this video is looking at the cost
management process so we're looking at
the process involved and going from on
bringing the project in on time I sorry
on budget so the cost management process
so the aim of it as I said is to make
sure that the project is bordering on
budget the first thing you need to do is
estimate that budget so you get to set
the rules so you get to set the budget
and then you're going to make sure once
you've set the budget that you bring it
in on time so the processes and cost
management is firstly to determine the
cost to complete the project and that is
making up the budget saying this is what
we're going to do it for and then
monitor the project's cost during
executions make sure you are bringing
gonna bring it in on budget and manage
any changes so changes will happen in a
project and you need to manage those
because those changes can affect your
budget so it may be that things have
been added to the project and you've got
to get extra budget so that budget is
not cast in stone as the project
proceeds the budget may change it may
increase as works are added or decrease
as works are removed so
that's what you do so for a successful
contractor you need to have a good cost
estimate you've got a estimates how much
it's going to cost you to do the works
accurately because if you don't you know
with the best will in the world if
you've got a budget that's too low
you're not going to be able to bring it
in on budget so likewise if it's too
high you may not win the contract so
you've got to get that budget being on
accurate so there's got to be an
accurate cost estimate and then
production on the budget and then once
you have got the project underway
you've got to control those costs to
make sure that you are producing their
project output for the amount that you
said you would so it costs the estimate
plus cost control means that you're
going to make a profit and you're going
to be a successful contractor
so let's just look at that in the
context of our project management model
so hopefully this is familiar to you the
initiating planning executing closing
and monitoring controlling processes
that planning part of it happens
obviously during the planning part where
you're estimating the costs and the
rates and you're developing the budget
it's saying this is how much we think
we're going to do it for and then when
the project starts you need to implement
the work which means you need to
communicate those budgets to the people
doing the work you need to break it down
into work packages so that you can make
people responsible for their little
parts of the budget and then there's the
monitoring and controlling which is the
important part of costs as the project
is proceeding you are checking those
actual costs against what you budget it
and saying are we bringing this in on
budget or are we not that's why we break
our budget down into small parts so
you're not looking at the whole project
in one go you're looking at each one of
those that are all line-item see looking
at cut to fill you're looking at the
stripping topsoil you're looking at the
ceiling the road you're looking at each
one is individually and you're saying is
this one being bought in for the the
part of the budget that it was allowed
for so you're monitoring those costs
you're identifying variations that maybe
that that works been added and that that
has incurred extra cost so you're
looking for that and with a variation
when the client adds adds work you're
allowed to go along and say look you've
added extra width to the road or
something like that we want to be paid
more for it because the contract
agreements changed and so you're allowed
to claim for that so you need to
identify those variations if you don't
identify them you can't claim them and
you need to manage those changes so once
you've identified a variation that
something's changed you need to get
permission from the client to do the
extra expenditure you need to add it to
your budget you also need to identify
where something starting to blow out so
you might look at the cut to fill and
you think well we should have completed
it by now for $10,000
it's
that's $15,000 was still not finished
something's wrong so you need to
identify that there there's a cost
blowout happening and you need to go
along and you need to sort it out you
need to try to minimize the damage so
that's what monitoring and controlling
is all about
it's no use identifying that you've
blown the budget when the project's
finished you can't do anything about it
so the idea of the monitoring and
controlling processes is that you're
identifying problems really early on as
soon as possible you're investigating
them and finding out how you can
minimize the damage here you can try to
control those costs and obviously at the
end of it all you've got a lot of
information a lot of experience about
how much things cost you know more about
how much it cost to do that particular
type of job when you finish that so you
know well it costs us we thought it was
going to cost us $10 per square meter
till a trim trim the subgrade it cost us
$12 so you know a little bit more so you
need to feed those lessons back and for
future estimates so the next time you do
a project of that type you've got that
experience there you're feeding there
then and the next time you're doing the
estimate you're going to be just a
little bit better
so looking at how the planning part of
it works hopefully the screen bit here
is familiar to you as the time
management planning so you'll recall
that we had the work breakdown structure
there we need to estimate resources so
what are the resources going to do the
job the durations how long it's going to
take those resources to do each
particular work package you're also
looking at each one of those work
packages and saying what order they need
to go in and then you're producing your
program remember that was that Gantt
chart and so that's what all of that
time management is all about from that
comes the cost management planning so
from the estimate resources you know
what the resource requirements are and
that comes down to the estimate cost so
you know okay I need an excavator an
excavator it's going to cost $200 an
hour I need some labor for me and these
kind of guys are going to cost $25 an
hour whatever okay in the duration so I
know that I need my X my excavator is
going to cost me $200 an hour if I
multiply that by the duration and it's
going to ask me $200 an hour and I need
it for eight hours it's going to cost me
200 times eight it's going to cost what
$1,600 so once you've got what you
require and you know what the rates are
and how long you need it for you can
