Cost Control System for Contractors

posted by AbdelRahman @ 1:24pm, Wednesday 22 April 2009.

Cost Control is a function of prime importance to the satisfactory execution of any project and vital to project management efforts. Standard systems and procedures provide effective means of controlling project costs throughout all phases of work by executing continual comparisons of performance relative to budget and by taking rapid corrective action in the event of forecasts or adverse trends when every effort is made to eliminate potential overrun situations.

Cost Control system

The cost control system starts operation on award of contract and remains in operation throughout the life of a project until completion of final close out reports.

The cost control system covers three distinct areas corresponding to engineering, procurement and construction phases of the project.

I) Cost control during the Engineering Phase

During the engineering phase, cost control is exercised in respect of engineering man-hours, major equipment design and bulk material quantities.

Engineering man-hours

Man-hour budgets for all engineering activities are prepared at an early stage and issued to the various engineering groups as part of the total Home office budget. The budgets are prepared from estimates data originally submitted by the various departments within the company, updated as necessary to reflect any changes of scope that may have taken place. The expenditure of man-hours is closely monitored against these budgets by means of weekly time sheets and detailed man-hour activity schedules. The process provides an accurate record of man-hours spent and work achieved against budget and schedule, and allows progress and productivity measurements to be assessed and man-hour forecasts to be made. Adjustments are made as necessary for budget changes resulting from contract variations.

Major equipment Design Control

Control over equipment cost during the design stage is effected by comparing actual design data to budget. All  deviations in size, capacity, material, etc., from design data contained in the design budget, and likely to effect the final costs, are reported immediately.

Bulk material Quantities Control:

Approximate estimate or preliminary material take off is made based on plot plans and other preliminary data. This estimate serves to identify key materials and long term delivery items.

More detailed estimates are made during design phase to ensure that quantities  of designed items do not go far beyond budgeted quantities.

II) Cost Control During the procurement phase:

Cost control during the procurement phase is achieved by effecting detailed comparisons between bid received and control budget, and by ensuring provision of project management authorization prior to purchase. The control throughout this phase is effected over three main procurement areas; major equipment, bulk materials and subcontractors. 

III) Cost Control During the Construction Phase:

Control over construction performance in the field is achieved through a system of progress and productivity measurements. Each work item is allocated a budget for both man-hours and quantities against which subsequent performance in the field is measured. Quantity budgets are based on latest known quantities as issued during design phase.

Productivity is measured on the basis of a comparison between budget man-hours earned and actual spent. Physical completion is derived from actual quantities installed relative to the total budget quantities.

Progress and productivity reports are prepared for all projects in the field on a weekly basis.

Control over subcontractors during the construction phase is achieved by accurate measurement of physical progress against schedule, together with close monitoring of contract scope and careful review of invoices submitted for payment. On all subcontracts the scope of work reflects the latest design quantities and agreed changes. All claims and extra work and day-works are reviewed before authority o proceed is given and before budgets or forecasts are adjusted.

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