Prof. Dipl.-Ing. Dipl. Wirtsch. Ing.

Gerhard Galneder
born: 1949
• Studies at the Technical University of Munich:
1975 graduate civil engineering
1978 graduate industrial engineering
• Professional live:
1978 – 2006 H. Brochier Ltd., pipeline construction, civil engineering
– 1988 Site manager and branch manager
– 2006 Chief of controlling and production planning (dept.)

since 1996 Professor for project management and economics

at Georg-Simon-Ohm-University of Applied Sciences University o. a.
S. Nuremberg, Faculty of Civil Engineering

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 Cost Management

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Cost Management: Introduction: The construction market

1.Tendering documents:
• Terms of contract, (“FIDIC”)
• Design, (Bill of quantity)

Employer
2. Binding offer

Consultant
(Quantity surveyor)
3. Contract, Order Contractor
Cost Management

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Cost Management: Agenda

• 9.00 - 10.30 Introduction: Controlling, Cost basics,

Calculation basics
15 minutes pause

• 10.45 - 12.15 Calculation (pre,- ongoing-, post calculation)

Chapter 1
Midday break

• 13.30 - 15.00 Calculation (pre,- ongoing-, post calculation)

Chapter 2
15 minutes pause

• 15.15 - 17.00.....Reporting on site/firm level

(methods and tools, analysis, alerts)

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Introduction: Tendering: Design
Design: Trough Building
Total length 200.00 m
Depth 2.50 m

0.20 m
Slope 45 o

2.00 m
0.20 m
Binding layer 10 cm

0,20 m 2,00 m 0,20m

2,40 m

Quatity takeoff:

L B H Quantity Unit

Excavation works 200.00 5.90 2.50 2,950.00 m³

Binding layer 200.00 3.40 680.00 m²

Base slab 200.00 2.40 0.20 96.00 m³

Walls 400.00 0.20 2.00 160.00 m³

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Introduction: Estimate Types

• Order of magnitude (accuracy +/- 20 %)

„ I‘ve built nearly the same trough at a rate of 100,000 € last year but
400 m so my offer for 200 m could be 65,000 €”

• Square foot and cubic foot estimates (+/- 15%)

„ For this type of a building I need about 60 €/m³ cubic content
200x2,4x2,4 = 1150 m³ let’s say 70,000 €”

• Assemblies (Systems) Estimates (+/- 10%)

„ For this type of a building I need
300 m³ at 250 €/m³ concrete works is 75,000 €
3000 m³ 4 €/m³ excavation works 12,000 €
let’s say 87,000 €”

• Unit Price Calculation (+/- 5%)

after a short day:
“My costs will be 76,000 €! So my offer is 80.000 €!

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Introduction: Tendering: Bill of Quantity

Bill of Quantity: Trough Building

Item Description Quantity Unit Rate Amount

1
Excavation works in ordinary
soil to a depth not exceeding
3.0m and depositing on bank 2,950.00 m3
2
C-5 concrete for binding layer
Thicknes 10 cm 680.00 m²
3 C-25 reinforced concrete for base
slabs (thickness 20 cm) including
all formwork and reinforcement
3
(upto 30 kg/m³) 96.00 m
4
dito item 2 for walls (thickness 20
3
cm, reinforcement upto 50 kg/m³) 160.00 m

Total

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 Contractors:

Cost Management:
Introduction

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Introduction: Controlling
Contractor’s Cost Management = > Controlling!
Definition: “Controlling”

Planning Control
- Estimation - Reporting
- Calculation - Actual values
- Offer - Accounting and
Information Billing
- Variances
- Ratios
- Efficiencies

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Introduction: Controlling

• You cannot plan without controlling.

• You cannot control without planning.

• You cannot manage without both planning and

controlling.

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 Introduction: Controlling

……..the final simple wisdom of controlling:

How much money should I have? How much money do I have?

How much costs should I have ? How much costs do I have?

How much profit should I have? How much profit do I have?

