Construction Cost Analysis

and
Financial Controls

Everglades University
 Learning Objectives
• Explain the reasons for implementing cost
controls.
• Review the methods for developing a cost
control system.
• Analyze the cost control process.
• Convert the estimate into cost control items.

4-2
 The Importance of Cost Control
• What is Cost Control?
– Cost control is a systematic analysis of actual
construction costs, including units of measure,
compared with the estimated cost and units,
and the use of that analysis to proactively
manage the actual costs and units to stay
within or near the budget.

4-3
The Contractor’s Accounting System

Figure 4.1

4-4
 Generating Cost Data
• Labor Hours
– Labor is coded to specific activities.
– Cost codes may be organized using MasterFormat
2004 numbers, or developed from a Work
Breakdown Structure.
• Example:
– A labor cost will come from time cards. Cards will
be coded to specific cost items.
– 03 30 02 is cast-in-place concrete.
4-5
Daily Time Sheet for Cast-in-Place Concrete
Work
Date Name Classification 03 30 02-02 03 30 02-03
7/15 Anderson, F.A. Laborer -2 8
Brown, W.R. Laborer -2 8
Carter, I.L. Laborer -2 8
Smith, N.R. Laborer -2 8
Wilson, D.E. Laborer -2 4 4
Hill, J.S. Carpenter 8
Garcia, J.E. Carpenter 8
Smith, H.H. Carpenter 8
7/15 Totals 36 L2 4 L2, 24 C

Figure 4.2

4-6
 Reporting Process
for Labor Hours

Figure 4.5
4-7
Reporting Process for Material Purchases

Figure 4.5
4-8
 Reporting Process for
Company-Owned Equipment

Figure 4.6
4-9
 Analysis of Cost Data
• Information required to examine current
progress.
• The costs to date.
• The production to date.
• The quantity (units) of work completed.
• A comparison of the estimated cost and units
with the current cost and units.

4-10
 Analysis of Cost Data
• Case study: Tim and Tom at Lost Lake
• Bid of $8,320 for installing drywall (taping is a
separate line item)
• 10,667 SF
• 160 labor hours at $52/hr
• 2 installers (Tim and Tom) for 2 weeks

Worksheet 4-1

4-11
 Analysis of Cost Data
(Continued)
• Tim and Tom want to take a day off and go
fishing. To accomplish this they must:
– Complete all work in nine days or less instead of
ten.
– Cover their wages for the last day $832 + $250 in
estimated expenses.
– Use the cost data from Week 1 to forecast their
final costs and determine whether they can go
fishing.
4-12
 Tim and Tom’s
Week 1 Cost Analysis
Monday Tuesday Wednesday Thursday Friday Total
1-June 2-June 3-June 4-June 5-June

Hours 16 16 16 16 16 80

Production 1,050 1,280 1,280 1,050 1,280 5,940

Cost at $52/Hr $832 $832 $832 $832 $832 $4,160

Cost/SF $0.79 $0.66 $0.66 $0.79 $0.66 $0.70

As Per Bid at $819 $998 $998 $819 $998 $4,632

$0.78/SF

Daily Cost $ (13) $166 $166 $ (13) $166 $ 472

Variance

Completed Form 4.1

4-13
 Information from Cost Data
• Their average production cost for Week 1 was
$0.70/SF—better than the $0.78/SF
estimated.
• They achieved $0.66/SF cost per unit on three
days.
• The costs were $472 below what was included
in the estimate for this week.

4-14
 Typical Analysis Information
from Cost Data
• Quantity of work remaining
• Current percentage of work completed
• Current cost variance
• Forecasted unit cost
• Projected cost of remaining work
• Projected variance
• Percent variance

4-15
Analysis of Tim and Tom’s Cost Data Week 1
(Continued)
• Projected cost remaining
– Quantity remaining x Forecasted unit cost
– 4,727 x $0.70 = $3,308.90
• Projected variance
– Estimated cost – (Current cost + Projected cost
remaining)
– $8,320 – ($4,160 + $3,308.90) = $851.10
• Percent variance
– Projected variance/Estimated cost
– $851.10/$8,320 = 10.2%
4-16
 Should Tim and Tom Go Fishing?
• Forecasted time to complete the work:
– 4,727/4 days = 1,182 SF necessary per day. They can
accomplish this.
• Forecasted cost:
– Projected savings of $851.10, which covers their
wages. They will have to finish early to pay for fishing.
– 2½ hours early on Thursday = $260.00
• Decision:
– Go for it!

