LU4 - Project Controlling on Cost, Time and Quality

Dr. Ann T.W. Yu Assistant Professor

Department of Building and Real Estate, The Hong Kong Polytechnic University

Learning Outcomes
State the objectives of project control system Understand the basics of how a project control system works Describe the process of preparing a project for construction and control Describe the cash flow control and cost & schedule performance Understand the basics of quality management
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Project Control (1)

Project control begins with the identification of the clients objectives and ends when those objectives have been met. The client, the designer, and the construction professional together design, estimate, and schedule the project to meet these objectives. The purpose of project control is to guarantee that the projects design, budget, and schedule are met by the project team.
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Project Control (2)

The project control process includes the following steps:
1) The control process documents progress and allows the project team to adjust to unexpected occurrences, such as change orders, strikes, or bad weather. 2) Costs and time of completion are continually updated. 3) A reporting system notifies all necessary parties of the project status. This allows the input of senior managers, who can assist and plan adjustments as necessary. 4) The project control system is iterative: the process occurs over and over, encouraging continual adjustment of the project plan.
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Objectives of Project Control System

Project control is a process that ensures objectives of the project are met by the project team. Project control system has two components: (1) standards; and (2) actuals. (1) Standards
Project control process starts with setting up standards that define success of the construction project. Cost, schedule and quality are the common basis of project control standards.

(2) Actuals
Actual cost and schedule performance of a project are measured and compared with the planned performance to evaluate how the project is proceeding.
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Basics of a Project Control System (1)

Basic Control Theory
Project control is an interactive process in which actual performance is compared to planned performance with adjustment made, and the process is repeated as necessary. Time Management Cost Management Quality Management
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Basics of a Project Control System (2)

Process of Preparing a Project for Construction and Control (1)

To prepare a project for construction, the project should be broken down to certain level of detail for monitoring and controlling. Baselines should be set to establish the goals for the project and to measure how well the project is proceeding and what will be the end result. Estimate sets out the cost baseline of a project while schedule sets out the time baseline of a project.
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Process of Preparing a Project for Construction and Control (2)

Cost Baseline
Estimate is the baseline for the control of project costs. Conceptual estimate, is the first estimate performed, establishes the initial cost for the project. As design proceeds, square foot and assemblies estimates tighten up the budget. From a contractor's perspective, the accepted bid price, which becomes the contract price, is the cost baseline for the project and the target by which the success of the project will be measured.
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Process of Preparing a Project for Construction and Control (3)

Time Baseline
Schedule manages time and related resources required to complete the project. Schedule together with the estimate can project the cash flow. Schedule of different project can be in different level of detail, depending on level of control required. However, most projects use detailed network-based CPM networkschedule with summary generated for reporting purposes.
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Models of Cash Flow Control (1)

Cash flow control is necessary for client, contractor and subcontractor. They have to predict their cash needs of the project every month. Cash flow management of construction project is difficult because payments of different activities are made in different increments.
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Models of Cash Flow Control (2)

Income Projection
Contractor prepares a cost-loaded schedule that costprojects the value of work that is planned to be invoiced at the end of each payment period. This is prepared in advance of construction and submitted to the owner for approval. The income that the contractor receives is the amount of the invoice less owner's retainage, usually 5 to 10%. It is common for contractor to practice front-ended frontloading by overvaluing early activities while undervaluing later items. Such practice enables the contractor to cover any hidden costs at the start of the project.
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Models of Cash Flow Control (3)

Income Projection (Contd)
Cost assigned by contractor to each activity is complete cost, i.e. including direct and indirect costs and profit. The income curve is a step curve reflecting that the contractor submits an invoice at the end of each payment period equal to the schedule of values curve and will receive a payment three weeks later equal to that value less retainage.

