Study Report of Cost Management of DBH JV Projects.

By: Mohammed Shahzad Iqbal

Dated; 02 July, 2012


A SOP for booking of expense was communicated to all JV Mangers on June 21, 20012. This is a very
good effort on Project Cost Management. Management of Cost for Urban Development Projects is one of
special area of my interest. This is being one of the most neglected fields of practice in Projects,
particularly in Pakistan.

Project Cost Management is now standardized; it is indeed very challenging to implement this standard
on Urban Development Project due to the diversity and large numbers of unknown project risks and other
factors. However efforts must be done to bring projects, inconformity with, at least on the Basics
Requirement of Project Cost Management.

Here effort is made to identify the very Basic Cost Management Requirements of DBH JV Projects in a
shortest possible Study Report.

Project Cost Management includes the processes involved in estimating, budgeting, and controlling
costs so that the project can be completed within the approved budget. Its outcome is that the wastages
are identified and controlled within allowable limits and profitability on project is increased.

1. Estimate Costs The process of developing an approximation of the monetary resources
needed to complete project activities.
2. Determine Budget The process of aggregating the estimated costs of individual activities or
work packages to establish an authorized cost baseline or (Approved Financial base).
3. Control Costs The process of monitoring the status of the project to update the project
budget and managing changes to the cost baseline.

The First Two Area i.e. Estimate and Budget has very close relation with Project Planning Process. A well-
defined and planned project makes estimate and budget very easy and reliable. Third area of Controlling
Cost in any case should be considered being a legal requirement, as project accounts have to be
maintained.

People, money, supplies equipment, material, space are resources these are usually limited, rarely
flexible, and never unlimited, a performing organization has to achieve project duration within a level of
available resources. Wastages of these resources are losses which need to be timely
identified/noticed/highlighted/curtailed and one of the accurate and reliable tool to achieve this objective
is project costs analysis.

Cost Estimation:

This first step in cost management is Cost Estimate. It should correlate to Work Breakdown Structure
(WBS) of Urban Development Projects which includes mostly, but not in totality, the following:

Work Breakdown Structure WBS is the process of subdividing project deliverables and project work into
smaller, more manageable components. The WBS organizes and defines the total scope of the project. It
is actually the base of all other project management process. Based on my experience I propose WBS for
JV projects on following work packages, which in my view are best to be scheduled, cost estimated,
monitored, and controlled:
















Note;
Hierarchical Levels in WBS depends on the level of available expertise of staff to handle data and the
level of details desired by the project stakeholders. In my opinion Three Stages or Levels of WBS suits
our project. An approved WBS is the main basic document which forms foundation of Project Schedule,
Project Team Structure, Resources Estimation and Account/Cost Breakdown Structure (CBS). This is a
very important document which requires PMs expert opinion in its development.



Detailed or Bottom up Estimation is Best technique for estimation if Project is well Planned and has
detailed and approveed;

(The Bold Words below are deliverable-oriented hierarchical decomposition of work packages correlated
with above proposed WBS, for an Urban Development Project)

1. Plots.
a. Estimated Cost of Plot Earth Platform of Different Plots sizes up to plot boundary per
number (Unit) or cost of developed plots per kanal. Different techniques can be used to
estimate this depending on desired level of accuracy e.g. Rough Order of Magnitude
(ROM) of Estimate ranging say +/- 50% etc.
b. Estimated Cost of Plot Waste Water System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. RCC pipe House connection per no.
ii. House connection MH per no.
c. Estimated Cost of Plot Fresh Water System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. Water House Distribution Pipe per no.
ii. Water House Connection i/c fittings and fixtures per no.
d. Estimated Cost of Plot Electrification System of Different Plots sizes per number
(Unit) or cost of plots per kanal i/c;
i. Elec House Distribution Lt Cable per no.
ii. Elec House Connection Db. per no.
e. Estimated Cost of Plot Natural Gas System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. Gas Distribution PE Pipe per no.
ii. Gas House Connection fitting and fixture per no.
f. Estimated Cost of Plot Communication System of Different Plots sizes per number
(Unit) or cost of plots per kanal i/c;
i. T&P House Distribution Cable per no.
ii. T&P House Connection Db. per no.