4-17
 Tim and Tom’s
Week 2 Cost Analysis
Monday Tuesday Wednesday Thursday Total for Week Total
8-June 9-June 10-June 11-June

Hours 16 16 16 11 59 139

Production 1,280 1,280 1,280 887 4,727 10,667

Cost at $52/Hr $832 $832 $832 $572 $3,068 $7,228

Cost/SF $0.65 $0.65 $0.65 $0.64 $0.65 $0.678

As Per Bid at $998 $998 $384 $692 $3,687 $8,320

$0.78/SF

Daily Cost $166 $166 $166 $120 $618 $1,092

Variance

Completed Form 4.3

4-18
 Analysis of Cost Data
Labor Material Total

Cost to Date $12,124.00 $2,928.00 $15,052.00

Quantity (SFCA) to Date 4,320 SFCA

Quantity (SFCA) Remaining 6,480 SFCA

Percent Complete to Date 40% 80%

Estimated Cost to Date $13,093.92 $3,024.00 $16,117.92

Current Variance $969.92 $96.00 $1,065.92

Forecasted Unit Cost (SFCA) $2.81 $.34 $3.15

Estimated Cost/SFCA $3.03 $.35 $3.38

Projected Cost at completion $30,348.00 $3,660.00 $34,008.00

Projected Cost/SFCA $2.81 $.34 $3.15

Projected Variance from original $2,386.80 $120.00 $2,506.80

estimate
Percent Variance 7%

Completed Form 4.4

4-19
 Converting Estimate Items
to Cost Control Items
• Cost control items need to be easily identifiable
and unique.
• The work activity must be unique for reporting
and historical cost data.
• A cost control item shouldn’t be too small (in
cost, quantity, or time).
• A cost control item should align with the firm’s
historical cost control database whenever
possible.
4-20
 Converting Estimate Items
to Cost Control, Gatehouses
Item Unit Labor Per Labor Quantity Unit Price Material Total Cost
hours Hour Cost Cost
Footings 5.4 12 $30.36 $364.32 132 SFCA $0.40 $375.47 $739.79

Walls 10.8 24 $30.36 $728.64 528 SFCA $0.40 $856.53 $1,585.17

Slab 2.7 20 $26.64 $532.80 2.7 CY $60 $261.33 $794.13
19 $1,625.76 $1,493.33 $3,119.09
Balance $1,625.76 $1,528.14 $3,135.00
Wall 541 8 $31.82 $446.64 .541 MBF $400/MBF $273.43 $720.07
Framing 7 $27.44
Roof 266 6 $31.82 $355.56 .266 MBF $800/MBF $349.69 $705.25
Framing 6 $27.44
Floor 85 6 $31.82 $190.92 .01 MBF $800/MBF $176.89 $367.81
Framing
Total $1,793.13

Completed Form 4.5A

4-21
 Converting Project Estimate Items
to Cost Control, Bridge 1

Item Unit Man- Per Hour Labor Quantity Unit Material Total Cost
hours Cost Price Cost
Abutment 40 crew $150.34/ $6,013.60 2107 SFCA .50 $1,053.50 $7,067.
Forms hours crew hour
Abutment 5.3 Ton $4,240.00 5.3 Ton $600 $3,180.00 $7,420.
Rebar
Pour 136 CY 8 crew $169.02/ $1,352.16 136 CY $60 $8,160.00 $9,513.
Abutment hours crew hour
Total $24,000.

