1. EM15 – Contractors COST MANAGEMENT
ENGG MG ENGINEERING MANAGEMENT
EM15 – Contractors COST MANAGEMENT

2. ENGG MG 6003 - ENGINEERING MANAGEMENT EM15A - COST MANAGEMENT

3. ESTIMATING AND COSTING
Unitec New Zealand
ESTIMATING AND COSTING
INCEPTION
FEASIBILITY
How much will it cost?
ROUGH ESTIMATE
Consultant
Client
PROVISIONAL ESTIMATE
DESIGN
Preliminary Design
Developed Design
Detailed Design
Which is the best option?
Can I afford to do the work?
What is a fair price?
DETAILED ESTIMATE
ENGINEERS ESTIMATE
How much will it cost to do the work? What price do I submit?
TENDERING
Contractor
TENDER PRICE
BUDGET
COSTING SYSTEM
CONSTRUCTION
COMMISSIONING
Am I making a profit ?
How can I manage my costs?
© Unitec New Zealand

4. a.k.a Financial Management
Unitec New Zealand
COST MANAGEMENT
a.k.a Financial Management
Tender Estimate Cost Control = Successful Contractor
© Unitec New Zealand

5. Project Management Processes
Unitec New Zealand
Project Management Processes
Initiating
Processes
Closing
Monitoring and Controlling Processes
Planning Processes
Executing Processes
Monitor costs
Implementing work
Valuing Variations
Forecasting
Feedback for future estimates
Estimating costs and rates
Developing budgets
End

6. ENGG MG 6003 - ENGINEERING MANAGEMENT EM15B – COST ESTIMATE CYCLE

7. COST ESTIMATE CYCLE
Means of recording actual construction costs against rates used in the schedule.
Rates are then updated and used for future estimating for work of similar nature.
Historic Project , Subcontractor, Supplier and Labour Costs and Cost Indices
Field Costs, Cost Distribution, Cost Studies, Cost Analysis, Budget Reports, Final Reports
Actual Project Cost Information
Project Tender Cost Estimate
Project Cost Control
Cost Database
Means of recording actual construction costs against rates used in the schedule.
The rates are then updated and used for future estimating for work of a similar nature.
Estimate
Work starts
Timekeeping to show how much labour and plant each phase of the work is taking
Apply appropriate unit rates to timekeeping records arrive at cost keeping stage. Costkeeping stage also collects ancillary costs such as materials and supervision to allow comparison with the estimated costs.
Comparison of costs with estimates shows if any area is operating inefficiently.
Additional job control and analysis may be required before the information is recorded for future estimates.
Estimates need to be compared with cost throughout the construction period
Comparing total sum does not tell you exactly what is happening. A poorly performing operation can be masked by one that is performing well
So need to break estimates and costs into logical and comparable sections.
Costs usually related to work units such as man hours so sometimes make comparisons in units of work as well as on a monetary basis. Eg looking at labour can compare costs with estimated costs and actual hours with estimated hours That is in monley and hours.
Units and fginace are connected by Unit Rate Comaprings cost with estimataed costs shows prfit or loss but not the cause. Was it an incorrect unit rate or incorrect time estimate.
Therefore need to assess two of units, finance or the unit rate

8. COST DATABASE Collect previous contract cost information.
Review cost indices and trends.
When new tender advertised:
Review contract and determine requirements.
Obtain quotes for subcontractor and material supply.
Review previous contracts for similar work.
Review cost indices.
Update and adjust historic unit rates.
Provide up-to-date pricing information for new tenders.
Historic Project , Subcontractor, Supplier and Labour Costs and Cost Indices
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.
Cost Database
Actual Project Cost Information
Project Tender Cost Estimate
Project Cost Control

9. TENDER COST ESTIMATE Basically – Filling in the Tender Schedule
Estimating cost to carry out Contract Works
Enter unit rates into Tender Schedule to get Tender Sum
Tender Sum – Amount Tenderer is offering to do the Contract Works
Need accurate unit rates to get accurate Tender Sum
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.
Actual Project Cost Information
Project Tender Cost Estimate
Project Cost Control
Cost Database

10. PROJECT COST CONTROL
If you win the Contract you then have to do the work for the tendered sum.
Measure actual performance and costs
Compare with tender amounts
Identify and investigation any discrepancies
Actual Project Cost Information
Project Tender Cost Estimate
Project Cost Control
Cost Database
Field Costs, Cost Distribution, Cost Studies, Cost Analysis, Budget Reports, Final Reports
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.

