What is Cost Control

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Interactive Transcript
English
0:00
Hello everyone.
0:02
In my module, here, I will be talking and explaining some methods when it comes to
construction cost control. So far, what we are covering in the beginning of the course was
more focused on construction cost estimation. Now, we want to go to that next step of how
we want to control the cost and the budget during the project, in the entire project, as well
as work segments or the work packages or activities we have in the project. So let's start
from a big picture and then we'll go into the methods that are available for us and go much
deeper into the most common method being used in our industry. So what is
control? Control functions tend to look at the past and the present rather than as planning,
in Course 1, the future.
1:03
The function of control ensures by measurements and by corrections that objectives and
plans are accomplished in your project.
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I just want to highlight quickly, before we move forward, as a rule of thumb, of course, the
cost of implementing a control system, or cost control system, must certainly be less
than the cost of savings achieved by its implementation or by implementing that control
system.
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So this is a rule of thumb.
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You want to make sure what you're investing in, you're getting more rewards than the cost
that you're paying and developing the control system for.
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Now, how do we control is another question.
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How we do control depends on two elements. One, measurements, two, actions. Actions,
which must be initiated, if in measurements,
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show some variance or variations from those that expected in the beginning, in the
planning of the schedule.
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You have to have in mind that measurements will only be meaningful if they can be
compared with expectations.
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So you want to compare what's your measuring with what you're expecting to be able to do
that correct and the right actions of any variance in the schedule.
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There are two general types of control.
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There's the real-time control, and there is what we call the trend control.
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So for the real-time control, it is usually achieved by comparing the actual value of a
performance major to its plan value.
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Also, it is important to have a control limits,
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which are set in order to asses the severity of any deviations in the plan.
3:40
When we speak about deviations, deviations that are larger than a predetermined value are
the news to trigger corrective action.
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And that's what we talked about, about actions, measurements and actions.
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Based on the philosophy of management by exception, actual deviations from plans alter
management to focus on a particular problem that needs attention. Now, for the second
type of control, we talked about the real-time control. The second type of control is trend
control. It is based on forecast of future performance measures. Actual values of the
performance measures are extrapolated into the future in an effort to detect deviations
before they occur.
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Forecast of a future deviations trigger what we call preventive actions, which designed to
avoid or minimized future problems. So this is a quick overview and introduction
between how do we control from a real-time and a trend point of a view. To have actions
and to have preventive actions. I would also love to add that in our industry, the
construction industry or the AEC industry, the process is one of a highly variable nature
that can give rise to the generation of a vast amount of data, what we call about big data
science, or analytics.
5:46
It's a huge topic. It's catching up a lot in several industries. We have to learn from other
industries to help in our own industry.
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But when we talk about big data, just like a brief intro here, the challenge is to identify what
data is needed
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and what data could be convert to information or could be information,
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and how to switch from data to information, to intelligence. Now, it is important also to
differentiate between systems, which produce routine record keeping, transaction recording
data,
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from those which are intended to support and facilitate decision-making.
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We will be giving an example of how technology is used in such field in this course later,
not in this module, with two well-presented to guest speakers from the industry.
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Now, let's speak about the types of cost control methods we have in this module.
7:18
Based on the literature and based on speaking with a lot of people in the industry, including
those who work on construction, cost estimation, course control for several years, what
you'll find in, actually, several textbooks, you will find several control methods. I highlighted
here a couple of them to go as an introduction to this field, and we will focus only in one of
these methods that are most commonly used in our industry. And most probably, you're
going to be using it in addition to some of those in your projects.

Defining Methods of Cost Control

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Interactive Transcript

English
0:00
So let's start by introducing what we have out there.
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We'll start by that units or sometimes called percentage completed. This method is
applicable to tasks which involve repeated production of easily measured pieces of work.
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With each piece requiring approximately the same amount of effort.
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For example, if we have trench cutting construction activity. It is count of repetitive
construction activity or repetitive construction processes, or linear construction that we
covered in course number two on scheduling.
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The trench cutting construction activity, let's say that trench
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or the project that you want to work on, the total length of it is around 10,000 meters or let's
say 10,000 linear feet. I told you that only 4,000 meters or linear feet has been cut.
1:21
In this case, the units completed or percentage completed to date is then equal to that
4,000 meter divided by the 10,000 meter is 40%.
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It's very straightforward and this is one example.
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Another example could be related to placing and finishing of a reinforced concrete slab.
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A big one, a big slab.

