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Construction
Management

CONSTRUCTION MANAGEMENT 1

OVERVIEW:
PROJECT COST
MANAGEMENT

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What is Project Cost Management?

Encompasses the activities related

to:

The primary objective is to complete the project within the approved budget.

Project Cost Management Process

1st Process: 2nd Process: 3rd Process:

Estimate Cost Determine Budget Control Costs

PROJECT COST MANAGEMENT 3

Project Cost Management Process:

1st Process: Estimate Cost

2nd Process: Determine Budget
3rd Process: Control Costs

The project teams estimate

the costs associated with
Based on the estimates, the
various project activities,
project budget is Throughout the project, actual
resources, and deliverables
determined. It includes all costs are tracked and
needed to complete the
planned costs. compared to the budget.
project.
Adjustments are made as
needed to keep costs in check.

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Types of Costs in Project
4 Types of Costs
1. Direct Costs
2. Indirect Costs
3. Variable Costs
4. Fixed Cost Costs
2. INDIRECT COSTS
• Indirectly Identifiable
 Project Product
 Core Supporting Business
 Assigned Projects or Individual Contract
PROJECT COST MANAGEMENT
Types of Costs in Project
3. VARIABLE COSTS
 Vary, as Changes in the Production
 Measured
 No Production – No Variable Costs
4. FIXED COSTS
 Remain Constant
 Independent Amount
 Remain the Same
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 Traced Back Examples:
 Measured  Direct Materials
 Specifically Identified  Direct Labor
 Use of Equipment
 Use of Facilities
 Salaries of project staff
Example:
 Fringe Benefits
 Indirect Construction Expenses
 General Indirect Expenses
 General and Administrative Expenses
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Examples:
 Running Expenses
 Performance Bonuses
 Freight Expenses
 Sales Commission
Example:
 Rent
 Depreciation
 General Expenses
 Administrative Team
Salaries
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Understanding the Cost Process

1st Process: ESTIMATE COSTS

Estimate Cost is the process of forecasting the financial and other

resources needed to complete a project within a defined scope
 Weighing Alternative Options
 Examine Risks
 Tradeoffs

Determine:
 Amount of Cost Required to Complete (Project Work)

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1st Process: ESTIMATE COSTS

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS
TOOLS & TECHNIQUES
INPUTS

 Scope Baseline Expert Judgement Activity Cost

OUTPUTS

 Project Schedule Analogous Estimating Estimate

 Human Resource Parameter Estimating Basis of Estimates
Plan Bottom-Up Estimating Project Document
 Risk Register Three Point Updating
 Enterprise Estimating
Environmental Reserve Analysis
Factors Cost of Quantity
 Organizational PM Estimating
Process Assets Software
Vendor Bid Analysis

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1st Process: ESTIMATE COSTS
PROJECT ESTIMATING
Types of Estimates
1. Concept Oriented (Rough Order of
Magnitude)
 High level definition
 Requirements not fully defined
 Accuracy of -25% to +75%
 Informal techniques used
2. Function Oriented (Budgetary Estimate)
 Requirements are Well Defined
 Accuracy of -10% to +25%
3. Implementation Oriented (Definitive
Estimate)
• Accuracy of -5% to +10
PROJECT COST MANAGEMENT
1st Process: ESTIMATE COSTS
PROJECT ESTIMATING
Estimating Activity Duration is NOT EASY
Estimating as Accurately as Possible is
Important, but:
 Time/Cost/Quality Affect each Other
 Estimating Methods Affect Accuracy
 How much Detail do you Need?
 Top Down
 Bottom up
In the Real World, Estimates and Actuals
are usually different.
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What to Estimate?
 Size
 Effort (Capability Output)
 Duration
 Resources – Human, Hardware,
Software and Supplies
Activity Duration
 TIME is Fundamental to all Projects
 Most Project Managers focus on Managing TIME
 Most Project Management Software focuses on
TIME
 Control of time is often used to control costs
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Who Provides the BEST Estimates?
a) Those Who KNOW the Work
b) Those Who are ACCOUNTABLE for
the Work
c) Those Who DO the Work
Estimation Methods and Techniques
1) Expert Judgement
2) Analogous Estimating
3) Parameter Estimating
4) Bottom-Up Estimating
5) Three Point Estimating
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1st Process: ESTIMATE COSTS

