General

Every project has an assigned mission or purpose that must be accomplished. A new
project aims to create new facilities or services or specified outcomes. It should be a
unique and specific objective defined in terms of quality specification, time,
budgeted cost, and other specified conditions. Therefore, each project is district and
exclusive in itself. There are never two identical projects. Even if two projects have
similar designs, they may still vary from each other in one or more influencing factors
such as client and contractor, quality specifications, resources required,
responsibilities assigned, and the project environments.
In order to carry out a construction project and achieve a successful outcome,
careful good planning is a must as it is a complex, high value, and challenging task
with time limits. It should be managed carefully, and executed carefully. Planning is
one of the processes while the project is developing. A clear direction will be
provided when the planning outline is confirmed and will help to set up an apparent
goal to achieve. While the process of construction planning, which begins with an
extensive study of project documents. These documents include technical and
commercial studies, designs and drawings, estimates of quantities, construction
method statements, contract documents, site conditions, working regulations,
market surveys, local resources, project environment, and the client's organization.
By reviewing these documents, the planning process can take into account all the
relevant information required for the project. The construction planning process
involves considering the strengths and weaknesses of the organization and
identifying potential opportunities and risks. This allows the project management
team to develop an effective plan that maximizes the organization's strengths,
minimizes its weaknesses, and capitalizes on opportunities while mitigating risks. In
general, the construction planning process is very essential. The aim is to examine
various project documents and consider organizational strengths and weaknesses to
effectively plan and execute a construction project. (Chitkara,2014)
In addition, five main elements need to be always kept in mind as they highly
Influence the success of the program. It is specific scope, quality of the product,
resources, completion of time and budgeted expenditure. Firstly, the Specific Scope
of the project is related to the desired results or outcomes that the project seeks and
is expected to achieve. This should include the specific goals, objectives, and
deliverables that can define a project. Secondly, the quality of the product of the
project is related to satisfying the client’s needs and demands based on what is to be
attained while completing tasks is defined in construction design, drawings, and
specifications. Thirdly, the required resources of the project are related to the
necessary number of people, funds, and other resources that the project team must
have to carry out the project successfully. This includes the project team's skills,
knowledge, and expertise, as well as the equipment, materials, and technology
needed to complete the project. Fourthly, the completion of the time of the project
is related to the established dates when the construction project starts and ends.
This includes key milestones, deadlines, and timelines that the project team must
achieve in order to fulfill the project's objectives. A well-planned schedule ensures
that the project is completed on time and within budget. Finally, the budgeted
expenditure of the project is related to the cost amount that the client agrees to
input or commit to the project. Each component is affected by the other two. Scope,
time, and resources are interlinked and must be kept in balance to achieve project
objectives efficiently and effectively. (Chitkara,2014)
Cost Estimating
The definition of an estimate is an action to predict a cost of production through the
information of the approximate quantity of material, time, or cost to perform
construction. its purpose is to provide information for construction decisions. Typical
decisions include procurement and pricing of construction, establishing contractual
amounts for payment and controlling actual quantities by project management. The
main purpose of estimating is to provide information to make a different decision for
the construction project. These decisions may involve procurement and pricing of
construction materials, determining contractual payment amounts, and managing
project quantities. (Carr,1989)
It is very important to produce accurate estimates in construction projects, which
requires professional experience, judgment, and relevant historical data. To estimate
at a detailed level, the estimator must mentally construct the project and select the
appropriate resources based on the design. It is crucial that the estimator uses
reliable and relevant information, rather than selecting information for convenience
or the appearance of objectivity, as this can result in inaccurate estimates.
(Carr,1989) However, referring to Potts (2008), throughout the project cycle, cost and
time estimates are prepared but they still should be revised at different stages. It is
very important to understand that these estimations are predictions and should not
be regarded as one hundred percent accurate. Based on the Potts said, the level of
realism and confidence achieved in the estimates depends on the level of work
definition and the amount of risk and uncertainty involved. As the estimating can
only be focused on the relevant detail which should be included procurement,
fabrication, and installation of materials and equipment. As the design progresses,
the accuracy of the estimate should improve.