Completed Form 4.5B

4-22
 Review
• Cost control is a systematic comparison of actual
costs and units with estimated costs and units,
the use of that comparison to manage the costs
and units, keeping them on or near the budget.
• Timely cost and unit comparison enables the
contractor to proactively identify and solve
problems.
• Cost and unit data comes from several sources.

4-23
 Review
(Continued)

• Cost and unit data must be organized into

activities to allow comparisons with the
estimate.
• The estimate should be organized into work
activities. Most estimate items are small items
and need to be condensed or combined for
cost and unit control reporting purposes.

4-24
 Apply What You Have Learned
Examine your project’s cost control system and
reporting.
• Do you receive daily cost and production reports?
• Does your cost control system give you the
opportunity to make decisions about managing
the costs and units during the progress of an
activity?
• How does your firm establish cost control items?

4-25
 Cost Management Plan
• Step 1: Establish a budget.
• Step 2: Identify cost activities and cost control
numbers.
• Step 3: Assign responsibility for daily coding and
reporting cost data.
• Step 4: Determine a method of organizing material
purchases for the cost control system.

5-3
 Cost Management Plan
(Continued)

• Step 5: Make activity-based crew assignments.

• Step 6: Determine a method of analysis and remedial
strategy.
• Step 7: Determine a method for obtaining supervisor
feedback.
• Step 8: Develop a reporting method for determining
the impact of subcontractor actions.

5-4
 Identifying Cost Activities
and Cost Control Numbers
• Description of the activity, from start to finish.
• Quantity of the activity.
• Crew for the activity.
• Hours necessary to complete the activity:
– Composite crew cost per hour
– Average hourly cost per hour
– Cost of each craft per hour

5-5
The Responsibility for Daily Coding and
Reporting Cost Data

• Supervisors supply data.

• The superintendent is responsible for ensuring
accurate data is recorded in the cost control
system.

Goal: Report accurate cost information daily.

5-6
 Method for Organizing
Material Purchases

• Identify:
– The specific materials used in the work activity.
– The material costs for the work activity.
– The vendor and purchase order.
– The order and delivery dates.

5-7
 Sample Bill of Materials

Figure 5.1

5-8
 Crew Assignment Information
• Cost code number.
• Description of activity.
• Quantity of work involved.
• Crew composition.
• Time allowed for the activity.
• Cost of labor for the activity.
• Material required for the activity.

5-9
 Crew Assignment Information
(Continued)

• Necessary equipment and cost.

• Necessary tools and location.
• Subcontractors involved.
• Drawings and other information that will
assist the crew.

5-10
 Bill of Materials for Grade Beam

Bill of Materials
Cost Code: 03 03 02 11
Item Quantity Unit Price Total
BB Form-Ply 10,800 MSF $929 $10,033.00
2x4 21.222 MBF $407 $8,637.35
Ties 27 C $75 $2,025.00
Rebar 8.72 Tons $540 $4,708.80
Concrete 220 CY $56.45 $12,419.00

5-11
 Bill of Materials for Bridge 1
Bill of Materials
Cost Code: 03 03 02 11
Item Quantity Unit Price Total
3/4” Form-Ply 2.11 MSF $929 $1,960.19
4x4 12.4 MBF $858 $10,639.20
Ties 1,050 Ea $4.62 $4,851.00
Rebar 5.3 Tons $540 $2,862.00
Concrete 136 CY $60.93 $8,286.48

Note: 2 abutments (2 x above)

5-12
 Crew Assignment for Grade Beam Work
STP Construction Co.
Work Assignment • Sure Fresh Project • STP Project 01-10
Cost Code: 03 03 02 11
Project Area: Building A Grade Beam

Work Description: Form grade beam at Building A Drawing of Details and Work Area:
Document Reference: Foundation plan, sheet 3; Sections, sheet 6
Quantity of Work: 10.800 SFCA formwork
Crew and Rates: 3 carpenters at $52.00 + 1 laborer at $48.00/Hour
Crew Rate: $204/Hour $1,632/Day
Daily Production: 50 LF/day
Time Allowed: 18 days
Labor Cost: $29,376.00
Material: 10,800 MSF B-B OES; 21.22 MBF 2x4 studs/walers;
2,700 snap ties; 5,400 wedges
Material Location: To be delivered to Building A
Equipment/Equipment Cost: Forklift at $100/day
Tools: 4 skill saws; cut-off saw; 2 drills; form oil sprayer

