Estimating, Budgetary & Resource- driven Planning

401.649 Cost Planning for Construction Projects

1

Moonseo Park

35동 504-1

Phone 880-5848, Fax 871-5518

E-mail: [email protected]

Department of Architecture

College of Engineering

Seoul National University

Professor, PhD

Estimating, Budgetary & Resource-driven Planning 401.649 Cost Planning for Construction Projects

http://cem.snu.ac.kr/../index.jsp

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2

What are they doing?

Hue….


3

Lecture Outline

Structure of Project Cost

Cost Estimating

Budgeting

Resource-Driven Planning

Resource Planning and Management

Linear Scheduling Method (LSM)


4

As Part of the Project Financial Plan

Construction Cost Estimate: a specific indication of the

construction related costs, which gives vital information

• to the owner: to verify the project economic viability and

cash flow needs.

• to the designer: to confirm the viability of its design and to

meet the projected investment.

• to the contractor: to set up the potential profit.


5

Typical Project Financial Plan Items

Land Cost: purchase or Lease

(Existing Facilities Acquisition Cost and Site Clearance Cost)

Construction Cost:

• Hard Cost: construction material, manpower, equipment

• Soft Cost: design and engineering, general contractor fees,

infra fee, contingencies (depending on delivery systems, it

may not be included in construction cost)