PROJECT ESTIMATING
Overview of Estimation Methods
Expert Judgement Analogous Estimating Parametric Estimating Bottom-up Estimating Three-Point Estimating
Input Expertise and Historic or market Historic or market data: Scope of work, Estimation techniques
Data experience of the data: Values of Parameters and values activities
experts previous similar of similar projects
projects
Method Experts estimate the Adoption and Using the historical Estimation of durations Three-point duration
time it takes to adjustment of durations per at a granular level (e.g. estimates consist of
complete the work in historical duration parameter unit to activities or below) and optimistic, pessimistic
scope, either as a top- observations for determine the aggregate them to and most likely
down or a bottom-up similar types of expected duration of higher levels estimates. They can be
estimate activities (top-down) future activities converted into final
estimates with a
triangular or PERT/Beta
distribution
Output Several Duration estimate for Duration estimate for Duration estimate for Final duration estimates
Type an activity an activity an activity for activities*, standard
deviations of estimates

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1st Process: ESTIMATE COSTS

PROJECT ESTIMATING

Analogous Estimating

Analogous estimating is a technique that uses information from a similar past project in order
to estimate the Cost and Duration of a Planned Project.
 A technique that centers on COMPARISON
 Often used when there is limited data available for a project
 The more Data is Available, a Better Estimate would be Generated.

Example:
If the team is working on a new project and doesn't have any data to rely on, it may reference
a previously completed project to receive an estimate of the cost and budget according to
these numbers.

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1st Process: ESTIMATE COSTS

PROJECT ESTIMATING

Analogous (Top Down)

Allocate
 Used to estimate cost early in the project Percentages to
when information about the project is each Level
very limited.
 The term comes from the idea that the
estimates are made at the top level of the
project.
 The advantage; it requires little effort and
time to produce.
 Analogous estimating is easier to
implement.
The disadvantage, the accuracy is not as good
as it would be with a more detailed effort.

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1st Process: ESTIMATE COSTS

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS

Analogous (Bottom Up) Parameter Estimating

Add Up Estimated
item Costs at each  The technique that makes use of historical
level data and statistical approaches to predict
the durations of planned activities.
 This can be one of the most accurate
methods if the data availability, quality and
statistical correlations are strong.
 However, it may require some efforts and
resources to perform the estimation.

Examples:
In construction, use the per square meter
of floor area to estimate cost.

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1st Process: ESTIMATE COSTS

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS

Estimate Proportionate Level of Effort (LOE)

 Used to define the amount of work

performance within a time.

 Measured in staff days or staff hours per

day/week/month.

 LOE estimation is one of the Primary Tasks of a

Project Manager

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1st Process: ESTIMATE COSTS

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS

Estimated Phasing Effort

 An estimation method that develops

over time.

 Involves preparing a detailed

estimate of the upfront work and
refining the estimate as the project 16
progresses. 16
24
32
72
160

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Reporting Task Completion Reporting Progress During

Implementation

0% or 100% Rule  Gantt/Bar Charts can be prepared

(Safest – Conservative) with Excel Spreadsheets
 Useful for reports and making
briefing to stakeholders.

0%; 50%; or 100% Rule Disadvantages:

(Aggressive)
Any percentage but use with caution. Only when
percentage is both measurable and meaningful;
otherwise, you will end up paying incomplete
work.
Usually lack computations that take
into considerations the inter-
relationship between Milestones of
different Activities which is “critical” in
estimating performance.

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Understanding the Cost Process

2nd Process: DETERMINE BUDGET
Process of Aggregating the Estimated Cost
 Individual Activities
 Work Packages
 Establish an AUTHORIZED COST BASELINE

Determine the Cost Baseline

 Project Budget includes all funds authorized
 Project Performance to Execute the Project
 Monitored
 The Cost Baseline is the approved version of
 Controlled
a Time-Phased Project Budget but, exclude
management reserves.
 Developed as a summation of Approved
Budgets for difference schedule of activities

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2nd Process: DETERMINE BUDGET

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS

TOOLS & TECHNIQUES

INPUTS

 Activity Cost  Cost Aggregation  Cost Performance

OUTPUTS
Estimates  Reserve Analysis Baseline
 Basis of Estimates  Historical  Project Funding
 Scope Baseline Relationships Requirements
 Project Schedule  Funding Limit  Project
 Resource Calendars Reconciliation Documents
 Contracts Updates
 Organizational
Process Assets

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CASE STUDY: Preparation of Detailed Unit Price Analysis (DUPA)

Detailed Unit Price Analysis (DUPA)

2. Labor
Determination of Reasonable Unit Cost of each  The number of Crew and qualifications required to
Item of Work which reflects the Breakdown perform the Work Item as per Specification.
showing the Quantities of Work Items, Unit Prices  The number of hours or days to complete the Work
of Materials, Equipment Rental Rates and Labor Item based on crew productivity rate.
Rates.  Unit rates of Crew in accordance with the
Cost Breakdown of Work Item Government approved rates.

