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During construction projects, many
decisions have to be made under uncertain
conditions.
The Change/re-work problem is often
caused by poor project change
management.
If any assumption is proven wrong, some decisions have
to be revised.
In other words, changes are often inevitable.
Designers, engineers and other professionals
have to make assumptions based on existing
available information and their past
experience.
How to avoid or reduce the negative impact of
changes.
The need for effective change management
is essential for productivity improvement.
The key is:
Managerial
Technological Social factors
SOURCE OF CHANGE-MAJOR INFLUENTIAL FACTORS
The main areas pertain to
The objective of change management is to
forecast possible changes.
It can be caused by either Internal or External
Factors.
Different changes may have different effects or
consequences.
CHANGES- SOURCE
OF CHANGE
• Identify changes that have already
occurred
CHANGES- SOURCE
OF CHANGE
• Plan preventive impacts & coordinate
changes across the entire project.
CHANGES- SOURCE
OF CHANGE
• A radical change is sudden, dramatic
and has a marked effect.
CHANGES- SOURCE
OF CHANGE
• Gradual Changes often occur during the
design development stage, where many
decisions are fine Tuned and refined
progressively.
CHANGES- SOURCE
OF CHANGE
• Radical changes occur during construction
phases.
•Project changes can also be classified
as “anticipated changes” and
“emergent changes”.
CHANGES- SOURCE
OF CHANGE
• At a more detailed level, the causes of
construction project change are usually
generated from either design or
construction activities.
CHANGES- SOURCE
OF CHANGE
• Changes can cause cost overrun.
CHANGES- SOURCE
OF CHANGE
• To reduce the negative effects of change, it is
important to identify the main causes of change.
CHANGES- SOURCE
OF CHANGE
• How these causes can effect the KPI’s.
CHANGES- SOURCE
OF CHANGE
• Ask questions-how can poor communications
lead to higher chance of change, how can...?
CHANGES- SOURCE
OF CHANGE
•What is the relationship between a
change that has occurred with total cost
of a project?
CHANGES- SOURCE
OF CHANGE
• Project characteristics, which represent the
amount of information available at the early
stages of a project, are often the original
source of change cases as concluded from the
case studies undertaken for this research -
see Motawa et al. (2003b).
Figure (below) shows the typical relationship
between project characteristics (Fi), causes of
change (Cj), and change effects (Ek).
Therefore, these characteristics are considered
when simulating the cause and effect
relationships of change cases.
Change causes are the direct causes of a specific
change event when it occurs; these are likely to be
because of the existence of the project
characteristics.
Project characteristics are factors or aspects that
have an influence on the project and may lead to
change.
(Fi) Project
characteristics
Rij
(Cj) Causes
of change
Rjk
Ek) Change
effects
 Change effects are the change
consequences on the project parameters
(e.g. time, cost, etc).
 Rij and Rjk are two measures that represent
the degree of dependency between Fi’s and
Cj’s and between Cj’s and Ek’s.
 They actually represent the sensitivity of the
impact of one set of elements to variations
in another set of elements.
Direct consequences of change
Directly effects on the project
The consequences have
quantifiable metrics, which
include:
Cost overrun-Time overrun
Damage to reputation
Etc.
Determining the deviation of the
project duration from that stated
in the contract documentation.
CHANGES- SOURCE
OF CHANGE
•Identification of the parties who are
affected with the cost overrun.
CHANGES- SOURCE
OF CHANGE
•Determination of the penalties or
consequences to the affected parties.
CHANGES- SOURCE
OF CHANGE
•Consideration of the interrupted cash flow,
financing costs and loss/growth of earnings.
 Indirect consequences of change
would always be harder to identify and
define than a directly attributable
consequence.
 In terms of measurement, the metrics
for these items will be qualitative.
 Examples of such indirect
consequences include:
Change may promote uncertainty
amongst the project team.
Change may interrupt the schedule and
thus cause delays and bottlenecks on the
workflow.
CHANGES- SOURCE
OF CHANGE
• There is often difficulty in determining
equitable adjustment compensation for the
parties involved.
CHANGES- SOURCE
OF CHANGE
• It may also impact on the amount of labour
that is not being effectively deployed, or
result in loss of learning curve.
The team’s
momentum and
equilibrium may
be disrupted by
a change event
Therefore causing a
normally effective team
to become inefficient and
ineffective for a period of
time, which may increase
co-ordination failures
and errors.
Change may
alter the morale
amongst the
project team.
Morale is a
complex issue
that could
severely affect
the project’s
performance.
Influential factors
(related to early stage
of project)
Economical
Technological
Customers
Stakeholders
Environmental
Legislative
Procurement route
Organizational factors
Financial factors
Sustainability
Etc
Process model of Change Management
Pre-
construction
Activities
Client brief
Project objectives
Specification
Design/build-
ability
Constructability
Contractual
arrangement
Planning
Scheduling
Estimating
Labour
Characteristics
Subcontracting
Labour
Direct labour
Management
System
Planning
Communication
Controlling
Co-ordinating
Resource
Management &
Weather
Labour selection
Labour control
Material selection
Material handling
Plant
Waste on site
Delay and Disruption on site
Motivating Factors
Hygiene Factors
Construction
Productivity
Project
Performance
 Time
 Cost
 Quality
 Safety
 Customer
satisfaction
Rewards
Effort
Ability and skill of
management and workers
Site/Project
Manager
Characteristics
Experience/capability
Leadership style
Authority/influence
Goal commitment
Involvement
Job
Satisfaction
Resources
Scope
Goals
Removeany Ambiguity
Leadership
Co-ordination
communication
Team work
Delay
Causes:
Bottleneck-
uncertainty amongst
workforce-morale
change-
Lack of
coordination-
failure-errors
Resources
Scope
Goals
Removeany Ambiguity
Leadership
Co-ordination
communication
Team work
CHANGES- SOURCE
OF CHANGE
• Changes can cause cost overrun.