Other Cost and Expenses: organization and development costs,

project management fees, pre-opening expenses

Financing Cost

Working Capital


6

An Example of the Financial Projection

A. PROJECT DESCRIPTION B. PROJECT COST C. FINANCING PLAN

1. LOCATION KIEV, UKRAINE

1. LAND USE RIGHT GRANTING FEE 5,600 1. EQUITY 14,490

2. LAND AREA (SQM) 16,500 * USD / SQM 339.4

2. SITE CLEARENCE (Relocation & Demolition) 4,886 1) LOCAL 49.00% 7,100

3. TOTAL BUILDING AREA (SQM) 160,000 3. ACQUISITION OF EXISTING BUILDING 1,500 2) DAEWOO 51.00% 7,390

4. CONSTRUCTION HOTEL OFFICE APT. RETAIL OTHER 241,840

1) HOTEL 50,000

- NO. OF ROOMS 500 * USD / SQM 1,800 1,200 1,000 1,000 400 2. LOAN 172,308

2) OFFICE 55,000 - DEBT RATIO 92%

1) HARD COST 90,000 66,000 20,000 15,000 8,000 199,000

BUILDING WORK 43% 38,700 28,380 8,600 6,450 3,440 85,570 3. PRE-SALE PROCEEDS 96,203

3) APARTMENT 20,000 MECH. & ELEC. 42% 37,800 27,720 8,400 6,300 3,360 83,580

- NO. OF UNITS 160 F.F. & E. 15% 13,500 9,900 3,000 2,250 1,200 29,850

- SPACE PER UNIT 125

4) RETAIL 15,000 2) SOFT COST 42,840 TOTAL 283,000

DESIGN & ENG. 3% 5,970

5) PARKING 667 20,000 GENERAL CON. 8% 15,920

URBAN INFRA FEE 11,000

4. J/V TERM (Years) ON SITE INFRA FEE 0 D. ASSETS

1) CONSTRUCTION 3 CONTIGENCY 5% 9,950

2) OPERATION 46 1. CURRENT ASSETS 2,858

5. OTHER COSTS & EXPENSES 5,000

5. FINANCING CONDITIONS 2. FIXED ASSETS 275,142

1) ORGANIZ. & DEVP. 2,000

1) LONG TERM LOAN 10.00% 2) PROJECT MANAGEMENT 2,000 3. DEFERRED ASSETS 5,000

- GRACE PERIOD (YEARS) 0 3) PRE OPENING EXP. 1,000

- REPAYMENT PERIOD (YRS) 10

6. I. D. C. 21,316

2) SHORT TERM LOAN 10.00%

- REPAYMENT PERIOD (YRS) 1 7. WORKING CAPITAL 2,858

TOTAL 283,000 TOTAL 283,000


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Lecture Outline


Cost Estimating

Budgeting





8

Types of Cost Estimating

Types of Estimate Purposes Design Progress

Accuracy

Feasibility Studies Determine the project

financial feasibility

Appropriation Obtain project funding

Capital Cost or Budget Control project budget

Definitive Final cost prediction

detail

primitive ±20-30%

±5%


9


10

Objectives of Cost Estimating

Project Financial Projection

Budgeting

Bidding

Internal Charging

Pricing Change Orders

Cash Flow Management


11

Direct Costs vs. Indirect Costs

Direct Costs

Can be directly attributed to a recognized work item

Indirect Costs

Cannot be directly attributed to a recognized work item


12

Examples of Direct/Indirect Costs

Priced Items

Cost Items

Con’c

Floors

Building 3 Site 08 Firm

Salary of Receptionists at Home Office

Water Consumption during April at site 08

Rent of Concrete Pump for Building 3

Re-bar Placement on the Third Floor of

Building 3

I I I D

I I D D

I D D D

D D D D


13

Major Components of a Priced Item

Direct Costs

Site Overhead

Home Office Overhead

Profit and Contingencies

Financing Costs

Indirect Costs

(depending on pricing)


14

Common Types of Direct Cost Items

Labor

Material

Equipment

Forms, Scaffolds, and Special Tools

Subcontractors


15

Site Overhead Expenses

Salaries: Project Manager, Superintendent, Foremen,

Gate-man, Other Personnel

Housekeeping: Site Offices, Temporary Roads, Fences,

Signs, Waste Disposal, etc.

Services: Water, Electricity, Telephone, Insurance, etc.


16

Home Office Overhead Expenses

Salaries: Top Managers, Regional Managers, Office Personnel,

Technical and Supporting Staffs (e.g.., cost estimators, in-

house architectural engineers), etc.

Outsourcing Services: Special consultants, Lawyers, CPAs,

Advertising Firms, Lobbyists, etc.

Headquarter Operation and Maintenance: Office Rent,

Furniture, Electricity, Telephone, Water, Insurance, etc.

Centralized Services: Equipment Yard, Material and Tool Center,

Fleet of Company Cars and Trucks, etc.


17

Common Mark-Up Categories

Planned Profit: usually added as a flat percentage on all items

(sometimes with differentiation between self performed work

and sub-contracted work, or according to types of work)

Escalation: considered for expected annual inflation

Contingencies: added for unexpected, non-reimbursable

expenses (e.g., rework due to errors, slowdown due to

weather conditions, unexpected wastes, under-insured

damages, work strikes, warranty work in the future, etc.)


18

Common Mark-Up Categories

Financing Expenses: supposed to compensate expected interest

payments (or conceptual interests) for negative cash flow

periods.

Panic Factors: for designers or owners of bad reputation (“trouble makers” on the contract).


19

Lecture Outline


Cost Estimating

Budgeting





20

Budgeting

Aims to set a cost or money target for each material, labor,

and subcontract cost.

Converted from the cost estimate.

Baseline for cost control programs and a performance index on

meeting the project’s financial goal.

Usually broken down into detailed accounts.


21

An Example of Budget Format

Taken from Dr Wang’ s lecture material, EM3208


22

Slack Management

Slack Management : when budget is limited during a certain

time period, rescheduling the project by changing activity

‘timing’ and associated expenditure or income.

Activity Timing Change: Non-critical activities first (having FF

-> TF), then critical activities.

Activities having

Free Float

Activities having

Total Float

Activities on

Critical path


23

A Slack Management Example

Week Activity Weekly Cumulative

A B C D E F G Cost Cost

1 300 1000 814.3 2114 2114

2 300 1000 814.3 2114 4229

3 300 1000 814.3 2114 6343

4 300 814.3 1114 7457

5 300 814.3 1114 8572

6 412.5 600 814.3 1827 10398

7 412.5 600 814.3 1827 12225

8 412.5 600 1013 13238

9 412.5 600 1013 14250

10 412.5 600 1013 15263

11 412.5 600 1013 16275

12 412.5 600 1013 17288

13 412.5 413 17700

14 1525 1525 19225

15 1525 1525 20750

16 1525 1525 22275

17 1525 1525 23800

18 1440 1440 25240

19 1440 1440 26680

20 1440 1440 28120

21 1440 1440 29560

22 1440 1440 31000

1500 3000 3300 4200 5700 6100 7200 31000

Activities that will be

rescheduled Early Schedule

* Activities on Critical Path: A, C, F, and G


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Week Activity Weekly Cumulative

