LECTURE MANUAL

In

CE116

CONSTRUCTION COST ENGINEERING

Topics:
1. Introduction and Orientation
2. The Project Management Information System
a. System Information Systems
b. The PMIS, Objectives, Design
c. Components of PMIS
d. Values of PMIS
e. Challenges to implementation of PMIS
3. Introduction to Construction Cost
a. Types of Construction Cost:
b. Preliminary Estimate; Cost per sq.m.
c. Stipulated sum/Unit Price; Cost plus;
d. Estimating formats
e. Work Breakdown Structure (WBS)
f. CSI Master Format
4. Cost Estimating Components
a. Quantities
b. Direct Cost:
c. Unit Cost Theory and Practice
d. Materials, Labor, Equipment
e. Equipment Cost of Owning and operating
f. Sub-con cost
g. Project Overhead Cost
h. Contingencies/taxes
i. Profit/mark-up
5. Cost Planning
a. Flowchart-Project Scheduling
b. Flowchart-Material Cost Scheduling
c. Flowchart-Manpower Scheduling
d. Flowchart-Subcon Cost Scheduling
e. Flowchart-Equipment Cost Scheduling
f. Preparing Cash flow projections
6. Cash flow assumptions:
 a. Cash receipts, capital investments, Loans, Interest payments, Pre-operating and admin
cost
7. Cost Accounting
a. Preparing Income Statements
b. Preparing Balance Sheets
c. General Financial Control Over the Business
d. Accounting ratios
e. Horizontal and vertical analysis of financial statements
f. Audits

INTRODUCTION AND ORIENTATION

Refer to the topics

PROJECT MAMANGEMENT INFORMATION SYSTEMS

Project management information systems (PMIS) are widely regarded as an important building
block and today’s project management. The nature of these systems has changed considerably
during the last decade they are in fact still developing from single-user single-project management
systems to complex, distributed, multifunctional systems that no longer only cover project
planning.
Information Systems

Information systems research has to date only partly reflected this PMIS evolution. Typical fields
of research are algorithms in respect of operation research problems related to project
management, the assessment and comparison of commercial project management solutions and
corresponding assessment frameworks, the development of prototypes to test new kinds of
functionality and research into the usage of project management software systems. Two specific
problems are very rarely addressed, PMIS are become increasingly complex. Therefore, firstly,
information system designers are facing a growing number of business processes that have to be
supported with project management software. Secondly, information system users have difficulties
in setting up corresponding organizational systems and selecting corresponding software products
PMIS are become increasingly complex. This topic deals with some important factors affecting
the cost of the construction incorporated in PMIS.

PMIS, CONSTRUCTION MANAGEMENT, COST, SCHEDULE, QUALITY

A PMIS provides information, so the team has a common understanding of the facts: a prerequisite
for collaboration. It’s the cheapest way to gather information because it’s only done once. And it’s
the most reliable way to host information because many eyes scrutinize centralized data and
mistakes are more likely to be found and corrected. It’s the first line of defenses against political
or legal attack. It’s a clear window into the project that leaders can use instead of relying on delayed
or biased reports filtered through layers of management. It improves performance because it
measures it; it’s a report card for both team members and management. And most important, it
educates the team and makes better managers because it tells true stories.

Objectives,

The PMIS defines the program and the projects: cost, time, scope and quality. It defines the team:
people, organizations and their roles. It helps manage agreements: contracts, permits, approvals
and commitments. It manages documents. It produces standard and custom reports. It presents vital
signs on dashboards. It guides collaboration and communicates best practices with policies,
workflow diagrams and document management.

Design

A PMIS is built around documentation and communication of project-specific information so most

of the engine is devoted to that purpose. Basic project information includes the project location, a
current calendar and the project goals. There may be web cameras that record on-site activities for
public relations or for evidence in case of conflict. There may be general public relations web
pages with access for the community, users or other stakeholders. The PMIS maintains project
status from the initial idea for a new facility to its completion. Such project data may be rolled up
for portfolio management and for planning future projects.

As the PMIS develops it will accumulate detailed project information on:

Cost - Each contract and each project will have the budget, estimates, contract amounts, changes
orders, contingencies and forecasts of completion cost. There may be a capital plan with
projects scheduled over future years. It may include funding sources.

Schedule - There will be a master schedule, design schedules, procurement schedules, global
“push” construction schedules, short interval “pull” schedules, closeout schedules,
occupancy schedules and commissioning schedules. Or there may be a project-specific
calendar so the extended project team can coordinate their work. It may display meetings
that the user must attend, show deadlines for the user’s work products and send automatic
reminders. There may be a user-customized calendar for specific responsibilities.