11. ACTUAL PROJECT COST INFORMATION
Actual performance and costs recorded
Used for estimating in future bids
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.
Actual Project Cost Information
Project Tender Cost Estimate
Project Cost Control
Costing Department
End

12. ENGG MG 6003 - ENGINEERING MANAGEMENT EM15C – COSTS AND RATES

13. DEFINITIONS Unit Cost – Direct cost of producing a unit of an item
Unit Rate – Amount that is paid for a unit of a schedule item
Performance Rate -The number of units of work which can be carried out in unit time (usually 1 hour). (E.g. Bulldozer PR m3/hour)
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.

14. CONTRACTOR’S COSTS Net Cost Direct Costs Onsite Overhead
(Labour, Plant, Materials, Subcontractors)
Onsite Overhead
(Direct Overheads)
Margin
Offsite Overheads
(Indirect or Head Office overheads)
Rates included in Schedule as “All in “ rates. That is they cover everything required to do the job including direct and indirect overheads and profit. Schedule usually has a P and G section to cover most onsite overheads. The margin is added onto to all rates.
Direct Costs
actual cost of doing the work includes personnel, plant, equipment hire, fuel, materials and subcontractors
Also includes standby costs and onsite overheads for any time overrun (weather, plant breakdown, uncovering services etc) whether granted or not
Onsite Overheads
Overheads directly related to the work
May be included in the Preliminary and General section of the Schedule
Referred to as On-site overheads in NZS 3910:2003
Offsite Overheads
Can also be referred to as indirect overheads or head office overheads
Will not be increased or decreased by events occurring on the contract
E.g. head office salaries, rent, head office maintenance
Referred to as Offsite Overheads in NZS3901:2003.
Percentage can be derived by totalling the offsite overhead items and expressing them as a percentage of turnover.
Profit (net profit)
Financial dividend for which the contractor is in business
Sufficient to justify the investment in the business and facing the associated risks rather than just sticking the money in the bank.
Can be expressed as percentage of turnover
Contractor 10 to 15%, c.w. Supermarkets 2 to 3% and Fisher and Paycal ~25%
Margin
Contractor usually derives single percentage which is applied as a mark-up or margin to cover offsite overheads and profit.
Profit
Unit Rate Estimation Process
Estimate Direct Costs
Add in Indirect Costs
Add in Profit

15. CONTRACTORS COSTS
Direct Costs – Cost of resources required to complete the Contract Works.
Net Costs – Labour, plant and materials to construct the Contract Works.
Onsite Overheads – Costs of onsite support and facilities e.g. supervisors, site huts, site offices, transport to site
Margin (also known as “Markup”)
Offsite Overheads
Indirect Costs – project specific costs not specifically related to a specific work item e.g. Project management, payroll preparation, account support
Head Office Costs (a.k.a. “Companywide Costs”) – Costs of running the construction company not related to project e.g. Head office salaries, proposal preparation
Profit – money retained by company after all costs have been paid.

16. LABOUR COSTS Basic Cost of Labour “All in” rate - need to allow for
Wages
Overtime – may be required
Travel – time and transport
Breaks – starting and stopping work and break time
Supervision – or could be included in on-site overheads
Wet time
Sick leave
Annual leave
Statutory holidays
ACC levies
Additional employment contract allowances (superannuation, medical, tool allowance etc)
Profit and Overheads

17. PLANT COSTS Basic Cost of Plant Ownership costs – (Fixed Costs)
Depreciation
Interest
Insurance
Taxes
Operating costs (Variable Costs)
Fuel, oil, grease
Consumables – tyres, filters
Repairs and maintenance
Operator ‘s wages

18. MATERIAL COSTS Obtained from Suppliers during tender period.
Include delivery to site.
Allow for wastage
Usually add 10 to 15% on Price.