A B C D E F G Cost Cost

1 300 300 300

2 300 300 600

3 300 1000 1300 1900

4 300 1000 1300 3200

5 300 1000 1300 4500

6 412.5 413 4913

7 412.5 600 814.3 1827 6739

8 412.5 600 814.3 1827 8566

9 412.5 600 814.3 1827 10393

10 412.5 600 814.3 1827 12220

11 412.5 600 814.3 1827 14047

12 412.5 600 814.3 1827 15873

13 412.5 600 814.3 1827 17700

14 1525 1525 19225

15 1525 1525 20750

16 1525 1525 22275

17 1525 1525 23800

18 1440 1440 25240

19 1440 1440 26680

20 1440 1440 28120

21 1440 1440 29560

22 1440 1440 31000

1500 3000 3300 4200 5700 6100 7200 31000

A Slack Management Example Activities that have

been rescheduled Late Schedule

* Activities on Critical Path: A, C, F, and G


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A Slack Management Example

Slack Management Example

0

5000

10000

15000

20000

25000

30000

35000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Time (week)

Ca

sh

Flo

w (

$) Late Schedule

Early Schedule

*e.g., if only 10,000 $ of construction

budget is allocated for week 1 to 8, early

schedule is not feasible for this project.

Cumulative Cash Flows of Two Schedule Options


26

Considerations in Slack Management

May involve the higher risk of a schedule overrun

• For using a late start schedule, it is assumed that all the

activities are started as late as possible without any slack to

buffer against uncertainties.

• As a result, adopting a late start schedule may increase the

possibility of delays.


27

Crashing

Crashing : the procedure whereby an activity’s duration is

shortened by adding resources and paying extra ‘direct’ costs.

Trade-off between the minimum cost-longest duration option

at one extreme and any other options that can reduce an

activity’s duration at a higher cost.

Normal Point

Max. Crash Point

Lc Ln

Activity Duration

Cost

Cc

Cn


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Crashing

May be an economic way as well as shortening the project

duration, once other construction costs (e.g., indirect cost,

delay penalty) are considered.

Crashing Steps

• Examine the critical path(s) at each step

• Select the activity that is the least expensive to crash on

each critical path

• If there exist multiple critical paths, compare the cost of

crashing of each option


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A Crashing Example

5

A

5

5

0

0

Original Schedule

Rescheduling Objective: Shortening the project duration from 22

weeks to 19 weeks

* Restriction: only one week crashing is allowed for each activity.

3

B

6

3

3

0

7

E

13

7

6

0

7

D

13

12

6

5

8

C

13

13

5

5

4

F

17

17

13

13 5

G

22

22

17

17

Activity Cost to Crash for

one week

A $4000

B 3000

C 1500

D 1500

E 1000

F 1000

G 3500 Critical Path : A C F G

Precedence Relationship: FS 0


30

A Crashing Example

5

A

5

5

0

0

1st Step

3

B

6

3

3

0

7

E

13

7

6

0

7

D

13

12

6

5

8

C

13

13

5

5

3

F

16

16

13

13 5

G

21

21

16

16

Options Candidate Activities Cost to Crash ($) Selected

1 A 4000

2 C 1500

3 F 1000

4 G 3500

Critical Path : A C F G

Project Duration: 21 weeks

√ (4 to 3)


31

√ (8 to 7)

A Crashing Example

5

A

5

5

0

0

2nd Step

3

B

5

3

2

0

7

E

12

7

5

0

7

D

12

12

5

5

7

C

12

12

5

5

3

F

15

15

12

12 5

G

20

20

15

15


1 A 4000

2 C 1500

4 G 3500



A D F G


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√ (5 to 4)