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Introduction: Cost Basics

“costs” =: valued consumption of resources

• Cost types / groups:

• Cost structures
• Cost centre accounting
• Job order cost accounting
• Profit & Loss

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Introduction: Costs Basics: Types/Groups

– What?: Cost categories (per unit or project):

Wages, Material, Equipment, Sub-Contactors ,
Others
(Others: salaries, energy, taxes …..)

– When?: Planned or actual costs:

Estimated average wage or booked, paid salaries

– Partial: Cost coverage: marginal, portion and full costs

Marginal: Wages, Materials, Contractor other Expenses
+ Imputed costs: Depreciations, Interests
_________________________________________________________________________________________________________________________________________________________________________

= Portion of overall costs

+ Overheads
________________________________________________________________________________________________________________________________________________________________________

= Full costs (cost price without profit!)

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Introduction: Costs Basics: Types/Groups € /Meter (Gesamte

500,00

– Reagibility: Fix or variable Costs (proportional, progressive, 450,00

degressive)
€ Total costs 400,00

350,00

500.000
300,00

450.000 250,00

400.000 200,00
%-Profit
350.000 150,00
%- OH 0 200 400
300.000
Degressive/Progressive costs
250.000

200.000

150.000

100.000
Proportional costs
50.000
Fix costs
0
0 200 400 600 800 1000 1200 1400 1600 1800 2000
Meter

Meter 0 200 400 600 800 1000 1200 1400 1600 1800 2000
Prop. costs 0 38.000 72.000 102.000 128.000 150.000 168.000 182.000 192.000 198.000 200.000
Degr. Costs 0 14.000 28.000 42.000 56.000 70.000 84.000 98.000 112.000 126.000 140.000
Fix costs 30.000 30.000 30.000 30.000 30.000 30.000 30.000 30.000 30.000 30.000 30.000
Direct costs 30.000 82.000 130.000 174.000 214.000 250.000 282.000 310.000 334.000 354.000 370.000
10% OH 3.448 9.425 14.943 20.000 24.598 28.736 32.414 35.632 38.391 40.690 42.529
cost price 33.448 91.425 144.943 194.000 238.598 278.736 314.414 345.632 372.391 394.690 412.529
3% Profit 1.034 2.828 4.483 6.000 7.379 8.621 9.724 10.690 11.517 12.207 12.759
Total Offer 34.483 94.253 149.425 200.000 245.977 287.356 324.138 356.322 383.908 406.897 425.287
Unit price 471,26 373,56 333,33 307,47 287,36 270,11 254,52 239,94 226,05 212,64

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Introduction: Costs Basics: Cost structures

– Assignment of costs: Value added pattern (→“VAT”):

Direct manufacturing costs

(wages, equipment, other own costs)
+ Additional direct cost
(Material and Subcontractors)
_____________________________________________________________________________________________________

= Production costs
+ Overhead cost
_____________________________________________________________________________________________________

= Full costs (cost price without profit!)

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Introduction: Costs Basics: Cost structures

– Assignment of costs: Direct costs, indirect cost,

and overheads:
Direct costs of item or unit
(wages, material, equipment, contractor, other)

Indirect Costs of site, project , (“Project Overheads (P-OH)”)

(Site facilities: wages, material, equipment,…salaries.)

Indirect Costs of enterprise (“General Overheads (G-OH)”)

(Costs of the company: management salaries,…..)

Indirect Costs: Contractors Profit (“CP”)

(Business risk, Profit)

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Introduction: Costs Basics: Accounting Basics

• Cost centre accounting: Where are the costs allocated?

– Administration cost centres (= Costs of the enterprise)
– Service cost centres (= Repairs, shops, equipments)
– Production profit centre (= Construction sites!!)

• Job order cost accounting:

Principle of allocation by which costs must be traced
to cost centres or units where such costs originated!

