Cost Management
Chapter One
Introduction to Project Cost Management
Eng. Mahmoud Nassar
All Right Reserved - Mahmoud Nassar – 01019973993- [Link]@[Link]
Contents :
• Introduction
• Type of Costs
Equipment Cost.
Labor Cost.
Material Cost.
• Sample Questions
Project Cost Management
Introduction
Planning
Cost Estimation Budget Cash Flow Cost Coding
• BOQ • Reliable cost estimates • Cost coding system
• BOM • Distribution to stakeholders • Data management system
• Actual rate
• Company norms
Monitor
Execution
& Control
Database Cost Reports progress
• Actual rates • Cost Variance • Take-off executed activities
• Company norms • Cost performance • Actual cost data
• Forecasting
• Recommendations
Project Cost Management Introduction
Project Cost Management Includes the processes involved in planning,
estimating, budgeting, financing, funding, managing, and controlling
cost so that the project can be completed within the approved budget.
ID Process Definition
1 Plan Cost The process that establishes the policies, procedures, and documentation
Management for planning managing, expending, and controlling project costs.
2 Estimate The process of developing an approximation of the monetary resources
Costs needed to complete project activities.
3 Determine The process of aggregating the estimated costs of individual activities or
Budget work packages to establish an authorized cost baseline.
4 Control The process of monitoring the status of project to update the project costs
Costs and managing changes to the cost baseline.
Project Cost Management Introduction
Type of Costs.
Type Description Example
Fixed Costs Project Costs that remain constant regardless Set-up
to the phase or output.
Variable Project costs that vary in relation to the Material,
Costs output. Supplies
Direct Costs Costs that are directly attributable to the work Training,
of the project. Travel
Indirect Cost that are directly attributable to more Taxes
Costs than one project (Overhead).
Cost Amount of money needed above the estimate
Reserves/ to reduce risk of overruns of project objectives
Contingency to a level acceptable to the organization.
Project Cost Management Introduction
Type of Costs.
Labor Material Plant S/C Direct
Cost
Staff Site Indirect Indirect
Expenses
Others
Salaries Plant Cost
Risk on Risk
Risk on Risk on
Qtys Others Conting
Sched. Design
Growth ency
Com.
Profit Overhe Bonds Others Markup
ad
Equipment Costs
• Ownership Costs
1. Purchase cost.
2. Storage Cost.
3. Taxes and insurance.
4. Depreciation Cost.
• Operation Costs
1. Consumables cost : oil, fuel, grease
2. Driver / operator cost
3. Minor maintenance cost
4. Major maintenance cost
Labor Costs
• Direct Wages/ Salaries.
• Transportation/ accommodation.
• Training / motivation / rewarding.
• Taxes / Medical insurance.
• Other costs.
Material Cost
• Direct purchase.
• Taxes (sales tax / VAT / others taxes)
• Customs (in case of import).
• Logistics cost (transportation/ handling / charging / discharging)
• Storage cost (place / shelters / security)
• Lifting costs (wench / tower crane / manual)
• Losses (handling / storage / manufacturing / disposal)
Labor Cost
Example (1)
• For a painting job in a project, the quantity is 1000 m²
and the crew formulation in one laborer @100$/day and
two helpers each @50$/day the daily production rate of
a single crew is 50 m².
• It is required to calculate:
1. The job Duration.
2. The daily labor cost.
3. The unit labor cost.
4. If the owner requires the job duration to be 5 days….what should
you suggest ?
Labor Cost
Example (1) - Solution
Labor & Material Cost
Example (2)
• For a ceramic tiles work package, the quantity is 2000 m²
,material cost is 20 $/m², labor cost is 120 $/day, helper cost is
50 $/day and equipment cost is 2 $/m². the cleaning
subcontractor gets 10$/day and monthly indirect cost is 2500$
)month= 25 working days). The crew production rate is 80
m²/day. The expected profit is 20%.
• It is required to calculate the job contract price.
Labor & Material Cost
Example (2) - Solution
Equipment Cost
Example (3)
• A company purchases an equipment for 67,000 $ the
estimate useful life is 7 years and the salvage value
should be 7,000 $ knowing that the minimum attractive
rate of return is 12%, storage rate is 4%, risk reserve is
2% and insurance rate is 4%.
• It is required to calculate:
1. Annual ownership cost.
2. Annual depreciation amount(S.L.D.)
3. The equipment book value for each year.
Equipment Cost
Example (3) - Solution
Equipment Cost
Example (4)
• Find the hourly equipment cost if purchase value is 127,000 $,
with no salvage value after a useful life of 5 years.
• The annual interest rate is 9%, taxes and insurance are 6% and
storage will cost 4%.
• It operates 1400 hours annually consuming:
o Grease: 0.25 Kg/hr @ 2.5$/kg.
o Fuel : 14 liter/hr @0.5$/liter.
o Oil : 0.5 liter/hr @10$/liter.
• Maintenance and repair = 100% of straight line depreciation.
Equipment Cost
Example (4) - Solution
Example (5)
• In an operation of producing and placing concrete on a
construction project, the following resources were used and
produced 60 m³/hour. If the site works 8 hours per day, calculate
the unit cost for this operation and check its feasibility knowing
that resources are:
1 batch plant + 1 operator + 1 helper.
4 trans mixers + 4 drivers.
1 concrete pump + 1 operator + 1 helper.
1 tower crane + 1 operator
• Resource rates are calculated as the next table.
• I cubic meter of concrete will be sold as USD 220.
Example (5)
Resource Number Rate (USD)
Drivers 4 600/month
Operators 2 900/month
Helpers 2 450/month
Trans mixer 4 400/day
Pump 1 800/day
Batch Plant 1 1000/day
Loader 1 400/day
Cement 0.4 ton/m³ 220/ton
Sand 0.4 ton/m³ 10/m³
Gravel 0.8 ton/m³ 45/m³
Water -- 5/m³
Example (5)- Solution