A Crashing Example

5

A

5

5

0

0

3rd Step

3

B

5

3

2

0

7

E

12

7

5

0

7

D

12

12

5

5

7

C

12

12

5

5

3

F

15

15

12

12 4

G

19

19

15

15


1 A 4000

2 C, D 1500 + 1500 =3000 Not feasible according to the

given condition

4 G 3500



A D F G


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Crashing Practice

0 4 17

A E

0 3

B C D F

5

6 4

4

3 8

ES EF

LS LF

TT Activity Code FF

Duration

Original Schedule

Find the maximum days, by which you can shorten the project duration,

given $6,500 additional money. Only direct costs are considered and

fraction of costs is not allowed in calculation

Precedence Relationship: FS 0

Activity Cost to crash for one

day

A $3500

B 2000

C 1500

D 2000

E 2500

F 2500


34

Crashing Practice

22 0 A 4 12 E 17 ES EF

0 4 4 13 5 18 LS LF

0 0 1 1 TTActivity CodeFF

0 B 3 4 C 12 12 D 18 18 F 22

1 3 4 4 8 12 12 6 18 18 4 22

1 1 0 0 0 0 0 0

Duration


35

Crashing Practice

21 c: 8 to 7

0 A 4 11 E 16 spent 1500

4 5

0 B 3 4 C 11 11 D 17 17 F 21

3 7 6 4


36

Crashing Practice

20

0 A 4 11 E 16

4 5

d: 6 to 5

2000

0 B 3 4 C 11 11 D 16 16 F 20

3 7 5 4


37

Crashing Practice

19

0 A 4 11 E 16

4 5 f:4 to 3

2500

0 B 3 4 C 11 11 D 16 16 F 20

3 7 5 3

so sum =

1500+2000+2500 =6000

reduce by 3 days


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Lecture Outline


Cost Estimating

Budgeting





39

Key Resources

Human Resources

Equipment and Material

On-Site Facilities

Transportation Arrangements

Project Financing


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Objectives of Resource-Driven Planning

To ensure that non-constrained resources can be effectively

used and that tight controls should be placed on the

consumption of constrained resources.

• Non-constrained resources: untrained labor, general-

purpose equipment, etc.

• Constrained resources: a rare type of material, technical

experts, etc.


41

Lecture Outline


Cost Estimating

Budgeting





42

Resource Leveling

Resource Leveling : the reallocation of slack (TF or FF) in

non-critical activities to minimize fluctuations in the resource

requirement profile.

Assumptions: a more steady usage of resources leads to lower

resource costs.

• Labor: costs associated with hire, fire, and training

• Material: storage requirement, planning and controlling

efforts


43

Resource Leveling Steps

Compute the average number of resource-days per period (e.g.,

week).

With reference to the early start schedule and non-critical

activities, gradually delay activities one at a time, starting

with the activities having the largest free slack.

Check the emerging resource requirement profile after each

delay.

Select the schedule that minimizes resource fluctuations,

which is close to the calculated average.


44

5

A 0

5

5

0

0

0

Project Schedule

Average of Required Labor-Days per Week:

8.9 labor-days (196/22)

3

B 3

6

3

3

3

0

7

E 6

13

7

6

6

0

7

D 1

13

12

1

6

5

8

C 0

13

13

0

5

5

4

F 0

17

17

0

13

13 5

G 0

22

22

0

17

17

Activity Duration

(week)

Required

Labor-Days

per week

Total Labor-

Days Required

A 5 8 40

B 3 4 12

C 8 3 24

D 7 2 14

E 7 5 35

F 4 9 36

G 5 7 35 Critical Path : A C F G

A Resource Leveling Example


45

Gantt Chart & Resource Level


A

B

C

D

E

F

G

WEEK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

LOAD 17 17 17 13 13 10 10 5 5 5 5 5 3 9 9 9 7 7 7 7 7 7


46

1st Step: delay the start of activity E by 3 weeks


A

B

C

D

E

F

G

WEEK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

LOAD 12 12 12 13 13 10 10 10 10 10 5 5 3 9 9 9 7 7 7 7 7 7


47

2nd Step: further delay the start of activity E by 2 weeks


A

B

C

D

E

F

G

WEEK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

LOAD 12 12 12 8 8 10 10 10 10 10 10 10 3 9 9 9 7 7 7 7 7 7


48

3rd Step: delay the start of activity D by 1 week


A

B

C

D

E

F

G

WEEK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

LOAD 12 12 12 8 8 8 10 10 10 10 10 10 5 9 9 9 7 7 7 7 7 7


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Resource Allocating

When required resource level exceeds the available resource

level, the control of slack in non-critical activities is not

sufficient to solve the problem. In this case, the project

manager need to find effective ways to allocate the available

resources, which include:

Activity Extending: perform activities (non-critical activities

first) at a lower work rate, utilizing available resources

e.g., given 11 labor-days, extend the duration of activity B

from 3 days to 4 days by lowering work rate from 4 labor-

days to 3 labor-days.


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Resource Allocating

Activity Splitting: split an activity into sub-activities, on

condition that 1) an activity can be split, 2) the activities

succeeding the first sub-activity can be performed in

accordance with the original plan, and 3) the set-up time after

the break is relatively short.

