CE-35 CONSTRUCTION METHOD AND PROJECT MANAGEMENT

ASSIGNMENT
Instructor: Engr. Eugene M. Cardama
Name: Jay Mark S. Gicale Course-Year: BSCE-IV
ID No.: 2018-02252 Date: 11-10-21

CHAPTER 10: PROJECT COST SYSTEM

Objectives of a cost system:

 To develop labor and equipment production information in a form suitable for estimating the cost of
future work.
 To keep the construction costs of the project within the established control budget.
Project cost control:
Cost control is the process of collecting actual costs and collating them in a format to allow comparison
with project budgets.
Keeping within the cost budget and knowing when and where job costs are deviating are two factors that
constitute the key to a profitable operation.
Project cost codes: A cost code defines the specific type of work being completed on a construction project.
We use cost code structures to manage and organize the amounts, quantities, budgets, and other account
information associated with our jobs.
The cost code number contains four data groups, project number, area code, work type code and distribution
code.
Project cost accounting:
tracks costs to the project in addition to billing and revenue recognition for project profitability. Project
cost accounting is the key ingredient in the project cost system. It provides the basic data required for
both cost control and estimating.
Cost accounting reports:
Cost accounting is the reporting and analysis of a company's cost structure. Cost accounting is a process
of assigning costs to cost objects that typically include a company's products, services, and any other
activities that involve the company.
Labor time reporting:
The source documents for labor costs and cost code allocations are labor time cards, the same cards used
for payroll purposes.
The importance of accurate and honest time reporting cannot be overemphasized. If this information is
inaccurate or distorted, it can be seriously misleading when used for estimating and cost control
purposes.
Measurement of work quantities:
To determine productivity rates and unit costs, it is necessary to obtain the hours and costs expended as
well as the amounts of work put into place.
Work quantities from network activities
Project network activities used for planning, scheduling, and time control can serve as convenient
packages for determining work quantities accomplished in the field.
Weekly progress report, used for project time management, submits information concerning completed
activities and percentages of completion of activities in process.
Weekly labor reports:
Weekly labor reports can be prepared on either a man-hour or cost basis. That is, labor productivity can
be monitored in terms of either man-hours per unit of work (production rates) or cost per unit of work
(unit prices).
Equipment cost accounting:
During the field construction period, the equipment cost accounting system determines how many hours
each equipment unit is in operation and the project work accounts to which these hours apply. Using
equipment hourly rates, equipment costs are determined periodically for each work type. These costs are
matched with work quantities produced, and equipment unit prices are computed. The actual equipment
costs are compared with those budgeted in weekly equipment cost reports.
Equipment time reports:
Because equipment costs are expressed as a time rate of expense, time reporting is the starting point for
equipment cost accounting. Equipment time is kept in much the same way as labor time.
Time-Cost Envelope:
A cost envelope is obtained by plotting cumulative estimated job costs against construction time. Two
such curves are drawn, one on the basis of an early-start schedule and the other on a late-start basis.
Earned Value Management System (EVMS)
 The Earned Value Management System (EVMS), sometimes referred to as Cost/Schedule Control
Systems Criteria, is an extension of the time-cost envelope principle.
Earned value calculations and project performance projections are based on three fundamental variables:
1. Budgeted cost of work performed (BCWP)
2. Budgeted cost of work scheduled (BCWS)
3. Actual cost of work performed (ACWP)
Production cost reduction:
Cost reduction is the process used by companies to reduce their costs and increase their profits.
Production costs often are too high early in the construction process but tend to become lower as the
work progresses.
Post project Evaluation:
Post project evaluation should appraise the success of the project planning and scheduling effort. The
project team must decide whether the project plan and its associated schedules were useful during
construction. If they were not, further analysis must be undertaken to determine why and how to make
the planning more meaningful on future work.

CHAPTER 11: PROJECT FINANCIAL MANAGEMENT

Financial control:
Financial control systems are implemented in a project to keep the services costs for which a contractor
is directly responsible as reasonable as possible within the contract budget and assist project
management in achieving the contractual profit on a project.
Progress payments:
Construction contracts typically provide that the owner shall make partial payments of the contract
amount to the prime contractor as the work progresses.
Types of contracts
Cost-plus contract. Under a cost-plus contract, contractors are paid for all of their construction-related
expenses. That’s the cost part of the name. The costs can include direct costs such as labor, materials,
supplies, etc. They also include overhead costs such as insurance, mileage, a portion of your office rent.
Additionally, they also receive an agreed-upon amount for the profit. That’s the “plus.”
Unit-price contracts. Under a unit price contract, a contractor is paid for the actual quantity of each line
item performed as measured in the field during construction.
Lump-sum contract. With a lump-sum contract, the contractor delivers the project at a preset price. The
contractor will deliver a total price for the project rather than bidding on the deliverables. The agreement
is relatively simple and works well for projects with a well-defined scope. They’re popular with
straightforward work that doesn’t require detailed estimates. These types of construction contracts also
make administration and cash flow estimates easy.

FLOW CHART FOR LUMP-SUM CONTRACT COST-PLUS CONTRACT

LUMP-SUM CONTRACT

COST-PLUS CONTRACT
 UNIT-PRICE CONTRACT LUMP-SUM CONTRACT

Cash

Flow.
In construction, however, the term 'cash flow' typically refers to an analysis of when costs will be
incurred and how much they will amount to during the life of a project.
Cash flow forecasting is equally important for both large and small construction companies. Large firms
with many concurrent projects try to use the positive cash flows of one project to handle the negative
cash flows of another. Where cash demands exceed the normal working capital, arrangements for short-
term loans are made and repayment schedules established.
Cash disbursement forecasts.
Cash disbursements by contractors on construction projects can be divided into three classifications.
First, there are the up-front costs, or initial expenses necessary to start the project. These include various
payments that must be made before construction starts, such as the costs of bonds, permits, insurance,
and expenses of a similar kind.
The second group of disbursements involves the payment of direct job expenses. These include costs
associated with payrolls, materials, construction equipment, and subcontractor payments.
The third classification relates to payments for field overhead expense and tax.
Cash income forecasts. Cash income to the contractor consists of progress payments from the owner.
A cashflow forecast is a plan that shows how much money a business expects to receive in, and pay out,
over a given period of time.
Disbursement controls.
To coordinate the actions of the company accounting office with the project, it is necessary to
implement a system of disbursement controls. These controls are directed toward regulating payments
made to vendors and subcontractors and require that no such payment be made without proper approval
from the field. The basic purpose of disbursement control is twofold: Ensure that payment is made only
up to the value of the goods and services received, and see that total payment does not exceed the
amount established by the purchase order or subcontract.
Project changes.
Changes in the work or deviations from the anticipated job-site conditions can stem from a variety of
causes. The owner or architect-engineer may decide to add additional work or change certain contract
requirements. The contractor may suggest construction changes in accordance with the contract’s value-
engineering clause.
Contract change orders.
Alterations to the contract involving modifications to the time or price of the project are consummated
by formal change orders. These changes may alter the contract by additions, deletions, or modifications
to the work, and can be initiated by the owner, architect-engineer, or contractor.
Claims.
During the construction period, disputes sometimes arise between the owner and the contractor
concerning claims by the contractor for extensions of time or payment of extra costs. If such claims
cannot be settled amicably during the construction period, they must either be dropped by the contractor
or be settled by arbitration, appeal boards, or the courts.
Daily job log.
A job log is a historical record of the daily events that take place on the job site. The information to be
included is a matter of personal judgment, but should include everything relevant to the work and its
performance. The date, weather conditions, numbers of workers, and amounts of equipment should
always be noted.
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