“Expense Distribution Sheet (“EDS”)”

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 Introduction: Costs Basics: Accounting Basics EDS
EXPENSE DISTRIBUTION Amount Allocation cost centers General Service cost centers Production Profit center Amounts
SHEET Feb 2007 overheads Construction sites
in T € Social Small Repairs/ Equipment Formwork Site Site Site
costs tools/ Shops scaffolding A B Trough building
Cost and services types equipment 71145 71146 71147
Amount site production (performance) 2,004.6 676.0 1,306.0 22.6 2,004.6

Wages 685.2 10.0 6.0 204.0 464.0 1.2 669.2

Social costs (wages) 393.0 393.0 0.0
Non-wage labour costs (allowances) 16.0 2.0 1.0 8.0 5.0 13.0
Materials 300.0 140.0 157.1 2.9 300.0
Formwork Scaffolding 47.0 30.0 10.0 7.0 17.0
Equipment 62.4 59.0 3.4 3.4
Manufacturing supplies 38.0 10.0 10.0 13.0 5.0 18.0
Small tools / equipment 18.0 18.0 0.0
Salaries (including social costs) 125.0 70.0 10.0 45.0 55.0
General costs 139.0 88.0 5.0 44.0 2.0 51.0
Sub contractors 30.0 20.0 0.0 10.0 30.0
Amount costs 1,853.6 393.0 18.0 168.0 22.0 59.0 37.0 410.0 727.1 19.5 1,156.6
Operation Result 151.0
Allocation formular
a) (Social costs/wages)*100%
393.0 / 685.2 = 57.36% -393.0 5.7 0.0 3.4 117.0 266.2 1.7 384.9
b) Small tools / equipment*100%
Wages
18.0 / 685.2 = 2.34% -16.1 0.2 0.0 0.1 4.8 10.9 0.1 15.8

27.9
-31.3 31.3
90.3 40.5
Allocation service cost centers -78.3 -43.6 64.3 54.6 3.0 121.9
Allocation of 0.0 1.9 -3.4 12.0 -3.1
General overheads / Production costs Production 596.1 1,058.8 24.3 1,679.2
*100%(151,4.0-15.0) /(1,678.2-300.0) * 10.0% -151.4 costs
Overheads 51.6 98.0 1.8 151.4
100% 16.6 Cover amount Full costs 647.7 1,156.8 26.1 1,830.6
Material: 270.0 Performance 676.0 1,306.0 22.6 2,004.6
Sub contractors: 30.0 28.3 149.2 -3.5 174.0
Amount: 300.0 Cover amount -24.0
G-OH-%: 15.0 5.0% Operation Result 150.0

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Introduction: Costs Basics: Profit & Loss

Performance
- Direct manufacturing expenses
(wages, equipment, other own costs)
- Additional direct costs
(Material and Subcontractors)
_____________________________________________________________________________________________________

= +/- Contribution margin I

- Overhead costs
_____________________________________________________________________________________________________

= +/- Contribution margin II

= +/- Operation Result = Contractors Profit (CP)

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 Contractors:

Cost Management:
Calculation

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Calculation: Precalculation: Offer BoQ

Bill of Quantity: Trough Building

Item Description Quantity Unit Rate Amount

1
Excavation works in ordinary
soil to a depth not exceeding
3
3.0m and depositing on bank 2,950.00 m 2.43 7,168.50
2
C-5 concrete for binding layer
Thicknes 10 cm 680.00 m² 6.01 4,086.80
3 C-25 reinforced concrete for base
slabs (thickness 20 cm) including
all formwork and reinforcement
3
(upto 30 kg/m³) 96.00 m 152.05 14,596.80
4
dito item 2 for walls (thickness 20
cm, reinforcement upto 50 kg/m³) 160.00 m3 335.85 53,736.00

Total 79,588.10

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 Calculation: Precalculation Types

Simple direct costing with standard overhead percentages

Steps Cost structure Cost types Example:

1 Direct costs per item BoQ: Labour €/ unit 10.00

Material €/ unit 12.00
Equipment €/ unit 14.00
Contractor €/ unit 17.00
Others €/ unit 1.00
2 Direct costs per unit (DCI): €/ unit 54.00

3 Project-Overhead Costs (P-OH)(Fixed Percentages) 5 - 15% € / unit 10% 5.40

5 Genaral-Overhead Cost (G-OH) 5 - 15% € / unit 10% 5.40

6 Contractors Profit (CP) 3-5% € / unit 3% 1.62

Offer per unit € / unit 66.42

7 Offer sum (OS) without tax Quantity x €/unit 1,000.00 x 66.42 = 66,420.00

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 Calculation: Precalculation Types
Special direct costing with individual overhead percentages