CHANGES- SOURCE
OF CHANGE
• To reduce the negative effects of change, it is
important to identify the main causes of change.
CHANGES- SOURCE
OF CHANGE
• Ensuring that all appropriate changes are
recorded’
CHANGES- SOURCE
OF CHANGE
• prevent incorrect, inappropriate, or unauthorized
changes from being included in the project.
CHANGES- SOURCE
OF CHANGE
• Acting to bring expected costs within acceptable
cost limits.
CHANGES- SOURCE
OF CHANGE
• Scope change control.
CHANGES- SOURCE
OF CHANGE
•Once the construction work starts on site, the
management team on site will be responsible for day-
to-day cost control as well as other responsibilities.
CHANGES- SOURCE
OF CHANGE
•The CM,PM, must not only know the project’s costs to
date, but also be able to project costs For any
additional work.
CHANGES- SOURCE
OF CHANGE
•The CM, PM,.. is responsible for controlling costs to
ensure that construction is completed within budget.
 If any changes are anticipated during the
construction process, immediate steps must
be taken and they are:
1. the CM must notify the senior management
as soon as possible;
2. an informed decision can be made on
whether or not to proceed with the change;
3. Once the decision is made can the
necessary funding be obtained?
Most construction cost control systems should
have an immediate response mechanism.
A construction cost control system should
enable the management team to observe current
cost levels, compare them with initial set target.
 There most be a method to report to
the management the cost overrun for
each activity as it happens.
 Software’s such as ‘asta’ shows the
cumulative cost of the project.
 There is no method of estimating cost
overrun for a small project or cost
overrun for activities with change or
disruption or delay.
Developments in Cost Control Systems for
change management
 There are three reliable cost control systems
in construction management.
 They can be used for improving cost control
in a project.
 1. Short term scheduling and control.
 This system was developed at Loughborough
University.
Its main aims are:
 to bring together the planning and
supervision of a project;
 to obtain a zero or close to zero response
time
2. Project Cost model.
 This a system developed by Dr
Martin Barnes for simulating
future actions and thus
guiding the managers to take
immediate corrective action.
3-Quantitative scheduling
 One of the Construction software that
provides construction cost control tool
for construction management is the
CFF3 for cash flow forecasting.
 Version three has taken into
consideration the possible deviations
from estimates of cost.
 As well as providing cash in patterns
 It gives early warning to return back to
the original estimate to carry out
corrective measures.
 This can be done by damping out
these deviations through the
remaining period of construction.
 Updated estimates are provided each
time an actual figure is added.
 The end cost remain same as was
originally estimated.
 Let MD=Cost of Material /unit
 A =% allowed for material wastage in Spons,
Laxton, the schedule of rate.
 X=% actual recorded waste after completion
of the job.
 Productivity change relating to wastage is
measured by the difference between the
expected level of waste on site.
 As normally, scheduled in SPONS or
LAXTON’s price book,
 The actual waste on site after the
completion of the job can be calculated.
 Compare Actual completion time for Activities
1-2, 2-3,..against allocated time for Activities
1-2, 2-3,
 Compare Actual completion cost for Activities
1-2, 2-3,..against allocated cost for Activities
1-2, 2-3,
 Compare Actual waste allowed(%) for
Activities 1-2, 2-3,..against allowed waste (%)
for Activities 1-2, 2-3,
ACTIVITIES 1-2, 2-3, 3-4, 1-12, 1-9, ….
(Before any changes and after changes)
To measure Items such as:
 Time (increase/decrease),
 Cost (increase/decrease),
 Labour (increase/decrease),
 Material (Material waste-increase/decrease)
 Machinery (efficiency increase/decrease).

Total material cost per unit rate=MD [A-X]
EC= Estimated time for Craft to carryout a unit rate of a job.
HC= Hourlyrate for a Craft Operative
HL= Hourlyrate for a Labour Operative
EL= Estimated time for a Labour to carryout a unit rate of a job.
AC= Actual time for Craft to carryout a unit rate of a job.
AL= Actual time for a Labour to carryout a unit rate of a job.
PR (Loss/Gain)=MD [A-X] + {(EC . HC)+ (EL . HL)}-{(AC . HC)+ (AL . HL)}
Or
PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL- AL)
PR=Productivityloss/gain per unit rate.
O
Total Productivityloss/gain (for a given activity)= Productivityloss/gain for a given unit per
hour x Quantity of that activity
OR = PR x TQ
Labour Productivity (Pi) for time period i=WHi /Qi
WHi = Total work hours charged bythe crew for time period of i
Qi = Quantityof work placed during period i in unit rate
The success or failure of a project is measured by
considering whether a project has met its KPIs.
It is also important to find out if a completed
project was built within their budget.
Changes can increase the total
cost.
Net
Rate
Gross Total Total Total Total Total
Time
Total
Time
Total
Cost
Total
Cost
Total
Time
Total
Time
Total
Cost
Total
Cost
Unit
(£) Rate Quan
t-
Quan
t-
Cost Cost Est- Est- Est- Est- Act.- Act.- Act- Act-
(Est-) (Act-) (Est-) (Act-) Craft Labo
ur
Craft Labour Craft Labour Craft Labour
(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs)
64.5
5
72.94 160 - 1167
0
- 464 688 3257.3 3969.7
5
- - - - M2
57.2
9
64.73 130 - 8414.