1. Materials 3. Equipment
 List of equipment that complies with the
 Quantity and details of material to be used requirements of the Work Item and Specification.
as per Specification requirement of the  Productivity rate of equipment to determine the
Work Item. number of hours or days to perform and complete
 Unit Price of each material as per the Work Item.
Specification requirement and prevailing  Rental rate or price rate per hour or per day of each
market prices. equipment based on prevailing market rates.

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CASE STUDY:
Below are two (2) Item of Works extracted from a proposed Barangay Road (PCCP) Project.
1. Concreting Works: 120.40 cu.m
2. Rebar Works : 984.88 kgs.
Prepare the DUPA for each Work Item.

Using the Manpower & Equipment

Name & Specification Qty Unit Price Amount
Productivity Output (Ref: DPWH Concreting Work (PCCP) 120.4 cu.m
Estimating Guide - Item 311-PCCP) Materials
Portland cement 1096 bags 250.00 274,000.00
1. Materials: Fine Aggregate 60 cu.m 1,100.00 66,000.00
Material factors per cu.m of concrete Course Aggregate 96 cu.m 1,050.00 100,800.00
Water Provision 18060 li. -
 Portland Cement : 9.10 bgs Consumable (5% of material cost) 1 lot 22,040.00
 Fine Aggregates : 0.50 cu.m Subtotal
Unit Price/cu.m=
462,840.00
3,844.19
 Course Aggregates : 0.80 cu.m
 Water : 150 li. Note:
Unit Price of Materials required for The consumables (5% of material cost) will cover the expendable
the Work Item = (total cost of supplies during construction, i.e. fuel, lubricants, ropes, nails, drill
materials divided by total quantity) bits, rags, gloves, etc.
of the Work Item.

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DUPA EXERCISE:
2. LABOR
Name & Specification Qty Unit Price Amount
 Crew composition required for 2 units Concreting Work (PCCP) 120.4 cu.m
Labor (Batching & Casting-in-Place)
One(1)-Bagger Mixer is shown in the Crew Composition (Concrete mixing and casting in place)
Table. 1 Foreman 8.5 days 850.00 7,225.00
4 Mason 8.5 days 525.00 17,850.00
 The productivity output of the crew is 2 Carpenter 8.5 days 525.00 8,925.00
dependent on the productivity rate of 24 Laborers 8.5 days 450.00 91,800.00
Subtotal 125,800.00
One(1) bagger concrete mixer which is Unit Price/cu.m= 1,044.85
65 cement bags per day. For 2 units, 1-
bagger mixer, the productivity output
will be 130 cement bags per day. Unit Price of Labor required for the Work Item = (total labor
cost divided by total quantity) of the Work Item.
 Number of days required for both
Equipment & Crew:
 Days = (1,096/(65x2)) = (1,096/130)
Days = 8.43 or 8.50 days
 Amount of Labor = Unit rate (per day) x
Qty (days) x # of pax.

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DUPA EXERCISE:
3. EQUIPMENT Name & Specification Qty Unit Price Amount
Concreting Work (PCCP) 120.4 cu.m
Equipment:
Productivity Output: 65 cement bags/day (1-Bagger Mixer)
 The equipment requirement for the 2 One-Bagger Mixer 8.5 days 5,584.00 94,928.00
crew composition is shown in the Table. 2 Concrete Vibrator 8.5 days 3,768.00 64,056.00
1 Water Truck (500 gals Capacity) 8.5 days 5,850.00 49,725.00

 Number of days required for both Minor Tools (10% of labor cost) 1 lot 12,580.00
Subtotal 221,289.00
Equipment & Crew is 8.50 days as Unit Price/cu.m= 1,837.95
previously computed.
Direct Cost (Materials+Labor+Equipment)= 809,929.00
Unit Price/cu.m= 6,726.99
 Cost of Equipment = Unit rate (per
day) x (No. of days used) x ( No. of
Unit Price of Equipment required for the Work Item = (total
equipment units)
equipment cost divided by the total quantity) of the Work Item
 Minor tools provision equivalent to 10%
The Direct Cost of Work Item = Cost of Materials + Labor +
of labor cost will cover consumable
Equipment.
tools used by construction crew during
construction. Unit Price of Work Item = Direct Cost divided by Total Quantity of
Work Item.