According to Del Pico(2012),a cost estimation should be dependable and
comprehensive. To achieve this purpose, it is in consonance with a full understanding
of drawing and specifications during the takeoff process, along with the accurate
application of unit prices. Therefore, it is clear that the foundation of the cost
estimating of a project is determined by different work units, and is being measured
and considered.
It is no agreement that cost estimating is one of the most important elements of
status for a project, which involves developing an accurate estimated value in order
to make sure the project gains enough resources to complete the project
successfully. An accurate cost estimate helps in budgeting and monitoring the project
in every project cycle. Also, it can ensure that the project stays within budget.
However, cost estimation is a challenging process that requires an in-depth
understanding of the project's requirements, scope, and objectives.
When we discuss the types of estimating, we cannot avoid talking about classifying
building cost estimates. It can be classified in several ways, with the most major and
significant being the degree of project definition, the end usage of the estimate, and
the estimate-generating methodology. For the degree of project definition
classification, it is based on the percentage of complete designs of the project. It
means that the design process will highly affect the estimation. Secondly, the
estimate will be more accurate if the design is close to complete. The end usage
classification is based on available data progress and covers conceptual estimates for
investment feasibility and funding authorization, budgets, and contractor detail
estimates for lump-sum bidding. Thirdly, the estimate-generating methodology
classification is based on the process used to forecast building costs, which can be
either stochastic or deterministic. Stochastic methods involve using statistical models
to estimate building costs, while deterministic methods involve using historical data
and expert judgment to develop estimates. (Popescu, Phaobunjong & Ovararin,
2003)
Cost estimation is contained different cost sections, and should be included the cost
of materials, construction equipment & tools, labour, administration costs, and other
expenditure. (Popescu, Phaobunjong & Ovararin, 2003) To collect all the costs
associated with different activity related to construction costs simply can be
identified two different types of costs which is production costs and non-production
costs. Production costs are referred to costs that can be correlated to a specific
activity or task, are part of the actual physical project and are related to the
final deliverable, such as direct material cost, direct labour cost, and other direct
expenses. Direct material costs cover all costs related to materials associated with
the permanent progress of the project. Direct labour costs have contained all
expenses covered by base wage rate, Fringe benefits, payroll insurance & Taxes, and
wage premiums of all categories of workers employed at the work site for the
execution of a project's works. Other direct expenses include all expenses on account
of services rendered, which can be directly attributed to and clearly identified with
the execution of an activity or work item. On the other hand, non-production costs
are overhead, or the cost of supporting the physical activities to operate during the
project cycle, including all costs is inputted to support the project but cannot be
identified with any performance of a specific activity or work item. In other words, all
costs other than production costs will be go under as non-production costs. These
costs are associated with the project as a whole and are not linked to a specific
activity or work item. Understanding the difference between production costs and
non-production costs is very important in accurately estimating the total cost of a
project. By properly identifying and categorizing these costs, project managers can
allocate resources effectively and efficiently, ensuring that the project stays within
budget and is completed on time while meeting all quality requirements. (Del
Pico,2012)
Construction Cost Management
It is no doubt that the most crucial element that can directly define a project is cost
as without cost or budget no works can be executed.
Cost management is an essential process that aims to minimize project costs and
maintain a satisfactory level of quality and scope of deliverables throughout the
project duration. To form a basis for progress monitoring and cost management,
project information must include a detailed description of client objectives, project
requirements, quality expectations, resource constraints, funding structure,
acceptance test details, administrative milestones, and the anticipated delivery date
to form a basis for a progress monitoring and cost management system. (Rad,2002)
When come to cost information on humans especially and other resource are related
to time and cost, it will be come very imperative. When the above mentioned
information is formed, it can be used as a performance review. Also, it can be used to
monitor and control the project’s progress in order to improve and increase
performance. Therefore, cost control is the main element of cost management.