9
- 63.75 315.9 447.15 1822.7
5
- - - - M2
40.8
1
46.12 225 - 1037
7
- 506.2
5
393.7
5
3553.9 2271.9
5
- - - - M2
35.2
4
39.82 410 1632
6
- 922.5 451 6475.9
5
2602.2
5
- - - - M2
13.9
1
15.98 440 - 7031.
2
- 638 484 4478.7
5
2792.7 - - - - M2
5.04 5.69 1125 - 6401.
3
506.2
5
258.7
5
3553.9 1492.9
5
- - - - M2
3.99 4.5 785 - 3532.
5
196.2
5
102 1377.7 588.55 - - - - M2
26.8
8
30.37 90 - 2733.
3
- 90 54 631.8 311.6 - - - - M2
Net
Rate
Gross Total Total Total Total Total
Time
Total
Time
Total
Cost
Total
Cost
Total
Time
Total
Time
Total
Cost
Total
Cost
Unit
(£) Rate Quan
tity
Quan
tity
Cost Cost (Est-) (Est-) (Est-) (Est-) (Act.-
)
(Act.-) (Act-) (Act-)
(Est-) (Act-) (Est-) (Act-) Craft Labo
ur
Craft Labour Craft Labour Craft Labour
(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs)
64.5 72.94 114 - 8315. - 330.6 490.2 2320.8 2828.4 - - - - M2
CHANGES- SOURCE OF CHANGE
Productivity measurement table-related to case no.1
CRAFT/LABOUR
PRODUCTIVITY
CASE NO.1
POOR
Total MD
=Cost
of
material
Waste Waste Craft
Optve
Craft
Optve
Labour Labo
ur
Productivity Loss or
Gain £
Total
loss/G
ain
=PR x
TQ
Unit
3x3 Bed House-
2 Story level
Quanti
ty
(TQ)
Deliver
ed to
site
(Estima
te)
(Actual
)
Hrs Hrs Hrs Hrs- PR=MD[A-
X]+HC(EC-AC)
+HL(EL-AL)
LOSS £
Description-
Activities
(Act-) % % (EC) (AC) (EL) (AL)
SUPERSTRUC
TURE
Facing Brick
P.C £350 PER
1000 /Common
Block
156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2
Common
Brick/Block
264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2
Internal Walls-
LWC Block
282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2
Internal Walls-
Plastering-
13mm thick
708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2
Internal Finish-
Ceiling finish-
set
504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2
Wall Tiling-
152x152
75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2
COST OVERRUN MEASUREMENT
Formula one
 PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL-
AL)
Formula two
 AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi)
 xi = % of influential factors such as weather,
crew size, absenteeism, machinery,
 accidents on site, etc.

1. Consider formula one and two
2. Consider activity 13-16 (fig-1 Vining St)
3. Project manager asks for a change to the
activity (13-16)
4. As a result KPI’s for this activity will alter
5. To calculate Time, cost, Material waste, etc
6. Formulas one and two are used.
7. Table one shows changes
8. Time overrun, cost overrun etc. Is as a result of
changes made to activity 13-16 (Code-C/FB13-
16)
9. Therefore, total project time, cost etc will
change.
CASE
NO.1
POOR
Total MD =Cost
of material
Waste Waste Craft
Optve
Craft
Optve
Labour Labour Productivity
Loss or
Gain £
Total
loss/Gain
=PR x TQ
Unit
3x3 Bed
House-2
Story
level
Quantity
(TQ)
Delivered
to site
(Estimate
)
(Actual) Hrs Hrs Hrs Hrs- PR=MD[A-
X]+HC(EC-AC)
+HL(EL-AL)
LOSS £
Descripti
on-
Activities
(Act-) % % (EC) (AC) (EL) ()
SUPERS
TRUCTU
RE
Facing
Brick P.C
£350
PER
1000
/Common
Block
156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2
Common
Brick/Blo
ck
264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2
Influential factors
(related to early stage
of project)
Economical
Technological
Customers
Stakeholders
Environmental
Legislative
Procurement route
Organizational factors
Financial factors
Sustainability
Etc
Process model of Change Management
Pre-
construction
Activities
Client brief
Project objectives
Specification
Design/build-
ability
Constructability
Contractual
arrangement
Planning
Scheduling
Estimating
Labour
Characteristics
Subcontracting
Labour
Direct labour
Management
System
Planning
Communication
Controlling
Co-ordinating
Resource
Management &
Weather
Labour selection
Labour control
Material selection
Material handling
Plant
Waste on site
Delay and Disruption on site
Motivating Factors
Hygiene Factors
Construction
Productivity
Project
Performance
 Time
 Cost
 Quality
 Safety
 Customer
satisfaction
Rewards
Effort
Ability and skill of
management and workers
Site/Project
Manager
Characteristics
Experience/capability
Leadership style
Authority/influence
Goal commitment
Involvement
Job
Satisfaction
Product Improvement Tools (PIT) Earned Value Management (Evma) Lean Construction (Lcon)
Benchmark (Ben) Front End Management (Fema) Just In Time (Jiti)
Benchmarking (Bing) Quality Control (Qcon) Supply Chain Management (Scma)
Buildability (Buil) Quality Assurance (Qass) Value Engineering (Veng)
Buildability/Deconstruction (Buil/Deco) Quality Management System (Qmsy) Value Management (Vman)
Otherp Product Improvement Tools
 To have realistic cost overrun of a change or
several changes- add % of variables in
Product Improvement Kit tool into Formula
one.
 Some highly productive construction firms
consider one or more variables in (PIK tools)
within their management improvement
policies.
 Therefore, items relevant in the (PIT’s) is
added to formula one.
PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL-
AL)
AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi)
xi = % of influential factors such as weather, crew size,
absenteeism, machinery, accidents on site, etc.