Quality - Given that most owners choose to define quality as “conformance to requirements,” the
PMIS may include space programs and other requirements. The PMIS may include
procedures for quality control or quality assurance programs, post evaluation data and
include checklists to meet regulatory requirements.

The team: people, organizations and their roles - Within the PMIS database there is a simple list
of the projects with contact information for each company, its key people and their project role.
Since so many people deliver a project it makes sense to have a resource where everyone can find
everyone else. And it sure helps to know how they fit into the project. A web-accessible database
with that information improves communication. That speeds the project. It also adds to the quality
of the work. When starting a new project, it helps to know what companies have done similar work
and how they performed.

PMIS

Modern organizations have gradually transformed from single-project ventures to the management
symmetry of numerous global projects. Managers are now mandated to integrate many and highly
complex projects managed simultaneously and with unprecedented level of accuracy and detail-
specific precision. Not only are projects requisite, but also an assortment of such projects at any
one time, given that modern “organizations are continually been involved in many projects as a
competitive tactic to ensure that they remain relevant in their respective fields”.

In contemporary organizations, projects management has now emerged as a multifaceted process

of implementing assorted initiatives, all whose planning and control need a simultaneous nerve
center.

Globalized management of projects in an extremely competitive world market and the fact that
such projects now encompass real-time information technology (IT), biological innovation,
engineering, complex construction requirements, assembly of policy requirements, and pioneer
context-specific adaptation, has redefined the art of contemporary project management. Projects
now compel managers to seamlessly interlink and aggregate planning, organization, scheduling,
interparty collaboration, monitoring, accountability, and control to a level that was impossible to
imagine a few years ago.

Advances on the IT industry have offered perhaps the most reliable solution for modern project
managers. Software development and IT has been adopted in “current project management,” at a
time when reorganizing business processes, advancing research and innovation, as well as
implementing unprecedented levels of development is the very lifeline of business.

According to Project Management Knowledge (2010), PMIS ensures that project are implemented,
controlled, and sustained to completion in a manner that achieves “all of the project goals and
objectives while honoring the preconceived project constraints of time, budget, quality, and scope
as well as optimizing the allocation and integration of inputs needed to meet pre-defined objectives
while mitigating any risks.” Nearly four decades ago, define PMIS from a user perspective as
software solutions that provide “essential information on the cost-time performance parameters of
a project and on the interrelationship of these parameters.” For the present article, PMIS denotes:

A user-based interface of electronic information systems employed by managers in contemporary

organizations as custom-made software solutions to plan, schedule, implement, control, report,
communicate, forecast, review, and handle the cost of all aspects of a project, in pursuit of
optimal project performance.
In construction projects, activities are typically divided into functional areas, which are performed
by different disciplines (e.g. architects, engineers, and contractors) and that therefore operate
independently. Invariably, each discipline makes decisions without considering its impact on
others. Moreover, these functional disciplines often develop their own objectives, goals, and value
systems. As a result, each discipline has become dedicated to the optimization of its own function
with little regard to, or understanding of, its effects on the performance of the project with which
they are involved. In fact, the interfaces that exist between functional disciplines have become a
potential barrier for effective and efficient communication and co-ordination in projects. When a
breakdown in communication is identified, the source of the problem can be typically traced back
along the supply chain and it often becomes evident that there were ‘informational flow mishaps’
in the process. This is linked to information sharing and channeling. Information that is inaccurate
or delayed is seldom filtered and delegated to specified parameters. Consequently, quality failures
may occur as a result of ineffective decision making. This is often exacerbated by the absence of
an integrated and systematic information system (IS) to support quality management (QM)
activities in construction projects. Moreover, the absence of such a system has caused many
organizations to develop local insular ways to maintain control over their own domains of
responsibility. Thus, information gathering, reporting, and management in a project become
uncoordinated and multiple re-drawing and re-keying of information must be undertaken.
Ultimately, this leads to time waste, unnecessary costs, increased errors, and misunderstanding,
and thus rework, which has been found to be the primary factor of time and cost overruns in
construction projects. Furthermore, the ineffective use of information technology (IT) in managing
and communicating information exacerbates the amount of rework that occurs in a project. There
is therefore a need for an IS that can be used to manage quality so that the performance of
organizations can be monitored, and quality costs determined. This will enable organizations to
determine their quality failure costs (in particular rework) and therefore implement strategies for
preventing it. The design and development of quality costing systems for construction projects has
been limited, to date, because of the complexity associated with having to manage information
from a number of organizations with different approaches to managing quality.

