# COST-SIGNIFICANCE APPLIED TO ESTIMATING AND CONTROL OF CONSTRUCTION PROJECTS

by Munther Musa Saket

A thesis submitted in fulfillment of the requirements for the Degree of Doctor of Philosophy in the Department of Civil Engineering of the University of Dundee. December 1986

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Chapter 1 INTRODUCTION 1.1 General

1 1 2 4 6 6 6 10 12 15 16 16 27
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1.2 Problem Statement 1.3 Research Objectives
Chapter 2 THE PRINCIPLE OF COST-SIGNIFICANCE

2.1 Bills Of Quantities And Cost-significance. 2.1.1 Reassessment of bills and methods of measurement 2.1.2 'Reappraisal of estimating approaches using bills of quantities 2.2 The 80/20 Rule 2.3 Price Distribution In Bills Of Quantities 2.4 Fitting a Theoretical Distribution to Bill Prices 2.4.1 The Pareto distribution 2.5 Summary
Chapter 3 DEVELOPMENT OF A NEW ESTIMATING APPROACH

3.1 Introduction 3.2 Evaluation Of Current Estimating Perforrnace. 3.3 The Concept Of Cost-significance 3.4 Theoretical Basis For A New Estimating Approach 3.4.1 The basic equations. 3.4.2 Iterative solution of equations (3.1) and (3.2)

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3.5 Experimental Results Of Using The Iterative Procedure On Priced 39 Bills Of Quantities 3.6 Iterative Estimating 3.6.1 Basic procedure 3.6.2 Explanation of steps 6 and 10 3.6.3 Accuracy of iterative estimating 3.6.4 Factors affecting choice of cost-significance level. 3.7 Summary 44 44 45 48 49 50

Chapter 4
TESTING ITERATIVE ESTIMATING IN PRACTICE A CASE STUDY 4.1 Objectives 4.2 Bills Of Quantities And Estimating Performance Analyses. 4.3 Present Estimating Approach 4.4 Testing Iterative Estimating. 4.5 Application Of Iterative Estimating 4.6 Discussion Of Results 4.6.1 Level of accuracy. 4.6.2 Time saving 4.6.3 Ease of use. 4.7 Summary Chapter 5 ITERATIVE ESTIMATING AND VARIATIONS 5.1 Introduction 5.2 Variations In Tenders 5.3 Proposed Methods For Dealing With Variations 5.3.1 Method 1 5.3.2 Method 2 5.3.3 Method 3 5.3.4 Method 4 5.4 Effect Of The Proposed Methods Upon The Final Account. 5.4.1 Notation 5.4.2 Error using Method 1 5.4.3 Error using Method 2 5.4.4 Error using Method 3 5.4.5 Error in Method 4 5.5 Analysis Of Tenders And Final Accounts 5.6 Errors In Tenders And Final Accounts. 5.7 CrAique Of The Four Methods. 5.8 Summary Chapter 6 A REVIEW OF PROJECT COST AND TIME CONTROL SYSTEMS 6.1 Introduction 6.2 General 6.3 Forecasting

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3.2 "COMPASS" management information and project control 96 systems 6.3.2 Progress data 7.1 Conclusions 136 .4.7.4 Input Data Required For Control System.7.2 Estimating 6.4 Monitoring 6.7.3.6.1 Networks 7.5.1 Planning data 7. 7.1 Network analysis 7.8 Improvement And Simplification Of The Control Process Chapter 7 Proposed Control System 7.6. 7.5. 7.2 Diagnostics' 7.3 Control System Specifications In Terms Of Output Produced.6 Conclusions 6.6 Integration Of The Control Functions 6.6.6 Discussion 99 102 102 103 103 105 108 115 119 119 121 124 124 126 129 132 136 Chapter 8 CONCLUSIONS & RECOMMENDATIONS FOR FURTHER RESEARCH 8.2 Project Breakdown Structure 7.1 Introduction 6.7.5 Control 6.3 "PRIM" Project Integrated Management System 96 .7.4.4 Kaskoulas and Grazieli's proposed system 98 6.7 Review Of Integrated Control Systems 95 6.5.1 Time estimates 6.1 Introduction 7.2 Cost estimating 6.5 The Analysis Processes.5 Sears's proposed system 98 6. 97 6.3 Course of action 7.2 Cost control 6.5.3.1 Project Cost Model (PCM) 95 6.3.5.1 Time control 6. 7.7.3 Cost and time 84 85 86 87 87 88 93 93 93 94 6.iii 6.2 Diagnosis process 7.3 Course of action process.

2 Appendix VI Verification of the assumption in section 5.2 Recommendations For Further Research 142 Appendix I 145 Statistical comparison of Cost-Significance Factors for civil engineering and building projects Appendix II Relationship between the Pareto equations and the 80/20 rule Appendix III Convergence Of The Iterative Procedure Appendix W Derivation of the modification factor 147 150 154 Appendix V 156 Results of testing iterative estimating for the first two tenders of Table 4.4.iv 8.4 References 162 164 .

item value (average of 24 bills) Figure 2-4: Cumulative value above item value vs.1) and (3. with planning data 17 18 19 20 24 25 26 35 38 40 56 71 94 107 Figure 7-2: An example of a diagnostic report using a simulated project 116 data Figure 7-3: An example of a predictive report for the same simulated 117 work package as in figure 7-2 Figure 7-4: An example of a report produced by the •course of action' 120 technique . averaged for 24 bills of quantities. The graphs (c) and (d) show the coefficients of variation of the C-S factors at the different levels of cost-significance. cumulative number for actual and Pareto-fitted distributions (average of 24 bills) Figure 3-1: The relationship between cost-significance numbers and value factors and cost-significance (C-S) level. Figure 3-2: Cumulative value Vv above item value v versus item value v Figure 3-3: Iterative solution of equations (3. item value for actual and Pareto-fitted distributions (average of 24 bills) Figure 2-7: Cumulative value vs. item value (average of 24 bills) Figure 2-5: Cumulative number above item value vs.2) Figure 4-1: Estimating procedure chart & where iterative estimating fits Figure 5-1: Sources of error in iterative estimating Figure 6-1: The control cycle Figure 7-1: An example of an activity sub-network. item value for actual and Pareto-fitted distributions (average of 24 bills) Figure 2-6: Cumulative value above item value vs.V List of Figures Figure 2-1: Histogram showing number and value of items for each price range (average of 24 bills) Figure 2-2: Cumulative value versus cumulative number envelope (24 bills) Figure 2-3: Cumulative number above item value vs.

. Table 2-4: Results of fitting equations (2.2) and (2. Ranges are modified to allow for overestimation of number of marked items. Table 5-3: Errors in tender and final account using iterative estimating. Table 3-5: Ranges of cost-significance numbers factors corresponding to the 8 levels of cost-significance. using different minimum values of v. Table 4-1: Results of analysing 15 bills to determine the cost-significance factors. Table 3-2: Results of applying the iterative procedure to bill number 11 Table 3-3: Results of applying the iterative procedure to priced bills of quantities. Table 4-2: Results of testing iterative estimating in practice Table 4-3: Tender analysis of the 6 tested tenders Table 5-1: Results of analysing 15 bills and associated final accounts 14 15 22 23 33 42 43 46 47 53 60 61 76 77 78 106 Table 5-2: The value factors representing a measure of the variation with respect to CSI's. with different combinations of a' and ee Table 7-1: An example of project breakdown levels Table 7-2: Example of planned project network produced by the system 109 using day numbers since start.vi List of Tables Table 2-1: Results of analysing a sample of 24 bills of quantities to determine value and number proportions of CSI's Table 2-2: Variation of value and numbers factors with project type and value Table 2-3: Results of linear regression analysis for bill number 1. Table 7-4: Example of a planned activity subnetwork produced in days 110 since start of activity. Table 3-4: The 95% ranges of cost-significance numbers factor corresponding to the 8 levels of cost-significance. Table 7-3: Example of updated project network produced in day 109 numbers since start. NCSI's and extra items. averaged for 24 bills of quantities.3) to 24 bills of quantities using linear regression analysis for v min = vTable 3-1: The relationship between cost-significance levels and cost-significance value and numbers factors. The results are averaged for 24 tested bills.

125 . 122 Table 7-8: Planning data form (by activity) Table 7-9: Daily labour/plant allocation sheet (by work package) .vii Table 7-5: Example of an updated activity subnetwork produced in days 110 since start of activity Table 7-6: Example of a predicted project network produced in days 111 since start Table 7-7: Example of a predicted activity subnetwork produced in days 111 since start of activity ..

8 9:co1. 15 23 0 24 23 0 4 7 0 10 9 0 18 23 0 7 7 0 so as not to resource-hours 115 121 126 127 3 /D V3.[Isq[C112' r Q integrated intergrated .5% 1.[ H' H xIVO ] 1 x100% 1 C i .9 contingency competent renegotiation remaining 8% 2% assesed sited similarily bugeted remaing 9% 1% assessed cited similarly budgeted remaining 110 111 12 26 3 21 26 3 2 9 2 9 10 1 12 29 6 2 12 5 so as no to resourc -hours V = [H)1 -I] xi 00% 1 ---.5. = { i i -] x100% 1 m.8 23:co1. 1 1 14' c' 128 141 13 C r = 14[C1 .4 co1.8 20:co1. c. =v actual Performance ± 3.5 co1.5 :co1.4 10:co1.4 22:co1.5 co1.5% cost-significance approximate successive 29. — = 1 C.4 22:co1.8 8:co1. row 8 18 13 27 13 31 1 12 1 3 9 16 9:co1.8 20:co1. 1 R.9% cost-significace approxiamate sucessive 1.4 co1.4 co1.5 co1.8 22 9 ERROR priniciple integate letigation CORRECT 7 21 24 29 29 30 34 37 39 43 55 58 66 67 74 75 81 85 91 92 105 109 v .9 contigency comptent renogotiation reamaining 19.ERRATA PAGE xi xii LINE 5 2 16 15 2 15 29 17 10 19 24 co1.11x 100% R.[M]iCia Q C = iMikj.5 co1. >v ararLal Performace principle integrate litigation v.5 co1.

M. Finally. .viii ACKNOWLEDGEMENTS I wish to express my gratitude to my supervisor Professor R. Horner for his continuous encouragement and support throughout the past three years. I would like to express my special gratitude to my parents for their love and support at all times.W. Thanks are also due to the members of the Construction Management Research Unit for their useful comments and advise regarding this work. Ackowledgement is made to the various companies and organizations for their cooperation in offering access to their documents. I wish also to express my thanks to the Science and Engineering Research Council for supporting me financially. and advise to the author.

Munther Musa Saket . and that it is a record of work completed by myself...bc DECLARATION I hereby declare that this thesis has been composed by me. --.. and has not previously been accepted for a higher Degree.7..i..

M.R. and that he has fulfilled the conditions of Ordinance 14 of the University of Dundee. Homer .W. . so that he is qualified to submit for the degree of Doctor of Philosophy. • Prof.x CERTIFICATE This is to certify that Milther Musa Saket has done his research under my supervision.

which enables the prediction of the total value of a bill of quantities by pricing only about 30% of the items. The system uses an operational model of construction. It has also been shown that items of greater value than the mean value of all items contribute about 80% to the total bill value.7% lower. The technique has also been tested in practice on six 'live' tenders. The effect of iterative estimating on final accounting has been considered. and more consistent than conventional tenders.iterative estimating .xi ABSTRACT A study of the price distribution of bills of quantities has shown that about 80% of the value is attributed to about 20% of the items. and the value of items with higher prices. estimators' skill and experience. Iterative estimating has been tested and shown to give accurate results using historical bills. with a . has been used to develop a new estimating technique . and the time available to produce estimates. In the short term. estimating turnover sought. The choice of the price level would depend upon the required level of accuracy. and using historical data. from which the priniciple of cost-significance derives. but also at all price levels less than twice the mean. Based on the findings of that review. Iterative estimating produced tenders which were on average 0.5% in 2/3 of the times have been predicted. a saving of at least 50% in pricing time has been achieved using iterative estimating. errors of the order of + 4. a new control system has been proposed. This relationship has made it possible for iterative estimating to be applicable not only at the mean price level. a review of both integrated and non-integrated cost and time control systems proposed for and/or practiced in the construction industry has been carried out. A relatively stable relationship has also been shown to exist between any price level less than twice the mean price. four methods of dealing with variations have been proposed and shown to yield very accurate long term results. Moreover. in order to identify the favourable features of control systems. The use of the principle of cost-significance in construction control has also been considered. This relationship. combined with the application of the principle of cost-significance.

prediction of the effect of current progress situation on future progress. to integate the various functions of control. and the provision of advice on optimum courses of rLiedial action. The proposed system is in skeleton form and needs further development. The main features of the system are a hierarchical project breakdown structure. . integrated cost and time control through the use of project network and sub-networks. diagnosis of progress information to detect variances from plan and causes of such variances.xii built-in bias towards the controllable cost-significant items of work.

but where this occurs the meaning of the notation is made clear and no confusion should arise. and at other appropriate points. Inevitably.4 final account error associated with Method 1. some symbols are used to denote more than one variable. Symbols are also defined in the text where they first occur. Other notation used in the appendices is on the whole not included in this list.or4 e t error in iterative estimating sum of all extra items' values in conventional final account .3.xiii NdTATION This is a list of the most commonly used notation in the thesis.2. C: 1 C r Pareto's distribution coefficient planned hourly cost of resource i actual hourly cost of resource i allowable remaining cost to complete work package real cost variance real cost difference C c total cost variance C u unit cost variance duration D' total hours in progress for work package allowable remaining duration for work package(hours) 1 e e missed cost-significant items' value as a fraction of total value of measured items (e f) 1. cost-significance value factor a a' a cost-significance value factor used in iterative estimating 'correct' cost-significance value factor in conventionally priced bill A 1 number of quantity units to be completed to return to plan A 2 hours to be worked to return to plan A 3 output(productivity in units/hour) to be achieved to return to plan A 4 available amount of money(L) to be spent to return to plan a C.3.2.

number of 1 start delay N 2 delay due to late preceding work packages N 3 delay not due to preceding work package 0 1 productivity (unit/hr) to be achieved for remaining part of work package total paid hours 1 predicted overspending by completion (.e.' planned resource-hours for resource i actual resource-hours worked by resource i frequency density of items having values between v and v+8v number of measured items number of items with greater values than v Ni number of items with greater values than 7) number of items with greater values than cost-significant items i.xiv sum of all extra items' values in iterative final account EF ES FF 1 earliest finish in days since start earliest start in days since start free float (days) allowable hourly cost of gang to be used to complete work package total resource-hours planned H' total recorded resource-hours worked Pareto's distribution parameter LF LS latest finish in days since start latest start in days since start cost-significance numbers factor M.C) for work package P 2 P1 as a % of planned cost for work package P 3 predicted delay of work package P 4 predicted extra duration needed to complete work package P 5 predicted extra duration in excess of plan to complete work package predicted productivity variance for work package P 7 predicted extra overall resource-hours than planned needed for work package . M 1.

S measure of the variation in cost-significant items' value =Vf/Vt measure of the variation in non-cost-significant items' value =v fiv t cost variance for resource i sum of final values of measured items in conventional final account sum of final values of measured items in iterative final account sum of values of measured items in conventional tender sum of values of measured items in iterative tender total float(days) item value in bill of quantities mean value of measured items value corresponding to the cost-significance level x ith approximation of using iterative estimating f f S St St TF Vf v ' f v t v t' Vo Vv final value of non-cost-significant items in conventional final account final value of non-cost-significant items in iterative final account value of non-cost-significant items in conventional tender value of non-cost-significant items in iterative tender total value of measured items total value of items with greater values than v total value of items with greater values than T) .P s P s P 10 13 11 P 12 P 13 P 14 Q Q1 P7 as a % of total plannned resource-hours for work package predicted extra hours of work than planned P9 as a of total planned hours for work package predicted resource-hours spent on work package as a % of planned total predicted avoidable and unavoidable delays as a % of that expected predicted avoidable delay as a % of that expected predicted unavoidable delay as a % of that expected work content in terms of quantity of work in work package quantity of work done Q-Q total value of extra cost-significant items as a fraction of E r c rn R.

.xvi total value of items with values greater than cost-significant items' value (Vo) Vv n i. ith approximation of Vo using iterative estimating value of cost-significant items using iterative estimating final value of cost-significant items in conventional final account final value of cost-significant items in iterative final account V V Vt value of cost-significant items in conventional tender V' value of cost-significant items in iterative tender V 0 progress delay V 1 % complete variance V 2 V 3 V 4 V 5 V 6 V 7 V 8 V 9 productivity variance overall resource-hours variance working hours variance resource variance delays variance avoidable delay variance unavoidable delay variance overall delay cost-significance level = Y a expected avoidable delay as a % of total resource-hours H Y a Y' actual avoidable delay measured in resource-hours expected unavoidable delay as a % of total resource-hours H actual unavoidable delay measured in resource-hours.e.

Monitoring is carried out with the objective of obtaining information about progress that enables comparisons with planning information to take place. the time and cost elements of the construction project are forecast. There are a number of important considerations in each of the above functions. the factual information collected from site should be based upon. the amount of detail iAorporated in the forecast should not be excessive. the progress of construction is monitored. In deciding what to control. Secondly. and management effort should be mainly directed to such factors. That is. are controllable such as labour productivity and material wastage. Forecasts take the form of cost and time plans. The forecasting function should reproduce or model the construction process accurately. so that subsequent use of time and cost plans as standards against which progress is monitored would be facilitated. and directly related to the same model on which planning information is based. In other words. Some elements of construction are to a large extent outwith the control of site management. Firstly. Furthermore.1 General Construction management consists of three essential functions. for example materials' prices and labour pay-rates. Moreover. Moreover. the progress information to be collected must be governed by the control objectives. not inhibited. and will allow a feedback link between planned and achieved performance to be established for forward planning and future use. breaking down the project realistically into its constituent time and cost elements. the progress information is compared with planning information to depict any variances and act in a corrective manner. elements of construction vary in their . This will facilitate direct comparison between planned and actual performance. consideration of controllable and uncontrollable factors should be made. Some other elements however. The monitoring function should be compatible with the planning function.CHAPTER 1 INTRODUCTION 1. management should decide what to control before embarking upon the collection of progress information. Thirdly.

The forecasting function is mostly based on bar charts or project networks representing the time breakdown. Futhermore. then combined with a compatible basis for both planning and factual data. a survey of 400 top construction firms in the U. (20) revealed that 45% of those firms seldom or never used network techniques. However. Firstly. requiring the collection of an optimum amount of progress information. the comparison process must be made in such a way that makes it clear what caused the variances. a facility to consider alternative courses of action and to judge the projected outcome of alternatives must be incorporated. All the above functions have to be carried out regularly.S. original plans and targets may be modified to make the control process more realistic. in the light of experience gained during the progress of construction. with the use of computers. Other firms using networks only used them as a sales extravaganza or in response to clients' requirements. 1. Secondly. Thirdly. and on bills of quantities representing the cost breakdown. The control function must consist ideally of four main parts. Futhermore. Although the use of bar charts as time schedules is more widespread than the use of networks. Fourthly. and consequently management effort should be proportionally distributed. This requires careful management consideration. and in sufficiently short periods of time to enable corrective action to be fruitfully implemented. a corrective course of action must be chosen and implemented. Most firms which did use network techniques only used them to plan the job and did not refer to them as the work proceeded in a control capacity. progress information must be compared with planning information to establish quantitative variances.2 Problem Statement The majority of construction management systems practiced in the industry fall short of the ideal outlined in the previous section. a 'lean' monitoring system will be developed. if the control objectives are clearly defined. complicated networks were frequently developed which would be extremely hard to . Therefore.A. bar charts suffer from their inadequacy to model the interdependence of construction activities. and consequently are not as useful as networks as a basis for the control of project duration.2 cost and time -significance.

cost and time elements are inseparable. Networks are frequently used to represent the time elements of construction. and based on bill items. A bill of quantities comprises a list of every item required to complete the permanent works. This renders the bill a complex and lengthy document. Despite efforts to reduce the length of bills.d. Therefore. the models on which the monitoring sy3terlis are based are mainly bills of quantities and project networks. What is communicated in a conventional bill is a description of the project in terms of the materials used rather than the work to be done. Firstly. the latest Civil Engineering Standard Method of Measurement specifies over 12. especially with the large output of data producf. In construction. The problems in the monitoring function stem primarily from two factors. cost feedback and comparison becomes extremely difficult. A bill of quantities prepared by one of the standard methods of measurement aims essentially at a description of the scope of the completed works. The purpose of an accounting system is to monitor profit or loss.3 understand and use. The second factor often stems from the confusion between accounting and control systems. Such complexity and detail cause the functions of pricing and subsequent valuation to be very time-consuming. while cost elements are represented by a totally different model mostly based on the bill of quantities. so it is unrealistic to model each element using a different model. Skoyies (55) argues that such a bill does not attempt to reproduce the processes by which the production cost of the project will actually be incurred. with the way money is expended on site. and bills of quantities containing several thousand items are commonplace. It is . a bill of quantities is not a realistic model of the construction process. and to identify where costs are incurred. T:sing such models will result in having to divorce time and cost elements and in having to collect a large amount of data. Another drawback associated with the use of networks is that most firms using network techniques do not use the same model to represent costs. Another drawback of bills of quantities is the amount of detail they entail. so that it does not correspond in terms of time.000 standard items. The work is measured in units which relate labour to the physical measurement of materials and is summarised by trades. Bills of quantities are the common form of cost estimates.

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necessary, therefore, to record the source of every incidence of expenditure. In order to control a project, however, one is not interested in every cost, but only in those items where variances would have a significant effect on the project outcome. In addition to the above shortcomings in the forecasting and monitoring functions which have a direct bearing upon the control functions, most control systems in use in the industry suffer from the following drawbacks: a. although most of the current control systems aim at identifying variances, they do not portray the causes of these variances: b. there are no simple formal procedures within the majority of current control systems to 'experiment' with alternative corrective courses of action and project the outcome of alternatives in order to determine an optimum course of action. In short, therefore, construction management control systems suffer from four major shortcomings: frequently they contain too much detail; they are often inaccurate; they do not diagnose the causes of variances; and they provide no guidance as to the optimum course of remedial action. 1.3 Research Objectives This thesis is devoted towards the application of the principle of • cost-significance in the fields of estimating, monitoring and control of construction projects. The principle of cost-significance is derived from the fact that in construction, a relatively small number of items contribute a large proportion of the total project cost. It has been established that in bills of quantities, about 80% of the total bill value is contained in the 20% highest cost items (2,26,40,50). If these cost-significant items could be readily identified. then by only pricing them and applying an appropriate factor to their total price (e.g. 1/0.8), the total tender value would be arrived at. This would simplify and reduce the time required for pricing. This is the basis of a new

estimating approach to be investigated and developed in this thesis. Another application of the principle of cost-significance lies in the field of

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monitoring and control. It is intended to investigate the possibility of developing a simple model of the construction project based upon cost-significant work operations which are wholly made up from packages of cost-significant bill items. If monitoring and control efforts were directed towards these operations then one would be effectively controlling about 80% of the project cost. Furthermore, because of the anticipated reduction in detail through the use of the principle of cost-significance, it may be possible to incorporate within the control procedures a diagnostic capability that would determine both the magnitude and cause of variances from plan. Alternative courses of action to remedy adverse variances could also be evaluated. In short, therefore, the aim of this research is to find a way of extracting a simple cost model of the construction process, which can be used both for pricing and for control. If such a model can be found, it should be possible to integrate and computerise many management control functions in a relatively simple fashion. Moreover, if the cost model is sufficiently simple, then it may be possible to build in some relatively sophisticated diagnostics to determine the cause of any variances that might occur, and to indicate possible remedies. To achieve the above objectives, a study of the disribution of prices in bills of quantities is carried out. This is reported in chapter 2. Based on the findings of chapter 2, a new estimating approach - iterative estimating is developed in chapter 3. Chapter 4 reports on the results of testing iterative estimating in practice. The effect on variations and final accounting of iterative estimating is considered in chapter 5. The rest of the thesis will contain a review of control systems in use in the construction industry, and based on the findings therein, and on further proposed simplifications through. the application of the principle of cost-significance, a new control system is proposed. This is reported in chapters 6 and 7.

