I heard about a methodology which planners can apply in cost control from a Contractor's point of view.
Every month we have a planned cash out flow and in flow. Normally this cash in flow is balanced agaist the workdone claim for the same month. But practically the contractor receives this work done value after three months which is a condition in contract.
For example :
January - Cash Out $100 , work done value - $120 Cash in - $50 (advance received as per contract)
Feb - Cash out - $120 , work done - $145, Cash in - $0
March - Cash out - $150 , work done - $175, Cash in - $0
April - Cash Out - $ 170, work done -$200, Cash in - $120 (work done in January, with applicable retention)
This means the contractor has to work till April with the advance amount received in the beginning.
Here the planner has to arrange the programme in such as way that, the consumption of cash out should be in balance with actual cash received. When ever this over crosses, the cost is over running and should be maintained by rearranging the sequence or critical paths or what ever it may make an impact. Programme should be running with advance amount received until they get their first invoice paid.
I would appreciate if anyone has experience on this could share some information.
Thanks
Athul
Member for
20 years 7 months
Member for20 years7 months
Submitted by Stephen Devaux on Fri, 2014-09-19 16:51
The term "cost control" can have more than one meaning. Surely steps to avoid doing optional work that costs more than its value-added is an important form of cost control? Yet throughout the world projects are completed every day that include work that has less value than its cost. And as no one is tracking this, it usually happens invisibly.
It is most likely to happen when optional work was scheduled to be performed off the critical path but, due to slippage, winds up on the critical path, thereby acquiring critical path drag...
The true cost of a work activity that is on the critical path is the sum of its resource costs and its drag cost (TC = RC + DC).
If an optional activity that is adding $200K to the project's expected monetary value (EMV) and has a resource budget of $50K then migrates to the critical path with drag of 8D at a drag cost $20,000/D, it's true cost = $50K + (8 * $20K) = $210K. Its net value-added then becomes $200K - $210K, or -$10K. Such work needs to either be performed differently (i.e., for lower true cost) or jettisoned, as it is subtracting value from the project investment if it is performed as is. (And of course, this wasted expense can be far, far more than negative $10,000!)
The tools for managing control of this cost are:
Knowledge/estimation of the value/cost of time.
Critical path drag computation and updating whenever the CP changes.
Drag cost per each activity, in order to compute its true cost.
A value breakdown structure, or VBS, which (a) separates work into mandatory and optional activities, and (b) estimates the expected value-added for all optional activities. All this allows not just prioritization of optional work, but the ability to see when planned work may actually cost more than its worth.
The VBS concept was introduced in 1999 in the initial edition of my first book Total Project Control. About three years ago, I was surprised to discover that a lot of folks in Europe (and some in Japan!) seem to be using it. A description of the VBS can be found here:
And check out Jean-Yves' diagram of the eight-dimensional WBS model: notice how the cost breakdown structure and schedule are directly connected (along the top where it says "Project Control") to the WHY of the value breakdown structure.
Here's a blog at the website of PROMIS, a Norwegian consulting company, that uses the VBS. It is by Kjetil Strand of Agile Contracting and Execution (ACE) and says: "The concept of Value Breakdown Structure was introduced by Stephen Devaux in 1999, and we consider the approach presented in ACE as a reinforcement of this concept."
So, in conclusion, I definitely think that the VBS and its data, along with the true cost concept, are important additions to project cost control techniques. But there will be more info in my new book Managing Projects as Investments: Earned Value to Business Value, just out from CRC Press this week:
Cost Control is a very big topic to discuss, to summarize cost control in construction industry is to control the cost of material and manpower with respect to base line budget, which will be derived from companies contract awarded value.
· Project Specified Material and machinery cost can be controlled through purchasing material within derived budget
· Manpower cost can be controlled by monitoring labor productivity at the site.
Regards
Sayed Shiraz
Member for
14 years 11 months
Member for14 years11 months
Submitted by sb_sunil2000 on Wed, 2014-09-17 18:10
Member for
15 years 9 monthsHi All,Thank you very much
Hi All,
Thank you very much for your responses.
I heard about a methodology which planners can apply in cost control from a Contractor's point of view.
Every month we have a planned cash out flow and in flow. Normally this cash in flow is balanced agaist the workdone claim for the same month. But practically the contractor receives this work done value after three months which is a condition in contract.