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Which this is the type of work with multiple tasks handled simultaneously at the same time.
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But the progress may be reported on the basis of volume of concrete placed and finished
or could be upon area of finished service of that slab.
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So we use units completed or percentage completed of the volume of concrete plates.
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That's another example.
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Let's go to cost control method, another one, that the incremental milestones. Incremental
milestones as a method applicable to any controlled account which includes sub tasks that
must be handled in sequence.
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Now the completion of any sub tasks or let's say the operation is then considered to be a
milestone.
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Which when completed represents a certain percentage
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of the total amount of that process or project.
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The percentage chosen to represent each milestone is normally based on the number
of work hours estimated to be required to that point in relation to the total of the entire
process.
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Let's take an example here to explain it in more details.
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If we are installing, let's say a major vessel, in an industrial facility or factory. We are
installing that major vessel including in sequential tasks or operations as following. Let's
say we have one, first milestone, received and inspected the vessel. This is the first

milestone. Second, setting and setting complete. Let's say we have the vessels and we
completing all the settings for the parts. Third, alignment complete, of the materials of the
parts of the vessel. Number four, internals installed within the vessel.
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Number five, could be ready to testing complete, your testing that everything is
fine. Number six could be then let's say the last step number six, accepted by the owner.
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So if we want to look at these six steps of the milestones, we can say that number one,
which is received and inspected, it's approximately 15%. So once you reach that level in
that milestone you can say, okay, 15% is done on that specific project.
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Two, we said setting complete. Let's say when we reach that milestone 35% is done, so
15%, 35% the second milestone. Let's say the third milestone, alignment complete, let's
say 50%. So when you finish the first three milestones that mean that you are in the 50%
done with that specific process or project.
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Let's move forward, we said number fourth, internals installed. Once you finish that, you've
been done with 75% of the work. Testing complete, so when you put everything together, all
that first four steps, the number five main milestone is you're testing it and you're completed
with the testing, so that's 90% of the project complete. You ask the owners to come and
look at it.
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Once the owner accepted that then 100% is complete with all these six major milestones or
incremental milestones in your process or in your project.
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Let's go through another control method start/finish. Start/finish method is applicable to
those tasks which lack readily definable intermediate milestones. And/or where the effort
and time required is difficult to estimate.
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For example, if we need to do an alignment of a major, or a big in size, fan and motor.
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So to do this alignment, this may take from a few hours to a few days. Usually if you have a
huge big fan. Depending up on the situation that you have inside, availability of materials,
workers and so on. Workers know when the work starts and when it finished, but never
know the percentage completed in between.
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So this kind of situation we can then say, we can use the start to finish control method.
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Supervisor opinion.
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For the supervisor opinion, it's another method. Actually, it is a very subjective approach.
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And this method should be used only for relatively minor tasks. And/or where development
of more discrete method cannot be used. For example, you can use this on landscaping for
your project.
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Last but not least, cost ratio.
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The cost ratio is a method applicable to tasks such as project management, and quality
assurance, and contract administration. These tasks involve a long period of time or are
continuous over the life of a project.
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And even though these tasks involve a long period of time and continuous over the life of
the project, these are estimated and budgeted on bulk allocations of dollars and work hours
rather than on the basis of production.
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In the cost ratio method, the percent complete is found as follows.
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The actual cost or work hours to date
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divided by the forecasted costs at completion.
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So, when you divide both, you will find then the cost ratio.
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Now, having outlined methods for determining progress on a single type of work.
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The next challenge is to develop a method both for determining the overall percent
complete of a combination of work task or packages or an entire project. And for performing
other evaluations of status. That's what would be our next method that we will cover in
much more details in our course here, which is the earned value method or sometimes we
refer to it as EVM.
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So just to sum it up before we move forward to the earned value method,
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there are a lot of control methods both focusing on schedule and costs. And these control
methods, some of that you might use it as a common sense in the field from a subjective
point of view. Others you might in entering into more calculations and more numbers that to
help you analyze more your status, which is the most important thing.
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From all what I just talked about briefly, the reason I will speak much more in details about
the earned value method, because it is much more involved in most of the projects that you
are working on. And when they mention the earned value method, they will understand
exactly what you are referring to from control both, the cost or the budget and the schedule
and the time and what's the status, you are over budget, below budget, on budget, behind
schedule and so on. So that will be our next discussion. And we have speakers from the
industry will come and highlight what's the implementation, the actual deployment of these
methods, especially with earned value method, in the field, in the projects. With that, I
conclude this module, thank you.

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