2. Roads.
a. Estimated Cost of Road Earth Embankment of Different Road sizes e.g. Streets,
Roads, Boulevards and Avenues ROW per KM (Unit). Different techniques can be used to
estimate this depending on desired level of accuracy.
b. Estimated Cost of Road Pavement of Different Road sizes i/c Sub Base, Base, Asphalt.
per KM (Unit).
c. Estimated Cost of Road Amenities of Different Road sizes e.g. Streets, Roads,
Boulevards and Avenues ROW per KM (Unit).
i. Roads Kerbs per m
ii. Roads Footpaths per m
d. Estimated Cost of U/G Road Sleeves on Different Roads per Km.
i. RCC pipe per m.
ii. Main Man Hole per no.
e. Estimated Cost of Road Drainage System on Different Roads per Km.
i. RCC pipe drainage i/c sumps per m.
ii. RCC open drains per no.
f. Estimated Cost of Road Electrification System of Different Roads per km i/c;
i. Elec Road lighting Lt Cable per m.
ii. Elec Transformers, Switches, Db. per no.
iii. Elec Street Pole and light per no.
iv. Traffic lighting system.
g. Estimated Cost of Road Signage of Different Roads per Km i/c;
i. Traffic Signs.
ii. Warning Signs
iii. Traffic Controls.
h. Estimated Cost of Road Communication System of Roads per i/c;
i. Road Under passes per no.
ii. Road Overhead passes per no.
iii. Road RCC Culverts.
iv. Road Protection works;
Retaining Walls.
Stone Pitching etc.

3. Commercial Areas (CA).

a. Estimated Cost of CA Earth Platform of Different Plots sizes up to plot boundary per
number (Unit) or cost of developed plots per kanal.
b. Estimated Cost of CA Waste Water System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. RCC pipe House connection per no.
ii. House connection MH per no.
c. Estimated Cost of CA Fresh Water System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. Water House Distribution Pipe per no.
ii. Water House Connection i/c fittings and fixtures per no.
d. Estimated Cost of CA Electrification System of Different Plots sizes per number (Unit)
or cost of plots per kanal i/c;
i. Elec House Distribution Lt Cable per no.
ii. Elec House Connection Db. per no.
e. Estimated Cost of CA Natural Gas System of Different Plots sizes per number (Unit) or
cost of plots per kanal i/c;
i. Gas Distribution PE Pipe per no.
ii. Gas House Connection fitting and fixture per no.
f. Estimated Cost of CA Communication System of Different Plots sizes per number
(Unit) or cost of plots per kanal i/c;
i. T&P House Distribution Cable per no.
ii. T&P House Connection Db. per no.
g. Estimated Cost of CA Service Area Roads and Parking per plot i/c.
i. Roads Complete per Km.
ii. Parking Area per Sqm.

4. Project Main Utilities;

a. Estimated Cost of Main Fresh Water Supply System per sector.
i. Rising Main pipe lines i/c control valves per m etc.
ii. Tube wells complete i/c tests, development and commissioning per no.
iii. U/G RCC reservoirs.
iv. O/H RCC reservoirs.
v. Pumping stations.
b. Estimated Cost of Main Sewerage System per sector.
i. RCC Main Sewer Lines.
ii. Main Sewer MH.
iii. Sewage Treatment Plant (STP.)/ Septic Tanks etc.
c. Estimated Cost of Main Electrification System per sector.
i. Electrical Cable HT per m.
ii. Main Transformers.
iii. Elec Main Grid station.
iv. Elec Sub stations.
d. Estimated Cost of Main Natural Gas System per sector.
i. Main Gas Pipe Lines.
ii. Main Gas Control Station TBS.
e. Estimated Cost of Main Tele Communication System per sector.
a. Main Cables per m.
b. Main Exchange per no.
c. Switch Boards.
d. Distribution Boards.
f. Estimated Cost of Main Bridges & under Pass per sector.
i. Earth Work per Cum.
ii. Pilling works per m.
iii. Girder Casting per m.
iv. Structures per meter of span.
v. Utilities per meter of span. Etc.
i. Earth Work per Cum.
ii. Structures per Sqm.
g. Estimated Cost of Main Horticulture System per sector.
i. Trees per no
ii. Plants per no
iii. Shrubs per no
iv. Grass per Sqm
v. Hard scape. Etc.

5. Project Amenities;

a. Estimated cost of Grave Yards per sector;
i. Earth Work per Cum.
ii. Structures per Sqm.
iii. Utilities per Sqm.
b. Estimated cost of Mosques per sector;
i. Earth Work per Cum.
ii. Structures per Sqm.
iii. Utilities per Sqm.
c. Estimated cost of Schools per sector;
i. Earth Work per Cum.
ii. Structures per Sqm.
iii. Utilities per Sqm.
d. Estimated cost of Hospitals per sector;
i. Earth Work per Cum.
ii. Structures per Sqm.
iii. Utilities per Sqm.
e. Estimated cost of Parks/playgrounds per sector;
i. Earth Work per Cum.
ii. Structures per Sqm.
iii. Utilities per Sqm.
iv. (Any other included in Project Scope)

Analogous cost estimating worked out from sale price of product is a suitable alternate method of cost
estimation for DBH JV projects. When estimating costs, this technique relies on the actual cost of
previous, similar projects as the basis for estimating the cost of the current project. ;

Analogous cost estimating is frequently used to estimate a parameter when there is a limited amount
of detailed information about the project, for example, in the early phases of a project.