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DUPA EXERCISE: REBAR WORKS

1. MATERIALS 2. LABOR
Tie Wire = 15 kg/ ton of RSB The Labor Unit Price per kg. of RSB =
Subtotal Amount of Labor divided by
Reqd. Tie Wire= (wt. of RSB / 1000) x 15
total weight of RSB.
Reqd Tie Wire = 14.77 kgs
Amount = Unit Price x Quantity 3. EQUIPMENT
Unit Price of Material/kg = Subtotal
Number of days required for
Amount divided by total weight of RSB)
Equipment is the same with Crew.
2. LABOR The Eqpt. Unit Price per kg. of RSB =
Number of days required for both Subtotal Amount of Eqpt. divided by
Equipment & Crew will be derived total weight of RSB.
from the Productivity Rate of Crew
equal to 750kg/day.
Reqd No. of Days = (Total Wt. of RSB)
divided by productivity rate = (984.88/750)
No. of Days = 1.31 or 1.50 days (rounded)

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DUPA EXERCISE: REBAR WORKS

Name & Specification Qty Unit Price Amount
Rebar Work 984.88 kgs
Materials DIRECT COST:
32 mm x 6m RSB 984.88 kgs 38.20 37,622.42
Tie Wire 14.7732 kgs 80.00 1,181.86 Direct Cost (DC) = Cost of (Materials
Consumable (5% of material cost) 1 lot 1,940.21 + Labor + Equipment)
Subtotal 40,744.49
Unit Price/kg.= 41.37
Labor
Productiivity Rate of Crew: 750 kg/day INDIRECT COST:
Crew Composition (Fabrication and Installation)
1 Construction Foreman 1.5 days 850.00 1,275.00
1. Overhead, Contingencies, & Misc.
2 Skilled Laborers 1.5 days 525.00 1,575.00 (OCM) = 10% to 12% of Direct Cost
2 Steelman 1.5 days 525.00 1,575.00
6 Laborers 1.5 days 450.00 4,050.00
2. Contractor’s Profit (CF) = 8% to 10%
Subtotal 8,475.00 of Direct Cost
Unit Price/kg.= 8.61
Equipment
3. Value Added Tax (VAT) = 5% of the
1 Bar Cutter 1.5 day 2,568.00 3,852.00 Cost of (DC +OCM + CF)
2 Bar Bender 1.5 day 3,376.00 10,128.00
Minor Tools (10% of labor cost) 1 lot 8,475.00
4. Indirect Cost (IC) = OCM + CF + VAT
Subtotal 22,455.00
Unit Price/kg.= 22.80

Direct Cost: (Materials+Labor+Equipment)= 71,674.49

Unit Price/kg.= 72.77

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1. The weight of reinforcing bar of any diameter can be 2. There is a Philippine Standard Method of
derived using the weight density of steel at 7,850 Measurement (PSMM) for Building Works that
kg/cu.m and using the universal value of =22/7. has been published and used by Quantity
Check the weight of any standard RSB diameter and Surveyors in the construction industry since
length using this simple formula: 1997.
Wt.= (6.168 x 10-3) x (D)2 x L Refer to the Handout:
PSMM, 7th Edition 2014.
Wt.= (1/162.13) x (D)2 x L By: Langdon & Seah
Where: Philippines Inc.
Wt. = weight of RSB in kilograms (kg)
D = Diameter of RSB in millimeter (mm)
L = length of RSB in meters (m)

EXAMPLE: Find the weight of 32mm x 7.50m RSB

Using your laptop in Excel Worksheet:

Wt. = (6.168*10^-3)*(32^2)*7.5 = 47.37 kgs.

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Understanding the Cost Process

3rd Process: CONTROL COSTS

Monitor the Status of the Project

 Update the Project Costs
Any Project Life Cycle:
 Manage the Changes in the Cost
 Changes in the Cost
Baseline

Provide means to Recognize Variance from the Plan

 Take Appropriate Corrective Actions
 Minimize Risks.