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CHAPTER 2 THE PRINCIPLE OF COST-SIGNIFICANCE
2.1 Bills Of Quantities And Cost-significance. It is well known within the construction industry that about 80% of the value of a project is contained within about 20% of the number of items in a bill of quantities (2,26,40,50). This 80/20 'rule' was originally proposed by Vilfredo Pareto, an Italian economist (15,23,24,25). In 1897, Pareto found a distinct regularity in the distribution of incomes in a number of countries.He found that 80% of the incomes in a country was earned by only 20% of the population. Other scholars found that this 80/20 rule applied to other fields such as costing (19), sales and materials control in production (28), and stock and stores control (32). In construction, the bias in the price distribution in bills of quatities combined with the size of bills implies that there exists an unnecessary amount of detail. The impact of this implication can be seen from the following considerations: 2.1.1 Reassessment of bills and methods of measurement The inclusion of a large number of non-cost-significant items in bills of quantities is an inherent characteristic of the way bills of quantities are prepared.. The effort expended by estimators in pricing such items is in disproportion to the returns achieved from these items relative to other items. This factor, combined with the inadequacy of bills of quantities to model the processes by which the production cost of projects is incurred gave rise to attemp ts by the industry to redesign or modify the ways in which bills are prepared. The Building Research Establishment (53,54) proposed a new format for preparing bills called 'operational bills' (OB's). In an OB instead of presenting the work by trades measured in accordance with standard methods, work is described as a series of operations. The operations represent work to be done, each operation being a stage of work done by a man or a gang of men uninterrupted by the work of other men or gangs of men. The sequence of operations is also selected to satisfy the physical requirements of the building design. OB's have been used in projects and

7 studied closely by BRE. if not impossible. scope and location of an operation. The essential requirement for facilitating the feedback function is the avoidance of unique descriptions for operations differing only insignificantly in content for. It would also be important that descriptions should be sufficiently precise to admit only one interpretation . Bishop argued that operational bills had to resolve the conflict of interest between: 1. 2. it will be difficult. the relation between an operation and other work at its boundaries. Bishop (9) argues that the central problem of operational cost models is the conflict between the need for precision in order to define the operation and the need for generality as a basis for feedback. That is the advantage gained by analysis of a project by operations will be offset by the absence of a simple measurement of work content and the ability to generalize particular experience. but their wide adoption by the industry has been hindered by the fact that estimators are not so familiar with pricing on an operational basis.if not confusion and letigation would follow. at a glance. The need for precision: Estimators working at speed and under pressure should be able to identify the character. would be time consuming to prepare. to transfer the experience obtained on one job to another. To meet these difficulties BRE developed an intermediate form of document . . The task of interpreting operational descriptions would be simplified by the materials listed with each operation and by operational drawings for those would show.the bill of quantities (operational format). In this form of bill the work is again analysed by operations but under each operational heading work is described according to conventional methods such as the 'Standard Method of Measurement '(56). Feedback: Feedback of cost information is an important function in relating design to production. if this occurs. operational drawings of one form or another. Unfortunately.

This would be essential for the succesful adoption of operational bills."the cost of which is not to be considered as porportional to the quantities of other items. Instead. . is that they require the compiler of the bill to accurately predetermine the sequence of work. and for there to be few variations to the work. and for generality. Method related charges were introduced in the CESMM to allow the contractor to insert items of work which relate to his intended method of execution. The Standard Method of Measurement of Building Works has also gone through a continuous process of development since its first edition in 1922.8 Hence. Bishop concluded. that has led to the belief that the quantity of every component envisaged or provided is a factor significant to the cost and value of the work as a whole. as under the same conditions many of the shortcomings of the conventional bill would disappear. Barnes argues. and a CESSM. not just that of quantities of work. and for which he has not allowed in the rates and prices for other items (CESMM). Recognition of the importance of reflecting the way in which costs arise during construction in a bill of quantities is the basis of the 1976 Civil Engineering Standard Method of Measurement (CESMM). Thus the time factor and the working . the central problem of communication of cost information would seem to be the resolution of the conflicting requirements for precision of description. on the one hand. methods are taken into consideration in building up the cost model. Barnes suggests that any modification to conventional bills of quantities should take into account the effect upon costs of the methods and timing of construction. No new form of bill for civil engineering work which relied on these conditions would be justified. Method related charges may be fixed or time-related. It is the principle of proportionality of cost to quantity in conventional bills. 2nd edition has been produced. Most bills of quantities consequently contain a large proportion of items which are of sufficiently small value that the accuracy of the prices and quantities put against them has negligible effect upon the accuracy of estimating or valuation of the work as a whole. Further minor developments of CESMM have recently been carried out. put forward by Barnes (3). on the other. Another criticism of OB's when used for civil engineering projects. for the tender drawings to be complete.

Bennett (7) states that the main weaknesses in SMM6 which the development unit has been asked to deal with are. From the Contractor's point of view. they begin to cause more trouble than they save when . management and the construction activities. thus reflecting the cost production process more realistically. firstly. The tender is submitted in the form of an outline of a priced schedule of activities-a schedule of the design. it is thought that since one of the justifications of measuring minor items and details is to build up a picture of the difficulty or complexity of the work. The development unit has therefore set itself a target of a 50% reduction in the number of items in bills of quantities. Barnes(5) argues that although bills can work well and play a part in a good construction management system. the fact that SMM6 produces bills of quantities that are too complicated since they contain more detailed items than are needed to cost work realistically. Professionals and Contractors to produce a building of better quality more quickly and at a lower cost. What is of concern here is that bills of quantities are not used. SMM6. and secondly. SMM6 allows work that has not been designed adequately to be described as though it were fully designed. Another intended improvement is that SMM7 will distinguish between fixed and time-related costs. The schedule of activities includes a programme for each activity and a statement of resources to be used. a. thus establishing a close relationship between the tenders and subsequent site cost control and planning (12). A more radical approach to the wider problems relating to the conventional contracting relationships has been proposed by the British Property Federation. BPF proposed a system for building design and construction the main objective of which is to regulate the relationships of the Client. it is more useful to provide the picture contained in the drawing. Regarding the first main weakness. SMM Development Unit was set up to suggest improvements for a new edition. the schedule of activities has the advantage that as well as allowing him to price on an operational basis. Tenders are invited against the drawings and specifications produced by the design team. SMM7. it can be used directly for monitoring costs and progress during construction.9 Due to the recognition of weaknesses in the last edition. while ensuring that the rules of measurement identify all the cost-significant items in all buildings (7).

The function of cost control is based upon the operations thus establishing a. 2. the contractor breaks down the project into a number of operations relating to main constructional elements. Pricing the items is initially done using approximate rates for ranking purposes. Then the estimator inserts the operation number against bill items. feedback loop between estimating and control.they become a substitute for drawings and specifications. It may not be the unmitigated horror which the conservative critics of the BPF system predict. Based on • conventional bills of quantities. while retaining the bill of quantities in its available format. The items are then arranged in a descending order of approximate value.1. as well as in the arrangement of items in descending order. and the cost-important items contributing 80% of the total are closely examined to improve their pricing accuracy. the bias in price distribution and the inaccurate picture of production cost that bills portray have all been major factors in attempts to modify current methods of measurement and bill formats.2 Reappraisal of estimating approaches using bills of quantities The realization of the immense amount of detail in bills of quantities. . One of the first attempts to simplify the estimating as well as the control functions was undertaken by Moyles(40). Another effect of the above factors has been to modify the estimating approach in a way that reduces the effort and complexity in current estimating. The prices of the rest of the items are modified by a factor equal to: TOTAL OF COST-IMPORTANT ITEMS BY ACCURATE ESTIMATE TOTAL OF COST-IMPORTANT ITEMS BY APPROXIMATE ESTIMATE Computer processing is used to group the items into their corresponding operations. Moyles combined the 80/20 rule with operational grouping to propose a new estimating method. To manage without them on the jobs where the BPF system is used will be a very constructive experience for clients and contractors involved. After receiving the bill of quantities and other tender documents and deciding to tender. and in applying the factor to the approximate prices of the non-cost-important items. when they get too complicated and when the picture of the cost of work they contain becomes unrealistic.

reduction in estimating effort. although Moyles recommended that the project was broken down into no more than 20 operations. the total price of a bill could be determined by pricing only a small number of items. Firstly. Secondly . This. absence of complicated coding of cost elements. Shereef suggested one theoretical distribution which although in accuracy terms was not ideal. This is a time consuming operation. and on the other makes it extremely difficult for feedback data from site to be assigned to the right item unless estimating has been done on a purely operational basis. served to demonstrate the viability of the approach as an aid to the estimating process. on the one hand. and arranged in order of value to identify the cost-important items. There are two main disadvantages with Moyles's system.11 The advantages of Moyles's system are simplicity. whether cost-important or not. were to be assigned to a relevant operation. He defined cost-significant items as those measured items in the bill of quantities contributing 80% of the total value of measured items. Moyles tested the system on two live projects and concluded that the estimating part was fairly successful but the control and feedback part proved to be unsuccessful mainly due to the amount of disruptions. the problem still remains that so far no method of identifying . Although Shereef's finding concerning the mean value defining the level of cost-significance is very useful in identifying cost-significant items from priced bills. the gradual introduction of operational estimating and establishing a relatively simple feedback mechanism between the site and the estimating 'department. delays and variations that took place. Using 25 bills of quantities he confirmed that 20% of the measured items contributed 80% of the total measured value. A simple method of identifying cost-important items was proposed by Shereef(50). If the price distribution could be defined within acceptable accuracy levels. all the bill items. all the bill items have to be fed into the computer. By further analysis of the 25 bills he showed that the 20% cost-significant items were also those measured items with values greater than the mean value of all measured items. Shereef also attempted to find a theoretical distribution that fitted the price distribution of bills of quantities using regression analysis. makes the 20 operation limit quite difficult to achieve. accommodating any bill format.

The use by quantity surveyors of this estimating data with individual rates adjusted for local factors should result in reliable and prompt estimates with a tolerable margin of accuracy. and averaged 78% of the value of that work section. The PSA(44) analysed 50 bills of quantities representing a typical cross-section of PSA building projects in the £250060 to LIM range. The relative significance of each work section was also established (e. 85 hills of quantities have been analysed. Data from the fifty bills was analysed to see how the number of bill items and their value related for individual work sections. but excluding housing. cost data could be published in a manner which would encourage a more significant and realistic approach to estimating. comparing the results. 2.2M. updating and retrieval. and refurbishment projects. A similar approach to Shereers suggestion was undertaken by the Property Services Agency (PSA) (44). ranged between 69% and 87%. with tender values ranging between £10000 and . Shereef(50) suggested that this problem might be approached by isolating cost-significant items from a number of priced bills using his approach. concrete accounted on average for 17% of the total number and 26% of the total value of measured items). It was found that the contribution of the 20% highest value items in any work section. extensive alteration.. excluding preliminaries and external works.g.2 The 80/20 Rule In an attempt to confirm the 80. The PSA (44) believes that if the bill items of greater cost-significance could be readily identified they will encourage quantity surveyors to direct their thoughts to such items. The bills covered the main methods of measurement in use in the U. e.the standard method of measurtnent of building works. civil. A coding system was then devised to segregate items of major and minor cost significance and classify items within these broad catergories. and repeating the process until significant results were obtained. Computer facilities are essential to facilitate data storage. mechanical and electrical engineering. civil engineering standard method of measurement and the .g.20 rule.12 cost-siginificant items from unpriced bills exists. The bills covered a very wide range of both civil engineering and building projects (from house alterations to reservoirs).K.£4. At the same time. Harmer (26) reported that PSA were carrying out studies to develop an estimating system based on the 80/20 principle.

6% of the total measured items' number.1 shows a sample of the results. and 17.22.6% of the total measured items' value.1% of the total number of measured items. CSI's account on average for 81. From the results. The purpose of the analysis was to find out the proportion of total value and number of measured items that cost-significant items represent.22. Building projects: CSI's represent on average 80.4% . The proportion of total value that CSI's contribute is termed the cost-significance value factor. when the bills are divided into the two broad groups of civil engineering and building.3%.3% of the total number of measured items. However.6% of the total number of measured items.84.5% of the . 2. while the proportion of the total number of items that CST's represent is the cost-significance numbers factor.13 method of measurement for road and bridge works. the following can be concluded: 1. prime cost and provisional sums were all excluded from the analysis.3°. The cost-significance value factor for civil engineering projects is significantly higher than that for building projects (Appendix I). 3.4% of the total measured value.87. with 2 in 3 bills containing CSI's in the range 80.5%. covering work for both public and private clients over the last ten years. Table 2.9% Of the total value of measured items. with 2 in 3 bills in the range 12.5%-22. 2. The definition of cost-significant items (CSI's) used in this analysis was those measured items whose individual values were greater than the mean value of all measured items. with 2 in 3 bills in the range 15.4% . with 2 in 3 bills containing CSI's in the range 14. the results are: 1.5% of the total number of measured items.of the total measured value.total value of measured items.85. The bills Were obtained from at least ten different sources. CSI's represent on average 18. Preliminaries.4%. with 2 in 3 bills containing CSTs in the range 76. Civil Engineering projects: CSI's represent on average 83. with 2 in 3 bills having CST's in the range 77. and 19.0 -6 of 0 the total number of measured items.4% of the total value of measured items. .

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000' class.9 <E1OOK Ntaabers factor 21.9 Another factor that seems to affect the cost-significance factors is the type of project.000'.000' class was significantly lower than that for the 'greater than £100.6-20.1. Building and civil engineering projects were classified into two value classes: 'less than £100.2 : Variation of value and numbers factors with project type and value Building Costsignificance Factors Value factor mean range in 2/3 of bills 78.7-20.4-84.5 82.6 14. The region.5-23. comparison of means test using the t-statistic was then carried out upon the cost-significance factors. The results showed that. whose . TABLE 2. water and sewer projects have a significantly higher value factor and lower numbers factor than roads and bridges projects at the 5% level of significance.5-82.4-24. No similar inference with similar significance proved possible for other types of projects from the available data.1 >MOE Numbers factor 16.£100. and 'more than £100. for building as well as civil engineering bills. the mean cost-significance value factor for the 'less than . at the 1% level of significance.1-79.000'.3 Price Distribution In Bills Of Quantities The high contribution to the total value of a relatively small number of items in bills of quantities produces a highly skewed distribution of prices. averaged for the 24 bills of table 2. Figure 2-1 shows a histogram of the relative number and value of items in every price range. 2.15 4. The cost-significance numbers factor for building projects is significantly higher than that for civil engineering projects (Appendix I).5 Value factor 81.6 76.3 21.7-87.5 11. For example.3 75. The effect of tender value upon the cost-significance factors was also investigated. A. Table 2-2 shows the results.5 Value factor 85.3 18. while the mean numbers factor was significantly higher.6 <float Value factor 77.6 78.7 Numbers factor 22.7 Civil Engineering nloca Numbers factor 17.

The relationship between any price level and the cumulative number of higher prices is shown in figure 2.17. equation (2. Both figures 2. In the figure.1) is integrated once: ( 2 . represents the cost-significant items (CSI's). it was decided to investigate how well a Pareto distribution fitted the actual distribution of prices.4 Fitting a Theoretical Distribution to Bill Prices Earlier attempts by Shereef (50) to fit theoretical functions to the distribution of prices in bills of quantities had unsatisfactory results.36). 2.3 and 2. Approximately the bottom 80% of the value in figure 2.1) . As the 80/20 rule is sometimes referred to as the Pareto rule.mulative sum of prices above a given price is plotted against the corresponding cumulative number of items. for the same 24 bills.4 represent average values for the same 24 bills of table 2.3. approximately.nd v+8v v = item value a.16 price range starts from the mean price. The plot also broadly confirms the 80/20 rule. represent the cost-significant items.11.34. 2.4.4 corresponds to the cost-significant items. Pareto's frequency density function was used as the basis for modelling the distribution of prices in bills of quantities. in percentage values.16.4 shows cumulative value versus item value. The cum. The frequency density function is of the form: n = where n = frequency density of items having values between v a.1 The Pareto distribution A number of writers have discussed the theoretical and statistical background of Pareto's work (1. Another way of conveying the bias in the distribution as well as the variation between bills can be seen in figure 2.K = distribution parameters In order to establish the number of items with values greater than any given value. the bottom 20% of the items.1. although the 80/20 rule was confirmed. Figure 2.2.

Histogram shoaing number and vatue of 'items for each price range (average of 24 bills). 70 60 50 40 ru.1. boa NU1VBER VALUE 30 20 10 CSI's 200 400 PRICE 600 800 ( % OF MEAN PRICE ) .17 Figure 2.

2. ) .40 g " 0 be 20 0 0 20 40 60 80 CUM. NO. Cumulative value versus cumulative number envelope (24 bills). Nv ( S OF TOTAL NO. 80 ••••n• > > uJ = 60 Ui -J < .▪ 18 Figure 2.

80 0 0 200 400 600 800 ITEM VALUE v ( % OF MEAN VALUE ) . item value (average of 24 bills).19 Figure 2. Cumulative number above 'item vaule vs.3.

20 FIgure 2.4. Item vaLue (average of 24 bILLs). 80 0 0 200 400 600 800 ITEM VALUE v ( % OF MEAN VALUE ) . cumulatIve value above Item value vs.

2) For each of the 24 bills. the mean item value..2) and (2. where T. using different minimum values of v. values of Nv and Vv were calculated at different values of v. The values of a and K were therefore obtained together with the correlation coefficient (r) for each set of data. Linear regression analysis was then conducted on the logarithmic form of equations (2. It can be seen that the Pareto's equations do not fit the whole distribution of prices in a bill of quantities. > The best fit was achieved for v min — is in the majority of cases.3) (2.dv Nv = K v-a Where Nv = number of items with values greater than any given value v.3).3) could be used to model the distribution of prices in a bill of quantities for all values of v greater or equal to if. it overestimates both the cumulative value ( 111)) and number of items (ND) greater than the mean. the correlation coefficients were unacceptably low.21 Nv = f n dv = f aKv(-"--1). The actual curves of Nv versus v.2) and (2. Although at v >if the Pareto model gives a reasonable fit of the actual distribution.v. The results for all 24 bills are shown in table 2-4. A typical set of results is shown in table 2-3. The averaged results for the 24 bills are shown in figures 2-5. It was therefore concluded that equations (2.dv = f aKv-adv aK Vv = — v a-1 (2. 2-6 and 2-7. For values of minimum v less than -V. Vv versus v and Vv versus Nv were compared with the theoretical curves obtained by using the values of K and a in table 2-4. And the value of these Nv items is Vv = f n v . This is so because the Pareto equation causes VT) and to increase unrealistically towards infinite values as the value v . but provide a reasonable approximation for values of v greater than or equal to the mean.

934 2.2 0.593 1.267 212.715 1.040 0.305 1.725 2. Bill No.028.674 557. Vo = £19.109 1.568 16.338 124.933 -0.881 -0.359 7.955 1.949 -0.440 1.427.168 1. using different minimum values of v.978 -0.890 15.6 0.943 -0.100 143.083 -0.0 2.788 Nv = Kv a N = 135 aK Vv = 3-=-T (t - -a a) 0.525 1. 1.253 117.916 7.0 4.674 1.238 -0.944 -0.254 1.508 11.941 38.144 72.085 1.524 1.978 -0.4 0.955 -0.949 -0.395 6.934 -0.913 -0.0 3.977 -0.0 6.980 -0.536 .8 1.22 TABLE 2.083 x 10 6 1.971 -0.423.551 288.3 : Results of linear regression analysis for bill number 1.935 2.

828.92 51.491 -0.528 1.031.949 1.795 1.88 1.684 1.360 -0.856.99 9.62 • -0.305 -0.99 12.518 1.960 54.629 473 776 134 Nv = Kv K a -a r* Vv n aK a .219 135 171 173 467 152 706 520 948 598 601 412 574 470 654 808 848 624 819 279 200 1.191 1.788 31.599 -0.91 376.160 -0.99 11.534.837 11.00 12.93 1.98 53.076.198 1.280 1.649 1.1 -a+1 r* 1 2 3 4 5 6 7 28.93 14.404 91.530 -0.379.806 1.316 64.99 99.690 73.789 -0.98 167.141 -0.545 1.99 115.367 -0.003 -0.95 75.95 0.771.429 -0.057 -0.210 1.979 1.308 1.376 1.771 -0.406 -0.99 79.99 482.598 1.083 1.97 359.511 74.060 -0.509 -0.278 1.97 3.95 968.790 77.41 -0.351 76.063 1.457 1.612 1.541 230.251 -0.690 1.007 1.580 -0.672 1.873 1.846.742 109.98 24.99 53.723.141 -0.91 68.068 -0.900 10.861 1.95 223.823 23.349 352.715 -0.559 -0.478 98.96 200.89 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 371.99 284.99 26.140 -0.96 407.242 1.877 1.590 -0.716 1.410 -0.546 1.93 346.740 -0.151 1.320 43.222 1.090 -0.34 -1.94 524.156 1.020 -0.715 -0.95 158.489 1.638 1.288 27.573 -0.99 15.779 1.96 288.98 146.95 3.560 -0.050 -0.894 1.021 -0.957 1.161 1.298 -0.972.99 150.710 1.210 -0.566.752 -0.288 -0.97 263.120 1.817 3.97 25.929 1.474.058 1.033 1.70 1.98 494.176 31.92 32.00 118.136 1.91 955.970 1.95 17.23 TABLE 2.376 -0.94 2.281 1.403 94.4 : Results of fitting equations (2) and (3) to 24 Bills of Quantities using linear regression analysis for vmin = Bill No Total Value Total Number of Measured of Measured Items Items Vo 19.384 1.449 -0.480 -0.94 * r: coefficient of correlation from linear regression analysis .95 41.300 -0.384 1.597 1.042 -0.337 -1.1821.99 89.750 -0.029.

5. CumuLative number above item value vs. item value for actrual and Pareto-fitted distributions (average of 24 bilis). 80 cc 60 -J t-- 0 40 bit 20 200 400 600 800 ITEM VALUE v ( % OF MEAN VALUE ) .24 Figure 2.

25 Figure 2. Cumulative value above item value vs. 80 200 400 600 800 ITEM VALUE v ( % OF MEAN VALUE ) . item value for actual and Pareto-fitted distributions (average of 24 bilis).6.

Cumulative value vs. NUMBER Nv ( % OF TOTAL NO. 0 20 40 60 80 CUM.) .26 Figure 2.7. cumulative number for actual and Pareto-fitted distributions (average of 24 bills).

5 Summary 1. Bills of value less than £100. The best fit is for items whose values are greater than the mean. Cost-significance factors seem to depend both on bill value and project type. 2.27 decreases. it was found that on average. concentrate estimating and control efforts on cost-important items. and analysing 85 bills of quantities covering a very wide range of projects.000 produce lower value and higher numbers factors than bills of value greater than £100. the numbers factor is lower.e. which are identified either by classification and experience gained over many projects.5% to the total value.000. The theoretical analysis shown in Appendix II confirms this conclusion.g. and 18. those items contributed 81. Using the definition of cost-significant items as those measured items whose individual values are greater than the mean value of all measured items.5% to the total number of measured items.561) that the Pareto equations lead to the well-known 80/20 rule. . 3. This implies that the 80/20 rule does not arise from the Pareto equation at the mean value level. or by defining cost-significant items as that predetermined fraction of items contributing a predetermined fraction to the total cost (e. i. it is at 0.80/20 rule). cost-significant items. For civil engineering projects. The Pareto distribution fits the price distribution in bills of quantities reasonably well. redesign methods of measurement to reduce detail and complexity in both building and civil engineering projects. b. It shows that rather than at the mean value level. 4. The amount of detail and complexity in bills of quantities has prompted the industry to: a. the value factor is greater than that for building projects. 2.

56 times the mean (Appendix II). as it departs from the actual distribution quite markedly for items with values less than the mean value. Pareto's equations can produce the 80/20 rule for items greater than 0. . 6. The 80/20 rule for items greater than the mean cannot be derived from Pareto's equations. However. Pareto's model is not accurate enough for prediction purposes.28 5.