5-13
 Crew Assignment for Bridge 1
STP Construction Co.
Work Assignment • Project • STP Project 01-10
Cost Code: 03 03 02 11
Project Area: Bridge 1
Work Description: Form abutment, Bridge 1 Drawing of Details and Work Area:
Document Reference: Sheet 8
Quantity of Work: 4,220 SFCA formwork
Crew and Rates: 3 carpenters at $52.00 + 1 laborer at $48.00 +
1 equipment operator at $56.00
Crew Rate: $260/Hour $2,080/Day
Daily Production: 422 SFCA/day
Time Allowed: 10 days
Labor Cost: 20,800.00
Material: 2.11 MSF 3/4” B-B OES; 12.4 MBF 4x4; 1,050 rods/catheads
(rental) at each abutment
Material Location: To be delivered close to each abutment
Equipment/Equipment Cost: 30-ton crane
Tools: 4 skill saws; cut-off saw; 2 drills; form oil sprayer

5-14
 Day-by-Day Projection of Budgeted Costs
29-Nov 30-Nov 1-Dec 2-Dec 3-Dec 6-Dec 7-Dec 8-Dec 9-Dec 10-Dec
Budgeted
Daily Labor $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544
Cost

Accumulated
Labor Cost
$1,544 $3,088 $4,632 $6,176 $7,720 $9,264 $10,808 $12,352 $13,896 $15,440

Estimated
Daily Quantity
200 200 200 200 200 200 200 200 200 200

Estimated
Accumulated 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Quantity

Budgeted
Cost/LF Today
$7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72

Budgeted
Cost/LF $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72
Accumulated

Figure 5.3
5-15
 4-Day Comparison of Actual Costs with Budgeted Costs
29-Nov 30-Nov 1-Dec 2-Dec 3-Dec 6-Dec 7-Dec 8-Dec 9-Dec 10-Dec
Budgeted Daily
Labor Cost $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544 $1,544
Actual Daily
Labor Cost $1,544 $1,544 $1,544 $2,448
Budgeted
Accumulated $1,544 $3,088 $4,632 $6,176 $7,720 $9,264 $10,808 $12,352 $13,896 $15,440
Labor Cost
Actual
Accumulated $1,544 $3,088 $4,632 $7,080
Labor Cost
Estimated Daily
Quantity 200 200 200 200 200 200 200 200 200 200
Actual Daily
Quantity 160 200 155 230
Estimated
Accumulated 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Quantity
Actual
Accumulated 160 360 515 745
Quantity
Budgeted
Cost/LF Today $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72
Actual Cost/LF
Today $9.65 $7.72 $9.96 $10.64
Budgeted
Cost/LF
Accumulated $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72 $7.72
Actual Cost/
LF
Accumulated $9.65 $8.58 $8.99 $9.50

Figure 5.4
5-16
 4-Day Comparison of Labor Cost Variances

29-Nov 30-Nov 1-Dec 2-Dec

Quantity to
Complete 1,840 1,640 1,485 1,255

Projected Cost at
Accumulated Rate $19,300.00 $17,160.00 $17,980.00 $10,000

Variance from
Budget $(3,860.00) $(1,720.00) $(2,540.00) $(3,560.00)

Figure 5.5

5-17
 Comparison of Actual Costs with
Budgeted Costs, Lowered Productivity

Figure 5.6

5-18
 Method for Obtaining
Supervisor Feedback
• A superintendent will need to know why a problem
happened to solve it.
• Supervisors need encouragement to supply
information.
• You need to have a system that will offer reliable
information.
• If not verbal, then develop a written report for
supervisors.

5-19
 Determining the Impact
of Subcontractor Actions
• Your planning should include:
– Dates subcontractors must be on the project.
– List of subcontractor activities.
– Creating awareness among supervisors regarding
subcontractor involvement.
– A reporting method for problems.
– A predetermined channel of communication.

