Cost analysis

Cost as ‘one element of project management’

-It is discussed in its meaning and its application
on the project accomplishments
• Cost - defined
• Cost planning
• Cost control
• Costing for labour,
• Costs for equipment - hiring, owning, lost or
damage
• Costs for materials, etc.
 Costs
General definitions
• Cost is the monetary value spent/incurred in
order to produce something.
It is an amount of money that are spent regularly
to pay for, or produce something:
• e.g. running a business
• Paying employees’ expenses
• Expenses in litigation; especially those given by
the law or the court to the prevailing party
against the losing party, etc.
There is also the term ‘price’
• Price is the amount of money that is needed to pay, or for
buying something, or pay for a secured service ( it is in many cases
stands on the provider’s side)
• The amount or equivalent paid or charged for something
• The outlay or expenditure (as of, effort or sacrifice) made to
achieve something
In the construction context, we say, for example, ‘ a contractor
incurs … cost to pay for materials, labour or equipment’.
• A person in hardware provides materials priced at……Tshs
‘An element of the building was priced at … amount of money,
or a building element was budgeted at… amount of money’
‘a client incurs …. cost to pay for a built product’
‘a client has its building project priced at………’
The two words (cost and price) differ in the
meaning

A "cost'' of something refers to as the amount of

money that you spend to make such particular
thing.

A “price", on the other hand, refers to the

amount of money that such a thing is sold. It is
the amount that the customer pays.

‘Our main concern is to discuss the ‘cost’ issues’

- Costs need to be planned
- Costs need to be controlled

• The two sceneries of planning and controlling costs are

focused here, in the construction project’s context
• For a construction project, we view costs at two levels:
strategically – on the macro - overall project cost – final
project sum and on the micro – activity/task cost level.
[a practitioner must be able to view, or, to have a picture
of the cost at the project macro level, breaking it down
into activities, thinking on the methods for their
adoption; bearing in mind all the constraints available]
 Cost planning and cost control
In the construction’s context, costs to whom?
To the clients towards their engagements with the project’s activities – there is a
total project cost; costs associated with inspecting the progressive of the
works etc.
To the consultants towards their engagements with the project’s activities
(design or inspection of the works)
To the contractors towards their engagements with the project’s activities
accomplishments (i.e. from tendering to a project accomplished stage, if
obtained)

‘There is also the say – cost before project, cost on project progresses and cost of the completed
project, i.e. project cost sum’

[Exercise: Outline the cost elements for each of these parties]

‘e.g. a contractor, or a consultant, cost element is (i) ‘a cost incurred for a vehicle
used for initial site visiting ’, (ii) cost of preparing a relevant method statement
etc’.
• Cost planning: is the process of forecasting the
expenditure on a construction project at all stages
from its inception through its development, design,
execution and the final completion (view, by whom – a client, a
consultant or a contractor)

• Cost controlling: is the process of monitoring, plus

using a feedback for the expenditure of the
construction project at all stages from its inception
through its development and design, execution and
final payments (view, by whom – a client, a consultant or a contractor)
Thus – the two aspects, cost planning and cost
controlling are inseparable, you forecast the trend
and during implementation, you track the progresses,
provide feedbacks and work on them.
• The finance available for construction project are
always limited and the most important objective of
the engineer is to make sure that the benefits derived
from the expenditure of the limited amount of money
are maximized
• Thus, an engineer should prepare a framework that
estimates the cost of the proposed work and be
reasonably sure that it can be carried out within the
financial resources available
• During execution, steps are to be taken to ensure that
the costs are kept within the estimated amount
• Like previously stated, about inseparability of the cost
planning and controlling, considering one aspect, a
great relationships must be accounted over the other
 Purposes of cost control
(1)To determine whether the estimated profit is
being met or not
(to whom – client? consultant? Contractor? and
how?)
The cost control data provides the total
expenditure incurred on the work at any given
instance or at any regular interval of time, say,
a day, a week, a month, or quarterly.
[exercise - discuss practicality of filling site data
in these instance]
(2)To locate areas of inefficient or poor
functionality and provide data for reducing
costs
During work execution, cost control data is used
to draw attention to any part of the work that
is being carried out in uneconomic manner so
that remedial action can be taken well in
advance – Recall back an application of a BAR
CHART from previous studies/modules.
From the bar chart you may identify ‘as you
planned against the actual implementation’
helping to determine inefficiencies
(3)To save as a basis for estimating