What is of concern here is to establish the cost estimating performance at the most detailed stage. Estimates for different purposes may be produced in different ways. defined in the same way. The results of practical tests on the system are reported in Chapter 4. found that accuracy improved on larger and more familiar types of projects. The objective of this chapter is to use the principle of cost-significance as the basis for proposing an estimating approach that will both simplify the process of estimating and reduce the time it requires without adversely affecting the accuracy of the final estimate siginifcantly. hunches. The best achieved accuracy found by the PSA was 7% for large scale public housing. experience. This reinforces the Property Services Agency's (43) similar finding of a mean accuracy. Morrison established that the mean accuracy achieved by quantity surveyors was 12% with 2 in 3 estimates falling within the standard deviation of ±3. and the lowest acceptable tender recieved in competition for the project. Morrison (39) studied the estimating performance of quantity surveyors. i. estimating data. and the effect on final accounting in Chapter 5.e. By analysing about 900 estimates produced by seven quantity surveying organisations. . 3. Both. b.2 Evaluation Of Current Estimating Performace.29 CHAPTER 3 DEVELOPMENT OF A NEW ESTIMATING APPROACH 3. He defined the mean estimating accuracy as the mean deviation between the quantity surveyor's estimate produced by pricing the bill of quantities.5% of that mean accuracy. The accuracy of estimating is a function of these factors. and c.1 Introduction The previous chapter has highlighted the problems of detail. It has also been suggested that one way of dealing with these shortcomings is to modify the estimating approach in a way that reduces the effort and complexity in current estimating while retaining the bill of quantities in its current format. of 13%. in pricing bills of quantities. the PSA and Morrison. price bias and the inaccurate reflection of production cost in bills of quantities. Estimating is a process that is based upon three main factors: a.

Barnes (3) carried out a study of 159 completed civil engineering projects. He concluded that one in three estimates diverged from the actual net cost by more than 6%. Secondly. location.e. seem to perform better than quantity surveyors. building function and value. Barnes argued that this result would imply that a group of estimates for the same work would be likely to vary to the same extent. And fifthly. the best performance of quantity surveyors attempting to predict the value of the lowest tender would be equal to the level of variability found in the lowest tenders. Therefore.30 Morrison(39) claimed that there were five main contributing factors that produced such a low quality performance by quantity surveyors. the variability of the sources of data used in estimating would also affect the accuracy.9% in 2/3 of the cases. however.100% to + 100%. it will be necessary to make adjustments to take account of such factors as time. because it is impossible to control the circumstances in which cost data is generated. if profit . because two exactly similar projects rarely existed. Such adjustments would be another source of variation in quantity surveyors' estimates. and compared actual net cost incurred and estimated net cost. i. He claimed that lowest tenders varied by less than 6. Firstly he asserted that. Beeston (6) concluded from a study of quantity surveyors' estimating performance that estimating accuracy was 11% on average. Morrison claimed that the accuracy of any estimate would become dependent upon the suitability and quantity of the price data available. and he attributed that to local factors. Fourthly. quantity surveyors intuition and observed estimating variability using present methods in the best way under average circumstances. etc. site conditions.6% in 2/3 of the cases. He combined this with Skinner's (52) finding that the top 20% of the items in bills of quantities contributed 86% of the total value to conclude that the effect on the total estimate of the variability arising from inaccuracies in individual item estimates was a reduction in accuracy of 1. Morrison argued that the accuracy of the total estimate depended on both the variability of individual item estimates and the price distribution of items. market conditions. He claimed that 92% of the individual items' estimates varied in the range . Contractors. The third factor was the inherent error attached to the estimating technique. by definition. the accuracy of quantity surveyors' estimates could not improve upon the variability of lowest tenders.

was found to be 6. A chief estimator at a national contractor's firm quoted the author a figure of 0. The author carried out a study of the estimating performance of a major national contractor (46) on 68 tenders for jobs of various types submitted in the period 1983 to 1985.31 margins were excluded from tenders submitted for one project.construction method and the level of profit and overhead cost. The tendering accuracy defined as the mean variation from the lowest tender.4%. contractors estimate at a resource level. especially those which were of higher cost-significance.2% with a standard deviation of 5. choice of labour output rates. and pricing preliminaries in detail. The reasons for the better accuracy achieved by contractors as opposed to quantity surveyors stem primarily from the different approach to estimating that each follows. he showed that the large number of low-cost items exerted a negligible influence upon the total tender accuracy.E4 to price one item in a bill of quantities. using more uptodate cost information. He asserted that the reason for variation in tenders was 90% due to estimation of net cost. taking into account the methods and timing of construction. Whereas quantity surveyors produce estimates on a quantity-related basis. The PSA report (43) which also claimed that contractors' tenders varied (from the lowest tender) by an average of 6%. Another facet of contractors' estimating performance is the cost to the contractor of preparing a tender. stated that the main reasons for the variation in contractors' estimates were the assessment of labour cost. Whatever the actual cost to the contractor of the estimating process.5% of the value of the tender to price the bill of quantities. This finding was also implied in the PSA report (43) that estimating accurcy was closely linked to high-priced items. Barnes (3) claimed that on average it cost the contractor . and 10% due to differing profit margins. Moyies (40) suggested that it cost the contractor 0. Moyles (40) suggested that improvements in contractors' estimating performance would be achieved if contractors spent more effort in the assessment of labour and plant costs. it is obvious that . the variation of tenders from the actual net cost would also be within 6% in 2/3 of the cases. plant costs. Futhermore. using cost data derived at best from previous similar projects. and price preliminaries as a lump sum.25% of the value of the tender.

analysed and recorded in a way which would encourage a more significant and realistic approach to estimating and project control. standard deviations and the coefficients of variation of both cost-significance value and numbers factors at the different levels of cost-significance. not only will the cost go down. For every bill.5%.1 was carried out to investigate this relationship. contractors lose up to half that margin in estimating costs. 3. The following important points can be drawn from the . and to reduce the time spent pricing the high proportion of low cost items which does not have a significant effect upon estimating accuracy. In other words. on average. it would encourage estimators to direct their thoughts to such items. One important conclusion from the above discussion is that improvements in estimating performance of both quantity surveyors and contractors would stem from a shift in emphasis towards the high-cost items. At the same time. Table 3.1 shows the averages. If the bill items of greater cost significance could be readily identified. In other words.32 considerable savings may be achieved if the size of the bill of quantities or the number of items to be priced is reduced. but also the number of tenders the contractor will be able to submit will increase. Further analysis of the 24 bills of quantities of table 2. Moreover. at a level of cost-significance (sr) equal to the mean (Ti) the cost-significance value factor a) equals 81. The results were averaged for the 24 bills. thus increasing his chance of winning more work. if the time spent on estimating is reduced.significance level (-Cr) and the cost-significance value factor (a) . cost data could be collected. the cost-significance value factor (a) and numbers factor m) were calculated at different levels of cost-significance ranging between one tenth and ten times the mean value () of the measured items. This seems to suggest that a relationship exists between the cost. 81.5% of the total value of measured items. on average.3 The Concept Of Cost-significance It has been shown in the previous chapter that the mean value of measured items in a bill of quantities defines the value above which lies. especially if one considers that in these competitive times contractors win at best 1 in 5 of the tenders they submit (46). assuming a profit margin of 5% of the tender value.

00 10.4% 16.0% 15.4 42.64 7.4% 10.2 34.55 0.44 1.77 3.8 75.0% 15.8 14.00 5.85% 1.0% 15.4 64.2 8.5% 27.3 94.56 9.40 5.61 1.4 30. averaged for 24 bills of quantities Cost-significance Value (% of total) Factor a 98.33 TABLE 3.8% 31.8% 14.46 2.5% 17.5% 17.61 9.9 7.0% 25.00 8.0% 5.40 0.2 51.33 1.9% 16.00 2.50 1.5 96.25% 0.7% 8.0% 26.4 Standard deviation 10.41 0.45 0.00 8.00 .0 53.6% 23.82 6.0% 4.35 1.0 Standard Deviation 0.00 4.51 9.59 10.0 19.50 6.24 0.30 0.9% 17.2% 2.7 11.20 Coefficient of variation 0.9 37.30 8.40 0.24 4.85 9.8 5.35 8.50 2.1% 16.80 1.10 0.3% Cost-significance Numbers (% of total) Factor m 66.8 4.3% 24.6 32.7 28.3 41.7 36.5 2.2% 17.6 61.5% 17.3% 21.4 3.00 1.42% 0.37 Coefficient of variation 15.1 The relationship between cost-significance levels and costsignificance value and numbers factors.30 7.10 1.25 0.0 90.2% 17.5 69.00 6.9 48.50 3.7 1.2 1.74 0.2 81.3 2.2% 36.2 92.5% 16.3% 12.46 0.97 2.29 5.00 9.8% 21.20 0.5% Costsignificance Level x=4/9 0.00 7.

at any given level of cost-significance (x). Similarily. It can also be seen that at low levels of cost-significance. summing their prices and dividing the sum by the appropriate cost-significance value factor. if the cost-significant items at any level of cost-significance can be identified.1c). 2. then the total value of measured items may be predicted by only pricing those cost-significant items. This can be seen from the corresponding coefficients of variation. where x=irlir. and therefore is less reliable than the corresponding value factor even at low levels of cost-significance (figure 3. 3. the cost-significance value factor (a) varies slightly from bill to bill. the cost-significance value factor (a) represents the fraction of the total value of measured items that the cost-significant items represent. The accuracy of the prediction will .34 results: 1. This specified value is the cost-significance level which can be represented in value terms () or as a fraction (x) of the mean value of measured items (T. the results lead to a general definition of the concept of cost-significance. where x=/v.). say at x<1. has a rather high coefficient of variation. however. This can be seen from figure 3-1d. indicating that the cost-significance value factors are quite reliable.0. the cost-significace numbers factor at any level of cost-significance. 5. variation in (a) increases linearly with the level of cost-significance (x). The cost-significance numbers factor(m) therefore represents the fraction of the total number of measured items that the cost-significant items represent. Cost-significant items will be defined as those measured items in a bill of quantities whose individual values exceed a specified value. the coefficients of variation are very small. 4.

COST-SIGNIFICANT LEVEL >2:LJJ UJ =D _J nC nC —J • nC LJ CD UL CD 40 = u_ 40 n—• 20 200 400 600 800 0 0 200 a C-S LEVEL (. OF MEAN VALUE) aoo UM C-S LEVEL OF MEAN VALUE) UM Z 35 UJ Z CD U 30 LL •--4 25 UJ L./ > 20 LL IS Z 35 UJ U P. Figures (c) and (d) show the co- efficients of variation of the C-S factors at the different Levels of cost.n 30 UL U— s•-n 25 UJ CC CD nC 20 LJ • •' U0 IS 10 5 200 4 00 600 800 0 0 200 400 600 800 u—.1 80 03 Z z 60 COST-SIGNIFICANT VALUE VS. OF MEAN VALUE) Figure 3.1.▪ 35 COST-SIGNIFICANT NUMBER VS.< 10 C-5 LEVEL (7... OF MEAN VALUE) C-5 LEVEL (7. ./. averaged for 24 bills.significance. COST-SIGNIFICANT LEVEL Z UJ CD CC LL. The relationship between cost-significaree numbers and value factors and the costsignificance(C-S) Level.

and that cost-significance level (9). 3. Let Vo = total value of measured items. this relationship can be symbolised as: Vv = f(v) (3.4. This serves as a basis for a new estimating approach. V9 =sum of items' values whose individual values are greater than 9. the value of cost-significant items equals 90.4 Theoretical Basis For A New Estimating Approach 3. 0 Consider figure 3-2. = any item value. aN Vv= —v (3. a = cost-significance value factor = V9/Vo. = cost significant items' value at a level of cost-significance = = = cost-significance level as a fraction of 1). In mathematical terms. and the sum of items' values (Vv) above that item value. Table 3-1 shows that for any value of 9.5v -. The curve represents a typical relationship between any item value (v). at a level of cost-significance 9=0. N = total number of measured items.2%(±3.36 depend on the aecuracy of the factor used. Vv = sum of items' values whose individual values are greater than v. there exists a corresponding value of a. For example. = mean value of measured items = Vo/N.i.1 The basic equations. = cost-significance level in value terms.1) The slope of the straight line in figure 3-2 represents the ratio between the cost-significant value (V9)at a certain cost-significance level 9.e.2) The point of intersection of the straight line and the curve defines both .5%) of the total value of measured items in 959-' of the cases.

Vv. 37 the cost-significant items' value(Vir). and consequently a better approximation of the value of the cost-significance level (v 9) will be This is N represented by point 3 in figure The sum of all measured items whose again divided by the cost-significance value factor (a).3) If an initial guesstimate (Vo) 1 . The sum of all measured items whose values are greater than v 1 .or Vir/a.2 Iterative solution of equations (3.1).1) and (3. had the Pareto equation. (2. but only for values of v > ii. and the value of the cost-significance level from which.1) and (3.. the cost-significance level(x) and the corresponding cost-significance value factor (a).2) is not possible without fully defining the function f(v) in equation (3.3) serves as a reasonable approximation of the relationship between Vv and v. If this value is . a better estimate (Vo) 2 of the total value is obtained. Moreover. In chapter 2 it has been demonstrated that the Pareto equation: VI/ = a-1 v(1-a) (2. and had a and K values been known.e.2) (3.Vv i . the total value of the measured items can be calculated as N. In other words.)2 values are greater than v 9 .I. a better estimate x(VI.2) would have been possible as: [NI (a-I) 1-a Vo = a (1_1 without having to price any items. 3.1) and (3. i. However. the values of a and K vary from one bill to another. a direct solution of equations (3.. a direct solution of equations (3.3) been a good representation of the whole distribution of items' prices. of the total value of measured items is made. If this value is divided by the cost-significance value factor (a) which corresponds to the chosen level of cost-significance (x). then an approxiamate value of the cost-significance level (v 1) can be calculated as v = x(Vo) N This is represented as point 1 in figure 3-3. knowing the total number of measured items (N). is represented by point 2 in figure 3-3. is represented by point 4. and a level of cost-significance (x) is chosen.4.

---x.2..38 Figure 3. n*.7 ITEM VALUE v . CumuLative vaLue (Vv) above item vaLue (v) versus item vaLue (v) .

0 times the mean value in 97.1 to 2. and consequently a better approximation of the value of the cost. where n = number of iterations plus one.0 were consequently calculated. The following is an example using bill ' number 11 of table 2-1: True value of measured items. It is also shown that the rate of convergence is higher for lower chosen levels of cost-significance.960 total number of measured items. it will converge on the actual cost-significant value (Vii) from which the actual total value of measured items may be calculated as (Vo) n = Vo = — . known) bill value. a It is shown in appendix III that the iterative procedure will converge for all levels of cost-significance that lie in the range 0.C3.significance level (v 3) will be N .x=1.0 (50%) of true value) corresponding cost-significance value factor a=0. Vo=.1 and 2. If this procedure is repeated a sufficient number of times. (V0) 1 =121. x(Vo)3 Initial approximation of Vo.5% of the cases. N=412.514. multiplied by the appropriate cost-significance value factor. a value of the measured items for each bill was assumed between 50% and 200% of the true (and in this case. it was tested on 24 priced bills of quantities.818 Approximate value of cost-significance level v 1 .(Vo)i/N .x. and the process repeated until the difference between two sucessive iterations was less than 1%.980 Level of cost-significance chosen.029. As a first approximation.5 Experimental Results Of Using The Iterative Procedure On Priced Bills Of Quantities So far it has been theoretically established that the iterative procedure can produce the total value of measured items by only considering the prices of a certain proportion of items depending on the level of cost-significance chosen.39 (Vo) 3 of the total value than (Vo) 2 is obtained. Then for each level the value of all items greater than the approximate level value was calculated. The approximate values of the levels of cost-significance ranging between 0. This is represented by point 5 in figure 3-3. 3. In order to prove that the iterative procedure does work in practice.

3.40 FLgure 3. Iterative soLutton of equatLons (3.1) and (3. Vv.2) .(aN/x)v 4 Vv-f(v) VI V3 V2 ITEM VALUE v .

repeated using different levels of cost-significance.220.105.C3.C3.220 which was within 1% of (Vo) 4 .41 V1 = £3. but at the expense of considering the prices of a higher proportion of items.057.667.190 total number of items >. The results also support the finding in the previous section that the iterative procedure has a higher rate of convergence. Nv i =124.210 Similarily.C8255 Vv2 = 2.401.667.782.501. Therefore.105. assessed by the lower number of iterations required.105.667 were picked up total value of items >L3. Vv i = 2. (Vo) 3 Vv27a =L3.160 Nv 2 = 72 Third approximation of Vo.677 All items of value >. The results confirm that the accuracy of the iterative procedure increases as the level of cost-significance drops. v2 = x (Vo)2/N -=-. Results of applying the iterative procedure to 24 priced bills of quantities .1% of the total number of measured items. at lower levels of cost-significance. (Vo) 2 Vv i /a =£3.653 Two more iterations produced (Vo) 5 =L3. The results are shown for one bill in table 3-2. produced by only considering the prices of 30. the final approximation of measured items' value =L3. The procedure was repeated using an initial approximation of twice the true value. which is 2. The procedure was also.48% above the true value.220. Second approximation of Vo. The final approximation of Vo was again £3.

1) 2 3 3 3 .046.5 45.3 0.130 3.6 57.4 0.350 3.140 3.01 0.1 0.48 2. of iterations (n .158.9 0.570 3.7 30.980 Costsignificance Level.105. (Vo) n 3.53 2.5 2.1 23.220 3.5 1.42 TABLE 3.290 3.0 Final approximation of Vo.6 41.960 N "412 Initial approximation of Vo = 0.076.030.5Vo = £1.62 4.2 0.660 No. no.075.109.2 Results of applying the iterative procedure to bill number 11 Bill number: 11 Description: Bridge Vo = £3.67 1. % of N 70. 3 4 4 4 Error x 100% [(Vo) n . of items considered.55 0.3 50.514.0 1.1 18.050.49 1.029.260 3.25 .Vo]/Vo Max. x 0.

6 •U 0 4. %0 0 pl •-• 0 0 C. 0 4-1 0 1.0 N • 0% • 0 V st 0 L 00 V". 0 C4 00 ••• 0 4. 4.▪ 43 144 0 O 0 cu 00 • Z PI 41 01 .4 4)1..I • 4 ) 4) 00 4.4 Ce% in %0 4.10 .0 1.0 0% en el 0 • 0% • 0% N ea 0 03 Lel Lri • 0% CO • Ooo • N In 0 • • • • • 0 0 0 0 0 ul • .' • • .- CO r4 r•• .n N Milli a% 0 o CSI 0 .1 .4' • C4 Ien • CO 0 4. di 0 a+ 14-1 0 00 0 &4 °3 t-t Cr% 01 s..1 11 0 1r4 UI .0 ON 0 4. • C'.4 CO • 0 0 -4 Irl 1../ • C%1 0 4.? 1./ • en • sz• 0 4.4 00 O.0 0 f". C 44 • 0 r•-• N 44 • •••' CA N 4.3 in 0 rs.4 0 0 C4 .1 0C4) 0 1.1 al 0 • 0 N 0 • 0 0 • 0 N C.0 ul .•4 a N en el en n1' 14 0 a •-s 4.4 • 0 0 0 0 0 1 1 4.1 .0 ii .1 U0 CJ U CO • r•I t1. 14 1.7 -4' in n••0 es. • 0% VI • en el un in in C4 cm 0 to Z a/ 0 • l•-• 0% • 0 in r.. hi • 0 0 .. e4 .4 UI 03 0% • U') o oo o %.1 I • r4 0) O.n • -7 c0 0 1. • es in • 0 VD In • VD 0 CA • ••• r•• Col .. 0 LI at 0 0 0 0 .0 0 VI . .1 • 0 N 4.1 I g 111) 4-4 .

44

in the same manner as above are shown in table 3-3. A number of conclusions can be drawn from the results: 1. convergence was achieved at all the chosen levels of cost-significance for all the tested bills, confirming the theoretical findings in the previous section; 2. the error in the final approximation increased as the level of cost-significance increased; 3. the lower the level of cost-significance, the more items' prices were needed; 4. faster convergence was achieved at lower levels of

cost-significance; 5. in 2/3 of the cases, the error in the final approximation lay within the range ± 6.2% depending on the chosen level of cost-significance. This implies that provided the cost-significance value factor is accurately predicted using historical bill data, and continuously updated using new bill data, the iterative procedure is capable of producing estimates at reasonable levels of accuracy by only pricing a proportion of the measured items. This is the basis of a new estimating approach - iterative estimating. 3.6 Iterative Estimating 3.6.1 Basic procedure With a little modification, the iterative procedure can be used to determine the total value of measured items in a bill of quantities by only pricing a proportion of the items. The procedure is as follows: 1. Guess the total value of measured items in the bill of quantities. (Vo) 1 2. count the number of measured items, N 3. choose the level of cost-significance, x ;

45

4. calculate the approximate value of the cost-significance level, v1 .x.(Vo)i/N 5. mark in the bill all measured items expected to have value greater than v ' and count their number Nv • 6. if the number of marked items, as a fraction of the total number, falls within a predetermined range then price all those items, otherwise go to step 10. Calculation of the range is explained in the next sub-section 7. calculate the sum of all items >v 1 , Vvi 8. obtain a closer approximation (Vo) 2
to

the total value by

dividing Vv i by the appropriate cost-significance value factor, a, that corresponds to the chosen level of cost-significance x 9. repeat steps 4 to 8 , using (Vo) 2 , until (Vo) i - (Vo) i_ i is acceptably small. 10. If Nv. does not lie in the predetermined range, multiply v. byx., where x. is the cost-significance level corresponding to the closest range into which Nv i lies, and return to step 5. 3.6.2 Explanation of steps 6 and 10 It has been established earlier in this chapter that for every cost-significance level x,. there exists a corresponding cost-significance value factor a, and numbers factor m. which vary about a mean value (table 3-1). Table 3-4 shows the range of values of m in 95% of bills corresponding to any value of x. If at the chosen level of cost-significance x, the estimator marks Nv items, then had the first estimate (Vo) i been correct, Nv N (=rni) would have fallen in the range of m corresponding to x. But v = x 1 .13 and xi) = correct value of cost-significance level therefore = XI v 1

46

Table 3-4: The 95% ranges of cost-significance numbers factor corresponding to the 8 levels of cost-significance. Costsignif. level,x

0.1

0.2

0.3

0.4

0.5

1.0

1.5

2.0

Costsignif. numbers 0.47 factor,m to (95% 0.86 range)

0.35 to 0.68

0.28 to 0.57

0.24 to 0.49

0.21 to 0.43

0.14 to 0.26

0.10 to 0.19

0.08 to 0.14

but as m1 corresponds to x 1 then x 1 will be that cost-significance level in whose range of m values m/ lies. Therefore if m 1 does not lie in the range of m corresponding to x, then a better estimate of For example: Let the chosen level of cost-significance x= 1.0 let the number of marked items Nv i. = 0.35N, i.e.m1=0.35;
as m 1 does not fall in the range 0.14 to 0.26 corresponding to x=1.0,
V

will bexv1'

and the closest range m 1 falls into corresponds to x1=0.5; therefore modify v 1 by a factor = x/x i = 1.0/0.5 = 2. Another point to consider, however, is that when the estimator starts marking items whose value may lie above v 1 , he will come across some items of whose values he may not be confident which he will mark just in case. Moreover, he will probably fail to mark some items whose values are in fact greater than v 1 . The overall effect will be that he will mark more items than in fact lie above v 1 . Therefore Nv will be overestimated. To allow for this, the upper limits of the numbers factors should be increased in proportion to the extra items incorrectly marked, say by one standard deviation. Table 3-5 shows the modified version of table 3-4 having taken into account the above effect. It must be stressed here that the application of the modification factor (x/x i ) simply has the effect of improving the initial estimate, and has no

4 0.16 .5 1.22 0.5 Ranges of cost-significance numbers factors corresponding to the 8 levels of cost-significance.47 to 0.5 2.1 0.47 TABLE 3.3 0.0 1.56 0.29 0.76 0.2 0. Ranges are modifed to allow for overestimation of number of marked items.10 to 0.0 Cost-significance numbers factor.28 to 0.14 to 0.08 to 0. Costsignificance level.65 0.96 0.35 to 0.21 to 0.24 to 0.48 0. m (modified range) 0. x 0.

(Vo). as a fraction of Vo.g.Vo a a Vo-e Vo aa e e c -1 - therefore.Vvn)/Vo Define the error in iterative estimating as the difference between the final iterative estimate (Vo) n and the conventional estimate Vo. i.e. 4) e. a = value of cost-significance value factor used in iterative estimating. Vv= value of cost-significant items by iterative estimating. the ability of the estimator to identify all the items whose values lie above a specified value. if an estimator fails to identify a number of items which turn out to contribute 1% to the total. and if the correct cost-significance value factor is a. (Vo) = iterative estimate of Vo a = correct value of cost-significance value factor.e. ee = missed cost-significant items' value as a faction of the measured items' value = . as is .841 (at x=1. i. the accuracy of the cost-significance value factor used (a). 2. Let Vo = total value of measured items.6.0). 3. e t = (3. e e =19. =0.48 bearing whatsoever on the value of the final estimate.3 Accuracy of iterative estimating The accuracy of iterative estimating depends on two main factors: 1. = correct value of cost-significant items. = Vre.-Vo e t = Vo Vv but (Vo) .