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3rd Process: CONTROL COST

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS
TOOLS & TECHNIQUES
INPUTS

 Cost Baseline  Earned Value  Work

OUTPUTS

 Project Funding Management Performance

Requirements (EVM( Information
 Work Performance  Forecasting  Cost Forecast
Data  To Complete  Project
 Organizational Performance Index Management
Process Assets (TPCI) Plan Updates
 Performance  Project
Reviews Document
Updates

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3rd Process: CONTROL COST

INPUTS, TOOLS & TECHNIQUES, AND OUTPUTS
INPUTS

 Earned Value
Management (EVM(
 Forecasting Forecasting
 To Complete
Performance Index
(TPCI)
To Complete Performance Index (TPCI)
 Performance
Reviews

Performance Review

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TOOLS & TECHNIQUES

EARNED VALUE MANAGEMENT

ASSESS and MEASURE the PROJECT

 Performance
 Progress
COMPARES
 Planned Amount of Work
 Work Accomplished

DETERMINE

 Planned Cost
 Schedule Performance

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TOOLS & TECHNIQUES

EARNED VALUE MANAGEMENT

THREE KEY DIMENSIONS

Date of Analysis
 Earned Value
 Planned Value
Project Budget
 Actual Cost
Planned Value (PV)
PV S-Curve, Value of
COST

Work Planned
AC
Actual Cost (AC)

Deadline
Cost Incurred of the EV
Work Performed
Earned Value (EV)
Estimated Value of the
Work Performed
TIME

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TOOLS & TECHNIQUES

EARNED VALUE MANAGEMENT

 Monitor Variances from the Approved Baseline

COST VARIANCE
 Amount of Budget Deficit or Surplus at a Given Point in Time

COST VARIANCE (CV) = EV - AC

If CV < Budget Amount If CV > Budget Amount

Result = + VE Result = - VE
(Within Budget) (Over Budget)

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TOOLS & TECHNIQUES

EARNED VALUE MANAGEMENT

SCHEDULE VARIANCE
Measure of Schedule Performance

SCHEDULE VARIANCE (SV) = EV - PV

If Resulting Amount = + VE
(AHEAD of Planned Delivery Date)

If Resulting Amount = - VE
(BEHIND Planned Delivery Date)

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TOOLS & TECHNIQUES

EARNED VALUE MANAGEMENT

COST & SCHEDULE VARIANCE

Measurement Date
Project Budget

THREE PARAMETERS OF
PV, EV & AC PV
COST

 Monitored and Reported Schedule Variance (SV)

 Period by Period Basis EV
 Cumulative Basis Cost Variance (CV)
AC
Deadline

TIME

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PROJECT COST
MANAGEMENT

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1. What are the 4 Types of Cost?

2. What is the process of forecasting the financial and other resources needed to complete
a project within a defined scope?

3. Who can provide the best cost estimate?

4. What is the difference between an analogous estimating and parameter estimating?

5. Which of the following that supply and support field operations so that work schedules can
be met, and cost schedules can be kept within construction budget:
o Financial management o Time management
o Equipment management o All of the above
o Resource management

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Group Workshop #05:

1. Determine the time and cost for each activity to complete as shown in the Table below
using the Productivity Rates provided.
2. Using the PDM Network derived in Workshop #04, prepare the Bar Chart and S-Curve and
determine the time/duration to complete the project.

Duration Note:
Code Description Qty Unit Cost
(Days) A gang of steel-fixers is used to cut
A Layout foundation 250 sq.m and bend reinforcement and
B Excavation 72.75 cu.m
C Obtain Concrete Materials 45.05 cu.m
another gang is used for placing
D Place Concrete 45.05 cu.m reinforcement.
E Obtain Steel Reinforcement 3,532.88 kgs. The first part of reinforcement can
F1 Cut and Bend Reinforcement (Part 1) 2,367.03 Kgs. be placed during formwork
F2 Cut and Bend Reinforcement (Part 2) 1,165.85 Kgs.
G1 Place Reinforcement (Part 1) 2,367.03 Kgs.
erection while the second part
G2 Place Reinforcement (Part 2) 1,165.85 Kgs. should wait for completion of
H Obtain Formwork 181.75 sq.m formwork erection.
I Erect Formwork 181.75 sq.m
J Remove Formwork 181.75 sq.m
K Clean Up 250 sq.m

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