The estimates are prepared on the basis of

knowledge of the outputs of men and
machines performing different operations as
well as the costs of materials etc. [generally –
resource]. These costs may also depend on
the local conditions of the site/destination on
which the work is being carried out
 Stages of which cost planning and controlling are to be effected
(i) At the design stage – from feasibility study to a
pre-contract stage.
The cost of a project is dependent to a considerable
extent upon its design and specifications.
 At these stages, therefore, various alternative
designs are considered and only those that are
most economic, one that meets a clients’ needs as
well as consistent are chosen
 Local materials and constructability methods
should be specified as far as possible; aimed to
deploying cost effective
Exercise: list the activities contained in the pre-contract stage (on a contractor’s side) and discuss costs
elements
(ii) during construction stage
Construction cost consists of expenditure on the
typical execution works and their supervision,
mainly derived from the activities and
methods of deployments when using four
resources:
(a) Labour;
(b) Materials;
(c) machinery and equipment; and
(d) Overheads.
 Class tutorial
• Consider any construction project. List the
activities contained. Outline the methods for
their accomplishments, getting to deploy the
optimal method. Outline resources required
per activity. Outline the costs
Quality of the cost control data
The data we use to establish costs may be inappropriate giving
wrong interpretation of the actual cost. Therefore, the data of
use for establishing the cost elements need to be checked on
their quality

What are the ‘quality of cost control data’

These data depend on the degree of work examination aiding to
get into details required. These cost control data need to be
prepared on:
(i)Daily;
(ii) Weekly;
(iii) monthly; and
(iv)per project.
These should be filed appropriately, recorded and ensured that
they are traceable when needed.
 The scenario of profit or loss of a contractor on initiatives of cost planning and controlling

• Overall profit or loss – the contractor waits until

the work is over, and, then compares the money
he receives for the work with the amount he
spent on it.
Such system is useful only in very small contracts
of short duration
**The only advantage of this method is a lesson to
future project; a concerned party is, probably,
have already encounted a loss
 Profit or loss with reference to party payments
A contractor paid for the portion of the work done
at regular intervals. It compares the work done
vs the amount to be paid.

• The advantage of this method is that, only the

work done is paid for, however, it require serious
recording of the works by all involved parties

• The drawbacks of this method, there is a chance

of all billing items or all materials in site appear
not to be included in the measurement
 Methods for preparation of the costs
Unit costing
• This is the cost for one unit/piece of the work
• It is the rate of cost of each item of work calculated
by dividing the expenditure on the item by the
quantity of work done. For appropriateness, clear
records must be prepared to enhance sufficient
detail that enable to represent all the work
quantities
[prepared by examining the efforts required to
produce, for example, one cubic meter of a
concrete, one square meter of plastering work etc.)
The costs are established to match the recent market
values
Comparison with standard costs
In this method the cost record is prepared which
consists of details of the cost of labour,
materials and machinery separately which is
then compared with those known as cost
standards, as worked out when estimating costs.

Cost standards stands as guidance and in most

cases provide generic view. Therefore, the
actual computation is the one that might be
much more reliable, however, this appear in the
later stages of the work operational
 Cost control codes
• It aims to give various items appearing in the
cost analysis and to which all expenditure is
distributed; certain symbols or code numbers by
which activities can be identified without
writing out the full description every time
• There are two types of cost control codes
• (i) alphabetical classification – the initial letter
denotes the trade group to which the operation
pertains and the second letter represents the
operation carried out in that trade.
E.g. the code - sub- division is shown
• BL – Brick laying in lime mortar
• BC – laying bricks in cement mortar
• Bf10 – lay facing bricks in 10 cm wall
• BP – Brick pointing
Decimal classification – in the decimal
classification, the first two numbers denote
the functional division of the work as follow:
- 01 – foundation; 02 – super structure
- 03 – walling; 04 – office block
S/N Item Quantities Unit rate Total Cost
(Tshs) (Tshs)

1 Cement 23 No 20,000 345500

(bags)

2 Stones 24 M3 73,450 435300

Materials

Sample recording of the basic resources

 1
S/N

Walling Work done

23.4 Quantities

M2 Unit rate

2 Supervisor

6 Masons

3 Carpenters

Name of supervisor………………………………. 113 Laabours

34550 Total Cost

(tshs)
Name of work:………………plot……….date………..

Left wing of Location

the…
S/N Description Qnt Hiring Worked Total
charge /h hrs (Tshs)

1 Grader 1 6000000 10 6000000

2 Concrete 1 234500 10 234500

mixer

Equipment