Introduction to CONSTRUCTION contingency planning and cost

COST management strategies.

Agenda
Real-World Application:
Lecture Overview
 In large-scale infrastructure
Importance
projects, such as highway
Roles and Responsibilities of Cost
construction, cost engineering
Engineer
ensures that fluctuating material
Cost Estimation Process
prices, weather delays, and
Types of construction costs
unforeseen issues (e.g., labor
shortages) are accounted for,
Lecture Overview
maintaining the project budget.
Construction Cost Engineering refers to
the discipline of estimating, controlling,
Roles and Responsibilities of a Cost
managing, and optimizing costs in
Engineer
construction projects. It encompasses the
entire financial lifecycle of a construction
Core Responsibilities:
project, from initial cost estimation to
Cost Estimation:
final cost control, with the aim of
 Develop preliminary and detailed
delivering the project on time and within
cost estimates.
budget.
 Utilize historical data, industry
standards, and project specifics.
Budget Management:
 Prepare cost breakdown structures
(CBS) and establish budgets.
 Track expenses and compare actual
costs to estimates to identify
variances.
Cost Control:
 Monitor project expenditures,
Importance
manage cash flow, and prevent
Why It Is Critical:
cost overruns.
 Financial Management: Helps
 Implement cost-saving strategies
keep projects within budget,
during project execution.
preventing cost overruns that can
Risk Management:
jeopardize project success.
 Identify potential financial risks
 Resource Allocation: Efficiently
(e.g., price fluctuations, project
uses labor, materials, and
delays).
machinery to maximize
 Implement strategies such as
productivity and minimize waste.
contingency allowances to address
 Schedule Control: Accurate cost
risks.
estimation is necessary to plan and
Reporting and Communication:
schedule tasks effectively, avoiding
 Provide regular reports to
delays due to unexpected cost
stakeholders (project managers,
issues.
clients) on cost [Link]
 Risk Management: Identifies
on adjustments needed to stay
cost-related risks early and
within budget.
mitigates them through
Skills Required:
  Analytical skills for cost breakdown
and forecasting.
 Strong knowledge of construction
processes and materials.
 Familiarity with cost estimation
software (e.g., ProEst, Buildertrend,
PlanSwift).
Example: TYPES OF CONSTRUCTION COST
A Cost Engineer at a hospital Direct Costs:
construction project needs to provide Costs directly linked to construction
cost estimates for specialized equipment activities, such as:
like HVAC systems while factoring in  Labor Costs: Wages for
compliance with local regulations and construction workers,
long lead times for ordering. subcontractors, and engineers.
 Material Costs: Concrete, steel,
Stages of the Cost Estimation bricks, plumbing fixtures, etc.
Process:  Equipment Costs: Rental or
purchase of machinery (e.g.,
Preliminary Estimates (Feasibility cranes, mixers).
Study): Indirect Costs:
 Initial ballpark figures based on Costs that support the project but are not
available project information. directly involved in construction work:
 Developed using historical data,  Overhead Costs: Office space,
similar projects, or conceptual utilities, administrative support.
drawings.  Supervision Costs: Project
 Typically done early in the project management and supervisory staff.
to assess the financial viability.  Insurance and Taxes: Cost of
Detailed Estimates: ensuring the project and
 Precise estimates based on compliance with regulations.
detailed designs, drawings, and Fixed Costs:
specifications. These remain constant regardless of
 Includes quantities of materials, project size or scope:
labor hours, equipment costs, and  Site Office Expenses: Renting
overheads. office space, equipment, etc.
Bid Estimates (Tender Process):  Project Manager Salary: Fixed
 Final, competitive estimate for the duration of the project,
submitted for project bids. regardless of changes in project
 Includes exact costs as calculated scope.
from the detailed estimate, plus a Variable Costs:
markup for profit and risk These change based on project scale and
contingency. duration:
Post-Project Evaluation:  Material Costs: Prices change
 Compare actual costs to initial with the amount of materials used.
estimates.  Labor Costs: Depends on the
 Analyzes variances and identifies hours worked or the number of
areas for improvement in future workers employed
projects.
Example:
o Direct Cost: Purchasing
concrete and paying workers
for pouring the foundation.
o Indirect Cost: Site office
utilities, administration
salaries, VAT
o Fixed Cost: The project
manager’s fixed salary.
o Variable Cost: The
fluctuating price of steel
depending on market
conditions.