Steps Cost structure Cost types Example:

1 Direct costs per item BoQ: Labour € / unit 10.00

Material € / unit 12.00
Equipment € / unit 14.00
Contractor € / unit 17.00
Others € / unit 1.00
2 Amount direct costs per unit (DCI): € / unit x Qty. € / Project 54.00 x 1,000 54,000.00

3 Project-Overhead Costs (P-OH) Estimated € / Project 16,000.00

4 Production Cost (PC) € / Project 70,000.00

5 Genaral-Overhead Cost (G-OH) 5 - 15 % of PC € / Project 10% 7,000.00

6 Contractors Profit (CP) 3 - 5 % of PC € / Project 3% 2,100.00

7 Offer sum (OS) without tax 79,100.00

8 Percentage for overheads Amonunt of DCI / OS

= ( 79,100,00 / 54,000. ) -1 46.48%

9 Calculation of the unit rate (BoQ) Costs per unit 54.00

(One!) Project percentage OH 46.48% 25.10
Offer per unit 79.10 x 1,000 79,100.00

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Calculation: PRE-, ONGOING-, POST CALCULATION

Example: Calculation

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Reporting: SITE level “Profit & Loss”
Department/No: Civil works / 10 PROFIT &LOSS ACCOUNT February 07 Created 10/03/07

Project 71147 Trough building Site manager Galneder Currency: T€ Financial status per 10/03/07

Tender sum (BoQ): 79.6 Total invoiced sum 30.0

Actual expected order sum (EOS) 80.7 POC (8.:(L)/(E) 34% Invoices not paid 10.0
Order backlog 54.1

(A) (C) (D) (E) (F) (G) (H) (I) (K) (L) (M)
=(F)-(G) =(F)-(G) =(G)+(I)
Act. Booked
G-OH BOQ EOS Act.Perf. Costs Activate Accruals Variance Actual Costs
0. Cost types % total total Mth. Cum. Mth. Cum. Accruals Mth. Cum. Mth. Cum. Mth. Cum. Month

1. Wages 10.0% 11.8 12.1 3.6 3.0 0.6 3.0 3.0

2. Material 5.0% 13.0 13.0 2.9 1.0 a 1.9 2.9 2.9
3. Equipment 10.0% 21.8 22.4 7.3 6.4 0.9 6.4 6.4
4. Contractors 5.0% 20.5 20.5 8.2 10.0 a 0.0 -1.8 10.0 10.0
5. Others 10.0% 3.6 3.6 1.8 2.0 -0.2 2.0 2.0

6. Production costs 70.7 71.6 23.8 22.4 1.9 -0.5 24.3 24.3

7. Sum G-OH 7.6% 5.4 5.5 1.8 0.1 0.0 1.8 1.8

8. Full costs 76.1 77.1 25.6 22.4 2.0 -0.5 26.1 26.1

9. Performance 79.6 80.7 26.6 26.6 26.6

10. Operation Result (OR) (9-8) 3.5 3.6 1.0 0.5 0.5
11. OR - % 4% 4% 4% 2% 2%

12. Contribution Margin (CM) (9-6) 8.9 9.1 2.8 2.3 2.3
13. CM - % 11% 11% 11% 9% 9%

14. Hours (h) 2,368.0 2,415.2 725.7 650.5 +75.2

15. Efficiency 1.116

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 Reporting: Firm level “Overview P & L”

Department/No: Civil works / 10 PROFIT AND LOSS OVERVIEW Financial status per 10/03/07 Created 10/03/07

SITE No. Name EOS INV.