II. QUALITY COSTS

To acquire knowledge and learn about quality costs, a project quality IS should form an integral
part of an organization's approach to managing its construction projects. To do so, it is necessary
to collect, measure, and analyze quality. However, this is complex and problematic, because of the
sheer number of activities and organizations involved with procurement. Moreover, organizations
vary in size and technological capabilities, and this makes it difficult to manage project-related
information, particularly data about quality costs. In fact, many construction organizations have
no system in place or even collect quality cost data. A project management IS with quality costing
added could provide the project team members and clients with information about quality failures
and the activities that need to be designed to prevent their future occurrence. This can then be used
to suggest quality improvement initiatives directed at achieving significant cost savings and quality
breakthroughs. Quality-related costs have been found to range from 5 to 25% of an organization's
annual turnover or operating costs. Of this, 90% is expended on appraisal and failure costs. Quality
costs can be reduced by a third when a cost-effective QM system is implemented.

• Calculating Quality Costs

There are numerous methods for calculating quality costs. For example, costs can be classified as
either cost of conformance or non-conformance. Conformance costs include: training,
indoctrination, verification, validation, testing, inspection, maintenance, and audits. Non-
conforming costs include: rework, material waste, and warranty repairs. However, the most widely
accepted method of determining quality costs in construction is the traditional prevention–
appraisal–failure (PAF) model, which classifies costs as follows:

1. Prevention — all amounts spent or invested to prevent or reduce errors or defects, that is, to
finance activities aimed at eliminating the causes of defects;
2. Appraisal — the detection of errors or defects by measuring conformity to the required level of
quality: issued architectural and structural drawings, work in progress, incoming and completed
material inspection (e.g. reinforcement, door hardware, etc.);
3. Internal failures — due to scrapping or reworking defective product or compensation for delays
in delivery; and
4. External failures — after the delivery of a product to the customer: costs of repairs, returns,
dealing with complaints, and compensation. These relate only to preventing and correcting
errors of a poor product/service quality. In fact, they only represent the direct, tangible, and
visible portion of the costs. Some quality costs can be estimated with a high degree of precision,
while others can be only estimated. Examples of prevention and appraisal techniques used in
construction are shown in Table 1. As Banks points out, costs will rise as more time is spent on
prevention. As processes improve, appraisal costs should then reduce, as inspection is no longer
necessary.
Prevention And
Description
Appraisal Activities
Developing quality improvement programs, standards, and goals. Data
Quality Systems
collection, analysis and reporting
Evaluating the ability of suppliers, vendors, contractors and sub-
Supplier
contractors, to perform capably. Developing a certification system and
Certification
compiling rating scores to measure supplier performance
Testing and training Testing personnel’s ability to perform work
Personnel
according to specified standards. Craft certification and training for
Qualification,
QA/control activities
Activities prior to delivery to ensure on-schedule delivery of all
Expediting purchased materials, equipment, services and third party engineering
information
Constructability Activities to ensure that the most efficient design and planned
Review construction methods are used to maximize the chance of building
 perfect facilities. Construction site layout is used to maximize the chance
of building perfect facilities. Construction site layout studies, de-
watering studies, prefabrication studies, etc.
Determining if the design is in compliance with client, industry, and
Operability, Safety
government requirements in terms of operability, safety, value
And
engineering, safety analysis, process hazards, and operability reviews,
Value Review
value engineering studies, etc.
Reviewing, checking, inspecting, testing and observing services/
Examinations,
Internal4B next session product internally in the organization. Reviewing designs, drafting and
documentation. Soil testing, concrete testing, hydro-testing piping, etc.
Reviewing, checking, inspecting, testing and observing products/
Examinations,
services produced externally by others. Inspection of material/
External
equipment received, vendor document reviews, etc

Thus, the greatest savings could be derived from reducing internal failure area. increases in
expenditures will not show immediate reductions in failure costs, primarily because of the time
lag between cause and effect. Appraisal and prevention costs are unavoidable costs that must be
borne by design and construction organizations if their products/services are to be delivered ‘right’
the first time. Failure costs, on the other hand, are almost avoidable in construction, as most
originate from ineffective management practices. Notably, quality costs can account for 8–15% of
total construction costs.