Let us assume that in fig-1 Project – Project management have
adopted Earned Value Management (E vma) ,
Buildability/Deconstruction (Buil/Deco) , Value Engineering (V eng).
Therefore new formula is:
Inside PIK box we have:
 Benchmark (Ben)
 Benchmarking (Bing)
 Buildability (Buil)
 Buildability/Deconstruction (Buil/Deco )
 Earned Value Management (Evma)
 Font End Loading
 Quality Control (Qcon)
 Front End Management (Fema)
 Quality Assurance (Qass)
 Quality Management System (Qmsy)
 Lean Construction (Lcon)
 Just In Time (J)
 Supply Chain Management (Scma)
 Value Engineering (Veng)
 Value Management (Vman)
 Other Product Improvement Tools
 (Ben)+ (Bing)+ (Buil) +.........= Σ(PIK’s)
 How to calculate PIKs
( (E vma) + (Buil/Deco) + (Veng)+...))
 Planning Engineer's total salary = TS (per year) or PH (Per
Hour)
 Let us assume that the Average Time spent for Vining St
project for carrying out VE, TQM, QA, FEL, JIT, Lean
Construction etc. = AT
 % of (At) used for activity (13-16) is obtainable from
Planning Engineer=let us assume that 2.2% of total cost was
used for all the relevant PITs.
 2.2% of Total Cost(TS)=2.2% X TS=CS
 Let us assume that 4 major changes has been
recorded.
 Planning Engineer’s calculation suggest that
12.5% of cost overrun for change during activity
(13-16) is (12.5/100) x CS =Total Cost Overrun
for activity=TCO
 Therefore,
PR (Loss/Gain) as a result of changes for Activity 13-16 =
MD [A-X] + HC(EC- AC)+ HL(EL-AL) –( 12.5/100 X 2.2 X TS )
When AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi)
Also considering:
1. The Arithmetic Mean
2. Geometric Mean
 The Arithmetic Mean can be applied for
individual projects.
 Geometric Mean can be considered for more
than one project
 cost overrun of more than 1 project can
cause financial loses
 The geometric mean between two numbers
is:
The arithmetic mean between two numbers
is:
 Matrix Multiplication
 






 b
d
b
A ;
1
1









310
221
A
     
      
















930
663
331303
232313
3A
A 
a11 ,, a1n
a21 ,, a2n
   
am1 ,, amn



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





 Aij 
Square matrix with ones on the diagonal and zeros
elsewhere.
Example:
Solution:
 Definition Let A = [aij ] be an m ´
n matrix and B = [bij ] an n ´ p
matrix.
 Then v the product of matrices A
and B, denoted AB, is the m ´ p
matrix C = [cij ] where
FIG-1
 Inner Products
<a|b>
=



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p
o
n
m
l
 *****
zyxwv
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pzoynxmwlv 
By Definition   acbcba 
 An Outer Product is a Ket multiplied by a Bra
|a><b| =



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o
n
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 *****
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Net
Rate
Gross Total Total Total Total Total
Time
Total
Time
Total
Cost
Total
Cost
Total
Time
Total
Time
Total
Cost
Total
Cost
Unit
(£) Rate Quan
t-
Quan
t-
Cost Cost Est- Est- Est- Est- Act.- Act.- Act- Act-
(Est-) (Act-) (Est-) (Act-) Craft Labo
ur
Craft Labour Craft Labour Craft Labour
(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs)
64.5
5
72.94 160 - 1167
0
- 464 688 3257.3 3969.7
5
- - - - M2
57.2
9
64.73 130 - 8414.
9
- 63.75 315.9 447.15 1822.7
5
- - - - M2
40.8
1
46.12 225 - 1037
7
- 506.2
5
393.7
5
3553.9 2271.9
5
- - - - M2
35.2
4
39.82 410 1632
6
- 922.5 451 6475.9
5
2602.2
5
- - - - M2
13.9
1
15.98 440 - 7031.
2
- 638 484 4478.7
5
2792.7 - - - - M2
5.04 5.69 1125 - 6401.
3
506.2
5
258.7
5
3553.9 1492.9
5
- - - - M2
3.99 4.5 785 - 3532.
5
196.2
5
102 1377.7 588.55 - - - - M2
26.8
8
30.37 90 - 2733.
3
- 90 54 631.8 311.6 - - - - M2
Net
Rate
Gross Total Total Total Total Total
Time
Total
Time
Total
Cost
Total
Cost
Total
Time
Total
Time
Total
Cost
Total
Cost
Unit
(£) Rate Quan
tity
Quan
tity
Cost Cost (Est-) (Est-) (Est-) (Est-) (Act.-
)
(Act.-) (Act-) (Act-)
(Est-) (Act-) (Est-) (Act-) Craft Labo
ur
Craft Labour Craft Labour Craft Labour
(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs)
64.5 72.94 114 - 8315. - 330.6 490.2 2320.8 2828.4 - - - - M2
Productivity measurement table-related to case no.1
CRAFT/LABOUR
PRODUCTIVITY
CASE NO.1
POOR
Total MD
=Cost
of
material
Waste Waste Craft
Optve
Craft
Optve
Labour Labo
ur
Productivity Loss or
Gain £
Total
loss/G
ain
=PR x
TQ
Unit
3x3 Bed House-
2 Story level
Quanti
ty
(TQ)
Deliver
ed to
site
(Estima
te)
(Actual
)
Hrs Hrs Hrs Hrs- PR=MD[A-
X]+HC(EC-AC)
+HL(EL-AL)
LOSS £
Description-
Activities
(Act-) % % (EC) (AC) (EL) (AL)
SUPERSTRUC
TURE
Facing Brick
P.C £350 PER
1000 /Common
Block
156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2
Common
Brick/Block
264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2
Internal Walls-
LWC Block
282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2
Internal Walls-
Plastering-
13mm thick
708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2
Internal Finish-
Ceiling finish-
set
504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2
Wall Tiling-
152x152
75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2
Total MD
=Cost
of
material
Waste Waste
Quanti
ty
(TQ)
Deliver
ed to
site
(Estima
te)
(Actual
)
(Act-) % %
156 31.14 5% 6.50%
264 18.88 5% 6.50%
282 8 5% 7.00%
708 1.71 5% 6.50%
COST OVERRUN
MEASUREMENT
COST OVERRUN MEASUREMENT

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014 changes-cost overrun measurement

  • 2. During construction projects, many decisions have to be made under uncertain conditions. The Change/re-work problem is often caused by poor project change management.
