construction technology and management

construction technology and management

1. Cost Engineering


Construction Technology and Management

2. •Construction projects have poor track record for
meeting budget goals
•All construction sector development projects
finished at a cost higher than that estimated
•The cost of handling claims and in some cases
the arbitration process due to either the under
estimated works or unrealistic scope of work, is
enormous
•Cost engineers lack of projecting project cost
based on sound principles and workable
practices.
Importance of Cost
engineering and cost
management

3. Cost:-is the amount a
purchaser will have to pay
for goods or service.
Price:-is the value of goods
or services measured in
terms of money.

4. Cost engineering is concerned with problems of cost
estimation, cost control, and business planning
and management science, including problems of
project management, planning, scheduling, and
profitability analysis of engineering projects and
processes.
Cost Engineering
“Accurately forecasting the cost of future projects is vital
to the survival of any business.“

5. It needs understanding of
Construction Technology
Management Theory and technique: precontract
planning, tendering policy and the organization of
resources
Quantity surveying including an understanding of
contract documentation and forms of contract
Construction economics
Cost Engineering (Cont’d)

6. Cost Estimation
Cost estimates are performed at a certain point in
time, based on information available at the time
with given resources and time constraints.
Cost estimating is the process of determining
quantities and predicting or forecasting, within a
defined scope, the costs required to construct
and equip a facility.

7. Construction Project Life Cycle
Closing
Execution/
Implementation
Design/ Development
Conceptual/
Definition/
Feasibility
Cost estimating techniques and accuracy vary along life cycle
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Process of the project

8. Difficulties in Cost Estimation
Objective is to hit the
target or at least get
close to it.
Subjective

9. Estimates are based on:
•Previously recorded data (historical data)
•The estimators own past experience.
•Previous experience of others.
•Hunches (Intuition).
Historical date Subjective hunches
Information provided
by others
Estimating experience
Variance

11. There are many costs associated with construction
projects
a)Initial Capital Cost
•Land acquisition, including assembly, holding and improvement
•Planning and feasibility studies
•Architectural and engineering design
•Construction, including materials, equipment and labor
•Field supervision of construction
•Construction financing including overhead costs
•Insurance and taxes during construction
•Owner's general office overhead
•Equipment and furnishings not included in construction
•Inspection and testing
b)Subsequent Operation and Maintenance
Costs

12. Building Costs, Non Building Costs, & Life cycle costs

13. Terminologies for Cost Engineers
•Construction Cost
•Depreciation/ Depletion Costs
Valued consumption of goods /material/ and performance /labor work/ of
different kind and amount for the purpose of the production
Costs of goods/equipment/ or plant distributed for the whole
useful life to compensate its deterioration to the work
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V
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100%
Useful Life “n” years
Average Original Value
Residual
Value
Depreciation Value

14. Terminologies for Cost Engineers
•Interest Value/ Cost of capital
•All-in Material Rate
Value of goods foregone by not using resources at their best allocation.
Opportunity cost
A rate which includes the cost of material delivered to site, waste,
unloading, handling, storage and preparing for use.
•All-in Labor Rate
A compounded rate which includes payment to operatives and the costs
which arise directly from the employment of labor.
•All-in Plant Rate
A compounded rate which includes the costs originating from the
ownership or hire of plant together with operating costs.

15. Terminologies for Cost Engineers
General Overhead Costs
Site Overhead Costs
• Overhead Costs
• Mark-up Cost
•Direct Cost
Costs directly rendered to the production of the work.
It includes, all-in material costs, all-in labor costs and all-in plant costs
• Production Cost
The sum added to an estimate in respect of the general overhead
costs including profit and risk.
Costs representing the sum of direct costs (all-in costs) and site
overhead costs. Costs required for production of the works on site.

16. Cost Categories
i.Fixed Cost,
Do not vary with respect to output (over the period
being considered)
ii.Variable Cost,
Vary with respect to output
b
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FC
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Output/
volume
b
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VC
Output/
volume

17. Total Cost = Fixed Cost +Variable Cost
b
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FC
Output
TC=FC+VC
Fixed cost is a short-run concept. All costs are
variable in the long run.

18. Considerations in Costing
Project price is affected by
i.size of the project,
ii.quality of the project,
iii.Location of the project,
iv.construction time, and
v.other general market conditions.

19. i.Project Size
As projects get bigger, they get more expensive
but at a less rapid rate
Economy of scale
Output0

20. Sources of Economy of Scale:
•Exploiting (spreading) unavoidably fixed
costs
•Taking advantage of the division of labor
(specialization)
•Taking advantage of the specialization of
equipment
•Inventories
•Purchasing: Lower prices for inputs

21. Number of Units
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Learning Curve
Experience lowers costs today and in the future.
Also known as “Experience curve”

22. 0.5 0.6 0.7 0.8 0.9 1.0 2.0 3.0
Area Conversion Scale
0.80
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Cost Multiplier
Curve
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
Example:
The area conversion scale shown below gives a factor to convert
costs for a typical size building to an adjusted cost for the
particular project.

23. Building TypeMedian Cost per M
2

(Birr)
Typical Size Gross
M
2
Apartments 550 1890
Banks 1233 378
Colleges 1074 4,500
Gymnasiums 770 1728
Typical project size and method for modifying for economy
of scale
Determine the cost per m
2
of 3780 m
2

apartment building

24. ii.Quality
As the quality specifications increase the costs of
projects also get higher.
iii.Location
Various location difficulties described are:
1. Remoteness
2. Confined sites
3. Labor availability
4. Weather
5. Design considerations (related to location).
6. Vandalism and site security

25. iv.Construction Time
The longer the construction, the higher uncertainty
in the estimates.
v.Other Reasons
• Market conditions (work load)
• Complexity of projects
• Emerging or new markets

26. Difficulties in costing
Example: What are the difficulties presented in
pricing a block work item
1. Choice of work
method
2. Output of Crew
3. Cost of Labor
4. Cost of material and % of wastage
allowance
5. Addition of overheads and profit

27. Cost Engineering Traits
1. Conflicting Issues of quality, size, performance and
cost
2. Cost Engineering combines both science and
art
3. Cost Engineering does not offer guarantees of
costs
4. Costing can only be as accurate as the information
upon which it is based
5. Cost estimate accuracy increases as the design
becomes more precisely defined
6. Cost estimate is based on previous estimates

28. Cost Engineering Traits (cont’d)
Inputs
•Scope Definition
•Time to Prepare
•Quality of Cost
Data
•Cost Engineers
Skill
Costing
Accuracy

29. The Function of Cost Engineering in
Construction
1. Arranging finance, administrative approval and fund
allotment
2. Guide decision making among alternatives
3. Provides guidelines to the designer (on material,
size)
4. Prepare engineering estimate
6. Help in fixing completion periods
7. To justify investment : Cost benefit analysis
5. Negotiation tool between contracting parties
8. To invite tenders and prepare bills for payment
9. For Valuation purposes

30. Summary of reasons for Variability of Estimates
1. Quantity take off.
2. Material Costs.
3. Labor Costs.
4. Labor productivity
forecasts.
5. Work Methods.
6. Equipment costs.
7. Indirect Job costs.
8. Subcontractor
quotations.
9. Material suppliers
quotations
10. Unknown site
conditions.
11. Location Factors.
12. Cost associated with the
time element of the
construction project and
escalation costs.
13. Overheads.
14. Profit element.
15. Contingency and risk
allocation.
16. Errors in estimate
formulation.
18. Basis of information used
to formulate estimate.
19. Market forces.