5-20
 Review

• A cost control plan must:

– Identify cost activities and cost control
numbers.
– Determine/assign the responsibility for daily
coding and cost reporting.
– Establish a method of crew assignment.
– Establish a method of cost analysis.

5-21
 Review
(Continued)

• A cost control plan must also:

– Establish a planning process for resolving cost
variances and projecting the cost and units to
complete the work.
– Establish a method for supervisor feedback.
– Establish a method of reporting/managing
subcontractor challenges.

5-22
 Apply What You Have Learned

• Determine how your firm completes cost control planning,

analysis of variances, and projections to complete.
• What are some methods that your firm uses to organize
and report costs?
• Does your firm have a standard method to develop crew
assignments?
• Do you use supervisor/crew feedback to solve challenges
on the job? If not, try asking your supervisors what went
wrong on a problem.

5-23
 Implementing Cost Control
• Obtain cost data.
– Organize to compare with estimate.
– Report labor hours and cost.
– Report material cost and quantities.
– Report equipment hours and cost.
– Report subcontractor activity and progress.
– Use feedback to resolve problems.

6-3
 Implementing Cost Control
(Continued)

• Analyze the data.

– Compare actual costs with the estimate.
– Identify reasons for any variance.
• Implement recovery efforts.
– Manage the labor force and crew assignments.
– Implement changes to materials, tools, equipment.
– Find sources of reimbursement, such as change orders
or back charges.

6-4
Cost Control Summary

Figure 6.1

6-5
Accounting for the “Learning Curve”

• Production on the activity starts out slow and then picks

up pace.
• Allocate production to take this into account.
• Expect higher productivity later in project.

Day 1 Day 2 Day 3 Day 4 Day 5

Evenly
1,200 1,200 1,200 1,200 1,200
Distributed
Expected
800 1,200 1,200 1,400 1,400
Production

6-6
Review Questions for Supervisors
• Were the instructions/layout adequate?
• Were the details adequate?
• Was there amount of work as expected?
• Were the shop drawings accurate/adequate?
• Was there enough material?
• Was the material in good condition?
• Was the material in a convenient location?

6-7
 Review Questions for Supervisors
(Continued)

• Did you have the correct tools?

• Did the tools operate properly?
• Did you have enough equipment?
• Was the estimated time sufficient?
• Was the crew properly trained for the task?
• Was the crew sized properly for the task?
• Was the crew’s attitude positive?
• Were the working conditions as expected?
• Were the working conditions adequate?

6-8
Review Questions for Supervisors
(Continued)

• Did subcontractors perform as expected?

• Were the subcontractors on time?
• Were inspections called for in time?
• Were the inspections completed on time?
• Was the work approved by the inspections?
• Is everything ready for tomorrow?

6-9
 Management Responsibilities

• Provide accurate work assignments.

• Analyze crew size, makeup and compatibility.
• Provide adequate equipment and tools.
• Provide adequate working conditions.
• Ensure timely material delivery.
• Correlate the activity with the estimate.

6-10
 Compensation from Owner
• Must have agreement.
• Areas where it might occur:
– Errors and omissions in construction documents.
– Discovery of unknown or latent conditions.
– Direction to complete additional work.
– Requirement to complete additional work to
accommodate a specified product.

6-11
 A Role Play in Problem Analysis

• This role-playing activity examines cost

problems, their impact, and how to analyze
them.
• The roles in the groups will be:
– Project Superintendent
– Crew Supervisor
– Designer’s Representative
– Plumbing Subcontractor
– Electrical Subcontractor

6-12
 Cost Control for
Change Orders

• To develop a cost control account for a change

order:
– Develop a detailed description of the work.
– Develop an estimate for each work area.
– Determine a method for isolating and verifying each
cost.
– Record the change order costs.
– Compare the change order estimate with actual costs.