  • 3. If any assumption is proven wrong, some decisions have to be revised. In other words, changes are often inevitable. Designers, engineers and other professionals have to make assumptions based on existing available information and their past experience.
  • 4. How to avoid or reduce the negative impact of changes. The need for effective change management is essential for productivity improvement. The key is:
  • 5. Managerial Technological Social factors SOURCE OF CHANGE-MAJOR INFLUENTIAL FACTORS The main areas pertain to
  • 6. The objective of change management is to forecast possible changes. It can be caused by either Internal or External Factors. Different changes may have different effects or consequences.
  • 7. CHANGES- SOURCE OF CHANGE • Identify changes that have already occurred CHANGES- SOURCE OF CHANGE • Plan preventive impacts & coordinate changes across the entire project. CHANGES- SOURCE OF CHANGE • A radical change is sudden, dramatic and has a marked effect.
  • 8. CHANGES- SOURCE OF CHANGE • Gradual Changes often occur during the design development stage, where many decisions are fine Tuned and refined progressively. CHANGES- SOURCE OF CHANGE • Radical changes occur during construction phases. •Project changes can also be classified as “anticipated changes” and “emergent changes”.
  • 9. CHANGES- SOURCE OF CHANGE • At a more detailed level, the causes of construction project change are usually generated from either design or construction activities. CHANGES- SOURCE OF CHANGE • Changes can cause cost overrun.
  • 10. CHANGES- SOURCE OF CHANGE • To reduce the negative effects of change, it is important to identify the main causes of change. CHANGES- SOURCE OF CHANGE • How these causes can effect the KPI’s. CHANGES- SOURCE OF CHANGE • Ask questions-how can poor communications lead to higher chance of change, how can...?
  • 11. CHANGES- SOURCE OF CHANGE •What is the relationship between a change that has occurred with total cost of a project? CHANGES- SOURCE OF CHANGE • Project characteristics, which represent the amount of information available at the early stages of a project, are often the original source of change cases as concluded from the case studies undertaken for this research - see Motawa et al. (2003b).
  • 12. Figure (below) shows the typical relationship between project characteristics (Fi), causes of change (Cj), and change effects (Ek). Therefore, these characteristics are considered when simulating the cause and effect relationships of change cases.
  • 13. Change causes are the direct causes of a specific change event when it occurs; these are likely to be because of the existence of the project characteristics. Project characteristics are factors or aspects that have an influence on the project and may lead to change.
  • 14. (Fi) Project characteristics Rij (Cj) Causes of change Rjk Ek) Change effects
  • 15.  Change effects are the change consequences on the project parameters (e.g. time, cost, etc).  Rij and Rjk are two measures that represent the degree of dependency between Fi’s and Cj’s and between Cj’s and Ek’s.  They actually represent the sensitivity of the impact of one set of elements to variations in another set of elements.
  • 16. Direct consequences of change Directly effects on the project The consequences have quantifiable metrics, which include:
  • 17. Cost overrun-Time overrun Damage to reputation Etc. Determining the deviation of the project duration from that stated in the contract documentation.
  • 18. CHANGES- SOURCE OF CHANGE •Identification of the parties who are affected with the cost overrun. CHANGES- SOURCE OF CHANGE •Determination of the penalties or consequences to the affected parties. CHANGES- SOURCE OF CHANGE •Consideration of the interrupted cash flow, financing costs and loss/growth of earnings.
  • 19.  Indirect consequences of change would always be harder to identify and define than a directly attributable consequence.  In terms of measurement, the metrics for these items will be qualitative.  Examples of such indirect consequences include:
  • 20. Change may promote uncertainty amongst the project team. Change may interrupt the schedule and thus cause delays and bottlenecks on the workflow.
  • 21. CHANGES- SOURCE OF CHANGE • There is often difficulty in determining equitable adjustment compensation for the parties involved. CHANGES- SOURCE OF CHANGE • It may also impact on the amount of labour that is not being effectively deployed, or result in loss of learning curve.
  • 22. The team’s momentum and equilibrium may be disrupted by a change event Therefore causing a normally effective team to become inefficient and ineffective for a period of time, which may increase co-ordination failures and errors.
  • 23. Change may alter the morale amongst the project team. Morale is a complex issue that could severely affect the project’s performance.
  • 24. Influential factors (related to early stage of project) Economical Technological Customers Stakeholders Environmental Legislative Procurement route Organizational factors Financial factors Sustainability Etc Process model of Change Management Pre- construction Activities Client brief Project objectives Specification Design/build- ability Constructability Contractual arrangement Planning Scheduling Estimating Labour Characteristics Subcontracting Labour Direct labour Management System Planning Communication Controlling Co-ordinating Resource Management & Weather Labour selection Labour control Material selection Material handling Plant Waste on site Delay and Disruption on site Motivating Factors Hygiene Factors Construction Productivity Project Performance  Time  Cost  Quality  Safety  Customer satisfaction Rewards Effort Ability and skill of management and workers Site/Project Manager Characteristics Experience/capability Leadership style Authority/influence Goal commitment Involvement Job Satisfaction
  • 26.