012 = 1. This means that it is more likely for the difference between the 'correct' cost-significance value factor . then et = 0.818 0.e. without pricing.01 -1 0.028 . 49 the case for bill number 11 of table 2. The choice of the cost-significance level for the purpose of iterative estimating is governed by the following main factors: 1. they will have an ample chance to direct their efforts towards improving the accuracy of the prices of those items and consequently the overall accuracy of iterative estimating. the ability of estimators to identify. This increases the chance of missing items as the chosen level of cost-significance drops.0. the variation of the cost-significance value factor a : it was shown earlier in this chapter that. the iterative estimate will be 1. from the analysis of 24 bills. 2. is that estimating accuracy in general is largely dependent upon the accuracy of the high cost items.6. 3.818 (mean value for the 24 bills of table 2.6% i. One point to bear in mind however. the items with values greater than the value determined by the cost-significance level: the price distribution of items in bills of quantities (figure 2. As estimators using iterative estimating will only have to price cost-significant items.1). while the estimator uses a factor a=0.1.4 Factors affecting choice of cost-significance level.841 0. and the accuracy of the final estimate suffers consequently. Therefore this factor makes a choice of higher levels of cost-significance more favourable.818 = 0.1) reveals that more items lie at low levels of cost-significance. the coefficient of variation of a increases as the level of cost-significance increases.6% higher than the conventional estimate.

Using the concept of cost-significance levels. the following points need to be considered: i. Therefore. 3. that the first two factors have a direct effect upon the accuracy of the final estimate. Moreover. the value factor (a) exhibits reasonably small variation (coefficient of variation = 4%). the desired reduction in the estimating time: the number of items to be priced. and the number of items to be priced is generally less than 30%. and consequently the estimating time drops as the chosen level of cost-significance increases. 3. in order to choose an optimum level of cost-significance. For the purposes of testing iterative estimating in practice. 2. it has been shown that there exists a relatively stable relationship between . time savings achieved using iterative estimating provides a chance to increase estimating turnover. the estimating turnover iv. Therefore.7 Summary 1. the required level of accuracy ii. with an adverse effect on accuracy. the time available to produce an estimate. At this level. Savings in time however. The mean estimating accuracy achieved in the construction industry is 12% for quantity surveyors and 6% for contractors. therefore. it was decided to use a level of cost-significance (x) equal to one. will enable more accurate pricing of cost-significance items and consequently of overall accuracy to be achieved.50 and the chosen factor for any bill to increase as the chosen level of cost-significance increases. this factor encourages the choice of a low level of cost-significance. A shift of emphasis towards high-cost items both improves the overall accuracy of estimating and reduces the time spent in pricing the large proportion of low cost items. the estimator's skill and experience iii. whereas the third factor affects the estimating time. It can be seen. 3.

51

cost-significance levels (x) and corresponding cost-significance items' values represented by cost-significance value factors(a). 4. An iterative procedure has been developed using the relationship bewtween (x) and (a) which enables the prediction of the total value of measured items by only considering the prices of a proportion of the number of measured items. 5. The iterative procedure has been shown to converge for all cost-significance levels between 0.1 and 2.0 using the data available. 6. A new estimating approach-iterative estimating- has been developed based on the iterative prodedure. 7. The accuracy of iterative estimating is a function of the variation in the cost-significance value factor (a) at any given level of cost-significance(x), and the ability of estimators to identify items whose prices are higher than a given price. 8. Iterative estimating has been tested in practice. The results are reported in the next chapter.

52

CHAPTER 4 TESTING ITERATIVE ESTIMATING IN PRACTICE - A CASE STUDY 4.1 Objectives
This case study involves research carried out in the estimating department of a large national construction company over a one month period with the following objectives: 1. to study the present estimating approach at the firm; 2. to analyse priced bills and estimating performance; 3. to carry out live tests of iterative estimating on projects to be tendered for by the firm • Bill price analysis and subsequent testing of iterative estimating were carried out at a level of cost-significance x=1.0. 4.2 Bills Of Quantities And Estimating Performance Analyses. Fifteen priced bills of quantities were analysed to establish the cost-significance value and numbers factors at the x=1.0 level of cost-significance. The results are shown in table 4.1. The last six bills were priced using conventional and iterative estimating and subsequently analysed. The bills covered both civil engineering and building projects tendered for in the previous three years. In some bills it was noted that certain sections which were sublet to domestic subcontractors were not priced item by item. Lump sums appeared frequently for a number of items. In analysing those bills two approaches were used: 1. groups of items which had one lump sum were considered as one item, cost-significant or otherwise depending on their price: 2. the number of items with lumped prices were considered when calculating the total number of items. but when cost-significant items were isolated, each lump sum was considered as one price. The second approach tended to increase the value factor by up to 2.5O.

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Tender accuracy averaged 6.7%.54 In bill number 6. using the first approach a=0. 4. nominated subcontractors. The numbers factor. coefficient of variations =3.2%). An assessment is also made of the labour. and succeeded in one in every five tenders. whereas using the second. This results in . plant and materials content and value.818. and hence the second approach was generally used.2% with a standard deviation of 5.a lower mean value. own work and preliminaries. however. If management decides to tender.854. bills of quantities etc. had a mean of 0. The analysis showed that the mean value of the cost-significance value factor was 0.3 Present Estimating Approach The estimating approach is summarised in the estimating procedure chart shown in figure 4. with a coefficient of variation of 3.1. and a decision whether to tender or not is made.4% for 68 analysed tenders. and consequently more bill value to accumulate above it. As regards tendering performance. for example. compared with 0.0% for the 24 bills. hence the higher value factor. An assessment of the value contained in each component is made. not too many items were lumped into one price. The tender report is then considered by management. a=0. the firm secured 17% of the total value of the tenders. however.25% of the tender value.198 and 15. In his report the tender is broken down into its various components of provisional and prime cost sums. This result compares extremely well with that for the 24 bills analysed in the previous chapter (mean value factor =0. Estimating cost was quoted to be approximately 0. This result is expected because using the second approach.163 and a coefficient of variation of 15. the total number of items considered is higher than that using the first approach. the estimator studies them and prepares an initial tender report. An initial estimate of the total tender is hence proposed. In most cases.7%. in the form of specifications. When the tender documents arrive.818. drawings. the estimator will collate the bills of quantities for the issue of inquiries to . out of 163 tenders over the previous three years.879.

i. In conjunction with the contracts manager. The estimator and the planner will then both issue the inquiries according to an agreed division of work. the bills of quantities will be submitted to the client at this stage. He will also carry out a comparison and selection process of domestic suppliers' and sub contractors' quotes which will have started to arrive by then. . finance. design fees. The estimator will start pricing the bill items mainly by building up rates for the majority of measured items from labour . the estimator and planner will embark on calculating and pricing preliminaries. risk and profit margins. and design any required temporary works.g. mainly civil engineering projects. in which estimates are presented. In some cases. Decisions will consequently be carried out. sundries. and labour. general services. the item rates will all be extended. provisional sums. market conditions.55 domestic suppliers and subcontractors. location. adjustments made and the tender will be finalised and submitted to the client. personnel.material and plant contents. After the pricing process is completed and after receiving the majority of the suppliers' and subcontractors' quotes. Decisions will be taken according to many factors including risk. project complexity and 'gut feeling' based on experience. the planner will then prepare a programme. plant and materials contents are abstracted. A continuous process of 'chasing' quotes will be in operation by the estimator and the estimating services section. nominated subcontractors. plant. temporary buildings. The estimator and planner will then arrange for a site visit in order to familiarise themselves with the site conditions. contigency and adjustments.e. and take note of any conditions that may affect cost and duration of the project. measured work and preliminaries. and the bill total obtained. This is done following a standard procedure which defines the various components of preliminaries cost under a number of headings. At the tender settling meeting. prime cost sums. work load. own subcontractors. fluctuations. The estimator will then prepare a finance statement which is similar to the initial tender report. planner and contracts manager will discusg the tender with management. the estimator. overhead. e. After pricing the own-work items. and consider any necessary adjustments.

56 21 11 O A 1102 a a .

e. four working days. mark in the bill all items expected to have value greater than the mean r) i . Derivation of the modification factor is explained in appendix IV. the following . and count those items (N-))1. multiply (Vo)i by the modification factor [(Ni4 1 1 (0 . by the number of measured items No. e. i. In order to minimize the amount of extra time involved in applying both estimating procedures.-(Vo)i is acceptably small.19 No)1 084 to obtain a better initial estimate. 4. 5.4 Testing Iterative Estimating. 3. 2. 7. For tenders where bills are not required at this stage. 8. Guess the total value of the measured items (Vo)i. 6. if 10% <(Ni5) 1 < 30% of the number of measured items (No) then price all marked items. obtain a new approximation (Vo) 2 to the bill value by dividing (Vi3) 1 by the mean value of the cost-significance value factor calculated from analysis of historical bills.0. calculate a mean value of those items by dividing the initial guess (Vo). the bills will have to be submitted within a short period. if the firm is chosen as the successful tenderer. does not lie between 0.(Vo)i/No.57 before the determination of the successful tenderer.3 No. calculate a new mean value 152 = (Vo)2/No. 4. if (Ni)). As a result of the choice of the level of cost-significance at x=1. .g.1 No and 0. 4. and return to step 2. go to step 9. If not. calculate the sum of all items' prices which are higher than T)i. 9. This sum is (Vi))1. the iterative estimating procedure was modified as follows: 1. repeat steps 3 to 7 until (Vo)i±.5 Application Of Iterative Estimating It was initially decided to test iterative estimating alongside the conventional method used by the firm.

pricing the marked items accurately. the six tenders related to building projects ranging in value between . the number of measured items ranged between 200 and 2. no more marking of items in further iterations would be necessary. and spot pricing all other items.C250. The initial objective of comparing iterative estimating with conventional estimating was therefore modified to comparing: a. and b. From the results. 2. an estimating approach where the high-cost items (initially marked) were to be priced accurately with a complete build-up of rates.58 decisions were made: 1.C3. This would cause the number of marked items to be more than otherwise expected. it was the estimator's view that because spot pricing of the low-value items was a very fast process and should not cost a comptent estimator any significant time or effort. This comparsion was carried out on six tenders. and all other items were to be spot priced. the following points are noted: 1.2 and 4. The results for the six tenders are summarised in tables 4. and because clients expected reasonable prices against all items in the bill.300. all iterations were to be carried out on an already priced bill. Although strictly speaking iterative estimating does not require pricing any items other than those marked.500 . Once the estimator had completed the marking process above.3. But as long as the number was within the 30% limit. iterative estimating enhanced by the fact that apart from initially marking the high-cost unpriced items. The results fcr the first two tested tenders are detailed in appendix V. The initial guess of the value of measured items was to be kept deliberately low. he would go through the bill.000 and . 2.000. it would be wise to have a price against all items.

defined in the same way.6 Discussion Of Results The main purpose of this exercise was to determine the viability of iterative estimating as an alternative to the conventional estimating approach practiced by the firm. the cost-significance value factor averaged 0. with 2/3 of the tenders' accuracy falling in the range 0-7%. Iterative estimating would have won the firm one tender instead. was 3. 8. with 2/3 of the iterative tenders falling in the range -2. 6. the average accuracy of the firm's tender.3% of the total number of measured items.1% to 1. 4. which compares favourably with the results for the 85 bills analysed in chapter 2 (average 0.59 items.4% to 5. 3.6%. a running mean value of the cost-significance value factor from previously analysed bills was used for iterative estimating. The average accuracy of the iterative tenders. 7.815. the difference between the iterative tenders and the firm's tenders was on average -0. The amount of the adjustment was intuitively defined. defined as the percentage difference from the lowest tender.7%. two out of six tenders were won using the firm's tender values. and coefficient of variation = 5. for every tender.810 with a coefficient of variation of 4. The overall performance of iterative estimating may be judged in terms of three main factors: . 5. The running mean was adjusted in each bill to be priced to take account of the lumping of prices in sub-contractors' quotations. 4. using iterative estimating the maximum number of items priced was 28. with a range of 0.0% of the firm's tenders.4%. The value factor was chosen before the total bill value was known. would be 2.6%.0% in 2/3 of the tenders.0%).

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61 TABLE 4.28 3.05 6.94 0 4.33 -0.37 1.38 9.50 10.50 Iterative Tender 0.39 4.25 11.3 Tender analysis of the 6 tested tenders.86 3.94 2.10 Highest Tender 8. Tender Number Tender Position of Firm's Tender Tender Position of Iterative Tender 3rd 7th 1st 3rd or 2nd 2nd 3rd % Difference from Lowest Conventional Tender 0 1.22 3.56 1 2 3 4 5 6 tat 6th 1st 3rd 2nd 3rd .50 9.

9%).4% to 5. Firstly. time saving. This implies that the iterative estimate will exhibit a corresponding variation of ± 0. the tender variation will therefore be reduced by that fraction. The main factor causing this variation is the choice of the cost-significance value factor. 4.+3. which compares with the actual variation (±3.7% and a 2/3 range of 0. The corresponding values for the iterative tenders were an average of 2. The analysis of tendering performance of the firm has shown that the tendering accuracy achieved averaged 6. The second consideration was the ability of the estimator to pick up all items above an .9% for 2 in 3 estimates. with 2 in 3 tender falling in the accuracy range of +0.6% and varied from the average by -±1. nevertheless the results do seem to indicate that iterative estimating produces comparable tendering accuracy to that of the firm. with a 2/3 range of 0-7%. 3. Although it is clear that the size of the sample (6 tenders) prevents any sweeping conclusions to be made.029/0. Experience gained from the study of this effect in historical bills was used to quantify the amount of modification needed.4%.5%. the historical averaze value of the factor was modified slightly to account for lump sum quotes from subcontractors.6%.8% to 11. and varied by + 0.029 for 2 in 3 bills.0%. 2. level of accuracy. typically 30% to 70%. a number of considerations were taken into account. From the results. averaged 3.818.6% for 2 in 3 tenders.62 1.2%. The achieved tendering accuracy of the six tested tenders. ease of use. In choosing the value of the cost-significance value factor.1 Level of accuracy. As for the difference between the iterative estimate and the firm's estimate. however.6. However.818. as the iterative estimate relates to the measured items only which represent a fraction of the total tender. As explained earlier this would tend to increase the value of the factor.9% and varies by ± 3. the results show that it averages -0. It has been shown earlier that the value factor for the firm's analysed bills averaged 0. the difference between the iterative and the conventional tenders averaged -0.

tenders. 4. Secondly. If no spot-pricing was to take place. which can easily be assessed through simple tests of skill in picking up unpriced items above certain price levels. thus reducing the effect on the final estimate.g.22%.63 initial guessed mean price. eagerness to win the tender.2 Time saving The estimator's approach to estimating which started with an initial guess of the measured work value.1% and 1. because of the spot-pricing process. It was observed that in all six tenders the estimator initially missed some items. then picking and accurate pricing of items above . and therefore no allowance was made for their effect. Another factor that will affect the overall accuracy of iterative tenders is the pricing accuracy of the high-cost items. however. to make up for that predetermined fraction. he was able to identify some of the initially missed items. As iterative estimating reduces the number of items to be priced so drastically.etc.818=1. e. and consequently. or the value factor used. he would have to modify either the total estimate. and as he got more fimiliar with the items and prices. or reduced under less competitive circumstances. determine the fraction of the total tender he would normally miss. ranged between 0. In this exercise.6.01/0. and the consequent effect on the iterative estimate would have been a reduction in that estimate by up to 0. upon consequent pricing.0% of the total tender value. A third consideration in choosing the value of the cost-significance value factor is matters relating to tendering policy. The value of those missed items. in the light of experience and tendering performance over a number of previous iterative tenders. Such policy decisions may be accommodated within iterative estimating by modifying the value factor. and will therefore end up with more accurate prices. For example. the estimator will have more time to concentrate on the pricing of the high-cost items. however. all the initially missed items were identified. the value of the factor may be increased in highly competitive tenders. firstly. But as the estimator • went through the pricing process of the marked items. competitiveness. It has been shown earlier that the accuracy of high-cost items is the major determinant of the overall accuracy of tenders. the estimator would have to.

are of too small a value to warrant a rate build-up. Some bill items. This sum is subsequently spread amongst the relevant bill items. Unit rate estimating involves building up a rate for individual bill items from their labour. to which some allowance for profit and overheads is added. iterative estimating would only offer a saving in estimating time if some of the operations were non-cost-significant. or in the case of computer-aided estimating. The remainder of the work is conventionally estimated in one of three ways: operational estimating. Hence. The estimator involved with this work used the rate build-up method for the majority of the measured items.g. whether iterative estimating or conventional approaches are used. If the principles of iterative estimating are involved. unit rate estimating and spot-pricing. The six tested tenders all related to building projects and operational estimating was only applied to about 5% of the work items. excavation work. In building projects. Instead. and spot-pricing of all other items resulted according to the estimator in a 50% saving in his estimating time. For projects undertaken by the firm in question. no time saving is achieved in this part of the estimating process through the use of iterative estimating. The extent to which rates are built up as opposed to spot-pricing varies from one estimator to another. e. he had been able to double his tendering turnover. For such items. however. they are spot-priced. having adopted this approach to estimating for almost one year. Those sections of the work which are to be subcontracted need not be estimated by the Contractor's estimator. However. the estimator can quickly identify the 70% of the items which are . a price is allocated to such items automatically from a price data base. and consequently its cost in the form of a lump sum.64 above the guessed mean. the resources needed to carry it out. 30% of the work is typically subcontracted. Operational estimating involves defining a work operation. mainly due to the larger plant element in the latter. in order to understand where such time saving lies one needs to consider the various methods of estimating applied to the bill items. operational estimating is used to a much lesser extent than civil engineering projects. The proportion of subcontracted work items vary greatly from one firm to another. plant and material contents. The estimator claimed that.

4. it was found that the iterative estimating prodecure was very easy to apply. and for which a spot price will suffice perfectly well. If the contractor decides to accept and include those quotes in his tender.0. Iterative estimating has been tested on six 'live' tenders. In this exercise. Subcontracted Operational Unit rate Spot estimating build-up pricing Work Conventional Iterative Estimating 30 30 5 5 60 20 5 45 This accounts for the saving in estimator's time. This can be made very simple if the process is computerised. especially when the iteration part was computerised.6. The only potential difficulty is in relation to sub-contractors' quotes. 4. some quotes arrive so late that the estimating process will have been completed.3 Ease of use. and it enables them to identify those items with confidence. at a level of cost-significance x=1.64A non-cost-significant.7 Summary 1. iterative estimating offers the advantages of providing a sound theoretical basis for allowing them to spot-price 70% of the items. . For estimators who would conventionally spot-price a •higher proportion of items (than 5%). In some instances. One of the advantages of iterative estimating is that the contractor using the method does not need to change any of his existing procedures because iterative estimating aims to reduce the number of items which have to be priced and does not affect the way in which the price is compiled. then it will be a matter of modifying the list of the initially picked items and maybe carrying out the iterative process again. and fitted smoothly within the pricing framework used by the firm. The table below illustrates the way in which iterative estimating reduces the number of items for which the estimator must build up a rate.

Iterative tenders varied by -2. more tests have to be done to confirm this finding. 6. The effect of pricing cost-significant items only. b. especially if the process is computerised. and consequently of the tender. This saving applies mainly to the items that would have been estimated using unit rate estimating.8% to +1.65 2. However.87. Iterative estimating is simple to implement. on average. the proportion of cost-significant items that the estimator failed to identify ranged between 0.4% from conventional tenders. The reasons for the difference between iterative and conventional tenders are: a. 8. estimating time may be significantly reduced. slightly lower and more consistent tenders were produced using iterative estimating. Time saving could be used in improving the pricing accuracy of the high-cost items. .77 and 0. 7. the cost-significance value factor varied between 0. using iterative estimating. and consequently the chance to win more tenders. 3. Because iterative estimating leads the user to identify the high proportion of non-cost-significant items on which the estimator needs not spend any significant estimation time ana effort. and to operations of non-cost-significant value. 5. and fits smoothly within conventional estimating procedures and pricing frameworks.10% and 3_0% of tl‘e tender value. as well as increasing tendering turnover. on variations and final accounting is dealt with in the next chapter. 4. Comparison of iterative and conventional tenders indicates that.

and some items simply undergo a change of quantity. In the real world. specifications and bills of quantities can take one of two forms: a. It is the objective of this chapter to propose a number of alternative methods of dealing with variations as applied to iteratively estimated tenders and to assess the effect of each method on the final account in comparison to conventional practice. From a study of 32 completed contracts Barnes showed that on average variations to the work accounted for an increase of 11% of the tender value. specifications and bill items is carried out exactly as defined. for the purposes of financial control and interim payments to the contractor. work which is no longer required. How then can variations and interim certificates be valued if only 30% or fewer of the bill items are priced? If work as defined by the drawings. variations to the defined work in terms of extra work. adjusted by the cost-significance value factor. it has been standard practice to have a rate against the majority of bill items. variations may imply that some items are omitted.2 Variations In Tenders Variations in construction work from the initial definition incorporated in drawings. b. The most detailed study of variations in tenders was carried out by Barnes (3). 5. omitted work and changed quantities are an inherent characteristic of construction. however. some items undergo such change in quantity or definition that necessiates a renogotiation of rate. This was broken down to: a. However.1 Introduction Iterative estimating has been shown to produce total tender values of reasonable accuracy by pricing only a proportion of the items in a bill of quantities. 12% increase due to increased-quantity items. Valuation can be simply based upon the cost-significant items' prices.66 CHAPTER 5 ITERATIVE ESTIMATING AND VARIATIONS 5. some altogether new work items are added. . therefore. with no variation taking place then the answer is simple. extra work required In relation to bill items.

producing final accounts values which do not differ significantly from conventional practice. the effect on the final account of variations in the 80% least value items would be even less significant. Alternatively. He claimed that if the 80% lowest value items were not priced. if the 80% lowest value items were priced very inaccurately (e. 30% increase due to new and changed-rate items.0 is capable of producing reasonably accurate tenders. producing reasonably accurate tender sums. 10% decrease due to decreased-quantity items. then on the one hand the accuracy of the tender total would not be significantly different from that had all items been priced to the same accuracy (e.g.g. and d. Barnes's work confirmed that the potential exists for reducing the number of items to be priced . Barnes also investigated the relationship between item value in the bill of quantities and the variation upon its value in the final account. the effect on the final account would be a mere 0.67% of the total final account value. He showed that the 80% lowest value items changed on average by 1. and it is a matter of proposing new simple methods capable of: 1. but instead an allowance for their total value were included in the rates for the remaining associated items. while the reamaining items were priced accurately (e. 21% decrease attributed to unused items. to an accuracy of ±72%). On the other hand.g. and 3. the overall effect would be even less significant. If the adminstration cost of pricing those items were taken into account. or the effort in pricing bill items. It has already been shown that iterative estimating applied at a level of cost-significance x=1.67 b. with the advantage of saving a significant proportion of estimating time. to ±12%). 2. c. a reasonable method must be found of dealing with . to ±13%).6% change. dispersing the climate of contention surrounding the pricing of variations. Before progress can be made towards reducing the understandable reluctance to introduce the system.