The Construction Industry Development Board (CIDB) in Singapore, for example, stated that an
average contractor was estimated to spend 5–10% of the project costs doing things wrong and
rectifying them. They concluded that an effective QMIS would cost about 0.1–0.5% of total
construction cost and produce a saving of at least 3% of total project cost (about five times the
original outlay). Studies have shown that more than 25% of the costs can be cut through the use of
an effective quality program. This clearly points to the importance of knowing how to prevent
recurrence, not only benefiting the contractor, but also the client and end-users.
Spending 1% more on prevention, failure costs could be reduced by a factor of five. Direct costs
are readily measurable, often quoted in evaluating quality of workmanship, and represent a
significant proportion of total project costs. Indirect costs are not directly measurable and include
loss of schedule and productivity, litigation and claims, and low operational efficiency. In addition,
labor costs for QM, which includes full-time QM personnel and others occasionally involved with
quality-related activities need to be identified.

QUALITY COSTING PROJECT MANAGEMENT INFORMATION SYSTEMS

Several quality costing project management IS have been developed and implemented to
determine quality costs: Quality Performance Management System (QMPS), Quality Performance
Tracking System (QPTS), and Quality Cost Matrix (QCM).

1. Quality performance management/tracking system

Patterson and Ledbetter used the QPMS to track the cost of QM by activity on four projects. They
assumed that direct rework costs were 12.5% of project cost and found that quality costs were 25%
of project cost. The cost of rework was then related to the QM cost by the cause of the error. While
this system was simple and flexible, it did not consider the effect of failure on time-related cost.
In addition, the system did not identify specific causes of failure. The QPTS, an updated version
of the QPMS, was developed to characterize quality cost for the purposes of quantitative analysis
and tracking deviations. Here deviation costs included rework, impact, liability, and warranty
work. To track a quality failure a series of questions needed to be asked, such as:

What subcontract?
Who was affected?
What was the cost?
When was it detected?
Who was the cause?
What QM involvement was there?
What type was it?

In the QPMS, quality failures are characterized by type, cause, and time of detection. In
categorizing QM activities, Davis et al. noted that the definition of QM varies from one design
firm to another, and the distinction between design practice and QM is blurred. So, if any QM
activity is repeated because of an earlier failure, its cost becomes part of the failure cost and not
QM cost. For example, if formal design and drafting checks/reviews, constructability reviews, and
inspections were needed again, then they would be included as a failure cost. The total quality cost
of quality (TQC), the cost of prevention and appraisal plus the cost of failure and deviation
correction was 12% of total labor expenditures for design and construction. This was made up of
8.7% prevention and appraisal and 3.3% (27.5%) deviation correction. internal and external
examinations accounted for 76 and 12% of prevention and appraisal costs, respectively. In
addition, the sources of deviation correction causes were attributable to design error (38%), vendor
error (30%) and designer change (29%). prevention and appraisal techniques were effective in
reducing deviation corrections. They were able to show that more emphasis on prevention
activities could reduce appraisal and internal failures. Ultimately, the goal of an organization
should be to eliminate failure/deviation correction costs and prevention and appraisal expenditures
at the same time.

2. Quality cost matrix

Abdul-Rahman acknowledged the limitations of the QPTS and developed a QCM, which took into
account the effect of a failure on time, particularly, the costing of accelerating work and specific
causes of a nonconformance. The QCM sought to address the following questions:

What category of non-conformance should be used, and which activity is affected?

What is the specific problem?
What is the cause of the problem?
How long will it take to rectify the problem?
What is the cost to remedy the situation?
Is any other cost spread elsewhere?

Each of these formed a category of the QCM. Defect notices, daily reports, site instructions and
variation orders coupled with interviews with key site personnel were used to identify non-
conformances in selected engineering projects. In a water-treatment plant, 62 non-conformances
were identified. These were found to account for 2.5% of contract value. Not all nonconformance's
could be identified due to resource constraints and availability of site personnel. Thus, Abdul-
Rahman states, ‘‘assuming that the rate at which the cost of non-conformances occur is constant
throughout construction then the total cost of nonconformance is estimated to be 6% of the
estimated project cost.’’ This figure did not reflect the full extent of rework that occurred, as many
client-initiated variations were not included. Design errors or omissions contributed to 30% of the
cost of nonconformance. Three construction-related costs were identified. These were associated
with the subcontractor, coordination and planning, and construction.

Reference:
International Journal Of Engineering Sciences & Research Technology
Project Management Information System In Construction Industry
Pranavraj Zambare1, Arun Dhawale2
1
PG Scholar, Department of Civil Engineering, Imperial College of Engineering and Research,
Wahgoli, Maharashtra, India
2
Associate Professor, Department of Civil Engineering, Imperial College of Engineering and
Research, Wahgoli, Maharashtra, India