This method is very simple:

a. Total sale price of Plot: say Rs 1,200,000.00 per 8 Marla plot
b. Company net profit margin; say 10% (Less) Rs 120,000.00
c. Total plot estimated cost ; Rs 1,080,000.00
d. Estimated Over Heads(Indirect cost) 30% Rs 324,000.00
e. Estimated Production Costs (Direct cost) Rs 756,000.00

This Estimated Cost of plot is sub divided as per WBS based on previous similar project cost information
e.g;
.
I. Plots Cost 40%
a. Plot Earth Platform 60%
b. Plot Waste Water System 12%
c. Plot Fresh Water System 15%
d. Plot Electrification System 10%
e. Plot Natural Gas System 3%
f. Plot Communication System 2%
II. Roads Cost 25%
a. Road Earth Embankment 30%
b. Etc. -%
III. Commercial Areas Cost 15%
IV. Project Main Utilities Cost 15%
V. Project Amenities Cost 5%

Total Project Estimated Cost 100%

It is essential to estimate DBH JV project costs using a suitable technique based on
information available and resource condition for working out these estimates. Only two of
many such techniques are discussed here.



In Project Cost Management the next step after Estimate Costs is Determine Budget:

Determine Budget.

It is the process of aggregating the estimated costs of individual activities or work packages to establish
an authorized cost baseline. This baseline includes all authorized budgets (Direct Costs), but excludes
management reserves (overheads or indirect costs).

Project budgets constitute the funds authorized to execute the project (Direct or Production Costs).
Project cost performance will be measured against the authorized budget.

Cost estimates are aggregated by work packages in accordance with the WBS. The work package cost
estimates are then aggregated for the higher component levels of the WBS (such as control accounts)
and ultimately for the entire project.

An approved Project Budget of DBH JV Projects should be developed by aggregating costs, including into
it cost reserves by using expert judgment and historical relationships within funding limits.

I. Total Sale Tag of the Project.
II. Less Stake Holder profit reserve say 10%
III. Less Project Risk Reserves say 5%
IV. Less land Procurement Budget
V. Total Funds available for project execution
VI. Less Project Management Budget (Overheads/Indirect Costs)
VII. Gives Project Production Budget (Direct Costs).

This Project Production Budget is than further converted in to CBS (Cost Breakdown Structure) in
accordance with proposed DBH JV Project WBS (Work Breakdown Structure). That is 5 main costs for
Plots, Roads, Commercial Areas, Main Utilities and Amenities, each one further in to Earthwork, Waste
Water Works etc.

THE BASICS FOR PROJECT COST MANAGEMENT GETS COMPLETED AT THIS STAGE.

Remaining Last stage is Control Costs;

This involves recording Actual Costs spent to date by maintaining an Accounting System based on
planned CBS (Cost Breakdown Structure) thus enabling to monitor the status of the project and updating
the approved Project Budget.
The Challenge here is to analyze consumption of project funds to the physical progress achieved. This
Results in keeping project team to stay within the authorized funding.

Project cost control Tasks/Objectives are:

Influencing the factors that create changes to the authorized cost baseline (Budget),
Ensuring that all change requests are acted on in a timely manner,
Managing the actual changes when and as they occur,
Ensuring that cost expenditures do not exceed the authorized funding, by period and in total for the
project,
Monitoring cost performance to isolate and understand variances from the approved cost baseline,
Monitoring work performance against funds expended,
Preventing unapproved changes from being included in the reported cost or resource usage,
Informing appropriate stakeholders of all approved changes and associated cost, and
Acting to bring expected cost overruns within acceptable limits.

There are six techniques to Control Costs these are;
I. Earned value management
II. Forecasting
III. To-complete performance index
IV. Performance reviews
V. Variance analysis
VI. Project management software

In my view as well most popularly used technique, these days is Earned Value Management (EVM.) detail
on this is not discussed here being very technical and lengthy for this document.
Summary:

Being a student of Project Management based on my Seven year experience of PM practice on Urban
Development Projects in particular and 22 year general experience in this field I strongly believe that
Project Cost Management is the top most area of importance in Project Management. This remains my
favorite study area due to;

Most reliable information and data source.
If used intelligently can provide completed picture of project, a picture which clearly shows
strong and weak areas of the project.
Most tangible result can be achieved with cost control.
Most strong base for project decision making.
Most easy to pin point wastages.
Most tricky to handle due to fears of people involved with cash.
Most testing on personal honesty and faith.

I believe that if alone Project Cost Management is properly managed 75% project management is
covered easily. However this field is most neglected in Pakistan due to scarcity of manager having actual
skills and knowhow to integrate accounting knowledge with actual works in engineering projects. This
gap of general financial accounting and project financial accounting is considerable, especially in our
country. The accounting professionals firstly dont consider this essential, secondly accounts is only used
for tax matters, lastly project managers and accountants both fear the exposure and transparency of
funds consumptions/wastage/miss appropriation etc. in STANDARDIZING COST MANAGEMENT.

(Your comments and critique on this study is mostly valued and appreciated.)


By;


Mohammed Shahzad Iqbal.