Dammam - Module 3
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Construction Cost Management &Construction Cost Management &
The Impact of the Project Schedule on CostThe Impact of the Project Schedule on Cost
Part 3: Cost Management FundamentalsPart 3: Cost Management Fundamentals
By Ted Garrison
Garrison Associates
www.TedGarrison.com
www.StrategicPlanningforContractors.com
www.NewConstructionStrategies.com
http://www.tedgarrison.com/http://www.strategicplanningforcontractors.com/http://www.newconstructionstrategies.com/http://www.newconstructionstrategies.com/http://www.strategicplanningforcontractors.com/http://www.tedgarrison.com/ -
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Module 1: Cost ManagementModule 1: Cost Management
FundamentalsFundamentalsIdealism increases in direct proportion to ones
distance from the problem.
John Galsworthy
Therefore, the people performing the work should
be part of the planning process.
Project cost management is concerned about the
cost of the resources need to complete the project.
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Concerns of Project CostConcerns of Project Cost
ManagementManagement Project cost management is concerned
about the cost of the resources need to
complete the project. Project decision should be concerned with
the following: Short-term costs versus long-term costs
Life-cycle costs
Energy costs
Cost impact to the various stakeholders
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5 Phases of PM
D e f i n e
P la n
E x e cu t e
M o n it o rA d j u s t
C o m p le te
E va lu a te
T h e
L o o p
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Keys to Successful Cost PlanningKeys to Successful Cost Planning
Focus on whats most important
Approach planning as an art more than ascience
Create a plan that accommodates change
Treat the plan as an alive and growing
document
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A Vision is a Guide for DecisionsA Vision is a Guide for Decisions
A plan should be a description of currentstrategies and tactics to achieve the vision.
The vision provides the bases to adapt strategiesand tactics to achieve the vision as thingschange.
The master plans strategies and tactics allow
subs and workers to develop their strategies andtactics to obtain the results they must achieve inorder for the vision to be accomplished.
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An Overview of theAn Overview of the
Planning ProcessPlanning Process
1. Create the project vision (Definition)
2. Outline the plan
3. Gather up all the information available
4. Identify what parts of the plan must beproduced
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An Overview of theAn Overview of the
Planning ProcessPlanning Process5. Conduct a planning meeting with the project
team this includes subs Get them excited
Makes sure the vision is clear
Let them know what they must do and when
6. Prepare, review and revise the plan based onteam input avoid analysis paralysis
7. Produce a final plan
8. Create a process for building change in theproject plan
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Steps to Planning
Analyze the project objectives
Create a list of the necessary tasks.
Match the tasks with the availableresources.
Develop a schedule and budget.
Adapt to the project priorities.
Work out the details.
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Key Elements of a
Project Plan Project requirements (Project Definition)
Work Breakdown Structure (WBS)
Schedule Gantt Chart
Network Diagram
Budget
Identify potential risks
Organizational chart identify all stakeholders
Operating Procedures (systems or processes)
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Major Processes of ProjectMajor Processes of Project
Cost ManagementCost Management
Resource Planning
Quantities of people, equipment, materials
Inputs Work breakdown structure (WBS)
Historical info
Scope statement
Resource description
Organizational policies (i.e. Rental vs. purchase)
Outputs Resource requirements
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Major Processes of ProjectMajor Processes of Project
Cost ManagementCost Management Cost Estimating
Estimating cost of each resource
Inputs WBS
Resource requirements
Resource rates
Activity duration estimates
Historical info
Outputs Cost estimate
Supporting detail
Cost management plan (describes how cost variance will bemanaged)
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Major Processes of ProjectMajor Processes of Project
Cost ManagementCost Management
Cost Budgeting
Creating budget for each work item
Inputs
Cost estimates
WBS
Project schedule
Outputs
Cost baseline
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Major Processes of ProjectMajor Processes of Project
Cost ManagementCost Management
Cost Control Control changes to the project budget
Monitor costs
Ensure proper charges
Inform stakeholders of variances
Inputs
Cost baseline
Performance reports
Change requests
Cost management plan
Outputs Revised cost estimate
Budget updates
Corrective Action
Final estimate
Lessons learned
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Module 2: Work Breakdown
Structure (WBS)
It isnt what you know that counts,its what you think of in time,
which is why the WBS is so important.
Ted Garrison
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What is a WBS?
The WBS is the most important projectmanagement tool it is the basis for all otherproject management planning.
The WBS gives the entire construction processstructure.
Its the list of tasks necessary to complete the
project.
In construction the specifications are thebasis of the WBS.
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Why Use WBS?
Its the backbone for the entire projectmanagement process:
Providing a way ofidentifying the necessary tasks.
Providing a method ofidentifying the necessary
resources and skill sets.
Providing the necessary structure to plan yourschedule.
Providing the necessary structure to prepare your costestimate.
It helps manage expectations and risk.
It provides a visual way to understand what needs to bedone.
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Tricks to Getting the WBS to
Work for You Get the key people involved (buy in).