Controlling is an act that observes the recent result and compares it with the original
objective. After that, an improvement plan and changing method will be set up
based on the observation.it is important to set up attainable and controllable targets
at the beginning of a project, with performance criteria that allow for objective
evaluation throughout the project's progress. This is crucial for both monitoring and
controlling the project, as monitoring alone is not enough for effective project
management. If a project lacks performance criteria, it becomes difficult to
objectively evaluate its progress, and make necessary adjustments to achieve desired
outcomes. (Hanioglu,2023)
Formalizing and integrating is the most effective way to proceed the cost
management. When comes to an enterprise's project management policies and
procedures significantly enhance its effectiveness. This ensures that all project
personnel adheres to established procedures across all projects. On the other hand,
a formal management structure encourages different project stakeholders to monitor
the project's performance status, fostering team spirit, and boosting morale.
While discussing, managing and controlling costs by a different system, the cost
accounting system needs to be discussed. It is similar to the financial accounting
systems both utilize revenue and expenditure data, but there is a fundamental
difference between the two systems. The cost accounting system is an internal
accounting system specifically designed for managing the costs of resources. It is
used by an organization to provide information for controlling costs. On the other
hand, a financial accounting system which is involving to recording, classifying,
summarizing, and presenting the financial status of past events for stakeholders,
legal authorities, or financial institutions. Managing project resources is the main
point of cost management, which is cover the area of the effective implementation
of cost management processes, such as estimating, planning, budgeting, monitoring,
and controlling costs. The primary objective of cost management is to complete the
project within the approved budgets and authorized variations. In addition, cost
management includes forecasting construction costs, which are an essential part of
project cash flow. (Chitkara,2014)
In construction projects, it is different from other industries. It is very unique because
a client or contractor will not actually know the building’s final account unless the
project is one hundred percent done. Although clients and contractors are two
parties that work together to achieve the project objectives, the objectives of cost
control of these parties may be different from each other. (Holm,2019) For the client,
he invests in the project and bears the expenses associated with it during the design,
execution, and commissioning stages. They have a vested interest in ensuring that
the project is completed within budget and meets their specific requirements. On
the other hand, the contractor is responsible for executing the contracted work and
bearing the costs of input resources required for the works to be done on time based
on the scheduled programme. These input resources and site expenses should be
included the cost of labour, materials, machinery, and capital. Additionally, the
contractor incurs expenses on loan interest, statutory payments, insurance, and
other related costs. Similar to the client, the contractor must also control their
finances to meet cash requirements throughout the project. The main purpose of the
contractor is to maximize their profit margin through effective cost planning,
budgeting, and control. It is crucial for both parties to manage their finances
effectively to meet cash requirements throughout the project (Chitkara,2014)
Again, it is significant for a project to value cost controlling which involves taking
proactive measures to prevent exceeding cost thresholds. It is essential to establish
priority activities and cost thresholds at the onset of the project. The cost
management should be flexible to modify priorities and criteria for corrective action
during the project's progress. This underscores the importance of being proactive
and adaptable he underscores the importance of being proactive and adaptable in
cost control to ensure that the project is completed within budget and meets its
objectives.
Project budget
The Project budget help allocate resources to perform tasks in a project. While
budgets are generally presented in terms of money, they should also include
allocated resources, which is crucial information for project managers. The costs
estimated for each task form the basis for a structured project cost budget that can
be presented at different levels of detail. Resource quantity-based budgets for
specific critical tasks are better than dollar amount budgets since they provide better
control references. Additionally, budgets can be customized to suit the needs of
different managers and stakeholders, and criteria for making revisions should be
predetermined. Cash flow analysis is essential for determining the financial support
required for a project, especially during the construction mobilization phase when
contractors incur mostly unbillable indirect expenses. The Project budget should be
including known-unknowns and assumptions in project budgets. By doing so,
communication and future revisions with stakeholders and staff can become easier.
Exclusions from project scope should only be considered as a last resort when
preparing budgets. Additionally, every project budget should have a safety net or a
general contingency to draw from when needed. However, determining the
magnitude of this contingency depends on several factors, and there is no standard
rule or best practice for deciding it. The importance of measuring the physical work
accomplished in a project, in addition to monitoring monetary budgets. Measuring
physical work is done by monitoring the physical quantity of work completed and the
resources used in the execution. Resource-based budgets are essential tools to
monitor the progress of actual physical work output, especially for critical project
activities. Monitoring both physical progress and resources used to accomplish that
progress provides a more complete status report for subject-critical activities.
(Hanioglu,2023)