Find Alternative Resources: sub-contracting, use of temporary

sources

Overtime

B B

A1 A2 break

A1


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Lecture Outline


Cost Estimating

Budgeting





52

Linear Scheduling Method

Used to plan and manage a project consisting of a number of identical (repetitive) activities, which are done by the same crew or equipment (Linear Projects).

Linear Projects: include the installation of pipelines or conduits, and the construction of identical small houses.

Also called Line of Balance (LOB)

To be planned in a way that

• Work discontinuity could be minimized.

• Have crew and equipment work at the maximum capacity by reducing their idle time.

• As a result, project duration could be shortened.


53

Linear Scheduling Steps

Design crew or equipment

Determine tasks for crew or equipment

Decide sequence of tasks

Route around the job

Buffer between the task


54

As part of the SNU IT Center project, a road pavement project is to

be done in two sections, A and B. The project consists of three

activities, each having different worker productivity. The entire

project is now behind the schedule. Thus, Mr. Lee, the PM of this

project is trying to find a more time-efficient way. He is thinking

where to start the work. From Section A to B or from Section B to A ?

As a student taking 401.649, how can you help him?

Project site for the proposed IT research center

Section A Section B


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A Linear Scheduling Example

The Project: installing pipeline for section A and B, which

consists of three activities.

Activity Productivity (meter/worker*day)

Section A (600m) Section B (400m)

1 50 100

2 60 80

3 200 40

Constraints

• All activities must be performed continuously.

• Only one crew is assigned for each activity.

• A buffer of one working day must be assigned in between activities.


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1000

900

800

700

600

500

400

300

200

100

0

0 5 10 15 20 25 30

Time (working days)

Dis

tan

ce

(m

ete

r)

Section B

Section A

Work Proceeds from Section A to Section B (0m to 1000m)

16

12

3

Activity 1

Project Duration: 24 wd Direction of Planning not Work


57


1000

900

800

700

600

500

400

300

200

100

0

0 5 10 15 20 25 30

Time (working days)

Dis

tan

ce

(m

ete

r)

Section B

Section A

Work Proceeds from Section A to Section B (0m to 1000m)

24 18 16

14

13

12

11 3

Activity 1

Activity 2

Activity 3

Project Duration: 24 wd Direction of Planning not Work


58


1000

900

800

700

600

500

400

300

200

100

0

0 5 10 15 20 25 30

Time (working days)

Dis

tan

ce

(m

ete

r)

Section B

Section A

Work Proceeds from Section B to Section A (1000m to 0m)

18

5 2

7 4

17

16

Activity 1

Activity 2

Activity 3

15

Project Duration: 18 wd


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A Linear Scheduling Practice


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Work Proceeds from Section A to Section B (0 km to 6 km)


50 35 25

Activity 1

Activity 2

Activity 3 그림오류 찾기


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Work Proceeds from Section B to Section A (6 km to 0 km)

40 30 25

Activity 1

Activity 2

Activity 3



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References

Avraham Shtub, Jonathan F. Bard, Shlomo Globerson, “Project management : engineering, technology, and implementation”, Englewood Cliffs, NJ, Prentice Hall, 1994

Frederick E. Gould, Nancy Joyce, Chapter 8, “Construction project management”, Upper Saddle River, NJ, Prentice Hall, 1999

James M. Lyneis *, Kenneth G. Cooper, Sharon A. Els, “Strategic management of complex

projects: a case study using system dynamics”, System Dynamics Review, Vol. 17, No. 3,

2001

Christopher M. Gordon, “Choosing appropriate construction contracting method”, J. of

Construction Engineering & Management, Vol. 120, No. 1, 1994

Feniosky Pena-Mora, Jim Lyneis, “Project control and management”, MIT 1.432J Lecture

Material, 1998

Barrie, D.S., and Paulson, B.C., “Professional Construction Management”, McGraw Hill,

1992

Halpin, D.W., “Financial and Cost concepts for construction management”, John Wiley &

Sons, 1995

Yehiel Rosenfeld, “Project Management”, MIT 1.401J Course Material, 2000

Sarah Slaughter, “Innovation in construction”, MIT 1.420 Course Material, 1999

Gray and Hughes, “Building Design Management”,.

Murdoch and Hughes, “Construction Contracts: Law and Management”, E&FN SPON, 1996

Gray, Hughes and Bennett, “The Successful Management of Design”, Reading, 1994

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