Brainstorm with your team when you are doing
something different.
WBS is designed to include all items to complete
the projectbut just as important to eliminate
items that dont need to be done.
Develop task lists for different types of projects
it will save time & avoid mistakes.
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Outline WBS
1.0 Project
1.1 Major Project Subsystem
1.1.1 Task 1
1.1.1.1 Subtask 1
1.1.1.2 Subtask 2
1.1.2 Task 2
1.2 Major Project Subsystem1.2.1 Task 1
1.2.2 Task 2
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Work Breakdown StructureWork Breakdown Structure
ABC
Trucking
Vapor
Barrier
Place
Concrete
Form
Slab
Install
AnchorBolts
Install
Reinforcing
Finish
Concrete
Slab
Concrete
Company
Frame
Garage
Install
Windows
Sheathing Trim
andSiding
Roofing
A-1
Carpentry
OH Door ACE
Electric
Jack the
Painter
Sample Garage
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Module 3: Budgets and the
Cost Constraints
One of the biggest causes of contractor failure is the
lack of business ability and training to estimatecosts accurately.
At the heart of any effective cost management
program is an:
Accurate Cost Estimate
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4 Phases of Estimating
1. Material quantity survey
2. Pricing material, labor and equipment
3. Analysis of subcontractor/vendor bids
4. Compute costs
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Purpose of Estimates
Get future work cost knowledge
Control present work compare costs to
progress
Control scope of work - dealing with
changes
Establish and control risk reflects on
risk.
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Estimating Challenges
Priority of the project (specs vs. contract)
The projects triple constraints
Flexibility in the schedule
Variables such as:
Weather, soil conditions, material availability, subavailability, and quality of project team.
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Typical Cost Problems
Making cost estimates for subs.
Inflated estimates by subs. Failure to obtain a firm commitment.
Poorly constructed WBS.
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3 Types of Construction
Estimates Preliminary (Conceptual) Estimates:
Usually used to determine budgets before drawingare completed.
Usually done on a square foot or system basis.
Approximate Estimate:
Detailed systems pricing based on drawing butnot pricing of individual items or tasks no
quotations.
Detailed Estimate:
Complete quantitative take-off along withquotations.
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The 9 Steps of an Estimate
1. Determine what will be self-performed and
what will be subcontracted.
2. Visit jobsite.
3. Do material take-off of all material.
4. Determine the labor & equip. requirements
and expected productivity for the project.
5. Price materials, equipment and labor.
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The 9 Steps of an Estimate
6. Determine job overhead general conditions.(toilets, signs, small tools, temp. water, temp electric, project
management, taxes and insurance etc.)
7. Obtain and analyze sub and vendor bids.
8. Summarize and review the costs of all items.
9. Add mark-up which includes general
overhead and profit.
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Project OverheadProject Overhead
Project overhead are all the items that arerequired to build the building but are not directlypart of the project such as direct labor ormaterials or equipment used to in that aspect.
Typical items such as the superintendent, projectmanager, waste removal, job office, phones,trucks, etc are charged to the project.
All corporate expenses that are directly related toa project should be charged to project overhead.
This helps determine true costs of project
More accurate than percentage of project
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General Overhead
These costs are from doing business andnot associated with a particular project.
When companies dont understand this
cost they under charge.
If too high will lose business.
It usually established on an annual basis,but the key factor is the annual volume.
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Tricks to Exceptional
Cost Estimating Develop standard forms its faster and
helps eliminate mistakes.
Use actual cost estimates from similartasks.
Involve the people most knowledgeable.
Research the history of vendors andsubcontractors.
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Tricks to Exceptional
Cost Estimating
Consult standard reference books.
Watch tasks that most directly affect theprojects final outcome build in extradollars when possible.
Train yourself to be an exceptionalestimator estimating is too critical to letit go to chance.
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Module 4: Activity and Task
Analysis
There is no job so simple that itcannot be done wrong.
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Keys to Task Analysis
Task analysis is the process of gathering
critical information necessary to predict
the project outcome
It is a great aid in delegating
Allow the key project team members toparticipate in the process
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The Task Analysis Process
Determine available resources.
Assign clear responsibilities.
Determine good enough.
Brainstorm effective strategies.
Determine ways to monitor progress.
Motivate early action.
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Task Analysis Worksheet
A good task analysis worksheet allows you
to keep in one place everything you need to
manage that task.
They should be adapted to meet your
specific needs.
Updating worksheets from previousprojects can save a great deal of time.
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A Sample Task Analysis
WorksheetProj ect Na me : Ta sk # Ta sk Na me :Person Responsible for Task: Contact Information:
Specifications:
Resources: People/Departme nt
Equipment/Materials/Supplies:
Time Estimate:
"Must Start" "Must Finish"
Milestones:
Optimistic: Pessimistic: Most Likely:
Cost Estimate:
Labor: $
Materials: $
Equipment: $
Contract: $
Overhead: $
Fee: $
Total: $
Other important comments:
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