Pmc hitesh


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  • 3rd party :Damages caused to neighbouring buildings.
  • Pmc hitesh

    1. 1. Project Costing Hitesh Gupta 11/09/2012
    2. 2. Direct Costs Indirect CostsCan be identified specifically with a Incurred for common or joint objectives &particular sponsored project can’t be identified readily & specifically with a particular sponsored projectE.g if company produces artisanfurniture, cost of wood & cost ofcraftsperson Can be controlled by efficient engineering, proficient staff, constructionCan be controlled by good supervision and time, etcjob control Costs like advertising, depreciation, general suppliesIncludes Direct labour, Repair labour, for firm, accounting services, OfficeOperating costs of equipments, Supplies, Payroll and expense, Property taxes etcPermanent materials, Subcontract costs
    3. 3. Dealing with Contingency items for cost estimationOccurrence:•May or May not occurContingency Exposure•Minor to Maximum amount,•Can’t be estimatedDealing :• Should be computed & listed separately but not in actual estimates• Markup decided if max cost explained to contractorMinimizing effect :•If specifications contain: force-majeure (e.g., war, strike etc) unforeseen condition (e.g.Irregular final rock surface) clauses•Builders All-Risk Insurance
    4. 4. Dealing with Escalation items for cost estimationIncrease in cost during construction• Project risks may escalate more than reasonable estimation• Consists of total project labour costs and permanent material costsLabour Costs•Unescalated labour costs * % increase in labour cost ( reviewing labour contracts,reviewing trends in particular craft, overall wage increase throughout country etc)Material Costs• Minor costs as quotations will be firm for life of project.•Escalation in material be determined after receipt•Computation performed same as labour
    5. 5. Relevance of making cash flows for cost estimationCash Forecast prepared:•To establish capital requirements – For purchasingconstruction P&M, insurance, etc•To estimate interest expense - Interest on capital invested•To analyze, & select investment projects where expected returnsextend beyond 1 year.• To gauge time to completion (more time = more overheads)• To estimate initial investment/cost required
    6. 6. Relevance of calculating cost of promoter’s funds in final estimateLoan/Debt Requirement •Future interest paymentsCost of Capital – •Opportunity CostEmployer’s Cost •For future pricing/tariffsRisk involved Project
    7. 7. Process followed for selecting method of excavation Examining ExplanationNature of subsoil affect type of machine used and the necessity of soil protection.Size of excavation affect type of machine used & method to excavate.Scale of work large volume of excavation may involve complicated phasing arrangement & work planningGround water affect degree of protection (watertight sheet piling or dewateringcondition may required.)Surrounding condition impose certain restrictions and precautions (eg. diversion of government drain, or underpinning work to nearby building foundation)
    8. 8. Deciding Mark-UpProject Characteristics • Size, Cash flow, Location etcCompany’s Characteristics • Past Profit, Current Workload, Experience etcEconomic Environment • Labour availability, Tax, Economy etcProject Documentation • Type of Contract, Completeness of documents, •Pre-qualification, number of competitors etc. Refinement RequiredAcross-the-Board Markup vs Differential Markup • Mark-up should be allocated to each costCash flow-based model to calculate Mark-Up • Mark-Up (Percent) = (PV of disbursements/PV of receipts) -1 (*100)
    9. 9. Costs involved in different forms of GuaranteesBid bond or tender bond•Bid bonds are usually issued for 1% to 5%Performance bond•After tender is accepted•Replace bid bond•10% to 20% contract amountRetention bond• Client may withhold 5%-10% of contract amountPayment guarantee•Ensures payment to contractor
    10. 10. Insurance policies available for covering Contractor’s RiskEmployers Liability Insurance (EL)• Aagainst liability for injury or disease to employeesThird party or Public Liability Insurance (PL) -•Someone suffering loss not party to insurance contract.•Depends on amount & scope of worksContract Works Insurance (CW) -•Covers costs of losses and damages of works undertaken•e.g. flooding a completed property or burning down a newly built house.Professional Indemnity Insurance (PI) -• Covers incorrect design of part of works•e.g. drainage system.Tools and Temporary Works Insurance (TTW)All Risk Insurance (AR) -Covers all other losses
    11. 11. Points of major differences of cost calculations that occurred between joint venture partners of Sierra Tunnel Project (Cost for New Machinery Vs Used P&M)Plant and Machinery •Net charge would reduceMaintenance •Cost more to maintain used machineryEstimated Production •DecreaseInterest cost •Decrease as there is no purchaseExcavation cost •Increase
    12. 12. Relevance of Project Accounting understanding in Project Costing With reference to IAS 7 (statement of cash flows)Developing the Budget •Identifying Cost Accounts (interest charges, rental expenses, taxes, etc.) •Developing a Schedule of Cost Accounts •Making a Forecast EstimateMonitoring Budget Implementation - Cash Flow Status Report •Provides a summary for monitoring the cash inflows and outflows. •Manager will be able to perceive if budget is being closely implemented • If cash inflow coming from the client is timely and sufficient.Evaluating Financial Reports •Disclose fund adequacy or inadequacy •Negative results would prompt contractor to thresh-out matter with client before proceeding with project
    13. 13. Relevance of ABC costing for Infrastructure development business Projects use ABC costing in some formProvides a Clear Understanding of Processes • provide better understanding of processes performed • how processes react to different inputs & variables.Assign Cost to Activities • Identify activities & assign costs to them • Identify cost drivers associated with activities • Assign costs to projects (by cost driver rate * volume of cost driver units consumed by project)Technique adopted for project budgets • Identify sources of cost-drivers/project costs • Help in indentifying control measures
    14. 14. Thanks