  • 27.
  • 29.
  • 31. CHANGES- SOURCE OF CHANGE • Changes can cause cost overrun. CHANGES- SOURCE OF CHANGE • To reduce the negative effects of change, it is important to identify the main causes of change. CHANGES- SOURCE OF CHANGE • Ensuring that all appropriate changes are recorded’
  • 32. CHANGES- SOURCE OF CHANGE • prevent incorrect, inappropriate, or unauthorized changes from being included in the project. CHANGES- SOURCE OF CHANGE • Acting to bring expected costs within acceptable cost limits. CHANGES- SOURCE OF CHANGE • Scope change control.
  • 33. CHANGES- SOURCE OF CHANGE •Once the construction work starts on site, the management team on site will be responsible for day- to-day cost control as well as other responsibilities. CHANGES- SOURCE OF CHANGE •The CM,PM, must not only know the project’s costs to date, but also be able to project costs For any additional work. CHANGES- SOURCE OF CHANGE •The CM, PM,.. is responsible for controlling costs to ensure that construction is completed within budget.
  • 34.  If any changes are anticipated during the construction process, immediate steps must be taken and they are: 1. the CM must notify the senior management as soon as possible; 2. an informed decision can be made on whether or not to proceed with the change; 3. Once the decision is made can the necessary funding be obtained?
  • 35. Most construction cost control systems should have an immediate response mechanism. A construction cost control system should enable the management team to observe current cost levels, compare them with initial set target.
  • 36.  There most be a method to report to the management the cost overrun for each activity as it happens.  Software’s such as ‘asta’ shows the cumulative cost of the project.  There is no method of estimating cost overrun for a small project or cost overrun for activities with change or disruption or delay.
  • 37. Developments in Cost Control Systems for change management  There are three reliable cost control systems in construction management.  They can be used for improving cost control in a project.  1. Short term scheduling and control.  This system was developed at Loughborough University. Its main aims are:  to bring together the planning and supervision of a project;  to obtain a zero or close to zero response time
  • 38. 2. Project Cost model.  This a system developed by Dr Martin Barnes for simulating future actions and thus guiding the managers to take immediate corrective action.
  • 39. 3-Quantitative scheduling  One of the Construction software that provides construction cost control tool for construction management is the CFF3 for cash flow forecasting.  Version three has taken into consideration the possible deviations from estimates of cost.  As well as providing cash in patterns
  • 40.  It gives early warning to return back to the original estimate to carry out corrective measures.  This can be done by damping out these deviations through the remaining period of construction.  Updated estimates are provided each time an actual figure is added.  The end cost remain same as was originally estimated.
  • 41.  Let MD=Cost of Material /unit  A =% allowed for material wastage in Spons, Laxton, the schedule of rate.  X=% actual recorded waste after completion of the job.  Productivity change relating to wastage is measured by the difference between the expected level of waste on site.  As normally, scheduled in SPONS or LAXTON’s price book,  The actual waste on site after the completion of the job can be calculated.
  • 42.
  • 43.  Compare Actual completion time for Activities 1-2, 2-3,..against allocated time for Activities 1-2, 2-3,  Compare Actual completion cost for Activities 1-2, 2-3,..against allocated cost for Activities 1-2, 2-3,  Compare Actual waste allowed(%) for Activities 1-2, 2-3,..against allowed waste (%) for Activities 1-2, 2-3,
  • 44. ACTIVITIES 1-2, 2-3, 3-4, 1-12, 1-9, …. (Before any changes and after changes) To measure Items such as:  Time (increase/decrease),  Cost (increase/decrease),  Labour (increase/decrease),  Material (Material waste-increase/decrease)  Machinery (efficiency increase/decrease). 
  • 45. Total material cost per unit rate=MD [A-X] EC= Estimated time for Craft to carryout a unit rate of a job. HC= Hourlyrate for a Craft Operative HL= Hourlyrate for a Labour Operative EL= Estimated time for a Labour to carryout a unit rate of a job. AC= Actual time for Craft to carryout a unit rate of a job. AL= Actual time for a Labour to carryout a unit rate of a job. PR (Loss/Gain)=MD [A-X] + {(EC . HC)+ (EL . HL)}-{(AC . HC)+ (AL . HL)} Or PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL- AL) PR=Productivityloss/gain per unit rate. O Total Productivityloss/gain (for a given activity)= Productivityloss/gain for a given unit per hour x Quantity of that activity OR = PR x TQ Labour Productivity (Pi) for time period i=WHi /Qi WHi = Total work hours charged bythe crew for time period of i Qi = Quantityof work placed during period i in unit rate
  • 46. The success or failure of a project is measured by considering whether a project has met its KPIs. It is also important to find out if a completed project was built within their budget. Changes can increase the total cost.