The total value of measured items is calculated using iterative estimating. the fraction of the total value that non-cost-significant items (NCSI's) represent is assumed in all four methods to be (1-a). the total value of measured items in final account will be made up of the original CSI's and the extra 'cost-significant' items.0 level of cost-significance to produce a tender value. The value of variations relating to CSI's is increased by a factor 1/a. To compensate for those items. Extra work items of less value than the mean value calculated using iterative estimating are ignored in the final account. and those items which undergo such variation that new rates are negotiated and agreed. 3. All four methods rely on the use of iterative estimating at the x=1. extra items with greater value than the mean are increased in value by a factor 1/a.68 the final account. a. 2. extra items are defined as totally new items relating to new work required.3 Proposed Methods For Dealing With Variations Four different methods of dealing with the pricing and valuation of variations in individual bill items were investigated. 5.3. cost-significant items (CSI's) are those items which have values greater than a mean value arrived at using iterative estimating. Hence. 4. 5. and is equal to the total value of CSI's divided by the value factor (a). The common features of the four methods are: 1. both increased by a factor 1.1 Method 1 Using this method. the same cost-significance value factor (a) is used in all four methods. the estimator would only insert in the bill prices for CSI's. only measured items are considered in the analysis. while NCSI's are left unpriced. . Preliminaries. This is the main concern of the rest of this chapter. 5. the cost-significance value factor used (a) is the average factor obtained from analysis of the user's own historical data. prime cost and provisional sums are excluded. 6.

let: S t = sum of all measured items' values in the tender.4. However. Therefore. a = cost-significance value factor. The value of variations relating to CSI's is increased by a factor 1/a. The only difference is that instead of pricing NCSI's.3. such that their sum makes up the fraction (1-a) of the total value of measured items. all bill items would have prices inserted against them. 5. S f = sum of all measured items' values in the final account: V f v total value of the tender's CSI's in the final account: total value of the tender's NCSI's in the final account: E = sum of the values of all extra items in the final account. they would be priced roughly (spot-priced) providing that their total value equals (1-a) times the total value of measured items. 5. equally.3. 5. 5. NCSI's are priced equally and the prices inserted in the bill. and variations are calculated in relation to those prices just as they are conventionally. .3. The total value is arrived at in the same way as Method 1. the estimator would only insert in the bill prices for CSI's.1 Notation In conventional practice. while NCSI's are left unpriced.4 Method 4 This method is similar to Method 3. v t = total value of NCSI's in the tender.3 Method 3 The estimator would insert in the bill CSIs' prices as before.69 5.2 Method 2 Again. to which is added the value of all extra items to obtain the final account value.4 Effect Of The Proposed Methods Upon The Final Account. V t = total value of CSI's in the tender.

the corresponding values to S t . a'' 'f ' V'' v'' E' respectively. ' R' f f t The value of CSI's not identified by the estimator using iterative estimating may be taken to be of the order of V t . (see figure 5-1).Vf v f +k --.3 to be: ee a -1 e t = — .final account value of CSI's missed by the estimator. The level of cost-significance is taken as the tender value of measured items. section 3...E hence the error in the final account using this method is .10) Define the error in the final account value using the four proposed methods as: ef = (Si . a. Vt . section 3.V. r = total value of extra CSI's as a fraction of E. the fraction that missed items represent of S t is: V t -V ' t ee — s t (c. E '..E ) } / St a but V f v =-- r c Vt n vt f == r = r n (1-a) St and Vi = Vf .2 Error using Method 1 S ' =— + f a' and Sf = V V' f rE' a f + v f -I.. Using iterative estimating.6. hence. a measure of the variation in CSIs' value. assuming the missed items to vary between tender and final account as .r (ef) 1 = { T .f. 70 rc = Vf/Vt .. S P V P v f' E are S'' V t'' v s'.4. rn = vf/vt . - a a (3.Sf) /St 5. a measure of the variation in NCSIs' value. vt .3) The accuracy of the iterative estimate has been shown in.6.

1. ITEM VALUE v 1 .71 Figure 5. Sources of error in iterative estimating .

a ' r r .(Vt . It can be assumed therefore that: E E' Therefore.r. it is expected that renegotiated rates may vary slightly between conventional practice and using Method 1. it is reasonable to assume that the value of new items is independent of the existing prices of bill items. some CSI's: new rates will be the same conventionally and using Method 1.1) / St a therefore (ef) = rc a a I. especially if the renegotiation process is not affected by the zero rates inserted in the tender.V t a r V c t rn (1-a)S t + 1) / St = But V — St 1 e.72 would the rest of the CSI's. (5.St. some NCSI's: as NCSI's using Method 1 will have zero rates.S t) rc As extra items include new items and changed-rate items.r e t c - rc V t . renegotiation of rates will involve: a. (e1) 1 = Vree. b.1) r .a rii(1-a) St 1) .(ee .rn (1-a)St + . Moreover. It is not likely that this slight difference will have a marked effect upon the total value of the final account.S. then Vi = Vf .Vt') rc = Vf .

e e( r c -r n ) (ef)3 (5.Vf .e.vf + (E' . and E' E.v' t Verification of this assumption is shown in appendix VI)therefore. 5. otherwise it is similar to the error of Method 1.r n . c a a The equation indicates that the error is independent of extra items.3 Error using Method 2 Vf' S' = + E' f a' and S f = V f v ±E hence (ef) 2 = [ V.E) / St Using the same assumptions as in Method 1 concerning the variation of the missed CSI's.4 Error using Method 3 S f' = Vf' and E' S f = Vf v f E from Method 1: e = rV .3) .St s c ct Assume that the equally priced NCSI's using Method 3 will vary in total by a fraction equal to that had they been conventionally priced.4. v' = rn.e.a .73 5.e et 'S t and assuming as previously: E' = E it can be shown that e t .2) el a .4.r(1-a) (ef) 2 r I — . .r . i. it can be shown that ( 5. v' = rn (1-a') =r V' "a (1-a') n and using: V' =Vt .

r. as a percentage of the tender value of measured items.5 Error in Method 4 S f = V f' and S f = V f v f v E' E From Method 1: rc V t . From the results it can be concluded that .e e .74 5. - 5. Therefore.e e S t ) — f a' and assuming as previously E' = E the same expression is obtained for (ed 4 as that for (ef)3' i.5 Analysis Of Tenders And Final Accounts (5.= -= r hence. a number of priced bills and their associated final accounts have been analysed. The data relates to 15 completed contracts covering both building and civil engineering projects. vf v f .1. The average contract value is £400. The values of CSI's and NCSI's were abstracted from the bills and final accounts. are spot-priced using Method 4.4) To quantify the amount of variation between tender and final account. CSIs' tender value dropped on average by 8%.e.. (ed 4 = et .S t' r c Barnes (3) has demonstrated that very inaccurate pricing of the 80% least Vf = valued items. . it can be similarly assumed that the total variation of these NCSI's will be equal to that total variation had all the items been priced conventionally.ee (r. while pricing the rest of the items with reasonable accuracy will cause a negligible change in the variation of those low-value items. 1.000. As the NCST's. The results are shown in table 5.4. as well as the values of cost-significant and non-cost-significant extra items. which represent about 80% of the measured items. as in Method 3 r v' = u (1-a') (V t . as opposed to pricing them reasonably accurately.

at most. . and 4. The results are shown in table 5-2. the mean error in the iterative tender is zero. again Methods 3 and 4 produce the minimum errors. then Methods 3 and 4 will produce tenders undervalued by 1.2% and 1. If this value is used in calculating the errors while still using a'=0. Therefore. averaged for the 15 projects.2% and 2. However. then this average will not be statistically different from the real average associated with future tenders. Therefore. tender errors caused by the use of the historical average will tend to cancel out.837. the factors a. NCSIs' tender value dropped on average by 2%. the tender value of measured items increased by 4% in the final account. When this value is used in iterative estimating. 1.837. rc . a'=0. r and E/S t were calculated for every project. in 2/3 of the cases they will have errors in the range ±4.2% and final accounts also undervalued by 0. e. whereas the corresponding figures for Method 1 are 1. in the long term.1%.8% on average.4%.9%. and Method 2. both factors were varied to depict the effect upon the resulting errors. 3. rn . The mean value of (a) for the 15 projects was found to be 0. In order to investigate the effect of the four methods of dealing with variations. Extra items' value represented on average 14%.5%. 5.3.2 have been used to calculate the tender error (et) and the final account error (ed using the four proposed methods. The results are shown in table 5. Method 2 will produce a final account undervalued by 1% on average. i. in the previous chapter it has been shown that the fraction of missed items e e was. For individual tenders however.6 Errors In Tenders And Final Accounts. As the tender error depends on the choice of the cost-significance value factor (a') and the fraction of missed items (e e). This implies that if a sufficient number of historical bills of quantities has been analysed to obtain an average value of (a).837. Methods 3 and 4 produce zero errors on average with 2 in 3 final accounts having errors in the range ±4. As to final account errors.75 2. approximately 1%. The results in table 5. and assuming e p=0.

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834 0.781 0.671 0.969 0.150 0.156 0.835 0.835 0.808 0.720 1 0.986 0 0 0.007 0.942 0.837 0.006 0.912 0.791 0.058 0.114 0.942 1.950 1.841 0.836 0.329 0.002 0.777 0. Project number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 mean standard deviation a r c r Eis n 0.752 0 0.994 0.889 0. NCSI's and extra items.872 0.148 .972 0.298 0.014 0.865 0.000 0.282 0 0.903 0.863 0.117 0.879 0.951 0.859 1.950 1.142 0.007 1.871 0.881 0.273 0.361 0.961 0.836 0.879 0.783 0.792 1.037 0.932 0.838 0.228 0.847 0.919 0.241 0.811 0.675 0.731 0.762 0.710 0.801 0.896 0.958 1.018 0.735 0.77 TABLE 5.784 0.922 0.890 0.106 0.2 The value factors representing a measure of the variation with respect to CSI's.208 0.323 0.001 0.056 0.

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and the final account errors are very small overall. In table 5. When they use iterative estimating. In short. provided an accurate average cost-significance value factor is determined. If estimators assess their skill in identifying. However.3 that Methods 3 and 4 always produce final account errors closest to the tender errors.847. 5. it would seem that Method 4 is more appropriate to use than Method 3. Methods 3 and 4 produce an average amount of variation very close indeed to conventional methods. CSI's.3 this effect can be seen from observing the errors values when a'=a-e e = 0.01. and because clients expect reasonable prices against items in the bill. It has been shown from the results that Methods 3 and 4 produce average amounts of variations very close indeed to conventional methods. of approximately ±4.0. 0.837-0. it can be seen from table 5.01. with short term errors. the following advantages of the former can be concluded: . In other words. on individual projects. compared with other choices of (a') and (e e ).827. for winning tenders prepared using iterative estimating. Moreover. Method 1 second.5% of conventional tender value of measured items in 2/3 of the cases. Another important finding can be drawn from a consideration of the most probable value of ee . However.00 and 0. and estimators assess their performance in identifying CSI's.0% and +0. and ee . therefore. The average tender error equals zero. iterative estimating can achieve accurate tenders and final accounts in the long term.79 Using other values of a'. the average error of the four methods ranges between -1. without pricing.01=0.827 and 0. they can improve the resulting tender and final account accuracy by reducing the average value of the cost-significance value factor (a') by an amount equal to the predicted value of e e . and e e =0. because the spot-pricing process is a fast process involving little effort from a competent estimator. and Method 2 third. Comparing Method 1 with Method 2.3%. they will be able to predict a value of e e .7 Critique Of The Four Methods. in order of least resulting final account errors. Methods 3 and 4 come first. which implies a reasonably similar performance of the four methods.

80 a. there is no need to assess extra work of non-cost-significant proportions. b. Hence. b. Method 1 has the following advantages over Method 4: a. the choice of the method to be used may be limited to Methods 1 and 4. the adoption of Method 1 requires some consideration and modification of the revelant contractual aspects to facilitate its use in practice.8 Summary 1. Therefore. there is no need to assess variations associated with non-cost-significant items. Method 4 has the advantage of a slightly smaller final account error and of producing variations which are very close to conventional ones. Previous research has shown that the size of bills of quantities can be drastically reduced by eliminating non-cost-significant items without any significant effect on final account. However. there is no need for the valuation of extra work of non-cost-significant proportions. and more time is saved using Method 1 rather than Method 2. Four methods were proposed to assess variations for tenders priced by iterative estimating: . and c. It follows. there is no need to price non-cost-significant items. 2. 3. the decision to use either method will depend on the weight the parties involved will attach to the advantages or drawbacks of the two methods. therefore. the final account error is slightly smaller. that more accurate results may be achieved. Conventional methods of assessing variations in construction work involve considerable effort with disproportionate returns in the assessment of variations in non-cost-significant items of work. 5.

all items in the bill will have a reasonable price. 4. inserting equal extended prices requires calculating the rates for all NCSI's if these are to be inserted. Method 4: Non-cost-significant items are priced roughly to give a sum equal to (1-a) times the total. Compared to Method 2. Method 3: Non-cost-significant items are given equal prices such that their sum represents a fraction (1-a) of the total.81 a. 7. spot-pricing NCSI's is a very fast process. 6. with a short term error range of ±4. c. Although Method 4 produces slightly more accurate final accounts than Method 1. Analysis of 15 historical bills and final accounts has shown that the four methods produce very accurate tenders and final accounts in the long term. the latter offers the advantage of a saving in . b. Method 1: Variations in cost-significant items and in extra work of cost-significant proportions are increased by a factor 1/a. Method 1 is more appropriate to use than Method 2.5% in 2/3 of the projects. Hence. Variations are assesed as they would be conventionally. 5. d. c. Method 2: Variations in cost-significant items are increased by a factor and added to the value of all extra items. Method 1 produces slightly more accurate final accounts. and does not require the assessment of extra work of non-cost-significant proportions. This adds to the time to be expended using Method 3. b. Method 4 is more appropriate to use than Method 3 because: a. and variations are assessed as they would be conventionally.

82 time and effort since no work of non-cost-significant proportions is considered in the pricing and evaluation process. However. the choice of the method to be used depends on the weight attached to the advantages of either method by the parties involved. .

to identify the advantages and shortcomings of those methods. 6. to discuss the need to integrate the processes of control.1 Introduction The problem of cost and time control in construction has been tackled by many researches and practitioners. 3. 2. 6. to propose.2 General The process of construction control consists of the following essential functions: 1. In this chapter. 3. to propose potential solutions to such problems. monitoring progress with respect to the forecast. 2. it is intended to review the main methods of construction control in order to identify the shortcomings as well as the advantages of such methods as a preliminary step towards proposing a new control system.3 Forecasting Forecasting involves the preparation of time and cost estimates. 6. The main considerations of this chapter are therefore: 1. to review any existing integrated control systems and the problems encountered in such systems. as a result of the above review. 5.83 CHAPTER 6 A REVIEW OF PROJECT COST AND TIME CONTROL SYSTEMS 6. forecasting the cost and time elements of the project. the main features of a new control system. . 4. to review the main methods of construction control proposed for or practiced in the industry. controiling cost and time b y comparing actual performance with that forecast and acting to correct any adverse variances.

large computerised networks did not give the necessary control and quick response that was expected of them. Davis(20) revealed that most firms which used the Critical Path Method (CPM) only used it for planning the job. among other things. Management would then draw the conclusion that network analysis was either unworkable or not really applicable to the project in hand. Europe and U. Although the use of bar charts is more widespread than the use of networks.13.K. He argued that the large amount of printouts. the ability of networks to model the interdependency of construction activities makes them a more useful basis for modelling project durations. summaries.37). the planning techniques on 18 construction sites in the U. As for the use of these systems.20). The full potential of the method has therefore been hardly realised.14.A. Hence. Birrel (8) argued that one of the reasons was that CPM was originally developed for military projects which had few resource constraints. He therefore concluded that CPM did not cater sufficiently for cost and resource objectives and hence was not sufficient as a tool for control.S. . many of which are based upon the Critical Path Method (8. let alone digest.84 6. made it very difficult to read.1 Time estimates The most common time estimates (plans) take the form of bar charts and networks. power station . and did not refer to it as the work proceeded in any control capacity. Lester (37) claimed that it was the tendency towards producing complicated networks through the use of computers that was the main stumbling block for efficient use of network techniques. Networks can be of two types: activity-on-arrow and activity-on-node (precedence) networks. Other firms used it as a sales extravaganza or in response to clients' requirements. A large amount of research has been carried out in this field. such output.3.27. A report by NEDO (41) supported Lester's argument. and a significant number of time planning systems have evolved.K. The use of these methods is explained by many writers (10.etc. reports. while cost savings and efficient use of resources are major priorities in other types of construction. The report compared. The report found that although a great deal of sophistication went into programming U.

to aid the assessment of the effect of variations. The objectives of a cost estimate can be summarised as follows: 1. to forecast cash flow. they did not indicate how to recover the situation. they do not reflect the way in which costs arise during construction. 4. and pointing out where action must be taken. intermediate techniques have to be developed to reduce the effect of these . and for their direct use in cost monitoring and control. The range of cost models and the methods of preparation of cost estimates have been discussed earlier in the thesis. and at its best be an accurate model of the construction processes. 5. to define the money payable to the contractor. to forecast future resource requirements. 6. schedules were overrun. though they might show how badly one had done.85 projects. Firstly. and seccndlythey contain too much detail for estimating. to supplement specifications for quality control. It follows therefore that until the format of bills of quantities is modified in such a way as to overcome the above drawbacks. One of the reasons sited was that complicated networks were useful in developing an initial programme. but has to represent the cost breakdown of the construction project. 3. These suffer from two basic drawbacks. 7. to provide a standard for evaluation of performance. permitting simple and rapid feedback. What is of concern here is the favourable features that a cost model will have which will provide a reasonable basis to link the estimating to the monitoring and subsequent control functions. The current cost models in use in the construction industry are bills of quantities. to provide a basis for tenders. Networks need therfore to be simplified. 2. A cost estimate may be produced by different methods. It has been shown earlier that cost models based on an operational basis serve the above objective well. 6. but subsequently.2 Cost estimating Cost estimating is the other facet of the planning and forecasting functions.3.

each defined in terms of a number of conventional bills of quantities' items (55).86 drawbacks. data collation in a way that allows direct comparison with the plan. Thus a work breakdown structure will result.4 Monitoring The main purpose of monitoring the progress of construction projects is to effect control by comparing factual with planned progress. Its use in estimating and evaluation of variations has already been demonstrated in previous chapters. and secondly the elements of construction that need to be controlled. The data collection activity involves the recording of progress information relating to cost and time elements of construction. One technique is the use of the principle of cost-significance. data allocation through the use of a coding system. Incorporating the principle of cost-significance within a project breakdown structure would provide the extra advantage of reducing the amount of unnecessary detail. Jackson(31) also proposed a functional (operational) model of construction totally based on CESM. and 3. If cost-significant items (CST's) are grouped together in a meaningful way. the units of which are cost-significant activities. The monitoring process involves three basic activities: 1. 6. The collected data needs . work packages and bill items. The idea of forming meaningful work operations from bill items is not new. the amount of data required within any monitoring system is determined by plan and control objectives. Hence. These packages will represent work operations and may be used as the basic blocks for cost and time control. An example of this process is shown in the next chapter. Guidelines for this packaging process are outlined in the next chapter. 2.M items. Moreover. data collection. cost-significant work packages may be formed. in order to further simplify the use of work packages in the monitoring and control functions. The design of a monitoring system has to take into consideration two basic factors: firstly the form in which the project is planned. The principle can also be used in the subsequent monitoring and control functions. The Building Research Establishment's proposed bill of quantities operational format contained meaningful site operations. similar or 'like' work packages may be grouped together to form cost-significant activities.

due to the reduction in data and the inambiguity of the operations. it might be limited to selected and more significant items. concentrating upon the cost-significant elements of construction would reduce the amount of data to be collected. Harris and McCaffer (27) asserted that in monitoring systems where coded cost headings are used. Thirdly. Fourthly. simple coding of collected data may result from the proposed work breakdown structure.5 Control 6. Warszawski (62) argued that as control was variance oriented rather than cost oriented. and the monitoring and control functions on the other. misallocation of collected data items increased significantly as more cost headings were used.87 to be coded for identification and subsequent collation. A work breakdown structure as suggested in the previous section may provide a stepping stone towards an ideal monitoring system in a number of ways. with a few (about 15) cost headings to avoid gross errors. They concluded therefore that there should be a drive towards using 'coarse' coding systems. Having produced a planned bar chart or network of the . 6. And fifthly. Firstly. there would be less chance of misallocation and more understanding of the process. The idea of limiting control. However. to high-cost elements of construction has been suggested by a number of writers. the amount and complexity of data collation and manipulation for subsequent use in a control capacity would be reduced. because all these functions would be based upon meaningful units which are site operations. Cooke (18) stated that if there were a modest number of highly significant cost items in a bill of quantities.1 Time control The majority of time control systems use bar charts or project networks as their basis. Secondly. then there would be sound logic in limiting control to those items. and therefore monitoring. The number and complexity of codes depends on the degree of detail required. greater numbers and complexity of codes breed inaccuracies and inertia in staff who operate the monitoring system. it may provide a practical link between the monitoring and planning functions on the one hand.5.

C. data needs to be collected and analysed in short and regular time periods.88 project activities. and analysis results are to be clear. Warszawski(62) argues: . Variances may be: a. For this to be possible. Therefore. Quantity variance may also be applied to material usage. The use of computers will be advantageous especially if they are installed on site. and variances established. cost variances: variances between estimated and actual unit or total cost may be the criteria for control. b. 2. which is encouraged by the computing potential. and the tendency to increase the amount of detail in input and output.5. simple to produce and not too detailed. This will highlight the areas where management attention and possible action are needed. productivity variances: productivity of workers and machinPs may be monitored against that expected. modify and update the plan using factual progress data.2 Cost control There exists a number of cost control systems in use in the construction industry. they are all attempts at establishing variances between expected and actual performance figures. therefore. complexity of networks is to be avoided. quantity variances: the difference between the amount of work done and that expected indicates where management action may be required. Cost control may be based upon one of the two following procedures. compare collected data with plan for each activity and establish any time variance. Control. 6. Although the systems may vary in the principles they encompass and the methods by which they are synthesized and applied. It is of prime importance that any variance from plan is identified in time for action to be taken. is restrained. can be achieved in two steps: 1. data on progress need to be collected and compared to plan.

. and employs the following principles: a. 2. standard oriented cost control: this procedure is based upon physical or economic standards. purely historical information is produced.g. 2. may be budgeted and controlled in the same way as activities directly associated with output.g.89 1. the procedure focuses on expenses which are controllable by site management (e. controlling the variance between estimated allocation of resources for an activity. with accurate measurement. there is complete compatibility between the budgeted and recorded input quantities. b. 3. The advantages of standard oriented over revenue oriented control are: 1. Overruns can be spotted and traced. based on accepted standards. all control operations are performed within the accounting system. The main features of this procedure are: a. and between budgeting and scheduling. comparison of costs and revenues is carried out. indirect project activities. control is input rather than output oriented. and thus no direct management action is prompted. it allows recording and storage of productivity data for future use. focusing on input variances allows management by exception. it can only be applied if payments to contractors are on a measured basis with unit rates. and their actual expenditure. administration and facilities set-up. c. not overheads and profits). revenue oriented cost control: basically. c. b. accurate profits may be calculated. e.

A number of systems developed for the purpose of cost control have been developed and used in the construction industry. This provides unit costs which can be compared with those in the tender. payments for labour. however. are divided by the quantity of work of each type that has been done. systems based on the principle of standard costing: for each type of work. variances are calculated basically by comparing the value of the output with the cost of producing it. Time update of the network provides . The figures are normally extracted from the financial accounts. unit costing: costs of various types of work are recorded separately. the elaborate coding system and data handling involved. 4. 5. plant and overheads. by overall profit or loss: at contract completion the contractor compares the sums of money he has been paid with the costs incurred in purchasing materials. the large number of distinctive activities and associated resources required. are: 1. PERT/COST: this system involves dividing the project into work packages and 'networking' them.90 The limitations of standard oriented cost control. 3. an alternative approach is to assess the value of the work done in relation to the contract budget which in turn must reflect the amount that the contractor can expect to be paid. both cumulatively and on a period basis. To reduce the difficulty of applying such a system in construction. Harris and McCaffer (27) described the following systems: 1. The values of work packages are assessed in advance. subcontractors. 2. The costs. 2. profit or loss on each contract at valuation dates: the total costs are compared with valuations.