estimate the costs for those particular
work packages and that those are the
cost estimates and then you need to
determine the budget and there's a
little bit more that goes on to
determine the budget and then that what
comes out there is the budget when you
combine the budget with the program you
are able to produce the cash flow and
remember the cash flow diagram shows the
budget expenditure over time when you're
actually going to spend and how much
you're going to spend in that particular
point of time
I'm just looking at that determining the
budget remember we talked about you had
the resource requirements the things
that we need to do and how long it's
gonna we need them for we can estimate
the costs of the plant
the labor we can go and estimate how
much the materials are we go to the
suppliers and ask them to give us a
quote same with subcontractors and so
we've got the cost estimate of the
direct costs but we've got to add an
indirect costs as well so we've got our
overheads remember that as the office
staff that are processing timesheets
that is the site supervisor there as the
site heart the access road all those
things that are required to do the job
but aren't directly related to its
actual production so that's what
overheads are and there's also risk
these are cost estimates every if
everything goes right so we're saying
with in excavator for eight hours to do
this job but if it rains we might need
it there for 10 hours because it might
have be stopped for a couple of hours
while it rains so those the sort of
risks you have to sort of factor into it
so you might say okay well we've
estimated $2000 for this but there's a
risk that it's going to rain and the
pride that part of the project is going
to be the ladle but it's going to cost
us a little bit more so let's put in
$200 on top so instead of saying $2,000
we're going to say 2,200 to cover the
potential risk and we've also got profit
as well profit as oftentimes included
profit and overheads are sometimes
included in the rates for excavators and
labor and stuff so your plant and labour
costs you normally factor those into
those rates that you use with materials
you normally add ten fifteen percent on
top so sometimes those are already
factored into those cost estimates so
once you've determined the budget and
you made suitable make sure you've got
suitable allowance for risk overheads in
profit you've got your budget and then
from the the budget within the program
give you the cash flow so that's the
planning side of things this is what
happens before you start working
the project do you plan that you figure
out how much money you need when you
need it and all that sort of stuff the
next part of it is when the project
actually starts when you starting to do
the work you need to control the cost so
that comes down to their control and
monitoring that we're talking about so
monitoring is looking at something and
saying is this right control as if
something's not right you take control
of it so it's like driving a car you
normally what you're doing is you're
just watching the road you're holding
the steering wheel if a corner comes up
you'll turn the steering wheel so you're
monitoring you're watching the road
there's a corner coming up I'm going to
turn the steering wheel to respond so
that's monitoring and control actual
costs are collected and analyzed so
you've got the budgeted costs which is
just an estimate that is your best guess
at the before the project's even started
of how much it's going to cost now
you're actually doing the work you're
getting actual costs and you're saying
how do those actual costs what we're
actually spending compared to what we
thought we'd be spending and if it's
less that's great we're making a profit
if it's more then we've got a problem
cost overruns identified as they occur
so that's why we break it down into
little bits it may be that that four out
of five of your work packages is working
really well and you don't have to pay
much attention to them it may be that
one work package say the cut the fill is
starting to blow out you're saying well
we're halfway complete we should have
spent this much money we've spent much
more what's going wrong and you go and
investigate and it might be that the
diggers too small or someone's being
lazy or the ground is higher than what
you thought you find out what the
problem is and you do something about it
so you're minimizing that cost overrun
actual productivity Michigan appeared
with estimates so you thought that
you're going to be laying 100 meters of
Road if you're only laying 80 meters a
road that's a problem you've got to find
out why if you're laying 120 meters of
road well that's great you still want to
find out why because you want to do it
again revenue monitored to make sure
that's all been gathered so most
engineering projects are delivered by
contracts
you need to make sure that everything
that you are entitled to you're actually
claiming possible variation so for
clients change something thing you need
to identify that and claim it and then
every every month or so you forecast
what the final cost is going to be so we
thought it was going to be 1.2 million
dollars it's probably going to be 1.1
million dollars or 1.25 million dollars
whatever so you always want to keep an
eye on that forecast so that the client
and your boss know where the projects
heading what so one of the most
important things would the cost control
is to measure those costs on a daily
basis
it's no use at the end of the project
looking at and saying we made a loss
that's no good you need to have
real-time information about how that
project is going you can't control
something that you do not measure if you
don't know that something's blowing out
cost-wise then you can't do anything
about it so what we've got is cost
collection and analysis and basically
it's cost capture so you're capturing
the costs you're accumulating them bring
them all together and you're reporting
on them so we'll just look at that in a
bit more detail so when you're on site
most companies have what's an order an
order book or an order system so the guy
on site if he needs to get a
subcontractor to do some work he'll hire
the guy here right add an order for him
which is basically just please do this
work it'll have a distinct number he'll
actually give it a cost code and then
he'll put it into a system and say with
materials - so you might find that the
boss cinch down the road to buy some
some bolts or something like that and
he'll give you an order number and
you'll give it to their supplier and the
supplier will tell you how much it is
and that order gets entered into the
system so materials and subcontractors
