Project managers need to stay on top of procurement issues
Talk to vendors/subs about production schedules
Pinpoint delays, estimated time of delivery
Consider routine plant shutdowns
Additional information will be discussed during the Materials Management lecture
Project Cost Control In the planning phases, more thorough investigations and more accurate cost estimates are being required for those seeking financial backing. To remain competitive, contractors are being forced to monitor their cost accounts more closely and to know where losses are occurring.
Assume the contract has a 6-month schedule. The cost of borrowing money is .75% per month. Monthly pay estimates will be submitted on the fifth of the month, for work completed as of the last day of the preceding month, with payment due 30 days later. Under the terms of the contract, the owner will retain 10% of the 50% of the contract amount. Estimated cost is $500k. Using a 10% markup, the contractor bid $550k. Expected monthly costs are as shown: MONTH 1 2 3 4 5 6 ESTIMATED COSTS $50,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $50,000
The maximum working capital requirement, which occurs in month 5, is $208,605. To construct the project, the contractor must have at least the amount available. Change orders will increase the working capital required. The profit was reduced by $7,518 due to the cost to borrow the money in order to perform the work. The profit reduction is real whether the contractor borrows the money or uses its own assets. Project Cash Flow Calculation Estimated cost $500,000 Bid Price $550,000 Cost of money 0.75% Invoice date 5th of the month Payment received 30 days later Retainage 10% of the first 50% (of contract amount) MONTH 1 2 3 4 5 6 7 8 TOTAL Estimated costs $50,000 $100,000 $100,000 $100,000 $100,000 $50,000 $500,000 Invoice Amount $49,500 $99,000 $99,000 $110,000 $110,000 $82,500 $550,000 Amount received $0 $0 $49,500 $99,000 $99,000 $110,000 $110,000 $82,500 $550,000 Cash required $50,000 $150,375 $202,003 $204,518 $207,052 $148,605 $39,719 Interest $375 $1,128 $1,515 $1,534 $1,553 $1,115 $298 $7,518 TOTAL $50,375 $151,503 $203,518 $206,052 $208,605 $149,720 $40,017 $0 PROFIT $42,483
Cost engineering measures project costs using forecasts and trends of project information.
Measures current and future costs, and scheduled activities
Used to measure the performance of the project
Additional discussion regarding cost engineering will take place next semester in ACH 218-Construction Operations
Importance of Money Management Rising construction costs have increased the pressure on construction companies to carefully monitor and control the flow of money at all levels. As a result, more emphasis is being placed on cash flow and cost control functions in construction management than ever before.