3. Data is collected on costs.91 the value of work done as a 'by-product' of the calculations. The value can be related to cost code. 2. To the above. and 3. ReasonaNe targets are set and clear instructions are given. random cost checks applied to selected operations to indicate the actual outputs being achieved. A control system should be able to pick out the variances caused by each . variances can be calculated. price per man-hour. but that may be off-set by savings resulting from improved productivity. provided that the work package information is similarily arranged. outputs and conditions of work and compared to expectations. when incurred costs are recorded against the same codes. 2. pre-targeting operations: the work is developed by various management consultants and research organizations. quantity of work performed. Cooke (18) added three more control techniques in use: 1. short term planning/cost control: this involves the preparation of weekly plans of cost and value of proposed work for that week. The elements of cost to be controlled in a construction project are labour. and takes immediate action while the work is in progress. This system is most suitable with the use of operational billing. man-hours per unit of work (productivity). Supervision and cost control coalesce when the management monitors the work as it takes place. Labour (and plant) cost is com posed of the following elements: 1. plant and materials. Thus. The method involves detailed weekly planning and organizing the work so that the operations and sequence of work Dow smoothiy. This method is costly in terms of specialist planners.

apart from attempting to obtain reasonable quotes. but not cost variance. Actual progress is then compared to the schedule. purchasing cost. and a significant amount of literature deals with this aspect. Actual man-hours and work quantities are collected to enable a comparison of actual and bugeted productivity. 3. d. Amongst the main conclusions of the study was that material wastage on construction sites could be most effectively reduced through a change of attitudes towards waste. c. a provision for wastage. cost analysis: the least complex cost analysis consists of comparing the actual unit cost of work to that budgeted. acquisition cost.92 of the preceding elements. Balancing acquisition and holding costs involves the use of operational research techniques. Teich°lz (59) stated that the methods of labour cost control were: 1.58) commissioned a study of materials wastage on construction sites. Data on cost. man-hour analysis: for each work • operation a budget of man-hours per unit of work is prepared. Material cost consists of the following elements: a. transport cost. and the use of common sense in planning the use and handling of materials. b. quantities and productivity may be collected in a more complex system. progress analysis: a budget schedule is prepared showing the estimated rate of progress for each major work item. and all three variances analysed. 2. Purchasing cost is outhwith management control. holding cost. . and e. This method therefore reflects quantity and productivity variance. The Building Research Establishment (57.

.g. thus completing the cycle of eAimating and control. and draw main conclusions concerning an ideal. Firstly. the data collected for the purposes of one function will not be used in any other. while time is monitored on a bar chart or network basis. for instance is based upon one model. bills of quantities. The resources are applied to the job.1).6. On most construction. for example. the control cycle. a critical path network. as Duff (22) points out does not contain estimating as an integral part (Figure 6. highlighting possible improvements and simplification. basing the functions on different models prevents feedback of data from one function to another. review proposed integrated control systems.g. Estimating can be. Secondly. by-passed altogether so that experience gained on one contract is rarely used in estimating the cost of the next. The rest of this chapter will therefore discuss the need for integrating the control functions. and consequently the chance to improve performance within one project as well as in future projects is reduced. Such a fragmented approach to the construction control functions gives rise to a number of disadvantages.2 Estimating The idealized concept of estimating and control suggests that the estimated resource requirements are used as the basis for preparation of programmes and cost plans. and the actual performance in terms of progress and cost is monitored and compared with the plans. Any variance is noted and the information used to modify future estimates for similar work. however.6 Integration Of The Control Functions 6.1 Introduction The previous review of the control functions and systems highlights the fragmented approach by a large section of the industry to construction control.93 6. Thirdly. 6. integrated approach to construction control. there may be a significant amount of repetition in data collection and manipulation due to the natural overlap of the control functions. and often is. Cost is monitored on a monthly valuation of work basis. e.6. while control is based upon another. Estimating. e.

New factual data is used to update and revise both models. and 3. It is an estimate of future costs and. Sears (48) argues.94 Figure 6-1: The control cycle MODIFY Estimation ANALYSE PERFORMANCE AND REPORT MONITOR PERFORMANCE PLAN (Cost and duration) 6. is a model of the cost structure of a project made prior to the start of a project. It therefore seems that a realistic and a more effective control process will integrate the control functions on three levels: 1. information produced in one function should be usefully utilised in the other functions of control. and both are so closely related that Sears (48) quite reasonably concludes that attempting to control cost and time independently may be unrealistic. 2. estimating: in making estimating an integral part of the control process. Both models are used as standards against which performance is compared. therefore. . Time durations are based on experience drawn from previous projects. time and cost: in accommodating both timP and cost within a realistic construction model. cost control can be visualized as being a parallel function to time control.3 Cost and time A cost estimate has a great deal in common with a time plan in the conventional form of a network or a bar chart. contains a degree of uncertainty. The cost estimate. Similarly. a network is a model of the time structure of a project and is also made before the fact and under uncertain circumstances. Therefore.6.

6 output or production rates. resource requirements. but can be combined to produce an integrated planning and cost control system. synthesis of project costs. It consists of a number of computer packages which can be used separately. resource planning and calculating resource requirements. sequence or timing constraints. PCM can be used in five main ways: 1. resource availability limits. costing and estimating.1 Project Cost Model (PCM) PCM (42) is a computer system for project planning and cost control. The above data is specified for each element into which the project work is divided by the user. . progress monitoring through the successive substitution of actual data for predicted data as the work proceeds.7. unit costs of materials or subcontractors. P CM will produce resource loaded barcharts. 4. 5. and cash flow information. 3. 2. and 8. The output can be presented in tabular and graphical forms. 4. progress reports.7 Review Of Integrated Control Systems 6. The input data includes: 1. cash-flow forecasting where costs and revenues are allocated to time periods.95 6. 7. quantities of work. time-based costs of labour and plant. resource requirements. preparing a program or schedule. 2. staff costs. 5. 3.

for each item. client's payments and incurred costs. valuation and costing.96 j- 6.7. where a comparison in terms of cash and durations is made. 2. 3. resource levelling and reports and graphic generators. management information and communication facilities. pricing bills of quantities and making available the estimators' records for other functions such as cash flow forecasting. a bill of quantities' description. the amount of resources used and the measure of . The main constituent packages are: 1. Work done (per item) is measured and fed into the computer. Micro-Valuations: this is a microcomputer valuation package which produces information on measure. planning. Microcompass: this is a modular network planning package for either precedence or arrow networks. The constituent modules provide for time analysis.7.2 "COMPASS" management information and project control systems COMPASS (63) is an integrated system for management providing project control. The package also aids in producing estimators' reports. elemental data is coded and fed to the computer. cost and value at different stages of the project. using bill information.3 "PRIM" Project Integrated Management System Schlick (47) describes PRIM as a system which integrates the estimating function with monitoring and reporting functions. The system can produce cost-value comparisons on a time basis. 2. and on a major activity basis. From manual take-off. 6. The reports produced are mainly: 1. Interest: the purpose of this package is to aid building and civil engineering contractors' estimators to build up rates in a variety of ways from first principles and by using stored cost and performance data. A database link is provided to provide information for the other functions of the system.

a deviation report which flags out items for which measured quantities have exceeded the estimate by an arbitrarily chosen money limit. cost control reports. scheduling at the operations (not sub-operations) level. completed operations are replaced by a single 'update' operation. 5. payment requests reports. Cash-flow re ports for the whole project are also produced.97 work done. estimating total cost using sub-operations' work quantities with unit prices for labour. 3. 2. productivities. augmented by periods of payments. 6. The main functions of the system are: 1. 3. updating and control: as work proceeds. initial project funds and retention.7. plant and materials. together with the effect this choice would make on the cost budget. Operations in progress have their cost and time data modified if necessary. Output provides cumulative cost distributions for materials. 4.4 Kaskoulas and Grazioli's proposed system Kaskoulas and Grazioli (35) describe an integrated management system which requires the project to be divided into operations and sub-operations. and indirect costs represented in equivalent quantities or as a percentage of direct cost. where a comparison between costs to date and those expected is shown. cost budgeting using some of the estimating and scheduling outputs. and the . plant and labour. The links between estimating and scheduling are provided by the identity of the work operations and their durations. and total project costs on the basis of operation start times chosen anywhere between earliest and latest start times. 4.

coding systems for cost elements should be simple (21. and consequently the procedures within the system must be as close as possible to the procedures in current use (35). and using these as the basis of all the control functions. time-cost trade-off diagrams. plant and materials cost. .5 Sears's proposed system Sears (48) proposes a system that would integrate the Critical Path Method with cost control. and cost of operations in terms of labour.51). Shrivastav (51) asserted that a well-conceived predetermined work breakdown structure is a good basis for interfacing cost and time data. 4. otherwise the status quo will be 'offended' (35. 6. cash-flow forecasts. the amount of input data should be reasonable (35). systems should not require excessive work to implement. integration of the various functions of control such that the output of one component of the system becomes part of or all of the input to the following components. 6. the following characteristics would be favourable in an integrated control system. Usual CPM data is used in conjunction with quantity and cost data to form the integration basis of this system. Planning data is compared to progress data to produce cost and time progress reports. 3.7.27. Moreover.6 Conclusions From the preceding review one would conclude that the following characteristics are essential to an integrated control system: 1. 1. etc. Output will be new durations. proposed systems should utilise inputs and outputs that are familiar to the construction enviroment. Linear cost and time consumption is assumed. breaking the project down into meaningful site operations.40).98 scheduling and budgeting take place again.7. 2. 2.

The first two elements are to a large extent predefined and uncontrollable by site management. are proposed: 1. 7. This means that the systems should indicate variance in time for effective action to be taken. on such controllable factors that . which complicates the process of control. The control process is to be based upon the controllable elements of construciton. of total cost.61).99 5. systems should be forward looking (21. 6. systems should be easily understandable by site managers (4). is of prime importance. apart from wastage. and to curtail the large amount of detail. systems should be cost effective. The construction process is to be modelled realistically on an operational basis. then a 10% reduction in labour cost. It is. therefore. through improved productivity leads to a 6e6 increase in profit. therefore. through the application of the principle of cost-significance. 6. down to an optimum level. therefore. Labour cost elements are pay rate.27. to the pursuit of improved productivity that management must turn their attention. 2. The control of labour and plant. the following four main themes. It is. which are to be applied in proposing a new control system in the next chapter. Materials costs are also to a large extent uncontrollable by site management.8 Improvement And Simplification Of The Control Process In order to develop an effective project control system. amount of work done and productivity. Control effort is to be biased towards the more costly items of construction. 3. Labour and plant costs represent a large segment of construction cost. Homer (29) asserts that if labour costs are 30% and profits V. it is through the control of productivity that effective control of labour cost may be achieved. Therefore.

The most straightforward uses of expert systems are for diagnosing faults and offering advice. The input data used in a control system must be effectively used. Applied to construction control.. Current development of computer technology has made it possible for powerful hardware and software to be acquired at reasonable cost. rather than algorithmic approaches would be more appropriate in solving such problems. The design of an expert system and its subsequent success rely heavily on the ability to formalize and represent the knowledge within a discipline. as used in expert systems. heuristic methods. A knowledge base is therefore set up containing possibly hundreds of such rules each expressing facts which a user or an expert can read and understand. McGartland and Hendrickson (38) argue that as many of the problems in project monitoring and control are ill-structured and not well-defined. expert systems can solve ill-structured problems at or near the performance level of an expert.. THEN rules. Expert systems use domain specific knowledge to simulate the reasoning of an expert in the field in order to perform intelligent tasks. However.. This is best done through the use of computers. this may mean that not only can variances from plan be spotted.100 management must spend the greatest effort. Information based expert systems seem to present a very desirable option for use in construction control. Based on heuristics and empirical knowledge. 4. but also the reasons for such variances and the possible corrective courses of action may be suggested. developing an expert system for . The other facet of computerised control systems is the software to be used. Site-based micro-computers are very important for effective and quick operation of computerised control systems. One popular method of storing the knowledge is in a series of IF .

namely diagnostics and interactive solution finding.101 construction control purposes is outwith the scope of this thesis. This is described in the next chapter. some of the useful aspects of expert systems. Nevertheless. . will be used in developing a new integrated control system.

a project breakdown structure based on cost-significant items. the processes by which the input is manipulated to produce the required output. 6. The system will be explained in terms of: 1. Skeleton computer programs are also developed to facilitate the quick and standardised application of the control system on site.1 Introduction This chapter is concerned with proposing a control system with the following main features: 1. network analysis of planning and progress data using a critical path approach.102 CHAPTER 7 Proposed Control System 7. the input data required to facilitate the calculation of output: 3. 2. progress monitoring of both time and cost in an integrated fashion. determining a suitable course of action to correct variances in an interactive fashion. 5. prediction of progress position based upon achieved progress. as they represent the major portion of controllable factors in any construction project. 2. 4. 3. as well as the cause of such variances. the output information produced. diagnosis of progress data in relation to planning data to establish variances at various levels of detail. . The subject of control in the proposed system will be the labour and plant resources only.

as Robertson's (45) and Shaheen's (49) results indicate. for estimating and control purposes. Work packages are then grouped into cost-significant activities with the following guidelines in mind for simplicity and ease of identification and understanding purposes: 1. the work may be split into two separate packages.2 Project Breakdown Structure The construction project is modelled. by cost-significant activities. 5. the following preliminary guidelines are proposed: 1. In this way. with one productivity figure (quantity per unit time). 2. about 80% of the cost of construction is considered. 3. . and much further work needs to be done.103 7. as far as possible. 4. a work package has to represent an identifiable site operation in order to distinguish it easily from other work packages. If interruption is necessary. each work package must have one trade only involved with it. the activity must represent a meaningful and uninterrupted work operation. a work package has to represent an uninterrupted operation to simplify the monitoring and control procedures. a work package must have a defined amount (quantity) of work to simplify the calculation of variances such as % complete and productivity variances. Cost-significant items are grouped together into meaningful work packages. each work package should be defined in such a way as to exclude non-cost-significant items from falling within it. cost-significant work packages and cost-significant items. and will simplify the allocation of time and cost to the relevant resources used. Although the difficulties in establishing rules by which cost-significant work packages can be defined are recognised. with possibly a similar fraction of the project duration. This will make the work package the basis of direct control of labour and plant productivity.

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2. the activity must consist of 'like' or similar work packages in

nature. Each of the three levels of breakdown will serve as the basis of one or more of the functions of the construction control cycle: 1. cost-significant items will serve as the basis of estimating and of productivity and cost feedback, thus integrating the estimating function into the control cycle; 2. cost-significant work packages will serve as the basis of the immediate cost and time control functions for the project in part and in total; 3. cost-significant activities, which will be similar to the activities on a conventional bar chart, will serve as the basis of time control in terms of the overall project. An example of the item-work package-activity hierarchy is shown in table 7.1. The table also serves to illustrate the simple coding system which may be used to correlate the hierarchy levels. The time and cost control functions will be facilitated through the use of the following techniques: 1. Network analysis: activity-on-arrow networks will be used at two levels of detail: a. project network: cost-significant activities will be the elements of this network; b. activity sub-networks: constituent cost-significant work

packages will be the elements of each activity sub-network.

2. Diagnostics: variances and their causes will be established for individual work packages. The variances will also be used to predict the position at completion for each work package. 3. Course of action: progress positions of both work packages and

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activities will be used to determine the effect of a specific course of action on the future progress of work packages, activities and the whole project. 7.3 Control System Specifications In Terms Of Output Produced. For control purposes, the system produces output relating to the use of three main techniques: 7.3.1 Network analysis Using standard network analysis techniques, the following six types of output are produced: 1. Planned project network Planning network data is used to produce durations, earliest/latest starts and finishes, floats and critical path(s) for the project's constituent cost-significant activities. 2. Updated project network Planning network data is used in conjunction with actual durations of completed activities and remaing durations of activities in progress to produce updated durations, earliest/latest starts and finishes, floats and critical path(s) for the project's constituent cost-significant activities at any stage of the project. 3. Planned activity sub-networks Planning network data is used to produce durations, earliest/latest starts and finishes, floats and critical path(s) for each cost-significant packages. sub-network. 4. Updated activity sub-networks Planning network data is used in conjunction with actual durations of completed work packages and remaining durations of work packages in progress to produce updated durations, activity's constituent cost-significant work

Figure 7.1 shows an example of an activity

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Table 7-1: An example of project breakdown levels Cost-significant activity 2.Foundations , Cost-significant work package 2.1.Blinding Cost-significant items 2.1.1.Plain in-situ concrete blinding. 2.2.Reinforcement mild steel bars diam <20mm length <12m 2.2.1.Mild steel bar reinforcement.20mm and under, 12m length or less. 2.2.2.Mild steel bar reinforcement,16mm and under, 12m length or less. 2.2.3.Mild steel bar reinforcement, 8mm . and under, 12m length or less. 2.3.Formwork, inclination to horizontal 85°- 900 2.3.1.Formwork more than 300mrn wide, at any inclination more than 85° up to and including 900 to the horizontal. 2.3.2.Formwork less than 300mm wide, at any inclination more than 85° up to and including 90° to the horizontal. 2.4.In-situ concrete
30/ 20, 22.5/20.

2.4.1.In-situ concrete class 30 90
2.4.2.Insitu concrete class 22.5 20.

in foundation, classes

KIIK PNIX4iE RUNNY cocE MAG 77 ow am nu b-AIMPE J.3 FaiWOK 7 2 4 4 2. PCIAVDATIONS CCNSTITUENT COST-SIEWIFICANT KAN PAC:CAGES . (I) (5) 5 2 ACTIVITY 2. An example of an activity sub-network with planning data .z REWOWIEM247 3 2.5 Mirapa:7r .4 MAW 0 5 4 5 2..MOE DF-SCRIPTION AfILWER RIMER I 2.! BE IND ING z 5 / z z 3 z z. 5 4 5 .1.107 FIGURE 7..

and is capable of producing diagnosis reports based on weekly as well as cumulative progress data. Examples of the above types of output are shown in tables 7-2 to 7-7. as well as trace the underlying causes of such variances. Delay on schedule is first calculated. 5. floats and critical path(s) for each cost-significant activity's constituent work packages at any stage of the project. floats and critical path(s) for the project's constituent cost-significant activities at any stage of the project. earliest/ latest starts and finishes. The technique is applied to work packages in progress.3. floats and critical path(s) for each cost-significant activity's constituent work packages at any stage of the project. earliest/latest starts and finishes.2 Diagnostics As the title implies. Another facet of this technique is its ability to produce a predictive report outlining the possible future effects of the current variances at completion of the work package under consideration. taking into consideration both start delay and progress (% completion) delay. 6. this technique has been developed in order to evaluate time and cost variances from plan. 7.108 earliest/latest starts and finishes. The diagnosis logic is as follows. based upon achieved progress. Predicted activity sub-networks Planning data is used in conjunction with actual durations of completed work packages and predicted durations. Start delay is further analysed into two possible components: delay due to . A calendar option is incorporated into the analysis in order to produce the above types of output in 'dates' form. of work packages In progress to produce predicted durations. Predicted project network Planning data is used in conjunction with actual durations of completed activities and predicted durations of activities progress to produce predicted durations.

FF: Free float.ERECT D * 12 14 11 0 18 ES ** 0 12 12 26 26 LS ** 0 12 12 26 26 EF ** 12 26 26 26 44 PLANNED DURATION = 44 LF ** 12 26 26 26 44 TF ** 0 0 3 0 0 FF ** 0 0 3 0 0 CRIT? ***** CCC CCC N-C CCC CCC D : Duration.DUMMY 5.109 Table 7-2: Example of planned project network produced by the system using day numbers since start.FOUNDS 3.DUMMY 5. PROJECT NETWORK ACTIVTY ******* 1. ACTIVTY ******* 1. IT: Total float.EXCAV 2. EF : Earliest finish LF: Latest finish.EXCAV 2. ES : Earlist start.PREFAB 4.ERECT D * 0 5 2 0 18 ES ** 21 21 21 26 26 LS ** 21 21 21 26 26 EF ** 21 26 26 26 44 LF ** 21 26 26 26 44 TF ** 0 0 3 0 0 FT ** 0 0 3 0 0 CRIT? ***** CCC CCC U-C CCC CCC . LS : Latest start. CCC: Critical N-C: non-critical Table 7-3: Example of updated project network produced in day numbers since start.PREFAB 4.FOUNDS 3.

DUMMY 5.DUMMY 5.REBAR 3.BLIND 2.110 Table 7-4: Example of a planned activity subnetwork produced in days since start of activity.BLIND 2.CONC D ES ** LS ** 9 9 DURATION: 15 DAYS EF ** LF ** 9 10 10 10 15 IF ** 0 DAY OF UPDATE:9 FF ** 0 CRIT? **** CCC U-C CCC N-C CCC * 0 0 1 0 5 9 9 9 9 10 9 9 10 10 15 1 0 o 0 1 0 9 10 10 1 0 .CONC D ES ** 0 2 2 7 9 LS ** 0 2 2 DURATION: 14 DAYS DAY OF UPDATE:0 a. FOUNDS PACKAGE ******* 1. FOUNDS PACKAGE ******* 1. ** 2 7 9 9 14 * 2 5 7 0 5 LF ** 2 TF ** 0 2 0 2 FF ** 0 9 9 o o 2 9 9 9 14 GRIT? ****** CCC N-C CCC N-C o o ccc Table 7-5: Example of an updated activity subnetwork produced in days since start of activity ACTIVITY (2).REBAR 3.FORM 4. ACTIVITY (2).FORM 4.

FOUNDS PACKAGE ******** 1 BLIND 2 REBAR 3 FORM 4 DUMMY 5 CONC D ES ** 0 2 2 7 12 LS ** 0 2 2 12 12 EF ** 2 7 12 12 17 LF ** 2 12 12 12 17 TF ** 0 5 0 5 0 FF ** 0 0 0 5 0 CRIT? ****** CCC N-C CCC N-C CCC * 2 5 10 0 5 .111 Table 7-6: Example of a predicted project network produced in days since start PREDICTED PROJECT NETWORK PACKAGE ******** 1 EXCAV 2 FOUNDS 3 PREFAB 4 DUMMY 5 ERECT D ES ** 0 12 12 29 29 LS ** 0 12 12 29 29 EF ** 12 29 29 29 47 LF ** 12 29 29 29 47 TF ** 0 0 6 0 0 FF ** 0 0 6 0 0 CRIT? ****** CCC CCC N-C CCC CCC * 12 17 11 0 18 Table 7-7: Example of a predicted activity subnetwork produced in days since start of activity ACTIVITY (2).

Delays variance 8. Finally. Working hours variance 6. Start delay 11. the difference between actual and planned working hours. Resource variance 7. and delay not due to preceding work packages whether by choice or necessity. The variances calculated to facilitate the diagnosis process are: 1. is compared with actual cost incurred and any variance is calculated. and 3. which may be: 1. taking into account the amount (quantity) of work completed. Delay due to late preceding packages 12. and the actual man/plant-hours spent relative to plan. and is then analysed into two possible components: achieved productivity with respect to that planned. The latter is also further analysed to determine the causes of any variance from plan.112 late preceding work packages. and total cost predicted from incurred costs so far for the work package are compared to plan. Delay not due to preceding packages V0 V1 V. % completion is compared to plan to establish progress delay. the difference between actual and planned resources (men/plant)used. Unavoidable delay variance 10. and achieved productivity being different from plan. Two possible causes for any unit and total cost variances are investigated: hourly costs of each resource being different from plan. V3 V4 V. Productivity variance 4.. actual unit cost. Avoidable delay variance 9. the planned cost. Progress delay 2. 3 V6 V7 V8 N1 N2 N3 . Overall resource-hours variance 5. % complete variance 3. As for cost. 2. the amount of avoidable and unavoidable delays being different from expectations.

the diagnosis report takes the following form: 1. Actual start is (N 1 ) days behind/ahead of plan. Unit cost variance 15. Progress is (V 1 + 100) % of plan.3. Individual resource cost variance for resource i=1. our overall position is (V 9 ) days behind / ahead of .4 17. Overall delay 14. because: i. Total cost variance 16.2. and unavoidable delay being (V8 +100)% of that expected. during the actual time spent on the job. iii.113 13. Consequently. which relate to one work package. ii. The contributing factors are: a. 2. the overall resource hours worked are (V3 +100)% of those planned. (V4+100)% of the planned hours of work have been spent on the job. with a corresponding slippage/saving on schedule of V 0 hours. productivity is (V2 +100)% of that expected. (V5+100)% of the planned resource-hours have been employed. Preceding work packages delayed/allowed us to start (N 2) days behind/ ahead of plan. Real cost variance V9 Cu Ct Ri Cr C P Using the predefined variances. 3. b. the overall avoidable and unavoidable delay is (V6+100)% of that expected caused by: avoidable delay being (V7 +100)% of that expected. Real cost difference 18.

third resource is (R3 +100)% of that expected. therefore.413 1). (Cp)% of total planned cost. P 10%) more/less hours on the job . the hourly cost of: i. i. which is (P5) hours more/less than planned. second resource is (R2 +100)% of that expected.e. Figure 7-2 shows an example of a diagnostic report using simulated data. The predictive report takes the following form: 1. 4. However. 2. the principal resource is (R 1 +100)% of that expected. 5. We will have spent (P 9) (i. In real terms. 3. productivity is (V2 +100)% of that expected. This is so because: a. We will have used up (P. The unit cost of labour and plant on this work package is (Cu +100)% of that expected. the same logic as in diagnosis is applied to actual performance data after extrapolation of that data to its predicted completion values. We will be overspending/underspendIng by 2. 4. Definition and method of calculation of the variances is detailed later in this chapter. ii. iii. fourth resource is (R4 +100)% of that expected.C(Cr). We will complete this work package (P3) days late early. 6. there is a cost overrun/saving of . which also applies to any work package in progress. b. (or P2%). Productivity will be (P 6)% of that expected. although actual cost is (Ct+100)% of that expected at this time.114 programme.e.e. iv. P 80 ) more/less overall resourchours than planned. is based upon the calculation of a number of variances using planning and progress data.7) (i. The predictive report. 5. We will need (P 4) more hours to complete this work package.