  • 47. Net Rate Gross Total Total Total Total Total Time Total Time Total Cost Total Cost Total Time Total Time Total Cost Total Cost Unit (£) Rate Quan t- Quan t- Cost Cost Est- Est- Est- Est- Act.- Act.- Act- Act- (Est-) (Act-) (Est-) (Act-) Craft Labo ur Craft Labour Craft Labour Craft Labour (£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) 64.5 5 72.94 160 - 1167 0 - 464 688 3257.3 3969.7 5 - - - - M2 57.2 9 64.73 130 - 8414. 9 - 63.75 315.9 447.15 1822.7 5 - - - - M2 40.8 1 46.12 225 - 1037 7 - 506.2 5 393.7 5 3553.9 2271.9 5 - - - - M2 35.2 4 39.82 410 1632 6 - 922.5 451 6475.9 5 2602.2 5 - - - - M2 13.9 1 15.98 440 - 7031. 2 - 638 484 4478.7 5 2792.7 - - - - M2 5.04 5.69 1125 - 6401. 3 506.2 5 258.7 5 3553.9 1492.9 5 - - - - M2 3.99 4.5 785 - 3532. 5 196.2 5 102 1377.7 588.55 - - - - M2 26.8 8 30.37 90 - 2733. 3 - 90 54 631.8 311.6 - - - - M2 Net Rate Gross Total Total Total Total Total Time Total Time Total Cost Total Cost Total Time Total Time Total Cost Total Cost Unit (£) Rate Quan tity Quan tity Cost Cost (Est-) (Est-) (Est-) (Est-) (Act.- ) (Act.-) (Act-) (Act-) (Est-) (Act-) (Est-) (Act-) Craft Labo ur Craft Labour Craft Labour Craft Labour (£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) 64.5 72.94 114 - 8315. - 330.6 490.2 2320.8 2828.4 - - - - M2 CHANGES- SOURCE OF CHANGE
  • 48. Productivity measurement table-related to case no.1 CRAFT/LABOUR PRODUCTIVITY CASE NO.1 POOR Total MD =Cost of material Waste Waste Craft Optve Craft Optve Labour Labo ur Productivity Loss or Gain £ Total loss/G ain =PR x TQ Unit 3x3 Bed House- 2 Story level Quanti ty (TQ) Deliver ed to site (Estima te) (Actual ) Hrs Hrs Hrs Hrs- PR=MD[A- X]+HC(EC-AC) +HL(EL-AL) LOSS £ Description- Activities (Act-) % % (EC) (AC) (EL) (AL) SUPERSTRUC TURE Facing Brick P.C £350 PER 1000 /Common Block 156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2 Common Brick/Block 264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2 Internal Walls- LWC Block 282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2 Internal Walls- Plastering- 13mm thick 708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2 Internal Finish- Ceiling finish- set 504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2 Wall Tiling- 152x152 75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2 COST OVERRUN MEASUREMENT
  • 49. Formula one  PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL- AL) Formula two  AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi)  xi = % of influential factors such as weather, crew size, absenteeism, machinery,  accidents on site, etc. 
  • 50. 1. Consider formula one and two 2. Consider activity 13-16 (fig-1 Vining St) 3. Project manager asks for a change to the activity (13-16) 4. As a result KPI’s for this activity will alter 5. To calculate Time, cost, Material waste, etc 6. Formulas one and two are used. 7. Table one shows changes 8. Time overrun, cost overrun etc. Is as a result of changes made to activity 13-16 (Code-C/FB13- 16) 9. Therefore, total project time, cost etc will change.
  • 51. CASE NO.1 POOR Total MD =Cost of material Waste Waste Craft Optve Craft Optve Labour Labour Productivity Loss or Gain £ Total loss/Gain =PR x TQ Unit 3x3 Bed House-2 Story level Quantity (TQ) Delivered to site (Estimate ) (Actual) Hrs Hrs Hrs Hrs- PR=MD[A- X]+HC(EC-AC) +HL(EL-AL) LOSS £ Descripti on- Activities (Act-) % % (EC) (AC) (EL) () SUPERS TRUCTU RE Facing Brick P.C £350 PER 1000 /Common Block 156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2 Common Brick/Blo ck 264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2
  • 52. Influential factors (related to early stage of project) Economical Technological Customers Stakeholders Environmental Legislative Procurement route Organizational factors Financial factors Sustainability Etc Process model of Change Management Pre- construction Activities Client brief Project objectives Specification Design/build- ability Constructability Contractual arrangement Planning Scheduling Estimating Labour Characteristics Subcontracting Labour Direct labour Management System Planning Communication Controlling Co-ordinating Resource Management & Weather Labour selection Labour control Material selection Material handling Plant Waste on site Delay and Disruption on site Motivating Factors Hygiene Factors Construction Productivity Project Performance  Time  Cost  Quality  Safety  Customer satisfaction Rewards Effort Ability and skill of management and workers Site/Project Manager Characteristics Experience/capability Leadership style Authority/influence Goal commitment Involvement Job Satisfaction Product Improvement Tools (PIT) Earned Value Management (Evma) Lean Construction (Lcon) Benchmark (Ben) Front End Management (Fema) Just In Time (Jiti) Benchmarking (Bing) Quality Control (Qcon) Supply Chain Management (Scma) Buildability (Buil) Quality Assurance (Qass) Value Engineering (Veng) Buildability/Deconstruction (Buil/Deco) Quality Management System (Qmsy) Value Management (Vman) Otherp Product Improvement Tools
  • 53.  To have realistic cost overrun of a change or several changes- add % of variables in Product Improvement Kit tool into Formula one.  Some highly productive construction firms consider one or more variables in (PIK tools) within their management improvement policies.  Therefore, items relevant in the (PIT’s) is added to formula one.