19. SUBCONTRACTORS COSTS
Prices obtained from Subcontractors during tender period.

20. PERFORMANCE RATES
The number of units of work which can be carried out in a unit of time.
Determined from:
Previous experience
Measurement
Industry figures e.g. Rawlinsons
Varied according to conditions.
Example
Performance Rate to hand excavate a trench in medium soil
From Rawlinsons – 2.2 Labourer Hours/m3
> Performance rate = 1/2.2= 0.45m3/hour

21. TENDER BUILD-UP Develop unit rates and put in Schedule
Calculate and add up all elements
Labour and Plant – Charge out rates x performance rates
Materials and Subcontractors – Cost plus margin.
Multiply Quantity by Unit rate to get Item Amount
Add items to get Tender Sum.
End

22. TENDER BUILD-UP Develop unit rates and put in Schedule
Calculate and add up all elements
Labour and Plant – Charge out rates x performance rates
Materials and Subcontractors – Cost plus margin.
Multiply Quantity by Unit rate to get Item Amount
Add items to get Tender Sum.
End

23. ENGG MG 6003 - ENGINEERING MANAGEMENT EM15D - COST CONTROL

24. COST CONTROL SYSTEM
The assignment of all job expenditure (labour, plant, materials, subcontractors) into a costing system.
Purpose providing an accurate comparison between estimate and onsite costs.
Basic cost classifications
Labour
Plant and equipment
Materials
Subcontractors
Overheads

25. COST CONTROL
Costs split into items used in schedule – allows actual costs to be compared with tender estimates
Onsite costs recorded
Labour – Timesheets/Daily Site Sheets
Plant – Operators Timesheets/Daily Site Sheets
Materials – Order Books/Invoices
Subcontractors – Order Books/Formal Agreements/Invoices
Overheads – Supervisors Timesheets
Onsite records entered into Computer Costing System.
Cost Reports produced each month (usually)
Detailed cost reports required to
provide useful information for future estimates
Enable discrepancies to be investigated (gains and losses)
Costs within each costing element must be seperated into logical subdivisions
To do this a coding system is used.
Coding system allows information to be entered into computer for the production of detailed cost reports
Best system is constant but allows refinement to match specific contract needs.

26. DATA COLLECTION Actual performance needs to be recorded.
Costs need to be gathered and totalled for each work (schedule) item
Progress on items needs to be gathered
Costs and progress for each item needed to judge whether work is being carried out as planned.

27. COST REPORTS Set out costs and progress to date Predict final costs
Identify Discrepancies

28. DISCREPANCIES
Discrepancy - actual performance differs from that estimated
Investigate both positive and negative discrepancies.
Depth of investigation depends on costing record detail.
Labour and Plant
Estimated hourly rate is wrong - check financial records
Estimated number of hours is wrong - underestimate or under performance.
Materials
Estimate and actual quantities, increased costs, invoice errors, excessive waste, pilfering.
Discrepancies
Discrepancies must be investigated even when positive. Learn from what is going better than expected as well as from losses.
Investigation and remedial action varies
Labour
Could be Estimated hourly rate is wrong or number of hours is wrong
Estimated hourly rate can be checked from financial records
If number of hours is wrong then it is one or a combination of
not enough time being allowed – estimator did not understand what was required > feed back into system.
under performance onsite – laxity of workforce, bad planning leading to inefficient work practices, work practices vary from that estimated, difference in site conditions
Action
Encourage increased productivity
Improve planning
Changing method of working
Record information and feedback into costing system.
Communicate planned work methods from estimating stage to construction stage.
Plant
Mechanical - Handled same way as labour – same issues. Cost each type of machine seperately
Non mechanical – expendable and non-expendable
Materials
Costs calculated from prices in estimate. Causes can be
Estimate errors in prices or quantity – check estimate and compare estimate quantities and costs with actual. Find out whether estimate quantities were wrong or if over ordering occurred. If over-ordered – where is the surplus?
Increased costs – note at time of invoicing
Invoicing errors – check invoices when received
Excessive wastage – increased supervision
Pilfering – increased security.
End