2. PROBLEMS DURING COST
CONTROLE
Prepared by:
Salimullah
Am-552953
M.com (3rd
semester)

3. Cost Control
Definition:
 The process of managing or reducing
expense is known as cost control
 Many business use cost control to reduce
expense and increase profitability

4. Cost Controlling is one of the most challenging
aspects managers face. Most times, during any
project there are problems with project
control and record keeping.
Monitoring
Accounting
Maintaining

5.  Cost estimating
 Cost accounting
 Project cash flow
 Company cash flow
 Direct labor costing
 Overhead rate costing

6.  Thorough planning of the work to be performed
to complete the project
 Good estimating of time, labor, and costs
 Timely accounting of physical progress and cost
expenditures
 Periodic re-estimation of time and cost to
complete remaining work

7.  Poor estimating techniques
 Out-of-sequence starting and completion of
activities and events
 Inadequate work breakdown structure
 No management policy on reporting and
control practices
 Poor work definition at the lower levels of the
organization

8.  Inadequate formal planning
 Poor comparison of actual and planned costs
 Comparison of actual and planned costs at the wrong level of
management
 Unforeseen technical problems
 Material escalation factors that are unrealistic.
 Poor comparison of actual and planned costs

9. Organization:
Inadequate Work Breakdown Structure
 Poor work definition at working levels
Accounting:
 Inability to account for cost of material on applied basis
Analysis:
 Determination of status not based on work package completion
Comparison of actual vs. planned costs at improper level
Revisions:
Failure to maintain valid measurement baseline

10. Proposal Phase
 Failure to understand customer requirements
 Underestimating time requirements
Planning phase
 Omissions
 Inaccuracy of the work breakdown structure
 Misinterpretation of information
 Use of wrong estimating techniques
Negotiation phase
 Procurement ceiling costs
 Negotiation team that must “win this one”

11. Contractual phase
Proposal team different from project team
Design phase
Accepting customer requests without management
approval
Problems in customer communications channels and
data items
Production phase
Excessive material costs
Specifications that are not acceptable
Manufacturing and engineering disagreement

13.  In more than 1,000 locations around the
globe,
 we provide high-quality management of
border terminals,
 manufacturing and engineering excellence,
 logistics and multi dimensional freight
services. We're there wherever you go –
 With 12,000 employees and three decades
of experience, we make sure things always
go right.

14.  NLC Construction
 NLC Engineering & Construction
 NLC Freight Services
 Modern Border Terminals
 NLC Tolling
 National Express Freight Train
 NLC Polymers
 NLC Institutes

15.  Commodity shortages
 Natural calamities or transporters’ strikes
often put strain on the Country’s logistic
system.
 NLC is then called in by the Government of
Pakistan to restore normalcy through
professional handling of the crisis situations.
 NLC delivered efficient services during the
earthquakes, Floods and war effected areas

16. Problems of feedback in NLC
NLC unlike many is manufacturing situations because it is
concerned mostly with one-off projects.
Each new contract often has a fresh management team;
labor is transient and recruited on an ad hoc basis.
Sites are dispersed throughout the country and this tends to
cause problems in effective communication with other parts of the
company; subcontractors and 'lump' labors are common. Added to
all these are ever-changing weather conditions.
The problems encountered in the provision of feedback are
related to conflicting interests, and poor communication.

17. Problems of Cost Overrun in NLC.
Macro Economic Factors
The cost of construction is basically the cost of money, the cost of material, the
cost of labor and the cost of management. Top three factors identified by the
survey results i.e.
Fluctuation in prices of raw materials,
Unstable cost of manufactured materials,
High cost of machineries are markets related problems. Unlike a manufactured
commodity, construction industry is mainly market driven. Prices can, and sometimes
do, changes on an almost daily basis. These rapid changes in many cases cause
problems for vendors to commit to one fix price.
Management Factors
Some cost overruns are unavoidable because they cannot be reasonably prevented,
such as those due to unanticipated events, however overruns due to design plan or
project management problems are avoidable because they could have reasonably been
foreseen and prevented. The project control procedure can help management identify
its current position related to a future position

18.  Strong Industry Base
 Sustained Growth in Production and
Exports
 Easy Availability of Production Resources
 Surplus Production for Local and Export
Markets
 Good Local and International Reputation

19.  Lack of Innovation and Technology
Development
 Absence of Vision to identify weaknesses
 Lack of Funds to Take Up New Projects
 Lack of Professional Expertise within Industry
 Lack of Research & Development

20.  Future Growth Potential
 Rising Demand
 Emerging Export Markets
 Developing a Long Term Vision and
Strategy
 Research to Develop New Products
 Focus on Cost Optimisation
 Possible switch over to Cement Roads
 Availability of Finance

21.  High Incidence of Taxes
 High Input Cost
 Decline in Profitability
 Inadequate Bulk Loading Facility at Ports
 Rising Oil prices

22. The survey results indicated that the majority of cost overrun factors
(88%) lie in medium severity impact range. Attention should be paid to
these factors as they cause considerable increase in the cost of the
project initially estimated. Findings reveal that both internal and
external aspects of business setting contribute to cost overruns.
Macro economical factors affect the cost of the construction project
most severely. Among all factors leading to cost overruns, management
related factors are those which can be controlled and prevented most
easily as they are the in-house factors. Business and regulatory
environment is dysfunctional and need drastic changes, more
scientifically proven methods, tools and techniques may be adopted
instead of the orthodox practices Almost every project in the local
industry faces cost overruns when executed. Minimum range of cost
overrun in percentage of the estimated cost is at least 10 %. Medium
sized firms are more prone to cost overruns in comparison with small
and large firms, main reason for which being that they are in the
transitional phase where they need to take more risk to get more
business and establish them.

23.  Macro Economic Factors
Fluctuation in prices of raw materials and cost of manufactured materials are
severe when these elements are in short supply, to stabilize the cost of
materials, increase of supply of materials can be useful to break the
monopoly of few suppliers controlling the supply chain of the market.
 Management Factors
 Thorough estimation process for project costs calculations, with vigilant
planning, keeping in view trends of inflation and depreciation factors, cost
variations trends in sector and country with lead to smoother
implementation and achievement of desired cost control.
 Business and Regulatory Environment Factors
 The government should think of adopting, not just the conventional
contracts but also the design-build contracts, direct negotiation
contracts and other types of contracts. Alternative procurement
strategies such as best value procurement should also be adopted in the
projects undertaken by government, semi- government bodies and
agencies.