there are orders which are entered into
the system
likewise timesheets every day the plant
operators in the labor people they all
write down what do I do this day so I
worked on the cut to fill for the
during for four hours and then I was
working on the the drainage work for
another four hours so they allocate
their time according to the work package
and that's their both the plant and the
laborer
so all that information there so you've
got the times from their plant and labor
multiply it by the rates and you get how
much the plant labor cost the orders
there how much those things cost they
get entered into a costing system
usually every day or every week now the
costing system is just a big computer
system and what it does is it takes all
of those those orders and those
timesheets and there may be hundreds of
them and puts them into the right boxes
so it says cut to fill his head this
much time spent on it has had this many
orders placed so it takes all of those
things and puts them into the right
boxes so to speak and then what comes
out of that as a cost report which tells
you for each work package how much
you've been budgeted for how much it's
actually I'm cost and so you can look at
those compare what was budgeted and what
was cost and you can determine which
those work packages are doing well
making a profit and which ones are doing
badly so cost the council cost codes so
cost account is like a work package we
I'm so far I've been talking about work
packages is the cost account so I think
of it as a whole lot of shoeboxes so
when you've got a project you've got you
split it into little bits and each
little bits got a certain amount of of
money allocated to it
each one has treated like its own little
business so little shoebox
so the budgeted items so cost account as
a budget item with costs are accumulated
and compared so can it be arranged by
work type so a lot of companies do it by
type of work so carpentry if you were in
our class you would have looked at a a
cost report which split it down by
by work items and their number for
carpentry with 701 formerly it was 602
and so on so they splitting it by the
trades the type of work or you can split
it by work package and that's what most
projects do they take it by the work
package so tops or removal for example
would include a whole lot of work types
that include stuff like excavator
operation it would include x-squared
operation topsoil and that sort of stuff
another work package might be concreting
which would include carpentry and form
work in concreting all in one one work
package and so the cost accounts can be
either or a company sees both of those a
cost code is a unique number allocated
to each cost account so the guys in the
in the field when they're writing their
timesheets they need to have a number to
do it what they don't want to do is
write I was working on the cut to fill
operation for four hours what they want
to do is item to point to four hours so
it's a unique number to allow people to
allocate their costs to the appropriate
cost account when they're doing their
timesheets and when they're doing their
waters it allows the cost to be
allocated to the create cost account
because once you've sort of got a number
and the time or the amount is sort of
allocated to it the computer system can
arrange everything according to those
cost codes and a groups arm all together
the add small up and then tells you the
actual costs that have been charged to
that particular cost code so it's
usually has a job number as part of the
code it's oftentimes you've got a
company which is working on holiday
projects and each project will have its
own code as well so for example you
might be working on project
two-one-zero and you might be working on
carpentry so the carpentry work you do
would be to 10.7 o1 so the 2 o 0 to 1 0
as the project in the 7-1 know as the
type of work
that particular work that you're doing
and once again so the person back at the
office can type that in and that is
allocated to their particular cost
account which is the carpentry on that
particular project not the carpentry on
another project the carpentry on your
project for the costing system that
computer system uses the cost codes to
allocate costs to the cost accounts so
the cost reports these are what come out
of the cost costing system they set out
the costs they compare actual cost to
budgeted costs and once you compare the
actual to the budgeted you can identify
the discrepancies and you can predict
the final costs from that as well so
here's an example of a cost report from
the previous video so here was our
budget so there's our budget there and
now we're doing the work we've for the
establishment we've completed 100% we
budgeted for two thousand seven hundred
dollars one hundred percent was complete
its cost us two thousand six hundred
dollars so we are 100 dollars up we said
it would cost two thousand seven hundred
only cost us two thousand six hundred
we've saved ourselves a hundred dollars
the bonds and insurances we're only
forty percent of the way through so this
was a cost report at the end of week two
you'll be doing these cost reports every
week so every week these cost reports
are becoming out and you'd be able to
identify problems as they occur so the
the Bahnson insurances four hundred
forty percent complete we budget of one
thousand four hundred as cost that much
so no gain no loss it's sort of working
out okay tops or removal hundred percent
complete and looks like we made a bit of
a loss on that so we've said it would
budget would do it for twenty two
thousand six hundred it's cost us twenty
four thousand we've made out $1400 loss
and there's nothing we can do about that
that once completed but these ones here
the ones that are partially complete we
can do something
so the subgrade preparation we budgeted
$13,000 at 20% complete so you can see
20% of that is about 13,000 we've only
spent $11,000
so $2,000 up so just looking at this one
here we're saying yeah that's no problem
now if that was making a loss what I'd
be doing this I'd be going out and I'd
be investigating it and saying why is it
making a loss what can I do to try to
minimize that loss what can I do about
it because it's only when something's
underway that you can actually do
something about it so in this video
we've sort of looked at the important
things of managing costs you need to
have an accurate budget that reflects
what you're going to do and then you
need to do the works as you've planned
to do in the budget and the only way to
do that is to regularly check monitor
and control that budget as the project
goes through no use looking at at the
end and finding out you've made a loss