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Flashcards in 8. Elements of Cost & Cost Data Deck (13)
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1

What are the areas of cost estimation?

>Personnel
>Plant (or equipment)
>Materials
>Subcontractors
>Special services
>Overheads
>Risk

2

What is meant by the cost heading 'personnel'?

The personnel used in a project will vary tremendously: it will depend on the type of project and also from the context of the party carrying out the estimate. For example, the labour required for a civil engineering construction project may be considered under the following headings:
>concrete placing teams;
>steelfixing and formwork teams;
>scaffolding teams;
>paving teams;
>general labour;
>pipe laying and drainage teams.

3

What is meant by the cost heading 'Equipment'?

Again, the type of equipment will vary depending on the type of project but it is usual to categorise depending on use. An engineering contractor’s equipment may be categorised by:
Non-mechanical equipment such as scaffolding and access equipment;
>Mechanical plant:
-excavation plant;
-piling plant;
-pipe laying plant;
-cranage plant;
-pumping plant.

4

What is meant by the cost heading 'Materials'?

The material cost of many construction stages is commonly up to 40% of total construction cost. Whilst engineering costs may dilute this proportion somewhat in some industries, the correct identification and estimation of material costs is crucial to the overall estimation process. Example materials categories (not an exhaustive list):
>consumables;
>steel, pipes, piles,
>bricks, blocks, tiles etc.;
>cladding;
>steelwork;
>concrete;
>fill materials.

5

What is meant by the cost heading 'Sub-contractors'?

In most cases the Contractor will not undertake the whole of the work of a major project entirely from within the Contractor’s own resources. The contractor usually divides the work up into a number of elements and enters into separate agreements with subcontractors to carry out some of the work directly for the Contractor. The Contractor, of course, may undertake some of these elements using the Contractor’s own resources and work staff.

6

What is meant by the cost heading 'Specialist Services'?

Such services may include:
>Engineering and Design Consultancy
>Model Building and Testing
>Process Engineering and Computer analysis
>Project Management

7

What is meant by the cost heading 'Overheads'?

Site overheads need to be included to allow for all indirect costs not determined through the estimation of the actual work. Head office overheads may include head office staff; bank guarantees; insurances; running costs etc

8

What is meant by the cost heading 'Risk'?

Risk, if not adequately identified, estimated and managed can have severe financial consequences for a project. Matters for consideration may include:
>weather;
>safety of personnel;
>technical problems;
>unexpected adverse conditions;
>interpretation of contract documents;
>client’s attitude to claims / errors;
>finance costs and inflation;
>industrial disputes and productivity.

9

What is meant by the consideration of cost data 'Personnel'?

The cost of personnel will obviously vary depending on the type: general labourers will cost less than senior management. In addition, the calculation of the cost will vary with type. For example, a senior manager will be paid a flat salary, usually with no overtime. Additional costs to the employer are national insurance, pension contributions plus any perks such as a company car (which may well be considered as an overhead). However, the calculation of the cost of labour is more difficult, especially when applying the cost to an item of work. For example, in estimating a pipelaying operation we are not 102 interested in the actual cost of the labour but in the labour cost per linear metre laid (i.e. the unit output cost). In order to determine such costs we need to combine knowledge of two pieces of data: the cost of the labour (termed the ‘all-in’ rate) and the productivity or output rate. The process is as follows:
1. determine a base period, usually a year;
2. determine the number of normal hours worked per base period (i.e. hours in employment, not actual productive time);
3. determine the number of overtime hours worked (assumptions will generally have to be made);
4. determine the cost of employment over the base period; this will include items such as: • normal hourly rate; • overtime rate; • bonus; • tool money; • holiday stamps; • sick pay (assumptions made); • national insurance; • training board levy; • allowances for severance pay and insurance;
5. all-in rate is the ratio of base period cost to base period normal hours (overtime usually assumed to be non-productive);
6. determine productivity of labour, which will include allowances for downtime, expressed in unit of production per hour;
7. labour cost of unit of production is ratio of all-in rate to productivity.

10

What is meant by the consideration of cost data 'Equipment'?

Equipment The cost information for all types of mechanical and non-mechanical equipment will vary depending on whether the supply is internal or external. If the supply is internal (from the company’s own plant division) rates will be easily available. For those items of plant that have to be externally hired, quotations must be sought early in the estimating process. Equipment is usually costed on the basis of a real or notional hourly, daily or weekly hire rate. As with labour, allowance must be made for ineffective time and a similar process is employed.

11

What is meant by the consideration of cost data 'Materials'?

Materials prices are obtained finally by competitive tender but at the estimate stage a number of sources will be used. These include past records, current contracts in other projects and requests for information or indicative quotes from suppliers. A balance must be struck between discounts available for bulk purchase, the cost of storage and the cost of transport. Allowance must be made for wastage and materials whose quantity is unspecified. Historical wastage rates from company records can be used: for example, it may be recognised that 2.5% of all concrete delivered is not used. Consumables may be treated in the same way as the materials, or by a percentage addition to labour or equipment costs.

12

What is meant by the consideration of cost data 'Subcontractors'?

A decision must be made about which section of the job to subcontract, or alternatively, which processes. It may be that such decisions are left to the contractor, but the PMT may wish to ‘nominate’ a subcontractor for certain parts of the construction.

13

What is meant by the consideration of cost data 'Overheads'?

Site Overheads: Overheads are all those items necessary to complete the job, but which do not form part of the permanent works. They may include:
• staff; • accommodation (i.e. offices); • small tools and plant; • welfare & first aid provisions; • transport; • insurance; • security; • storage; • workshops;
as well as any risk the contractor requires to be included. These costs are usually then attributed to items in the bill of quantities (if it exists) in what is known as the ‘preliminaries’ section.

Head office overheads:
These can only be determined from a careful record of the costs associated with running a head office. The importance of maximising turnover for a given level of overhead cannot be over-emphasised.