During the hours spent on the job.115 than planned. the remaining duration. Unavoidable delay will account for (P 14 )% of the total expected unavoidable delay. Using both planning and progress data. 9. we must: a. 7. Spend only A4 pounds. We will have total avoidable and unavoidable delays ( P 12)% of that expected. This information is presented. Spend only A„ hours.3. in the following form: To return to plan. Avoidable delay will account for (P 13 )% of the total expected avoidable delay. Figure 7-3 shows an example of a predictive report for the same simulated work package as in figure 7-2. the procedure calculates the remaining quantity of work to be completed. and the amount of money to be spent so as no to exceed the planned amount. for the work package under consideration. 7. b. A standard procedure has been developed to aid site management in achieving this objective. the required productivity to be achieved to return to plan.3 Course of action The real value of the information produced by the control system so far lies in directing management's thought towards acting in a corrective manner to reduce variances from plan and remove the causes of such variances. Work at an output of A 3 units/hour. we will have employed (P11)% of the planned resource-hours. 10. or . Complete A 1 units (of quantity). d. The 'course of action' procedure will deal with one work package at a time in two ways: 1. c. 8.

75 CF THAT EXPECTED. DORMS THE ACTUAL TLIE SPEW ON HOLRS HAW BEEN EAFLOYED.23 mrs(25. L. THE Anwar COST CF TIC L. 3rd R • OLRCE IS 1005 CF THAT EXPECTED.AND LIPAMVIDAELE DELAY BEING 117. THEVERVE. 3. NE IN FACT STARTED (I) anis' sew PLAN. 4th RESOURCE IS 1005 OF MAT EXPECTED.ALTHWOH ACTUAL COST IS 81. iii.35 OF THE PLANED RESOURCE iLL. . TIE OVERALL RESOURCE-HOLM KINKED ARE 70. RE WIT CO5T OF LWOW AAV PLANT ON THIS SO LECAUSE. b. 91. CLAVLATIVE VARIAVCES DIAGNOSTIC RSPORT I.35 C F THAT EXPECTED. IN REAL TE1I6. Li. 0# SCIEDULE 17. °MALL POSITICVI 15 3.8% OF THOSE PLANED BECAUSE.35 CF RUT EXPECTED.8 (15.95 o:F THAT EXPECTED CAUSED Bt. PRODUCTIVITY IS 88. 77. 71115 IS a. TIE °MALL AVOIDABLE AND 1114V010413LE LELA7 15 102. AVOIDAELE DELAY BEIN9 88.1011. An example of a diagnostic report using simulated project data. PROMICTIVITT IS 88.8 MRS) LENIND MCGRAW: 4. ii. DERE IS A COST OVERRUN OF \$121. b. ALTHOUGH PRECEDUN Kair PA1Z161E5 ALLOWED L6 TO START (0) airs EARLIER THAN PLAN.85 CF PLAN.2. coNsEcterar. PROWESS IS 62.6% OF 7?i47 EXPECTED.73 CF THAT EIVECTED. 5. 77E . iv. WITH A CORRESPCVVINO SLIPPAGE TIE CONTRIBUTING FACTCS5 ARE. PRIACIPAL RESOURCE 15 114. 2.55 CF TOTAL PLUAPED COST).7% OF TIE PLANED IONS OF war HAVELEEN SPENT° N THE 1108.116 Figure 7.25 CF DIAT EXPECTED. 2nd RESOURCE IS 1005 CF THAT EXPECTED.85 1101175. 11171C PACKAGE IS 128. a.05 CF THAT EXPECTED AT THIS TINE.

8. 14 oars LATE .3.46E 5. 3 ( 12.5S OF TIE TOTAL EXPEC7E0 AVOIDABLE oaAr. NE WILL HAVE 77E TOTAL AVVIDABLE NV LIVAIVIDABLE DELA?' 116. 71E PREDICTED FOS mom AT =PEET ION IS AS FOLLOWS. Z. IE WILL HIVE SPENT 25. IS Qv THAT EXPEC77.17. 10. . 4. I.3* CIF 77E FLAMED RE501071Z-HOLOS. NE WILL 1EED 41. INI CH 15 33/ HOURS ACRE THAN FUMED.117 Figure 7. AVOIDABLE oaAr WILL ACCOUNT FOR 99. MUM 77E MOWS SPENT ON 771E 4014 NE WILL HAVE EWLOYED 77. TS OF MAT EXPEC7ED. LIVAVOIDABLE oaAr WILL ACCOUNT Fa? 132. 7. PROVXT/V/77' WILL LE 88. NE WILL COWLETE THIS Mr PAQr.7 I 45.91 I UNE 10185 ON RE JOB 7144N FLAMED. An example of a predictive report for the some simulated work package as in figure 7. 7S OF THE TOTAL ENPECTED 1844NOID4BLE MAY.3 ( 28. IE NAL HAVE USED LP /4. 811 ) 1CRE OVEVALL RESOLRCE-HOURS DUN PL4NNEDs 6. NE WILL s9E OVERWEAVIN8 or \$226.1 . 5. 9. 3.91). 1 1110RE HOLRS TO OMPLE7E THIS Kw PAMASE.

D i and C 1. A resulting projected duration of the corresponding activity will be calculated and compared to plan. 5. Choosing a realistic course of action in a question-answer form. 3.118 we have already exceeded the total planned cost for this work package by -A 4 pounds. 6. 2. and calculating the effect of implementing it upon the work package. .e. 2. the relevant activity and the whole project. A resulting projected work package duration will be calculated and compared to plan. A gang whose hourly cost is G 1 at most is to be used. d) GI: the allowable hourly cost of the gang to be deployed for the remaining part of the work package. Having defined any two of the above variables. A realistic course of action may be determined by defining two of the following variables in response to real constraints: a) D I : the allowable remaining duration from present to completion of the work package under consideration. 4. The work package is to be completed in D I hours. A resulting projected duration of the whole project will he calculated and compared to plan. i. c) 0 1: the productivity (unit/hour) to be achieved for the remaining part of the work package. b) CI: the allowable remaining cost to be spent to completion. The productivity for the rest of the work package has to be 01. and the following report that describes the effect of the choice made is produced: 1. or D I and G 1' or C 1 and 0 1' or C 1 and G 1' or 0 1 and G 1' the other two variables may be calculated.

The work package is to be completed by only spending C1 pounds on labour and plant. The resulting projected cost of the whole project is calculated and compared to plan. Activity number (code).4.4 Input Data Required For Control System.1 Planning data Planning data needs to be prepared for the various analysis techniques as follows: 1. which relates to the same simulated work package as in figures 7-2 and 7-3. The report will guide site management to determine the viability of any chosen course of action. 10. and to vary one course of action in favour of another. As the whole process is computerised. I-node and J-node numbers. The same type of data is similarly required for each . 7. The resulting projected cost of the corresponding activity is calculated and compared to plan. Two main types of input data are required: 7. the input data needed is. 8. b. activity description. c. for every cost-significant activity: a. The resulting projected cost of the work package is calculated and compared to plan. this process is very much simplified. 9. An example of using the 'course of action' technique is illustrated in figure 7-4. activity duration.119 7. d. Networks: Using standard network techniques.

' \$240.1811 CH IS 12 MRS ( 1 . NMI CH 15 6. 110W OUTPUT HAS TO EIE 3 UN I T/HOIR. 4. DO YOU WANT TO DEF IE T II4E TO 03PLETICM 1 Yin Yr TYPE T 11€ TO CCIPLE T 10V iN MRS. PflOJECT MAT I OR WILL 45.5 oars (364 HAW 1 . TIE RESULT INS PROJECTED V I TY CC6T OF TIE ACTIVITY GWEN CONS I DERAT ION WILL 13E \$2984 WI/CH 15 101 . NM AT AN OUTPUT 7. 365 OF PLAN. 2. THE RESULT I II6 TOTAL COST FOR 77f I. 05 T AES TtE OR G I NAL PLANAfED T. t. I 110W7(77/0 T 14€5 DIE OR G I NAL FUMED. SPEW car 8 HOURS . 5 DAYS MORE THAN PLANNED. 1. 5 DAYS) AWE THAN PLANED.. 3. An example of a report produced by the ' course of action ' technique. i. CHXSE A CMG im AN OUTPUT OF 3 WIT/It?.5 WI! T/HDLR CF 4.5 OAFS ( 124 MRS .4.3. PACICASE WILL BE \$824. . COMPLETE 60 WITS. € I. SPEW CAL. 8E 5. A10 AN HOURLY COST OF \$14. TIE RESUL 71116 PROJECTED COST OF TIE PROJECT WILL EIE \$20072 WI CH IS 100. e. f20 NE DO YOU WANT TO C' IF COV NOT TO BE EXCEEDED FOR TIE REAM N NO PART OT r TYPE TIE AUNT. PA4K46E MAT ION WI LL 13E 68 MPS (8. 213 CF THAT PUKED. . ACT-1W TY DIRAT ICH WILL LE 15. 7280 TO COACLUE 77 Erar PACKAGE IN 20 !CURS.8 DAYS) WWII IS 12 HDURS ACRE THAN FLAMED. TO Rk7URN TO PLAN IPE MIST.120 Figure 7.

7. avoidable delay expected through waiting for materials. (Y. and n=number of resource types used. the planning data includes. d. Networks For each cost-significant activity. as a percentage of total resource-hours planned. as a percentage of total resource-hours planned. e. Work package and corresponding activity code and description. unavoidable delay expected due to weather and breaks outwith the control of management. (Ya). b. the following progress data needs to be input to the system: a.2 Progress data In order to keep track of the work in progress.121 cost-significant work package. etc.). Diagnostics and course of action For each cost-significant work package. work content in terms of a quantity of work (Q).hours (M i) and hourly cost(C i). . a. the following progress data needs to be collected and stored weekly: 1. date when progress data is collected. 2. total resourc-hours planned (H). instructions. g. c. planned labour and plant resources' description. Table 7-8 shows a proposed planning data recording form for each cost-significant work package.4. drawings.. duration in hours (D). which is within management control. planned resource. f. where i=1 to n.

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b. for each work package: a. then an expected extra duration is input. d. Similar data is input for each work package. whether working all that time or not. h. e. f. avoidable delays (Y a) measured in resource-hours. total paid hours (P '): the total number of hours that men/machines have been involved with the work package in question. Work package and corresponding activity code and description. total hours in progress (D '): this is the total number of hours the work package in question has been in progress since the start of the week. Diagnostics The following weekly progress data needs to be collected and fed to the system. total resource-hours worked (H'): the total recorded resource-hours spent on the work package during the week. resource-hours worked (M1' ) and actual hourly cost of each resource (Ci' )A proposed daily labour and plant allocation sheet where progress . unavoidable delays (Y u measured in resource-hours. starting date for activities in progress. estimated or measured. starting and completion dates for completed activities. and is payed for. if an activity in progress has already exceeded its planned duration.123 b. plus current % complete of package in progress. ') g. 2. quantity of work done (Q '). including avoidable and unavoidable delays. plant and labour resources used: description. c. d. c.

2.124 data is recorded is shown in table 7-9. used by Thompson (60). The update activity is created and given a duration equal to the time spent so far since start of work. if 50 hours have been spent on one work package which is 20'1 complete. as well as some of the output of the former packages. the consequences of which are produced by the package. work packages which have not started yet are allocated their planned durations.5. Predicted networks The data already stored to facilitate the network and diagnosis techniques is retrieved and used as input to this package. . Predicted activity sub-networks are analysed after allocating durations to the constituent work packages in the following way: 1.2 =250 hours is allocated to it. work packages in progress are allocated predicted durations based upon achieved progress. All the input and output data is stored in data files for further use in other packages.1 Networks The standard activity-on arrow network technique is used. then a 0 predicted duration of 50/0. The concept of an update activity. 4. and the networks are analysed as usual. For example.3. section 7. Course of action The data already input to the network and diagnostics packages is used for this package.3. In addition. is used for updating the network and subnetworks. 0 1 and G 1 as explained in The choice represents a course of action. while the completed activities/work packages are allocated zero durations. this package requires the user to define two of the variables D 1. 7.5 The Analysis Processes. 7. This process may be repeated until a satisfactory course of action is achieved. 3.

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Working hours variance (V4): v4 = x 100°-' 0 1 6.D 2. % complete variance (V1): vi [ Q'/D' Q/D 1 x no% 3. 7. The variances are therefore defined as follows: 1. Overall resource-hours variance (v3): V H' 3 [H x D/D' I x 100% 5. while actual and planned durations are used for completed and future activities respectively.2 Diagnosis process The main purpose of this technique is to depict deviations from plan and the causes of such deviations through the calculation of predefined variances.126 3. Productivity variance (V2): [Q'/H' Q/H V2 = x 100% 4. Resource variance (V_ : 0) V 5 [111F" 1 ] x 100% HID .5. The variances represent the difference between the expected value and the actual achieved value (in previous week or cumulatively) of particular measured properties under consideration. The resulting activity duration is allocated to the activity in progress in the project network. completed work packages are allocated their actual durations. Progress delay (V0): V o = D' - .

01 II'. Individual resource cost variance (R.127 7.3 or 4 . Delay due to late preceding packages (N2): N 2 = earliest permissible start (due to preceding packages) .'. Real cost difference (Cr): i=1.2.C..Y 11 Ix 100% 10.C. Delays variance (V6): + Y.Y 1 1 x 100% a 9.01 H'.Ci 17. = 1 Mi. 15.planned earliest start 12.planned earliest start 11. Avoidable delay variance (V7): 0.' 1 x 100% R.earliest permissible start 13.C'4 similarly for [MI and [C]. Delay not due to preceding packages (N3): N 3 = actual start .: V6 0. Unavoidable delay variance (V8) Y' V = 1 8 { 0. Y: V7 = 8. Overall delay (V9): V 9 = start delay (N 1) + progress delay (V0) in hours 14.. Total cost variance (Ct): Ct = [{ [M [C j ' " MI [C] 1 -1 D 16. M. C. Start delay (N1): N 1 = actual start .01 '(Y+Y) -1 x 100% Ha. Unit cost variance (Cu): -1 I x 100% where M'I = array of = array of Ci..

D ' Q Q which is P 5 hours more than planned. where P— D ' .1 I x 100% Q/H 5. Real cost variance (Cr) C P = [M]CI x 100% Complementary to these variances are another set of variances which predict the deviation from plan at completion of individual work packages. variance (P6): P 6 --= Q ' /H . Predicted productivity .128 Cr = [M'I[C1 18. Predicted delay (133): P 3 = N 1 + 1 D Di (days) 3. Predicted extra hours of work than planned needed (139): P 9 P' D which is 13 10% of total planned hours. These variances are defined as follows: 1. Predicted extra duration needed to completion (P4): p 4 -. where: . Predicted overspending by completion (P1): 13 1 = [1\4 1[ C 1 [M]C] as a % of planned cost (P2): Pi P 2 = [m]ici X 100% 2. D' . where: 0 6. Predicted extra overall resource-hours than planned needed which is P 8 °1 of total planned resource-hours.D Q 5Q' 4.

then to complete the work package's Q units. Total predicted unavoidable delay.5. Y — Q u /(0. 3. Quantity proportionality is also used in dealing with both cost and time. 129 Po P10 —D 100% = x 7. the quantity of work to be completed (A1): A 1 = Q . Total predicted avoidable delay as a % of that expected P 13 = F 01:-}. the duration left for the remaining part of the work package (A2): A2 = D .D (hours). 7. Although strictly speaking cost and time are not directly proportional to the quantity of work done for the whole project or large sections of it. proportionality is adequately accurate to assume for small sections of work like individual work packages. V(0.01 H Yu) x 100% The main assumption in calculating this set of variances is the idea of quantity proportionality. Total predicted avoidable and unavoidable delays as a % of that expected (P12): P 12 =I— Q Q (Y a '+Y u ') 1 {0. Using the progress information. Predicted resource-hours spent on the job as a % of planned resource-hours (P11): P= x 100% 11 H/D H'/P 8.01 11(Y a +Y u )} 1 X 100% (P13): 9. this technique firstly indicates what needs to be done to get back to plan in the following manner: 1. x pounds are needed in total.01 H Ya) 1 x 100% 10. (. as a % of that expected (P14): P 14 = [Q . if it cost x pounds to complete Q' units of work.Q' (units): 2. For example.3 Course of action process. the work output to be achieved for the remaining part of the .

3. while predicted values relate to achieved performance extrapolated to completion for all work packages in progress. The projected duration of the corresponding activity is calculated using: a. section 7. b. 3. 4.f. the other two may be calculated using the following relationships: 01 = Q 1/D1 and G1 = Ci/DI Having obtained the values of the four variables. then the consequences of the chosen course of action may be projected l as follows: 1. This value is compared to plan. actual durations of completed constituent work packages. predicted durations of constituent work packages in progress. planned durations of work packages which have not started yet.[1\41[C1 The above information serves as a guideline to determine an appropriate course of action. c.3. the remaining permissible labour and plant cost (A4): A 4 = [MI[C] . 0 1. actual durations of completed activities. 'Projected durations and costs relate to having chosen a certain course of action.130 work (A3): A = Q-Cr 3 D-D (units/hour). The projected duration of the work package = D '+D 1. before imposing a course of action. A course of action is chosen by assigning values to two of the variables D I. and G1 (c. C1. The projected duration of the whole project is calculated using: a. If values are assigned to any two of these variables. and d. projected duration of the work consideration.). package under . 2. The resulting projected activity duration will then be compared with its planned duration.

c. This is compared to plan. c. b. the planned cost of the constituent work packages which have not started yet. the predicted cost of the activities in progress. the actual cost of the completed constituent work packages. The result is compared to the planned cost. The resulting projected cost of the work package under consideration will be EIVI '1[C 1+C I. the projected cost of the work package under consideration. c. The resulting projected duration of the project is compared to the planned duration. 4. and d. The resulting projected cost of the project will be the sum of: a. b. 6. .131 b. and d. This is compared with the planned project cost. the predicted cost of the constituent work packages in progress. choose a course of action. projected duration of the activity under consideration. the planned cost of activities which have not started yet. and d. the projected cost of the activity under consideration. 5. the actual cost of completed activities. The resulting projected cost of the corresponding activity will be the sum of: a. predicted durations of activities in progress. planned durations of activities which have not started yet. The above process is computerised and designed to guide the operator in a question-answer manner to: 1.

2. Their intermediate proposal was a bill of quantities-operational format containing meaningful site operations.132 2. still. suggests that conventional bill of quantities' items could be allocated to meaningful site operations. This process may be repeated for any work package until a satisfactory course of action is found. his work showed the viability of forming meaningful functions (site operations) from conventional bill of quantities' items.6 Discussion 1. modify the choice and produce corresponding consequences. and thus avoids the stumbling block which BRE . 3. each defined in terms of a number of conventional bill of quantities' items. Although the purpose of BRE's work was to change the way bills were prepared. 7. The proposed control system has been based upon a model of the construction process the elements of which are cost-significant items. partly because he attempted to propose a total model that encompassed all CESMM items. rather than to use conventional bills as a starting point for a realistic model of construction. the viability of using bill items as the basis of forming meaningful site operations was demonstrated. Jackson (31) proposed a functional (operational) model of construction totally based on CESMM items. Although he did not totally establish the viability of using this model in practice. produce consequences of a chosen course of action. The Building Research Establishment's work into proposing a new bill of quantities operational format (55). The control system proposed in this chapter does not attempt to redesign the conventional bill of quantities and present it in terms of operations. The idea of grouping bill items into meaningful site operations is not new in principle.

thus providing a built in flexibility which Jackson's model lacked. Firstly. Moreover. 3. The progress data collection form proposed (table 7.9) is based on typical time allocation sheets used in practice. will encompass about 80% of the cost of the project. Recording delays enables the finer end of diagnosis to be carried out. 4. 5. Breaking down the project into cost-significant work packages and activities provides a very simple basis for the allocation of cost and time d data. and within those to plant and labour contents only enhances the simplicity of data allocation. one form is used per work package rather than per gang. but is not of intrinsic value to the control system as is the . rather than a standard model for all projects. Pioneering work by Robertson (45) and Shaheen (49). the proposed model will be unique to each individual project. the simple coding used removes a lot of the disadvantages of other control systems with complex coding system in terms of confusion and misallocation of data. The proposed model. approximate weekly measure of work done is required. This is an area where further study is required. limiting the allocated data to cost-significant operations. suggests that critical path networks based solely on cost-significant activities yield project durations about 80% as long as those derived by traditional means. The main differences are: a.133 met in terms of the resistance to its acceptability by the industry. However. Secondly. This can be concluded from considering two main features of the proposed system. c. which is based upon cost-significant items. a record of delays (avoidable and unavoidable) is required. the relationship between total project duration and the duration of the cost-significant activities is less clear. b.

although outwith the scope . because the amount of data is curtailed through the use of the cost-significance principle. collection and analysis of data are very important factors for any corrective action to be taken in time. Moreover. 6. Futher development of the software proposed in the work is necessary for it to achieve its full operational potential. 9. On-site computers are essential for the proposed system to achieve its full potential. the diagnostics have a forward-looking capability which produces predictions of future progress based upon current progress. as both are based upon the same building blocks . This provides a possible feedback loop between the control functions within one project.134 recording of the quantity of work done. and present the results in a simple-to-follow report. but also to identify the cause of such variances. 8. As for the diagnosis process. Storage of planning and progress data provides an ample chance for the integration of the planning and estimating functions on one hand and the rest of the control functions on the other.cost-significant items. Live testing of the proposed system. which in its design resembles a number of features contained in expert systems. Another feature of the system is its ability to guide site management to the optimum course of action to improve progress performance in a flexible question-answer format. it has been possible to carry out detailed analysis of the data not only to detect broad variances from plan. The ease with which the system may be operated and the weekly monitoring. 10. Emphasis on recording realistic values of work measure is therefore very important. and an accumulating data base for use in any future project. 7.

135 of this thesis. . is the next step in this research in order to determine the viability and establish the operational potential of the proposed system.

2.136 CHAPTER 8 CONCLUSIONS & RECOMMENDATIONS FOR FURTHER RESEARCH 8. For instance. Moreover.000. For example. The accuracy of this relationship drops linearly as the level of cost-significance . the Pazeto model is not accurate enough for prediction purposes. civil engineering projects exhibited a higher value factor and lower numbers factor than building projects.902 is termed the 'cost-significance value factor'. The best fit is for the cost-significant items whose values exceed the mean value. It has been shown that there is a relatively stable relationship between the level of cost-significance (x) and the value of the corresponding cost-significant items. The Pareto distribution fits the price distribution in bills of quantities reasonably well. 3. it has been established that the cost-significant items whose values exceed the mean value of measured items contribute on average 81. the sum of all items whose value is greater than half the mean (x=0. there is a small but statistically significant variation in these factors with bill value and project type.000 also produced higher value and lower numbers factors than bills of value less than £100.a).5% to the total value and 18.5) is 0. on average. as it departs from the actual distribution quite markedly for items with values less than the mean value.902 of the total bill value (0.5% to the total number of measured items.1 Conclusions The major conclusions that can be drawn from this thesis are as follows: 1. However. However. the 80/20 rule for items greater than the mean cannot be derived from Pareto's equations. Bills of value greater than .£100. From analysing 85 wide ranging bills of quantities.

as at . table 3.1.4. A less stable relationship exists between the levels of cost-significance and the number of cost-significance items expressed as a percentage of the total number of items(m).1 and 2.0. The coefficient of variation of m ranges between 14% and 26%. The number of items which must be priced depends on the level of cost-significance chosen (section 3.4% at x=0. Using the relationship between (x) and (a). and the ability of estimators to identify items whose prices are higher than a given price.1) 4.f.2). with faster convergence at lower levels of cost-significance. with the 95% range of accuracy varying between ±0.1 to 2.6). the procedure has been shown to converge for all cost-significance levels between 0. The procedure has been tested using 24 priced bills of quantities.0) the coefficients of variation of the value factors are less than 10%. and ±12% at x=2. an iterative procedure has been developed which enables the prediction of the total value of measured items by considering only the prices of a proportion of the measured items (section 3.0). Using the available data.has been developed which is capable of producing an estimate of the value of measured items without pricing all items. a new estimating approach-iterative estimating.137 increases.0 (table 3. with a tendency to increase as the level of cost-significance increases (c. it was decided to use a level of cost-significance (x) equal to one. Based on the iterative procedure.3) 5. The accuracy of iterative estimating has been shown to depend on the variation in the cost-significance value factor (a) at any given level of cost-significance (x). At levels of cost-significance less than twice the mean (x<2. For the purposes of testing iterative estimating in practice. Very accurate average results have been achieved at all levels of cost-significance (0.

and the number of items to be priced is generally less than 30%. and fit smoothly within conventional estimating procedures and pricing frameworks. the value factor (a) exhibits reasonably small variation (coefficient of variation = 4%). it will be simple to implement. the cost-significance value factor for the tested bills varied between 0. but merely aims at reducing the number of items to be priced. 10. and consequently of tenders.87.77 and 0. 8.iterative estimating has been tested alongside a slightly modified conventional approach on six 'live' tenders.138 this level. as well as increasing tendering turnover and consequently the chances of winning contracts. especially if the iteration process is computerised. A Significant saving in estimating time may be achieved using iterative estimating especially if unit rate estimating represents a high proportion of the total estimating time. Using the procedure shown in section 4. Firstly. more tests need to be done to confirm this finding.8% to 1. Conventional methods of . Comparison of iterative and conventional tenders indicates that.10% and 1. slightly lower. 6. tenders are produced with iterative estimating. 9.0% of the tender values. The observed difference between the iterative and conventional tenders (range -2. Secondly. Because iterative estimating does not require any modification of the broad estimating procedures. This saving may be utilised in improving estimating accuracy of high-cost items.4. at a level of cost-significance x=1. However. 7. on average.0.4%) may be attributed to two causes. and more consistent. the proportion of cost-significant items that the estimator failed to identify ranged between 0. The potential of extending the use of iterative estimating in final accounting has been considered.

