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PROJECT COST CONTROL

 

Introduction

Project cost control has two aspects. First, is the need for a design firm to control internal design costs—this requires careful monitoring of expenditures against fee budget. Some of the material discussed below is a recap of earlier information to emphasize the importance of controlling costs. Second, is the need to estimate and monitor the construction budget—failure to adequately do this may result in exceeding an owner’s willingness or ability to pay for constructing the facility.

Controlling Internal Project Costs

Perhaps the most difficult task of a design firm project manager (PM) is staying within the project design fee budget. This is a tough challenge for even the most experienced manager. A PM will need help in meeting this challenge. Many factors will affect his or her ability to meet the design firm’s goals. As noted elsewhere in this book, the matrix management/ strong project management system has its weaknesses, but it does provide for an individual to manage and monitor the project from beginning to end. To ensure its proper functioning, the matrix system must provide for an equality of responsibility and authority.

No project management system will function well without a capable staff. A high level of experience, accompanied by individuals who are able to make quick and accurate decisions, will go a long way toward keeping you within your fee budget. The goal is to achieve accurate decision making at the lowest effective level in your organization. Many events occur before you sign a design services contract that can have a significant impact on your profit potential. Specialization in one or a few types of projects allows your staff to become knowledgeable in the particular needs and problems of those projects. Research and programming materials, time, and problems can be reduced.

A poorly prepared design scope of services can leave many questions unanswered. This may result in conflict with clients or require excessive, unbilled change orders to meet the program. Poor scope determination can lead to an inaccurately calculated fee budget. The extra work or change orders required to overcome this problem can be very costly. Some firms compound this error by failing to forward price their work. Contracts that last over a long time period (a year or more), or are likely to be delayed must have an inflation clause. Without this clause, overhead increases and staff raises can eat away at the profit margin built into your project multiplier.

Communicating with Clients

Many design firms hurt their chances at controlling project design costs by failing to adequately communicate with clients. This failure covers a multitude of issues. Not adequately defining a scope of services leaves too many issues open for challenge or question, or may result in additional unpaid requests for services. A disciplined process of recording time and expenses related to change orders is essential. It is important to recognize that it is far easier to consolidate information than it is to segregate after the fact.

Scheduling a client’s input is essential to controlling costs. Failure to plan for this input can result in delays in decision making. A key to making a profit on a job is to keep it moving smoothly through the design office. Any delays penalize the bottom line. A regular meeting process with your client allows not only better use of your time, but can also provide a decision-making forum. PMs also have an obligation to keep their clients informed. Communication methods such as change order documentation, meeting minutes, and regular telephone calls all help to inform clients.

Information Systems

Perhaps the most important tool needed by a PM is an information reporting system that allows monitoring of costs against the fee budget. This information should be prepared by computer. Many commercially available computer software packages exist. Rarely should a firm seek to design its own software. Any claims that the commercial packages do not meet the particular record-keeping needs or method of doing business of your firm may indicate an incorrect approach on your part.

Most well-run design firms today collect time sheets daily and use electronic timesheets. This improves the accuracy of information and allows more current updating of project status reports. This also allows an interactive process where the PM can use any web enabled device (tablet, phone, laptop, etc.) to check the current status of a project. No information system is of value if the information collected is not accurate.

To control project costs, PMs must understand the information provided by status reports and know how to take action based on the information. If percentages of completions are used, they must be calculated and posted as accurately as possible.

Outside consultants must also be brought into the process of controlling project costs. If they fail to meet deadlines, arrive at incorrect or incomplete solutions, or if they do not segregate change order information, your efforts will be affected or delayed. Wherever possible, communication processes must be established to assist in working with your consultants. If a project seems to be going over budget, prompt action must be taken. It is vital to catch problems as early as possible. This is especially true if your projects are of short duration where any delays in obtaining status reports can prevent effective, corrective action. Staff may need to be changed in order to quickly complete the work or to correct mistakes. Time schedules and budgets may need to be revised to reflect the reality of delays or budget slippage. And, the scope of services must be reexamined to ensure that you are providing what you agreed to do.

Estimating and Controlling Construction Costs

Projects must be managed in a manner that allows for the control of all expenditures. The following examples of estimating construction costs are used with the help of data gathered and rules of thumb. When a quick estimate is required, these methods should serve adequately, but ultimately, more definitive methods must be used.

  1. From past projects, cost is divided by the gross building square footage or square meters to determine the cost per square foot or square meter. In order to determine the new building budget, the cost per square foot is multiplied by the gross square footage.

  2. Another method similar to No. 1 above, but more specific, is to use past data gathered for individual building types.

  3. A third method that is more specific than Nos. 1 and 2 is to use past data pertaining to each trade to determine costs.

  4. The method of determining cubic footage or meter costs in lieu of square footage or meter costs has its advantage in projects with large gross volume areas, such as theaters and auditoriums.

  5. Other rules of thumb for quick estimation of project costs are cost per unit (material), cost per bed for hospitals, and cost per student for educational facilities.

Various methods that offer more sophisticated results than the rule of thumb methods are available for use by the cost estimator. All of these methods are dependent upon historical data and, obviously, the more current and detailed these data are, the more reliable the estimate will be. Some of the methods used are as follows:

  1. Building unit estimating (based on unit costs of material and labor)

  2. Statistical and analytical estimating (based on trends, mathematics, and the use of graphs and an overwhelming amount of information input)

  3. Quantity survey estimating (based on the determination of the quantity of materials and the amount of time needed to complete specific parts of the construction)

Some methods lend themselves to earlier phases of a project while others are required when a more detailed, concise result is needed. The estimator must have several methods at his or her disposal and must be able to determine which method is most applicable to both the type of project and the particular phase of that project in which the estimate is required. Most of the costs of labor and material information are acquired from suppliers, contractors, and all of the other price determining sources where costs are initiated. These data may be presented directly to the estimator or by way of publications that assemble these data for the estimator who subscribes.

Many publishers of periodicals and magazines offer various types of construction cost information. The estimator’s good judgment is ultimately the determining factor as to whether or not the ongoing generation of cost analysis is maintained as accurately as possible. The human factor is not replaceable. Human error, on the other hand, can be somewhat eliminated by the use of computers, which not only calculate costs and analyze results, but also store cost data for use in determining construction costs. There are additional factors that cause cost differentials in building projects and these factors must be considered. They are the elements of solution for one portion of the building against those decisions made for other parts (or systems) of the building. It involves an overview of all parts of the project and the evaluation of all implications of a design solution.

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