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Models of Cash Flow Control (4)

Payment Projection
Before construction, contractor would need to prepare a payment projection (also called cash requirement curve or cost curve) to project the cash payables expected from the project. Cash requirement curve is therefore the curve for the contractor to project cash payables to run the project, forecasting cash that is leaving the company to pay for labour, materials, subcontracts, and other commitments. The basis of cash requirement curve is the S-shaped cost curve. S Comparing cash income curve and cash requirement curve, cash flow of the project can be projected.
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Models of Cash Flow Control (5)

Payment Projection (Contd)
Early negative cash flow is typical for most projects due to owner's retainage and time lag for payment. Contractor can improve early negative cash flow of the project by: (1) front-ended loading; front(2) employing more subcontractors in the beginning of the project with longer credit period; (3) negotiating to lower the owner's retainage; and (4) delaying high cost items which have flow in schedule.
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Measure and Document Cost and Schedule Performance (1)

Project begins with work plan. As the project proceeds, actual performance has to be monitored and analyzed so that appropriate adjustment can be made to maintain the project's budget, schedule and quality in accordance with the work plan.

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Measure and Document Cost and Schedule Performance (2)

Cost engineering
Cost engineering is concerned with forecasting and trending, using project information to measure how well a project is doing and what the outcome will be. Cost coding sets out the framework for collecting and storing information. On the whole, cost engineering functions in a way that project information can be stored and retrieved quickly to determine current project status and future forecasting.

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Measure and Document Cost and Schedule Performance (3)

Progress Evaluation and Control Various methods are available to measure work progress:
1) Units Completed - This method is used for repeated pieces of work. 2) Incremental Milestone - This method is used for activities in specific and known sequence. The approximate level of effort to achieve each milestone is calculated. 3) Cost Ratio - This method is used for tasks occurring in a long period of time or in continuous throughout.
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Measure and Document Cost and Schedule Performance (4)

Cost and Schedule Performance
Evaluation of actual performance should be done continuously as the project progresses. Actual performance is compared to planned performance on an activity-byactivity-by-activity basis.
Schedule performance: To evaluate schedule performance, performance: budgeted work hours is compared with earned work hours. If earned is greater than budgeted, more work has been done than planned.

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Measure and Document Cost and Schedule Performance (5)

Cost and Schedule Performance (Contd)
Budget performance: To evaluate cost performance, performance: budgeted work dollars is compared with actual work dollars. If actual is greater than budgeted, more work has been paid for than done. Budgeted dollars

Budgeted dollars
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Measure and Document Cost and Schedule Performance (6)

Project Documentation
All actions in a project control period should be well documented. The status of the project and any recommended changes either in schedule or in budget should be communicated to all project participants. Forecast completion date and cost and other critical information should be formally communicated.

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Measure and Document Cost and Schedule Performance (7)

Project Documentation (Contd)
Documentation: Documentation: Historical project information should be well documented. It is because accurate actual project information is useful for estimating and scheduling future projects. Project Coordination: Instruction goes back to the field in time Coordination: for project manager to make necessary changes to keep the project on track. Field people are informed of any changes to the project, such as schedule, staffing, deliveries etc. Trending, Forecasting and Reporting: Trending- looking back Reporting: Trendingat how the project has succeeded, failed, or proceeded. ForecastingForecasting- projecting current trends to the future ReportingReporting- include in one format with elements of analysis, trending, and forecasting.
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Minimum Cost Scheduling (1)

It is usual for the estimating and scheduling departments to prepare baseline estimates and schedules for a project on the basis of normal work conditions, equipment, and gang sizes. However, as management team prepares the final plan for construction, it also establishes the most efficient project duration. This process, called minimum cost scheduling, involves analyzing the critical path and shortening the projects duration as long as money can be saved. And costs often can be saved; as the duration of a project is reduced, indirect costs are also reduced.
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Minimum Cost Scheduling (2)

Crashing
Crashing a project means the process of accelerating an activity or multiple activities to shorten the overall duration of a project. By adding additional people, equipment, or work hours, a project manager can shorten an activitys duration. If the activity affected is critical, the project will be shortened as well.
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Minimum Cost Scheduling (3)