EOR Feb 06 Mrz 06 Apr 06 Mai 06 Jun 06 Jul 06 Aug 06 Sep 06 Okt 06 Nov 06 Dez 06 Jan 07 Feb 07 Debt Mth

71127 Site F 431.8 P 231.0 322.2 356.9 415.2 334.7 348.2 369.1 431.8 431.8 431.8 431.8 0.0
28.5% 123.0 OR 24.0 101.0 111.8 130.1 104.9 109.1 115.6 123.0 123.0 121.6 28.2% -1.4
71128 Site H 4,321.1 P 1,487.1 1,670.0 1,875.4 2,106.1 2,365.1 2,656.0 2,982.7 3,349.6 3,484.7 3,693.2 4,321.1 4,321.1 4,321.1 4,321.1 0.0
2.8% 123.0 OR 4.6 5.2 5.8 57.1 64.2 72.2 81.2 91.4 102.8 115.6 123.0 123.0 123.0 2.8% 145.9 0.0
71131 Site L 1,325.0 P 15.0 27.4 50.1 91.6 167.6 306.7 561.3 1,027.1 1,068.5 1,132.5 1,325.0 1,325.0 1,325.0 1,325.0 0.0
-6.9% -91.4 OR -1.1 -2.1 -3.8 -6.9 -12.7 -23.2 -42.4 -77.6 -80.7 -85.6 -91.4 -91.4 -101.7 -7.7% -10.3
71132 Site M 542.0 P 64.1 102.6 164.1 262.6 420.2 437.1 463.2 542.0 542.0 542.0 587.0 0.0
-4.4% -24.0 OR -3.1 -5.0 -8.0 -12.8 -20.5 -21.3 -22.6 -24.0 -24.0 -24.0 -4.4% 213.9 0.0
71133 Site N 876.6 P 146.5 190.4 247.5 321.8 418.3 543.8 706.9 749.2 876.6 876.6 876.6 876.6 0.0
3.9% 34.0 OR 7.8 10.2 13.2 17.2 22.3 29.0 30.2 32.0 34.0 34.0 31.8 3.6% -2.2
71145 Site A 981.8 P 128.0 235.8 467.0 676.0 342.9 209.0
6.8% 67.0 OR -6.0 8.9 17.3 28.3 4.2% 377.2 11.0
71146 Site B 1,891.0 P 213.9 401.6 980.6 1,245.0 1,306.0 1,342.8 61.0
3.0% 56.0 OR 14.2 75.4 122.6 129.2 149.2 11.4% 76.4 20.0
71147 Trough building 80.7 P 26.6 30.0 26.6
4.5% 3.6 OR 1.0 3.8% 10.0 1.0

Month Performance P 246 376.4 374.6 611.2 521.8 600.5 834.6 1,035.3 583.9 677.5 1,776.1 495.6 296.6 9,257.2 296.6
Month Op.-Result OR -73.8 -0.4 6.7 71.5 79.4 9.3 8.4 -51.2 27.1 70.1 71.7 15.0 18.1 6.1% 823.4 18.1
Year Performance P 372.8 749.2 1,123.8 1,735.0 2,256.8 2,857.3 3,691.9 4,727.2 5,311.1 5,988.6 7,764.7 495.6 792.2
Year Op.-Result OR -9.8 -10.2 -3.5 68.0 147.4 156.7 165.1 113.9 141.0 211.1 282.8 15.0 33.1 4.2%

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Annex: Software references

Estimating:
• RIB –Arriba: www.rib.de/ Construction Suite (400 – 2500 €), (German/English)
(www.synergy-software.com/Solutions/ProductDetails/RIB/more_than_33.htm)
Estimator 2.0 www.estimator.in (100 US $)
• Pulsar www.estimatingsystems.com (3,128 US $)
• Win estimator WinEstPro www.winest.com (?? >3,000 US $)

• Misc. Software: www.builderspace.com /divisions/softgeneral.html

Time Scheduling:

• MS Project www.office.microsoft.com /en-us/project /HA101747981033.aspx

(400 US $)
• Primavera Contractor (www.primavera.com) (500 -1,000 US $)

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Annex: Literature

Estimating:

• Unit Price Estimating Methods – RS Means

ISBN: 0-87629-662-2) (42 US $)

• Handbook of Civil Engineering Calculations,

Second Edition By Hicks, ISBN: 0-07147-293-2 (150 US $)

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