Construction Cost Analysis

and
Financial Controls

Everglades University
 Overview
• Understand how the process of estimating and pricing, from
concept through detailed estimating to change orders.
• Understand how cost reporting can improve the overall success
of a project.
• Know and apply important project cost management principles.
• Know and apply basic management ideas, principles, and skills
that will enable you to immediately manage the crew on your
construction project more effectively.
• Proactively manage project costs.
• Proactively manage various risks/potential delays that could
impact your project.
 Introduction: A New Project
• Why is this project being built?
• What is the scope of our work?
• Who is the “owner”?
• Is our client someone other than the owner?
• Who designed the project?
• How much should it cost?
• Which costs do I have control over?
• How long should it take to build?
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The Construction Process

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 The Pre-Design Phase
• Developing the project budget
– What can the owner afford/finance?
• Developing the schedule
– When will the facility be needed?
• Determining the program (the project’s physical
parameters)
– Amount of area needed/wanted.
– Types of space.
– Building type.
– Starting point for the design.
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 The Design Phase
• Schematic design
– Floor plans, elevations, site plans.
• Design development
– Progression of design; includes structural,
electrical, and mechanical, modeling of
components, including clash detection.
• Construction documents
– Completion of details, production of drawings, and
specifications.
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 The Bid
• Occurs after completion of construction
documents by the designer.
• Could be negotiated, select bidders list, or
public bid.
• Every contractor has his or her own
procedures for compiling the bid.

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 Examine Documents
• A contractor will determine whether to bid the project
based on:
– Size of project
– Type of work
– Geographic location
– Work relationships (owner, architect, engineers)
– Quality of documents
– Schedule
– Special conditions
– Prevailing wage requirements
– Disadvantaged Business Enterprise utilization
– Financial arrangements
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 Estimating Process
• Review and understand construction documents.
• Decision to bid and planning for the estimate.
• Conduct a site visit.
• Develop a subcontractor contact list.
• Complete a quantity take-off.
• Price labor, equipment, materials, subcontractors
and other costs ( including general conditions).
• Determine the bid price.
• Submit the bid.
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 Estimating Process
• SPECIFIC ISSUES FOR CONSIDERATION:
– Bidding time
– Surety bond requirements
– Consistent with company business plans
– Personnel required
– Cost of bidding
– Other projects being bid
– Equipment
– Supervision
– Support staff
– Finances
– Adequacy of company resources
1-13
 Estimating Process
• SPECIFIC ISSUES FOR CONSIDERATION (continued):
– Competition
– Experience with parties to the contact
– Design considerations in the contract
– Conditions in the contract
– Quality of documents
– Labor supply
– Licensing
– Community Relations
– Availability of suppliers and subcontractors
– Time
– Availability of funds
– Special requirements
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 The Rest of the Process
• Owner selection of a contractor
– Indication of award of the contract.
– Notice to proceed.
• The construction phase
– Actual construction of the project.
• Post-construction phase
– Move-in.
– Maintenance and operating instructions.
– Warranty period.
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 Project Delivery Methods
• CM at-Risk: A construction manager is first hired and takes
on the risk of building a project. The designer is later hired
under a separate contract.
• Design-Bid-Build: Separate contracts for constructor and
designer. The building is designed before sent to bid.
• Design-Build: One entity contracted to complete the
design and construction.
• Integrated Project Delivery: A collaborative process that
harnesses the talents and insights of all participants to
reduce waste and optimize the whole project through all
phases of design, fabrication, and construction.
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 Construction Contract Types
• Guaranteed maximum price (GMP)
– A maximum price is guaranteed, both owner and
contractor benefit if costs are minimized.
• Lump-sum basis (LS)
• Time and materials (T&M)
• Actual cost plus a fee
• Unit-price

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 The Project
• Project plans are included
• Project elements:
– Site excavation and grading
– Two bridges
– Two gatehouses
– Office building
– Receiving warehouse
– Foundations and slabs for three warehouses
– Paving and landscaping
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 Accounting Methods
and
Construction Management
• Pre-Construction Phases
– Pre-design
– Design
– Bid/award
• The Estimating Process
• Project Delivery and Contract Types
• The Project

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 Apply What You Have Learned So Far
Learn some of the history behind your project:
• What was the intended use of the project and how did this
new project start?
• What involvement did your company have in the design
phase, if any?
• How and when was the construction estimate for the
project completed?
• Is there a plan for the project to be LEED certified?
• Did your firm use Building Information Modeling (BIM) in
the pre-construction phases for the project?
Will BIM be used during construction?
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 Learning Objectives
• Analyze the relationship between the estimated costs
and those reported within the cost control system.
• Define the relationship between cost and the degree
of risk inherent to the project.
• Classify major risks innate to every construction
project.
• Define the individual responsibilities for project team
members relative to project cost control.

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 From Estimate to Construction
• The Construction Estimate:
– Is a carefully measured, quantified, and priced
prediction of the costs, assuming:
• Scope of work does not change from what is represented
on the construction documents.
• Project will be built during a particular time period,
adhering to a specific schedule.
• Site conditions will be as observed or reported.
• Labor crews’ productivity can be predicted based on the
assumption in the contractor’s estimate with
consideration of experience from previous similar projects.

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 Cost Control
• The goal of cost control is to ensure you are
building to the estimated costs.
– Ideally equal to or less than the estimated amount
(at least in most cases).
– Project fee is increased when costs are less than
estimated.
– The goal is to manage costs effectively.

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 Typical Mistakes in Estimates
• Inaccurate calculation of quantity of material (too
high or too low).
• Use of non-qualified or responsive material suppliers.
• Inaccurate prediction of productivity and labor cost.
• Scope gaps not identified between subcontractors.
• Use of non-qualified subcontractors.
• Shortage of equipment or personnel.
• Unanticipated time delays.
• Miss-interpretation of contract clauses.
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 Responsibility for Cost Control
• Estimator
– Responsible for the quality of estimate.
• Project manager
– Responsible for the overall project and primary manager of
the project costs.
• Superintendent
– Responsible for crew productivity and for reporting the
actual amount of work performed by the crews under his or
her direction.
Good communication helps all project team members identify and
understand project challenges.

3-6
 A Role Play in Cost Responsibility

• Roles:
– Project Manager
– Estimator
– Superintendent
• Discuss, maintaining your roles, in groups.
• What resolution did your group reach?

Worksheet 3-1

3-7
 Potential Financial Risks
• Material
– Relatively small risk.
• Labor
– Largest potential risk.
• Equipment
– Tied to productivity estimates for labor.
• Subcontracts
– Could substantially affect total project costs, especially general
conditions and labor productivity.
• Jobsite Overhead (General Condition) Costs
– Extended project schedule will increase these costs.

3-8
 Identifying Cost Risks from
the Construction Documents
• Higher risk areas:
– Significant work areas with multiple crews.
– Complicated/congested work areas.
– Unfamiliar construction processes or systems
– A tight schedule.
– Subcontractor work that may not be on the project’s
schedule.

3-9
 Identifying Cost “Trouble Spots”
on the Project

• Use Figure 3.1 for the project schedule.

Worksheet 3-2

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 Review
• The estimate is based on several assumptions
that may change as construction progresses.
• The estimate is based on available information
and should be an accurate prediction of
construction costs.
• All project team members have defined
responsibilities in cost control.

3-11
 Review
(Continued)

• Financial risks exist for every project.

3-12
 Apply What You Have Learned

• Identify potential trouble spots for controlling

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