COST

CONTROL IN A
BUILDING
Aims of Cost
Control in
Building/Construc
To construct at cheapest
tion
possible cost With out
compromising with the
quality.
 What is
Cost
Managemen
t?
 Cost management is a
process involved in the
planning, estimation,
budgeting and controlling cost
so that budget can be
completed in estimated
budget. It is also considered a
form of management
accounting that helps to
identify future expenditures in
a business to reduce budget
overages.
 Why do we
Manage
Cost?
 Chart out team-based and
task-based costs.
 Monitor all costs and ensure
that they remain aligned with
the forecasted budget.
 Set hourly and task-based
rates as necessary, in order to
stay on budget Keep track of
actual productivity to
accurately estimate billable
hours.
Basic Principles of Cost
Management
01 02 03
Cash flow Tangible Intangibl
analysis costs e costs

04 05 06
Direct Indirect Sunk
costs costs cost

07 08 09
Learning Reserves Manageme
curve nt
theory reserves
Basic Principles of Cost Management
Cash flow analysis
determines the estimated annual costs and
benefits for a project and the resulting annual
cash flow Too many projects with high cash flow
needs in the same year may not be able to be
supported which will impact profitability.
Tangible costs
are those costs or benefits that an organization can
easily measure. Example is A task that was allocated
150,000 but actually costs 100,000 would have a
tangible benefit of $50,000 if the assets allocated
are used for other projects.
Intangible costs
are costs or benefits that are difficult to measure
in monetary terms. Costs-resources used to
research related areas of a project but not billed to
the project.
Benefits-goodwill, prestige, general statements of
improved productivity not easily translated.
Basic Principles of Cost Management
Direct costs
are costs that can be directly related to production
and services of the project. Salaries, cost of
hardware and software purchased specifically for
the project.

Indirect costs
are costs that are not directly related to the products
or services of the project, but are indirectly related
to performing the project. Ex. Cost of electricity,
paper towels.
Sunk cost
is money that has been spent in the past; when
deciding what projects to invest in or continue,
you should not include sunk costs. To continue
funding a failed project because a great deal of
money has already been spent on it is not a valid
way to decide on which projects to fund
Sunk costs should be forgotten
Basic Principles of Cost Management
Learning curve theory
states that when many items are produced (or
tasks are performed) repetitively, the unit cost of
those items decreases in a regular pattern as
more units are produced (or more tasks
performed).
Reserves
are money included in a cost estimate to mitigate
cost risk by allowing for Contingency reserves allow
for future situations that may be partially planned
for (sometimes called known unknowns) and are
included in the project cost baseline future situations
that are difficult to predict.
Management reserves
allow for future situations that are unpredictable
(sometimes called unknown unknowns).
Extended absence of a manager, supplier goes out
of business.
 Using Software To
Assist in Cost
Management
 Spreadsheets are a common tool for
resource planning, cost estimating, cost
budgeting, and cost control.

 Many companies use more sophisticated

and centralized financial applications
software for cost information

 It helps the firm to improve its

profitability and competitiveness. It
helps the firm in reducing its costs and
thus reduce its prices. It is indispensable
for achieving greater productivity. If the
price of the product is stable and
reasonable, it can maintain higher sales
and thus employment of work force
What is Cost
Estimation?
A rough order of magnitude
(ROM) estimate provides an
estimate of what a project will
cost
Types of Estimation

Expert Judgment Comparative or analogous

estimation
This is probably the most
common way people get an If your current project is similar
estimate. Talk to the men and to past ones, take the data
women with the best hands-on from previous work and
experience and understanding of extrapolate it to provide your
the project requirements. Just estimates for the new job.
make sure that everyone has the Before proceeding, make sure
same understanding of what to check whether those
needs to be delivered. And try to projects were successful!
find experts who will actually be
working on the project.
Types of Estimation

Bottom-up Top-down
This method uses a detailed Using a high-level work breakdown
work breakdown structure, structure and data from previous
projects, you can add estimates for
and is best for projects
each project work item to determine
you're committed to. Each the overall effort and cost. The top-
task is estimated down method lacks detailed analysis,
individually, and then those which makes it best suited for a quick
estimates are rolled up to first-pass at a prospective project to
give the higher-level assess its viability.
numbers.
Cost
Budgeting
Cost budgeting is a tool to
estimate the costs or necessary
efforts for projects, work
packages or activities in project
management. Cost budgeting
includes the estimation of costs,
setting a fixed budget, and
managing and controlling the
actual costs (compared to the
estimated ones).
Types of Budget

