Commercial management of Construction (Q&A)

Q: What is a Cost Plan?

A schedule showing how much of a developer’s budget is to be spent on each element of his project so that the design and construction can be controlled within the forecast.

Q: Purpose of Cost planning process is mainly divided into three parts

• To set a realistic cost limit

• To decide how the money is to be spent

• To check that the money is being spent as intended.

Q: Preliminaries estimates

• This is prepared to enable the clients to understand his financial commitments at the early stage of the project

• Also enables the designer to design within the available budget in a controlled manner.

Q: Different methods of preliminary estimates

• Conference estimate

• Financial methods

• Unit method

• Superficial method

• Cube method

• Storey enclosure method

• Elemental method (this is an extension of superficial method)

• Approximate quantity method.

Q: Different elements of a building - For cost planning purpose

• Substructure

• Superstructure

• Internal finishes

• Fittings and furnishings

• Services

• External works

• Preliminaries

• Contingencies

Q: How to prepare Cost Plan for a project from cost plans of existing projects –

By adjusting time, quality, fluctuation, location factors.

Q: Cost Value reconciliation (CVR) –

This is a format used to compare actual cost against valuation on a project specific basis. This is to bring together the established totals for cost and value to illustrate the profitability of a company. Its intention is to ensure that the profits shown in company accounts are accurate and realistically display the current financial position. CVR provides close control over project cost, company provisions and overheads, and value earned.

Its purposes are,

• Statutory requirements or for audit purpose (Only in some countries like UK)

• To get information which can have a direct impact on a company management.

• To identify the potential problems or critical elements of a contract.

Q: At what stage of a project you will prepare a cost plan? Would you still use it when the project is underway?

Cost plan is prepared in the beginning of the project before issuing tender.

Yes. If it was identified later that there was flaws in the design leading to uneconomic construction and the Construction has not progressed beyond the alteration stages, but the Net Saving potential is considerably reduced with Time. VE is to be preferably done initially when there is a better chance of identifying & overcoming Potential problems at an early stage thus giving better value for money.

Q: What are the stages of design of a project?

Concept

Schematic

Detailed design

Q: Some terms in Cost Value management –

• BCWP – Budgeted Cost of Work Performed

• BCWA – Budgeted Cost of Work accomplished.

• BCWS – Budget Cost Work Scheduled.

• ACWP – Actual Cost of Work Performed

• ACWA – Actual cost of work accomplished.

• CPI – Cost Performance Index = EV / AC (Earned Value / Actual Cost) should be above 1

• VAC – Value At completion.

• EAC – estimate at completion (projection of total cost to complete the work)

Q: Difference between Cost Management and Value Management –

• CM focuses on issues like estimation and budgeting, cash flow management, cost control.

• VM focuses on Optimizing project value

Q: Type of cost control techniques.

• Budget monitoring system

• Cost coding system

• Earned Value Management

• Network analysis.

Q: Earned Value Management (EVM) –

It is a project management technique for measuring project progress in an objective manner. EVM will combine measurements of scope, schedule and Cost in a single integrated system. This will provide an early warning of performance problems. It is the management of value of the work actually accomplished at the cost rates set out in the original budget. EVM information provides the efficiency with which the budgeted money is used relative to realized value. This helps to forecast estimated cost and schedule to the project completion.

Q: Earned Value –

Is a concept used to express the progress of a project in terms of financial value. (Eg. If I have completed half of a project valued one million, I can say that I have earned Dhs.500,000. in fact the real current value may be nothing since no benefit can be generated from a half completed project.)

Source: J Thomas (July 2010)