Crashing (Contd)
Activities are crashed for different reasons:
1) An activity may need to be completed by a specific date for contractual reasons. 2) Some activities can be accomplished more economically during a certain time of the year, encouraging managers to accelerate preceding activities. 3) The cost to accelerate an activity, which shortens the projects duration, may be less expensive than the cost of running the project for the same period.
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Minimum Cost Scheduling (4)

Crashing (Contd)
When an activity is crashed, its direct costs increase. Direct costs involve materials, labour and equipment directly associated with the construction of the project. Indirect costs they are generally broken down into two categories: home office overhead and project overhead.
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Minimum Cost Scheduling (5)

CRASH TIME for PROJECT

cost

TOTAL PROJECT COSTS INDIRECT COSTS DIRECT COSTS OF EXPEDITING

LEAST PROJECT COST

NORMAL

CONTRACT TIME

LEAST COST SCHEDULED TIME

time

Time-Cost Optimisation
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Time-cost Optimisation

Example B
0 4 O 4

ORIGINAL NETWORK BLANK

5 N

START 0

A 0 0

B 0

C 0

D 0

E 0

F 0

END

2 L

2 M

1 I

0 LEGEND:2 EST DN EFT Activity Number and Description LST TF LFT

2 G

4 H

2 J

2 K

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Time-cost Optimisation

Example B
0 4 O 9 9 13 4

ORIGINAL NETWORK

5 N

8 13

3 A

2 B

1 C

3 D

3 12

12 1 13

13

START 0

E 9 0 12

F 12 0 13

END 13

2 L

2 M

1 I

2 G

4 H

2 J

2 K

7 11

11 7 13

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Time-cost Optimisation

Example B
0 4 O 8 8 12 4

NETWORK AFTER 1st COMPRESSION

5 N

7 12

3 A

2 B

1 C

3 D

2 11

11 1 12

12

START 0

E 9 0 11

F 11 0 12

END 12

2 L

2 M

1 I

2 G

4 H

2 J

2 K

6 10

10 6 12

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Time-cost Optimisation

Example B
0 4 O 7 7 11 4

NETWORK AFTER 2nd COMPRESSION

5 N

6 11

3 A

2 B

1 C

2 D

2 10

10 1 11

11

START 0

E 8 0 10

F 10 0 11

END 11

2 L

2 M

1 I

2 G

4 H

2 J

2 K

5 11

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Time-cost Optimisation

Example B
0 4 O 6 6 10 4

NETWORK AFTER 3rd COMPRESSION

5 N

5 10

2 A

2 B

1 C

2 D

2 E

1 10 F

10

START 0

END 10

0 10

=
0 2 L 2 2 4 4 2 2 2 M 2 6 4 6 1 I 6 0 7 7

=
0 2 G 0 0 2 2 2 4 H 2 0 6 6

2 J

2 K

4 10

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Time-cost Optimisation

Example B
0 4 O 5 5 9 4

NETWORK AFTER 4th COMPRESSION

5 N

1 B

1 C

2 D

2 E

1 F

START 0

=
9

END 9

2 L

2 M

1 I

=
0 2 G 0 0 2 2 2 3 H 2 0 6 5

=
2

2 J

2 K

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Managing Quality (1)

Quality of work
Function, fitness for use Durability or the ability to function Reliability to function Economy in construction and use Aesthetics

Quality standards stated in the contract documents (drawings and specification)

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Managing Quality (2)

Quality Management
ISO 9000 series quality management system Quality assure the design & construction Quality manual (quality management policy, procedures & work instructions) Keep formal records Provide quality control (QC) Quality audit Competent staffing
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Managing Quality (3)

Quality Control
Based on checking and inspection to ensure compliance with given specifications To detect changes in quality by inspection and testing, and to make necessary adjustments to the production process Provides useful feedback and enables defective areas to be given early attention or to be corrected.

Documentations
Quality standard in contract documents Quality records
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