Master Budget or Summarized

Functional Budgets Budget or Finalized Profit plan
It relates to any function of the firm such
as sales, production, cash, etc. Following This budget is very useful for the top
budgets are prepared in functional management of the company because it
budgets: covers all the information in a
summarized manner

Cash Flow Budget Static Budget

A cash flow budget examines the inflows A static budget contains elements where
and outflows of cash in a business on a expenditures remain unchanged with
day-to-day basis. It predicts a company's variations to sales levels. Overhead costs
ability to take in more money than it represent one type of static budget, but
pays out. these budgets aren't confined to
traditional overhead expenses
Cost
is the practice of identifying and
Controlling
reducing business expenses to
increase profits, and it starts with
the budgeting process. A business
owner compares actual results to
the budget expectations, and if
actual costs are higher than
planned, management takes
action.
Project cost control
includes:
 Monitoring cost
performance.
 Ensuring that only
appropriate project changes
are included in a revised
cost baseline.
 Informing project
stakeholders of authorized
changes to the project that
will affect costs.
 Performance review
meetings can be a powerful
ADVANTAGES OF COST
CONTROLLING
 It helps the firm to improve its profitability
and competitiveness.
 It helps the firm in reducing its costs and
thus reduce its prices.
 It is indispensable for achieving greater
productivity.
 If the price of the product is stable and
reasonable, it can maintain higher sales
and thus employment of work force
DISADVANTAGES OF COST
CONTROLLING
 Reduces the flexibility and
process improvement in a
company.
 Restriction on innovation.
 Requirement of skillful
personnel to set standards.
Ways of Cost Management

Budgetary control Objectives

is a system of controlling • Elimination of wastes and increase in profitability.
cost which includes the • To anticipate capital expenditure for future.
• To centralize the control system.
preparation of budgets,
• Correction of deviations from the established
coordinating the standards.
departments and • Fixation of responsibility of various individuals in
establishing responsibilities, the organization
comparing actual • To ensure planning for future by setting up
performance with the various budgets, the requirements and expected
performance of the enterprise are anticipated.
budgeted and acting upon
results to achieve maximum
profitability.
Ways of Cost Management

Standard Costing Objectives

discloses the cost of • After analyzing the variance, appropriate action
deviation from standards may be taken where necessary.
• It supplies the ways to utilize properly material,
and clarifies these as to
labor and also overhead which will be economic
their causes, so that in character.
management is immediately • It also helps to motivate the employees of a firm
informed of the sphere of to improve their performance by setting up a
operations in which remedial 'standard'.
action is necessary • It also helps the management to take various
corrective decisions viz., fixation of price, make-
or-buy decisions etc. which will be more
beneficial to the firm.
Ways of Cost Management

Ratio Analysis
is the process of
determining and interpreting
numerical relationships
based on financial
statements. A ratio is a
statistical yardstick that
provides a measure of the
relationship between two
variables or figures.
Role of an Architect in Cost Control

The Architect to provide the Owner with a

preliminary estimate of construction costs at the
end of the Schematic Design Phase.

The Architect to provide the Owner with

adjustments to its preliminary estimate of
construction costs at the end of the Design
Development and Construction Document Phases,
respectively.

The Owner shall cooperate with the Architect in

making some adjustments."
Role of Civil Engineer
Planning starts even before the starting of project. This
phase is very important. Successfully completion of a
pro and success of a project manager mostly depend on
this phase. In this phase a CPM selects the source of
materials, source of necessary equipment, justify the
sub-contractors, choose the project team, prepare
project's budget, calculate project's risk, etc.

Risk management is the most difficult part of project

management. Civil engineer calculates the project risks
before starting the project though, there are many
critical risks can arise during project's life cycle. To
mitigate these risks without hampering the project's
progress is another key responsibility of a construction
project manager.

Suppose building materials price now is lower in the

market than the time of preparing budget. That doesn't
mean you can waste materials as you wish. So, cost
management is the procedure of choosing best quality
materials with lowest possible price and using them with
minimum possible wastage.
 Thanks
for
Watchi
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