  • 54. PR (Loss/Gain) =MD [A-X] + HC(EC- AC)+ HL(EL- AL) AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi) xi = % of influential factors such as weather, crew size, absenteeism, machinery, accidents on site, etc. Let us assume that in fig-1 Project – Project management have adopted Earned Value Management (E vma) , Buildability/Deconstruction (Buil/Deco) , Value Engineering (V eng). Therefore new formula is:
  • 55. Inside PIK box we have:  Benchmark (Ben)  Benchmarking (Bing)  Buildability (Buil)  Buildability/Deconstruction (Buil/Deco )  Earned Value Management (Evma)  Font End Loading  Quality Control (Qcon)  Front End Management (Fema)  Quality Assurance (Qass)
  • 56.  Quality Management System (Qmsy)  Lean Construction (Lcon)  Just In Time (J)  Supply Chain Management (Scma)  Value Engineering (Veng)  Value Management (Vman)  Other Product Improvement Tools  (Ben)+ (Bing)+ (Buil) +.........= Σ(PIK’s)
  • 57.  How to calculate PIKs ( (E vma) + (Buil/Deco) + (Veng)+...))  Planning Engineer's total salary = TS (per year) or PH (Per Hour)  Let us assume that the Average Time spent for Vining St project for carrying out VE, TQM, QA, FEL, JIT, Lean Construction etc. = AT  % of (At) used for activity (13-16) is obtainable from Planning Engineer=let us assume that 2.2% of total cost was used for all the relevant PITs.
  • 58.  2.2% of Total Cost(TS)=2.2% X TS=CS  Let us assume that 4 major changes has been recorded.  Planning Engineer’s calculation suggest that 12.5% of cost overrun for change during activity (13-16) is (12.5/100) x CS =Total Cost Overrun for activity=TCO  Therefore, PR (Loss/Gain) as a result of changes for Activity 13-16 = MD [A-X] + HC(EC- AC)+ HL(EL-AL) –( 12.5/100 X 2.2 X TS ) When AC = a EC (1+Σ xi) and similarly AL = a EL (1+Σ xi)
  • 59. Also considering: 1. The Arithmetic Mean 2. Geometric Mean  The Arithmetic Mean can be applied for individual projects.  Geometric Mean can be considered for more than one project  cost overrun of more than 1 project can cause financial loses
  • 60.
  • 61.  The geometric mean between two numbers is: The arithmetic mean between two numbers is:  Matrix Multiplication
  • 63.          310 221 A                              930 663 331303 232313 3A
  • 64. A  a11 ,, a1n a21 ,, a2n     am1 ,, amn            Aij  Square matrix with ones on the diagonal and zeros elsewhere.
  • 66.
  • 67.  Definition Let A = [aij ] be an m ´ n matrix and B = [bij ] an n ´ p matrix.  Then v the product of matrices A and B, denoted AB, is the m ´ p matrix C = [cij ] where
  • 68. FIG-1
  • 69.  Inner Products <a|b> =                 p o n m l  ***** zyxwv ***** pzoynxmwlv  By Definition   acbcba 
  • 70.  An Outer Product is a Ket multiplied by a Bra |a><b| =                 p o n m l =                 ***** ***** ***** ***** ***** pzpypxpwpv ozoyoxowov nznynxnwnv mzmymxmwmv lzlylxlwlv  ***** zyxwv
  • 71. Net Rate Gross Total Total Total Total Total Time Total Time Total Cost Total Cost Total Time Total Time Total Cost Total Cost Unit (£) Rate Quan t- Quan t- Cost Cost Est- Est- Est- Est- Act.- Act.- Act- Act- (Est-) (Act-) (Est-) (Act-) Craft Labo ur Craft Labour Craft Labour Craft Labour (£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) 64.5 5 72.94 160 - 1167 0 - 464 688 3257.3 3969.7 5 - - - - M2 57.2 9 64.73 130 - 8414. 9 - 63.75 315.9 447.15 1822.7 5 - - - - M2 40.8 1 46.12 225 - 1037 7 - 506.2 5 393.7 5 3553.9 2271.9 5 - - - - M2 35.2 4 39.82 410 1632 6 - 922.5 451 6475.9 5 2602.2 5 - - - - M2 13.9 1 15.98 440 - 7031. 2 - 638 484 4478.7 5 2792.7 - - - - M2 5.04 5.69 1125 - 6401. 3 506.2 5 258.7 5 3553.9 1492.9 5 - - - - M2 3.99 4.5 785 - 3532. 5 196.2 5 102 1377.7 588.55 - - - - M2 26.8 8 30.37 90 - 2733. 3 - 90 54 631.8 311.6 - - - - M2 Net Rate Gross Total Total Total Total Total Time Total Time Total Cost Total Cost Total Time Total Time Total Cost Total Cost Unit (£) Rate Quan tity Quan tity Cost Cost (Est-) (Est-) (Est-) (Est-) (Act.- ) (Act.-) (Act-) (Act-) (Est-) (Act-) (Est-) (Act-) Craft Labo ur Craft Labour Craft Labour Craft Labour (£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) 64.5 72.94 114 - 8315. - 330.6 490.2 2320.8 2828.4 - - - - M2 Productivity measurement table-related to case no.1 CRAFT/LABOUR PRODUCTIVITY CASE NO.1 POOR Total MD =Cost of material Waste Waste Craft Optve Craft Optve Labour Labo ur Productivity Loss or Gain £ Total loss/G ain =PR x TQ Unit 3x3 Bed House- 2 Story level Quanti ty (TQ) Deliver ed to site (Estima te) (Actual ) Hrs Hrs Hrs Hrs- PR=MD[A- X]+HC(EC-AC) +HL(EL-AL) LOSS £ Description- Activities (Act-) % % (EC) (AC) (EL) (AL) SUPERSTRUC TURE Facing Brick P.C £350 PER 1000 /Common Block 156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2 Common Brick/Block 264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2 Internal Walls- LWC Block 282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2 Internal Walls- Plastering- 13mm thick 708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2 Internal Finish- Ceiling finish- set 504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2 Wall Tiling- 152x152 75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2
  • 72. Total MD =Cost of material Waste Waste Quanti ty (TQ) Deliver ed to site (Estima te) (Actual ) (Act-) % % 156 31.14 5% 6.50% 264 18.88 5% 6.50% 282 8 5% 7.00% 708 1.71 5% 6.50% COST OVERRUN MEASUREMENT