For example :
January - Cash Out $100 , work done value - $120 Cash in - $50 (advance received as per contract)
Feb - Cash out - $120 , work done - $145, Cash in - $0
March - Cash out - $150 , work done - $175, Cash in - $0
April - Cash Out - $ 170, work done -$200, Cash in - $120 (work done in January, with applicable retention)
This means the contractor has to work till April with the advance amount received in the beginning.
Here the planner has to arrange the programme in such as way that, the consumption of cash out should be in balance with actual cash received. When ever this over crosses, the cost is over running and should be maintained by rearranging the sequence or critical paths or what ever it may make an impact. Programme should be running with advance amount received until they get their first invoice paid.
I would appreciate if anyone has experience on this could share some information.
Thanks
Athul
Member for
20 years 7 monthsThe term "cost control" can
The term "cost control" can have more than one meaning. Surely steps to avoid doing optional work that costs more than its value-added is an important form of cost control? Yet throughout the world projects are completed every day that include work that has less value than its cost. And as no one is tracking this, it usually happens invisibly.
It is most likely to happen when optional work was scheduled to be performed off the critical path but, due to slippage, winds up on the critical path, thereby acquiring critical path drag...
http://en.wikipedia.org/wiki/Critical_path_drag
...and drag cost:
http://en.wikipedia.org/wiki/Drag_cost
The true cost of a work activity that is on the critical path is the sum of its resource costs and its drag cost (TC = RC + DC).
If an optional activity that is adding $200K to the project's expected monetary value (EMV) and has a resource budget of $50K then migrates to the critical path with drag of 8D at a drag cost $20,000/D, it's true cost = $50K + (8 * $20K) = $210K. Its net value-added then becomes $200K - $210K, or -$10K. Such work needs to either be performed differently (i.e., for lower true cost) or jettisoned, as it is subtracting value from the project investment if it is performed as is. (And of course, this wasted expense can be far, far more than negative $10,000!)
The tools for managing control of this cost are:
Knowledge/estimation of the value/cost of time.
Critical path drag computation and updating whenever the CP changes.
Drag cost per each activity, in order to compute its true cost.
A value breakdown structure, or VBS, which (a) separates work into mandatory and optional activities, and (b) estimates the expected value-added for all optional activities. All this allows not just prioritization of optional work, but the ability to see when planned work may actually cost more than its worth.
The VBS concept was introduced in 1999 in the initial edition of my first book Total Project Control. About three years ago, I was surprised to discover that a lot of folks in Europe (and some in Japan!) seem to be using it. A description of the VBS can be found here:
http://en.wikipedia.org/wiki/Value_breakdown_structure
And at Jean-Yves Moine's Cubix Software 3D WBS blog site here:
http://3d-wbs.blogspot.fr/search?q=devaux
And check out Jean-Yves' diagram of the eight-dimensional WBS model: notice how the cost breakdown structure and schedule are directly connected (along the top where it says "Project Control") to the WHY of the value breakdown structure.
http://3d-wbs.blogspot.fr/2014/09/part-136-overall-project-structuratio…
Here's a blog at the website of PROMIS, a Norwegian consulting company, that uses the VBS. It is by Kjetil Strand of Agile Contracting and Execution (ACE) and says: "The concept of Value Breakdown Structure was introduced by Stephen Devaux in 1999, and we consider the approach presented in ACE as a reinforcement of this concept."
http://www.promis.no/index.php/en/promisblogg/entry/ace-introduces-valu…
So, in conclusion, I definitely think that the VBS and its data, along with the true cost concept, are important additions to project cost control techniques. But there will be more info in my new book Managing Projects as Investments: Earned Value to Business Value, just out from CRC Press this week:
http://www.crcpress.com/product/isbn/9781482212709
Fraternally in project management,
Steve the Bajan
Member for
18 years 9 monthsCost Control is a very big
Cost Control is a very big topic to discuss, to summarize cost control in construction industry is to control the cost of material and manpower with respect to base line budget, which will be derived from companies contract awarded value.
· Project Specified Material and machinery cost can be controlled through purchasing material within derived budget
· Manpower cost can be controlled by monitoring labor productivity at the site.
Regards
Sayed Shiraz
Member for
14 years 11 monthsHi Athul,Increasing the
Hi Athul,
Increasing the productivity has direct impact on cost control.
Regards,
Sunil.
Member for
21 years 7 monthswww.foundationsoft.com/resour
www.foundationsoft.com/resources/articles/77-unit-cost-and-production-r…!
www.foundationsoft.com/resources/articles/161-job-costing-101-help-your…
The use of production rates such as brick/man-hour is a common cost control strategy.