6-13
Change Order Estimate for Electrical Work
in Project Gatehouses

Section Item Labor Material Subcontract Total

32 90 00 Fencing $ 600.00 $ 600.00
06 41 00 Cabinets $ 408.00 $1,000.00 $1,408.00
26 00 00 Electrical $9,500.00
26 30 00 Underground Conduit $3,000.00
26 05 23 Wiring $2,500.00
27 51 00 Itercom $2,000.00
25 13 16 Control Panels $2,000.00
Total Cost $11,508.00
15% Profit and Overhead $ 1,726.20
Change Proposal Estimate $13,234.20

Figure 6.12

6-14
 Organizing Change Order Cost
Information
• Prepare the change order information for the
Project:
– Describe the work.
– Prepare a cost breakdown for the change.
– Prepare a crew assignment isolating the two kinds
of work for cost control.

Worksheet 6-2

6-15
 Dock Seals Work Assignment
STP Construction Co.
Work Assignment • Project
SCC Project 01-10 Date: ___________________________
Cost Code: 11 16 01, 11 16 03 Project Area: Building A

Work Description 11 16 01: (Change Order 2): Install dock seals at the 5 overhead doors, Building A. 11 16 03: Install
dock bumpers at the 5 overhead doors, Building A. Note: Separate cost for dock seal from door bumper.
Dock seals are Change Order 2.
Document Reference Sheets 3, 5, and 6. Section 11 16 00, loading dock equipment. Shop drawings and submittals from Ted’s
Loading Dock Supply Company.
Quantity of Work 11 16 01: 5 Dock Seals
11 16 03: 5 Dock Bumpers
Crew and Rates 1 Carpenter @ $52.00/hour
1 Laborer @ $48.00/hour
Crew Rate $100.00/Hour $800/Day
Daily Production 1 dock seal; or dock bumper and a portion of the dock seal
Time Allowed 11 16 01: Dock Seal: 8 hours
11 16 03: Dock Bumper: 2 hours
Labor Cost (11 16 01) Dock Seal: $800.00 x 5 = $4,000.00
(11 16 03) Dock Bumper: $200.00 x 5 = $1,000.00
Material Door Seals, Dock Bumpers (Ted’s Loading Dock Supply)
Miscellaneous screws and anchor bolts
Material Location In Building A
Equipment/ Rolling Scaffold, No charge
Equipment Cost
Tools Drill # 106, Rolling Dolly

Form 6.1

6-16
 Dock Seals Change Order

Cost Estimate, Change Order ro Provide Dock Seals

Section Description Quantity Labor Crew/Hr Labor Material Total
Hrs/Ea
11 16 01 Dock Seals 5 8 $100 $800 1500 $11,500

15% Overhead and Profit $1,725

Total Change Order Amount $13,225

Worksheet 6-2

6-17
 Subcontractor Back Charges
• You might want to back charge subcontractors
for:
– Work in their contract that was accomplished by your
crew or by use of your equipment.
– Work in their contract that was accomplished by
another subcontractor.
– The cost of causing delays for other crews (this might
be difficult).
– Rework charges.

6-18
 Subcontractor Back Charges
(Continued)

• Practices to observe:
– Be sure the contractor-subcontractor agreement has a
clause allowing back charges.
– Get agreement from the subcontractor’s supervisor on
charges.
– Keep track of exact charges.
– Present a detailed record of the back charge.

6-19
 Review
• Cost data need to be organized to indicate trends in cost
variance.
• It is important to discover why the variance is occurring,
regardless of whether the variance is over or under.
• Management can be responsible for some of the
problems.
It is important to recognize the cause and take action
immediately.
• Understand the scope of work, your work and the change
order process.

6-20
 Apply What You Have Learned
• Examine the challenges and cost overruns on your job:
– Is there a pattern to the causes?
• Look carefully at your scope of work and potential change
orders.
– Is there a comparison made between estimated and actual costs?
– Was there work performed outside of your scope of work?
– Were change orders requested for this additional work?
• What will you do differently on the next project?
– Where did you make money on this project?
– Where did you lose money on this project?
– Why did you make money on this job?

6-21