
Increase of transportation Ordering the To Negotiate the
cost is saved (Due to free
2. Aggregates rates and shortage of material to two rates and to speed-
transportation for bulk
Transports different agencies up the delivery
order)
Instead of 4
machines, 2 Machine’s rent is
Productivity lags due to
3. Excavator operators are too high than the Cost saving is around 2%
the shortage of machines
recruited to work operator’s wages
for 22hrs/day
Cost saved by 3%. The
Rocks below 2 metre
Rock serves as quantity of the concrete is
from the surface. So, it is Reinforcement of
Sub- footing at the point saved from substructure.
4. difficult to drill and lay concrete above the
structure (Suggested by Extra cost for 2% spent to
the footing. This might rock.
structural engineer) test the structure through
leads to the project delay
non-destructive testing
The shortage of
Labour contract
Problem arises from the labours won’t affect Excessive of 1.5% than the
(Easy to
5. Labours labour union to increase the productivity and estimated cost. Due to
compensate the
the wages for labours no separate labour labour contract.
delay)
supervisor needed.
Because, the
Using of water
expenses are
6. Bore-well No water in bore-well from the nearby No change in final cost
covered by the
river.
PWD authority.
CONCLUSION
This study is helped to know about the cost variable and cost control techniques to identify the
risks occurred in the project and how the contractor overcome the expenses without the project
delay. These risks can be rectified by the practices and the teamwork of the project crew with
the proper documentation of the rates for materials to procure in advance. Also, we are aware
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of client-related problems, factors which are affecting the project duration, stakeholder
alignment, Cost covered from the government to compensate the cost excess for PPP projects.
Though, the cost is controlled in that project with some contingency plan, the things which
seems to be easy is actually not. Because, at the point of issue, we need to spare the time and
reschedule the whole project and get approve from the government for alternative materials (if
In case, if the project team doesn’t enough experience to face the contractual issues, then the
The issues in the cost control affects both quality and time of the project. Also, having the equal
amount of risk for both client and the contractor. To rectify this, project team’s collaboration,
became crucial part and the chance of improving the skills in the level of both project and
organization.
§ Increase productivity instead of recruiting high employee rate which leads to extra cost
and time
§ Practicing the new employee to understand the scope of the project and unity to enhance
the teamwork to increase productivity. This will achieve through the mentorship at the
training period.
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§ Application of the quantity observation in regular basis which helps to monitor the
§ Always review the task before implement to avoid the risks and reduce wastage of the
material.
§ Schedule the time for verification and recruit extra team for the supervision for the
§ Estimators are recommended to visit the site to know the performance of material and
§ Refer the mere project work and conduct brain-storming section which helps to improve
§ Always have contingency in all task which might help to save the cost than the
estimated cost. Sometimes, the contingency plan having the better performance in cost
§ It is better to have the estimation in different classes (Every stage with alteration to
§ The barriers might be removed if the client and contractor are being in same project
team (Main project team). Under the main team, sub team will analyse the task
sequences and report the productive rate of the project which helps to train all the teams
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REFERENCES
Al-Jibouri, S. H. (2003). Monitoring systems and their effectiveness for project cost control in
Frimpong, Y., Oluwoye, J., & Crawford, L. (2003). Causes of delay and cost overruns in
Galloway, P. D. (2006). Survey of the construction industry relative to the use of CPM
Iyer, K. C., & Jha, K. N. (2005). Factors affecting cost performance: evidence from Indian
Jackson, G. (2003). Contingency for cost control in project management: a case study. The
Kaming, P. F., Olomolaiye, P. O., Holt, G. D., & Harris, F. C. (1997). Factors influencing
Olawale, Y. A., & Sun, M. (2010). Cost and time control of construction projects: inhibiting
28(5), 509-526.
Pheng, L. S., & Chuan, Q. T. (2006). Environmental factors and work performance of project
24(1), 24-37.
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Rasdorf, W. J., & Abudayyeh, O. Y. (1991). Cost-and schedule-control integration: Issues and
Sakka, Z. I., & El-Sayegh, S. M. (2007). Float consumption impact on cost and schedule in the
124-130.
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