Cost Schedule & Resource Control - Cost Schedule and...

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and Cost, Schedule, Resource Control by Jim Borland CFMA Building Profits November/December 1999 Probably no business needs an effective cost control system more than the construction business. CFMA’s 1999 Construction Industry Annual Financial Survey shows a composite, after-tax, net earnings of only 2% of revenue. Because construction companies operate on such a small profit margin, cost control cannot be over emphasized. Every dollar wasted on a job lowers before-tax earnings by one dollar. Due to these low profit margins, construction compa- nies must perform large dollar volumes of work in order to create adequate returns on their investment. This results in a substantial financial risk and, without adequate cost control, that risk is increased. Cost estimating, planning, scheduling, and project control taken together form an integrated system of project management. A project control system is used throughout actual construction to monitor pro- gress and help contractors finish projects on time and within budget. To better understand this integration, let’s examine the construction cycle. A job’s cost estimate is prepared before getting the job and is based on historical cost data (i.e., knowing how much it cost to do similar work on previous jobs). If the contractor obtains the job, the estimate is then used as the basis for planning and scheduling. During the construction process, the job is controlled by comparing actual progress to the plan. When a job is finished, the record of what was actually spent is used to update the historical cost database and adjust the unit prices. This cycle is ongoing; the next project will have a more accurate cost estimate due to efforts expended during the control phase of the previous job.
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CFMA Building Profits November/December 1999 Project Control Systems Project managers must control a job during the construction phase in order to complete it on time, within budget, and with the required quality. It’s important to remember that project control is a process. If any of these three objectives begin to slip, the project control system should identify the deviation early and allow a correction to be made before it’s too late. A project control system has two main duties: 1) to establish project standards (targets) for time and cost and 2) to set up a system to measure actual performance and compare it to the targets. The cost estimate is used to establish the overall pro- ject budget (cost target); the construction schedule defines when specific work items need to be accomplished (time tar- get). Project control depends on and is connected to the oper- ations of cost estimating and scheduling. During the construction phase, project managers measure per- formance (actual field data) against the plan and constantly ask questions like: “Are the project requirements being met?
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