Analysis of 15 historical bills and final accounts has shown that the four methods produce very accurate tenders and final accounts in the long term.5% in 2/3 of the projects.Variations are assessed as they would be conventionally. This background has prompted the proposal of a number of approaches for assessing variations for tenders priced by iterative estimating. Method 2: variations in cost-significant items are increased 131 a factor (1/a). l a). 12. c. and added to the value of all extra items. Previous research has also shown that the size of bills of quantities can be drastically reduced by eliminating non-cost-significant items without any significant effect on final account. . Method 3: Non-cost-significant items are given equal prices such that their sum represents a fraction (I-a) of the total. Method 1: variations in cost-significant items and In extra work of cost-significant proportions are increased by a factor equal to the inverse of the cost-significance value factor used. Four methods of assessing variations in iteratively estimated tenders have been proposed: a. Method 4: Non-cost-significant items are priced roughly to give a sum equal to (1-a) times the total. 11. i. with a short term error range of +4. b.139 assessing variations in construction work involve considerable effort with disproportionate returns in the assessment of variations in non-cost-significant items of work.e. d.and variations are assessed as they would be conventionally.

and does not require the assessment of extra work of non-cost-significant proportions. Method 4 is more appropriate to use than Method 3 because: a. the data collected for the purposes of one function is not utilised in any other. basing the control functions on different models prevents feedback of data from one function to another. there exists an unnecessary amount of repetition in data collection and manipulation due to the natural overlap of the control functions. monitoring and controlling the time and cost elements of construction. A review of construction control systems used in industry has revealed that there exists a fragmented approach by a large section of the industry to the functions of forecasting. However. 15. if these are to be inserted. Method 1 is more approiate to use than Method 2. spot-pricing non-cost-significant items is a very fast process. Compared to Method 2. Method 1 produces slightly more accurate final accounts.140 13. the latter offers the advantage of saving more time and effort since no work of non-cost-significant proportions is considered in the pricing and evaluation processes. inserting equal extended prices requires calculating the rates for all NCSI's. and c. 14. 16. all items in the bill will have a reasonable price. c. Hence. b. b. and . the choice of the method to be used will depend on the weight attatched to the advantages of either method by the parties involved. This adds to the time to be expended using Method 3. Such fragmentation gives rise to a number of shortcomings: a. Although Method 4 produces slightly more accurate final accounts than Method 1.

coding of cost elements should be simple. A realistic and more effective approach to construction control will integrate the control functions on three main levels: a. c. d. e. the project should be broken down into meaningful site operations. estimating: in making estimating an integral part of the control process.141 consequently the chance to improve performance within one project as well as in future projects is reduced. the systems should be easy to understand and implement. A review of systems that attempt to integrate the processes of construction control has highlighted the following important characteristics in any intergrated control system: a. g. b. the systems should be able to predict the effect of current progress on future performance in time for action to be taken. _ 19. 18. and c. 17. integration of the various functions of control is needed so that the output of one component of the system becomes part of or all of the input to the following components. which may be used as the basis of all control functions. f. common data: information produced in one function can be usefully utilised in the other functions of control. time and cost: in accommodating both time and cost within a realistic construction model. the systems should be cost effective. Four main themes for improving and simplifying the construction control process are suggested as preliminary guidelines for . b. the amount of input data should be reasonable.

diagnosis of progress data in relation to planning data to establish variances at various levels of details. Secondly. determination of a suitable course of action to correct variances in an interactive fashion. 8. A new control system is proposed in chapter 7. but also possible causes of such variances and corrective courses of action. Thirdly. prediction of future progress position based upon achieved progress. progress monitoring of both time and cost in an integrated fashion. the Pareto distribution was shown to be a reasonable . In attempting to model the distribution of prices in bills of quantities. so that not only variances from plan are output. 20. the control process should be based upon the controllable elements of construction like labour productivity. And fourthly.142 proposing a new control system. d. c. b. Firstly. e. the main features of which are: a.2 Recommendations For Further Research 1. the control effort should be biased towards the more costly elements of construction through the application of the principle of cost-significance. f. the construction process should be modelled realistically on an operational basis. the information incorporated within the control system should be optimised and efficiently used. a project breakdown structure based on cost-significant items. This will be facilitated through the use of computers on site. as well as the cause of such variances. network analysis of planning and progress data using a critical path approach.

0.143 model of the distribution of the cost-significant items of higher value than the mean value of all measured items. feedback of progress information to the planning functions. Areas where further development is particulary needed are: a. have shown that iterative estimating produces slightly lower and more consistent tenders than conventional methods. x=0. 3.g. packages. and to examine the viability of their use in time control. b. The use of cost-significant items. Redesigning bills of quantities to reduce the large bias in price distribution and the unnecessary amount of low-cost items in current bills is another area of further research. However. based on six tests.5 and 2. 5. and activities) generalized for any project: . coding of the constituent elements (i. 2. More work is needed to find a model that fits the whole distribution of prices. The methods of dealing with variations suggested in chapter 5 need to be tested in practice and further developed to take account of any contractual implications. in order to establish an optimum level of cost-significance. The control system proposed in chapter 7 needs to be further developed and tested in practice. and the viability of using iterative estimating at such levels of cost-significance. 6. It is proposed that iterative estimating is tested in practice at other levels of cost-significance (x). 4. more tests are required to determine more conclusively the effect of using iterative estimating upon tendering performance and accuracy. Prelimenary results of the use of iterative estimating in practice. packages and activities to model the time elements of construction needs to be further studied to establish the fraction of project duration that they represent.e.e. 7. cost-significant items.

It seems that the way ahead as far as integrated construction control systems are concerned is through the use of expert systems. Therefore it is recommended that research is carried out to assess the viability of their use in construction management. . and guidance to find optimum solutions are most suitable for construction management. 8. development and improvement of data storage and manipulation. d. user friendliness. Development of an expert system using the main features of the control system proposed in chapter 7 is also recommended.144 c. Features of expert systems such as diagnostics. easy data handling.

.e.4 3.1 1 _ 11.+ ul where (s)2 = (Kennedy & Neville. 26 related to civil engineering projects and 59 to building projects The cost-significance factors obtained are as follows: Civil Engineering Cost-significance value factor sample mean. 80.r (n -1 ) 2 1s 1 1 (ri.2 i.913 .52 numbers factor 17. ( Using the t .0 3.Li>p. 33) .91 numbers factor 19. for n 1 +n 2 -2 degrees of freedom = 83.91 59 2 = From tables.2 i.3 4.statistic : t = * N/{ 1..9 . n 1 = 26 t = 3. s 3. factors are not significantly different Alternative Hypothesis H 1 : 1.1-.76 Building Cost-significance value factor 80.1.65 1. S 1 = 3. t cruT = 2. Comparison of value factors: Null Hypothesis Ho: Ri=i.52 .1)S 2 . and at the 1% level of significance.. 2 -Fri _2 2 n R2 = S2 = n Substituting R I = 83. R 83.e.4 3.145 APPENDIX I Statistical comparison of Cost-Significance Factors for civil engineering and building projects Of the 85 bills of quantities analysed.9 sample standard deviation.644 . factor for civil engineering projects is higher than that for building projects Level of significance : choose 1% 5.

.-.146 . cost-significance value factor for civil engineering projects is significantly higher than that for building projects at the 1% level of significance.e. Carrying out a similar analysis for the cost-significance numbers factor we infer that: the cost-significance numbers factor for building projects is significantly higher than that for civil engineering projects at the 1% level of significance. we reject the null hypothesis i.

. 147 APPENDIX II Relationship between the Pareto equations and the 80/20 rule The Pareto equations are Nv = Kv-a (2.e.K = parameters Let v0= lowest item value T.-a — Nvo a-1 Similarily VT) aK _ (i_a) v a-1 aK a-1 aK and Vv 0 = v 1-a a-1 0 .fraction of items with values greater than the mean A2.2) K (i_et) Vv = — a-1 where: v = item value Nv = number of items whose individual values are greater than v. Nv 0 = Kv 0 " ci = total number of items NT) = Kr) "a aK But Vv = — v 0 a_i 0 and = i. = mean item value x = fraction of mean. a.1 NT) = 1 a J. 71 = (2.3) = total value of items Vvo total value total number — Nvo v a-1 0 -.-. Vv = total value of items whose individual values are greater than v.

Therefore we conclude that the Pareto equations do not produce the 80/20 rule for items with values greater than the mean value.2 24.3 xa a-1 A2.8 22.0 50.6 14.0 78.7 69.1 =0. In order to find out which value.0 From the above table we do not find an ND/Nv o = 20% with a corresponding Vti/Vo = 80%.2 11. from the Pareto equations.9 64.5 1. where x is a constant: Nv = Kv ct 0 0" and = a v oc-1 0 N - (xv) K (xtir NK(x v ) -a (x11) Nv K v 0"a N (x a -a =Ix.*.2 1.148 VT) Therefore Vv.1 1.2 25. the 80/20 rule can be derived for.2 20.7 1.2 Substituting values of a between 1 and 2.4 60.7 52.4 Substituting = 0. the above analysis is carried out again. we obtain the following a Nti/Nv0 x 100% Vti/Vv0 x 100% 1..3 1.3 and we obtain: 0 ix . other than the mean.6 1.0 0 100 1. but instead of using ti.7 55.1 23.3 19.0 7.3 51.9 17.8 1.9 2. we use xi:).0. 1-a aa-1 = fraction of value of items greater than the mean A2.6 57.5 53.2 .8 in equation A2.4 1.2 in equation A2. Nv oc-1 II V(xi)) and similarily vo = N(xv1 Nv A2.4 Vo [a 1-ct x j a.

56V will be 0. the sum of all items whose value is greater than 0.8Vo.8 which upon solving produce: x = 0.2Nv0 . and their number will be 0.16. In other words. and even then only for items with value greater than 0. the 80/20 rule can be derived from the Pareto equations only if the value of the parameter x=1.56 and "cc = 1.149 and i xa ] it-a a-1 =0.16 Therefore.16. for a Pareto distribution with a value of a=1.5674 .

VO By definition: Vva1 .2).1 1 . = ..3 . Symbolically.=x i where v. = a V0 H-1 The iteration procedure produces: (V0)1 v.1) and (A3. .(xi/x) <1 when xi < X A3.V 0 Vo - (Vdi < 1 when ( Vo ) i+ > Vo > (V0 ) i A3.(Vo)i+J. and by definition: V() vi = therefore (V o ) i = 1-Vo x and the condition (V o ) i < V 0 becomes x i < x Substituting ( V o ) i+ and (V o ) i from equations (A3.2 will converge if any iteration produces an approximate solution which is closer to the real solution than that produced by the preceding iteration.4 x i -1.150 APPENDIX III Convergence Of The Iterative Procedure The iterative procedure explained in section 3. V 0 1. this condition may be represented by: (V). = th approximation of the value of the cost-significance level.4.4- A3. (V0).4). into the inequalities (A3. the conditions for convergence become: (ai /a) .1 and Vo . the iterative procedure produces: V vi ( V 0 ) i+1 = a therefore a.3) and (A3. A3 when ( V0 ) +1 < < V o < (V 0 ) i 1. 2 (VO)i .

> x A3.6 In order to test the validity of the inequalities.5% of bills of quantities were used. for inequality (A3.1 to 2. In the case of inequality (A3. minimum values of ai equal to ai -1. — +— > 2 a x when x. All possible combinations of x and xi. the conditions may be written as: a i xi — +— < 2 when x1 x a x and a. coefficients of variation greater than 10%.0 times the mean value of measured items in 97.1 N when xi > x Alternatively.96 (standard deviation of a) corresponding to the extreme values of a1 and a in 97.5). and the corresponding a and a1 values were used to test the validity of the inequalities.a.1 shows the values of x.1 it can be concluded that faster convergence occurs at lower levels of costsignificance.. values of x.96(standard deviation of a) were used. Table A3. and ai were derived from table 3-1.5 times the mean and more have.151 and 1 .0 Therefore the iterative procedure converges for all levels of cost-significance that lie in the range 0.ai used to test the inequalities. The result was that both inequalities were valid for: 0. x.5% of bills of quantities.xi. Similarily.1 < x < 2.96(standard deviation of ai).5 A3. then with reference to figure A3. a./a) < 1 (xi/x) . rendering their use as quite inaccurate.96 (standard deviation of at). As for the rate of convergence. and maximum values of a equal to a+ 1. in any case.x i.6). maximum values of ai equal to ai + 1. . Levels of cost-significance of 2. and minimum values of a equal to a-1.(a.

4 0.671 0.0 1.942 0.3 0.5 1.0 9.0 6.0 10.0 5.316 0.5 1.467 0.1 0.5 2.607 0.5 2.808 0.0 2.516 0.375 0.607 0.671 0.0 10.0 7.650 0.971 0.4 0.6 (a)max 0.0 6.703 0.2 0.776 0.231 0.3 0.0 INEQUALITY 3.980 0.a.0 9.0 6.2 0.119 0.3 0.937 0.958 0.0 9.0 7.882 0.0 (a) min 0.495 0.119 0.179 0.2 0.5 3.531 0.0 4.776 0.753 0.942 0.580 0.467 0.3 0.x pai used to test the conditions of convergence of the iterative procedure INEQUALITY 3.5 3.955 0.375 0.0 8.926 0.754 0.0 10.971 0.868 0.958 0.0 7.955 0.1 0.0 (a) min 0.0 9.898 0.650 0.4 0.5 2.5 1.179 0.5 x 0.5 1.0 8.480 xi 0.531 0.580 0.5 2.0 1.231 0.080 .753 0.565 0.0 1.0 4.0 2.868 0.937 0.808 0.516 0.980 0.0 5.703 0.898 0.316 0.882 0.990 0.157 0.495 0.926 0.565 0.0 8.0 4.157 0.0 7.1 0.839 0.0 2.0 1.152 Table A3-1: Range of values of x.5 3.1 0.0 8.0 5.4 0.080 xi 0.0 5.754 0.5 3.990 0.0 6.0 2.480 x 0.839 0.0 10.0 (ai)max 0.0 4.2 0.

fLcance .fferent LeveLs of cost-sLgni. ITEM VALUE v . Convergence of iteratLve procedure at di. I.153 FLgure A3.

between any two item values and the corresponding numbers of items that lie above those values. J. Tr.19 . using Pareto's equation. Ni. Pareto's equation is: Nv = K v-a hence Ni. = 0.. ND. therefore -a V. on average Ni. K Or = 1). The objective here is to derive a relationship. = number of items with higher value than No = total number of measured items./cv. Let 7) = true mean value of measured items. = approximate mean value of measured items.1 and 2.154 APPENDIX IV Derivation of the modification factor It has been shown in chapter 2 that Pareto's equation (equation 2..1) -a and Ni. = number of items with higher value than I. especially for items whose value is greater than the mean. = K . Ni. but using the results in table 2..2.2) is a reasonable representation of the relationship between any item value and the cumulative number of items with values greater than that value.19 No and a = 1.

then a better approximation can be obtained by applying the factor (NTA/0.84 l'i 0.155 therefore i N'vi -1-1 = ) 0. .19No In words.19N0) 0.84 to the initial guessed mean. if the initial guess of the mean value in iterative estimating produces items outwith the 10%-30% of No range.

.. initial mean price 7/3.99.000 -187. own work and domestic sub-contractors) . £60. a new estimate was . = By going through the unpriced bill.8125 (the mean factor calculated from historical bills of quantities anslysed by that time).-. while all other items were spot priced.900 . . Dividing V1)1 by a factor of 0.100 . 6th edition were used. while the sum of their prices was VT)i.2 Tender 1 This tender was for a single storey extension to an existing warehouse. Intial assessment of measured items. (Vo) i (i. Estimating procedure and results: Initial assessment of tender Deduct PC and Provisonal Sums £250.e. 198 .900 Deduct Preliminaries (approximate) . and their number was Ni). the estimator marked those items which he thought were more expensive than £202. As those 56 items were within the (10-30%) No limit.£ 62.156 APPENDIX V Results of testing iterative estimating for the first two tenders of Table 4.610. they were priced accurately.000 Number of measured items: No =198 40.22.28% of No). JCT80 (with quantities) building contract and the Standard Method of Measurement.000 = £202.C40. =56 items. The number of items with prices > £202 were counted again after all the items had been priced. with external works and drainage. Number of marked items = 56 (.

C275.8125 = — £66.00 Iterative estimating TENDER .96 new estimate new mean = 55.14 = 37 items value of items > £338.86 is STILL 37 final estimate of measured items = . and which he believed.398. 2.03 add PC & Prov Sums add Prelims (priced properly) + £187.952.8125 = £74.00 + .157 obtained: (Vo) 2 = 151 /0.96/0.99/0.14 = .-.479.747.100.14 No of items > .75 no of items > £376.130.283.747.952.62 0. The firm's TENDER £272.783 Comments 1. and upon pricing.00 .15 new mean 66.283.8125 = 60. as he .610.479.8125 = .C338. four were below the mean.398. the estimator noted four items which he missed. Out of the 56 items initially picked up.283.15 198 = £338.100 + £19.598.03/198 = £344.03 = 68.C19.14 198 = .C68.03 Whereas the sum of all the measured items' prices = £65.C376.936 add PC & Prov Sums add prelims +£187.62 new estimate = 54.14 new mean price = 74.75 = 34 value of items > 2376.598.0 55. While pricing the 56 items initially picked up.65 = £54.86 no of items > £344.C68.

158 got more familiar with the items and rates. = 130 .2). Those lump sums were inserted in the bill as they came.600 -. The value of those four initially missed items was . and were usually not priced by the estimator.C106.600. lump sums weie of a small proportion in terms of value and number of items they represented.86% 6.000 . Estimating procedure and results Initial assessment of tender Deduct PC & Prov Sums Deduct nominated subcontractors = . In this particular tender domestic subcontractors' quotes arrived before the completion of pricing the initially marked items. and were considered to have an insignificant effect oil the cost-significance factor (c. were more expensive than the mean price at that stage.C1.806.272. 6th edition was used. Some of the subcontractors' quotes were in the form o f a lump sum for a group of items. In this particular bill.600 -. Tender 2 A single storey office and stores with a 2-storey plant room. section 4. The difference between the firm's tender and iterative estimating tender 275. For that reason the estimator encountered some difficulty in picking up items in those sections which he thought would be more expensive than the mean price. 5.C1. The firm's tender was successful.783 272.f. and were consequently inserted in the bill. and the Standard Method of Measurement.C2. Some sections of the bill involving specialist trades were to be subcontracted. 3. 4. JCT 80 (with quantities) standard form of contract applied.609.783 = 0.

452 £851.205 . A computer program had been developed at that stage which.54% of Vo) c.30%) No limit.6% of No) b. the . the number of cost-significant items = 358 (14.159 Deduct preliminaries (approx) -. As those ite as were within the (10% . the final estimate of the measured items ADD PC St prov sums ADD Nominated sub-contractors ADD Prelims (properly priced) + = 21.609. they were priced accurately.434 = £1. carried out the iteration process automatically.2% of No).452 items 851 'OM = £347 2.188.C240. Iterative Estimating Tender Whereas the sum of all measured items' prices = .845 . The result was: a. while all other items were spot-priced.835 (see comments below).000 254.000 initial mean price = By going through the unpriced bill. given the prices of the 466 items. greater than £347 were counted.217.020 (86. own work and domestic subcontractors) Number of measured items No = 2.C3. the value of cost significant items = 1.989 -L 106.-.000 Initial assessment of measured items.600 1.e. while the sum of their prices = £1. Their number = 446.175. The cost-significance factor used in this case was 0.200.052. (Vo)i (i.tems with pricc..017. the estimator marked those items which he thought would be more expensive than £347 Number of marked items = 495 (= 20. After the pricing process had been completed.

845 The firm's tender £3.160 ADD PC & Prov Sums ADD Nominated Sub-contractors ADD Prelims (properly priced) + + + 106. which he picked up during the pricing process. The cost-significance factor of 0. Some sub-contractors quoted in lump sums as a matter of policy or due to the short time they had to put in a quote. The reason for that was that those items related to domestic subconstractors quotes.600 1.145. The estimator missed 45 items to a value of .2. 2. The difference between the firm's tender and that prepared by iterative estimating .835 to allow for the domestic sub-contractors' lumped-sum quotes following the reasoning explained in section 4. the mean factor was increased to 0.835 was used for the following reasons: a. the mean of the previously analysed bills was 0. Of these.650 Comments 1.609. b.C30. 6.000. a number of items weie lumped together and given one lump sum. while marking the items > £347.e. The bill contained about 2500 items. The choice of the amount by which the factor was increased was mostly based upon experience. The bill contained a large number of unusual items. The tender period was very short in the estimator's view 4.829. 3. Most of these items were unusual. i. about 500 did not have a single price per item. 5.000 254.

3.36% 7.145.000 (1.145.94%) lower than the firm's tender. The firm's tender was unsuccessful.161 _ 3 . .650 = 1. 188 .650 3.434 . The successful tender was about £60.

Let pi = conventional price of NCSI N1 =number of NCSI's.000 to represent the conventionally priced NCSI's. Create N 1 items randomly priced between £1 and . N1 Total value of NCSI's = E p. . This would simulate the price range and distribution of NCSI's to an extent which is sufficient for the purpose of this exercise. hence. N1 (I) F c = E (1 + x 1. if NCSI's are priced equally.4 The assumption is that the equally-priced non-cost-significant items in Method 3 will vary in total by a fraction equal to that had they been conventionally priced.) p.C10. the price of each NCSI 1 would be P = f nT NI Let the variation in each conventional NCSI price be a fraction xi. The following computer simulation was carried out: 1.4.162 APPENDIX VI Verification of the assumption in section 5. hence. 1=1 and the final value of the equally priced NCSI's in the final account would be N I F e E (1 + xi) ii ill N1 1=1 I Pi } = - 1 NI E p (1 + xi) N Therefore. the final value of conventional NCSI's in the final account would be. we need to show that F = Fe for the assumption to be justified.

08 -0. lies between the limits -1 to +1. .F c e 4. d =.01 Therefore the difference between F e and F is of such small -ropo: ioll that it is reasonable to assume that Fe = Fc In words. it is reasonable to assume that the variation in conventionally priced NCSI's is equal to that had they been equally priced. Calculate Fc and Fe . This reasonably simulates the possible variation of individual NCSI's prices between tender and final account 3. where x. using equation (I) and (II). and the NI )/E p. Repeat the above procedure 200 times to obtain the average difference. The results of the above simulation are: N.41 -0.163 2. Vary the price of each item by a random fraction x i.. 10 100 1000 d x 100% 0. difference.

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