Analysis and Control of Production Costs - Essay Example

ANALYSIS AND CONTROL OF PRODUCTION COSTS By The of the The of the School The and State The Date Introduction The initial estimate of the underlying cost of any construction frequently carries the burden of being the cost limit for the project. The establishment of the prevailing cost limit is significant in determination of project viability. Thus, the initial estimate often carries a burden disproportionate of the project reliability. The reliability of the estimate is normally questioned since it often produced in a restricted time limit mainly ranging from numerous days to hours and can be shortage of relevant and recent historical price data on which it is based. UK utilizes priced bills of quantities as the primary source of data utilized in prediction of tender price of a proposed construction during design. Bills of quantities are mainly lists giving the specification, descriptions and corresponding quantities of diverse items of work comprised in a building contract. Prevailing contractors normally insert rates against every item quantity and thereby compute their underlying tender price for the work. Therefore, the priced bill of quantities of the successful contractor becomes a contract document. A project cost estimate normally establishes the fundamental baseline of the project’s cost at a given stage of advancement. Cost estimates signify forecast offered by the underlying cost engineer or corresponding estimator on the basis of the accessible data. In the early stage of any project tender when data is attained predominantly from available secondary sources, the corresponding cost estimates might be subject to an error margin of thirty percent. Cost estimates can normally be prepared from diverse sources of data namely experts judgments, prices for same projects, propriety cost data files on previous in house projects and published cost element information. Sources of cost data that assist in producing a cost estimate at tender stage The main sources of cost data that are normally utilized in computation of cost estimate at tender stage include cost estimating guides, Vendor or contractor quotes, experience with identical projects, cost approximating software and database; experts’ judgments, prices for same projects; propriety cost data files on previous in house projects and published cost element information; contract code and internal order suffix bookings; bid and tender estimates, expense claim forms, manufacture overhead records and analyses, direct and indirect labor and staff bookings, purchase orders and contracts, training records, product and work order costs, change note records, customer complaints register and installation reports (Uher & Loosemore, 2003, pp112-178). Other sources of cost data also include field repairs, warranty, replacement and litigation records; inspection and test records; audit programe and reports and departmental budget reports (Ribeiro, 2011, pp213-344). Discussion of sources of cost data Expert Judgment is utilized extensively during the process of generation of cost estimates and corresponding cost estimators normally make many assumptions and judgment their perception in regard to the new product cost. Cost estimators normally apply combination of logic, common sense, skill, experience and corresponding judgment in generating eventual estimate that is timely, relevant and meaningful (Ribeiro, 2011, pp213-344). This technique is utilized by expert in creation of cost estimate based on the comprehension of the underlying project requirements and it is normally quick in case the expert is knowledgeable. Expert judgment is extremely accurate estimate for uncertain activities. Nevertheless, expert frequently offer no solid rationale in regard to their estimate beyond (Parker, 1995, pp34-87). Prices for same projects can also be used estimation of the cost at tender stage (Kirkham, 2013, pp245-277). At the condition examination stage, approximates are normally based on the historical information from the previous projects of the same nature and may be less or more by forty percent. Through the design stage, the project cost estimate is normally detailed and accurate by twenty percent (Uher & Loosemore, 2003, pp112-178). United Kingdom utilizes priced bills of quantities as the primary source of data utilized in prediction of tender price of a proposed construction during design. Bills of quantities are mainly lists giving the specification, descriptions and corresponding quantities of diverse items of work comprised in a building contract. Prevailing contractors normally insert rates against every item quantity and thereby compute their underlying tender price for the work (Ribeiro, 2011, pp213-344). Therefore, the priced bill of quantities of the successful contractor becomes a contract document Propriety cost data files on previous in house projects and published cost element information such as unit price book offer costs for a wide variety of construction activities (Parker, 1995, pp34-87). They offer cost estimate in form of labor, equipment, and material categories and every cost is normally related to specific labor and equipment crew. Quotes from the underlying vendors or construction contractors offer costs that are more site explicit in nature and normally entail contractor markups and are normally presented as a total cost at the expense of labor, equipment and materials (Parker, 1995, pp34-87). Quotes are normally obtained from numerous sources then averaged or corresponding highest quote ought to be utilized in the cost estimate in case collected quotes seem to be at low end of the prevailing industry range (Kirkham, 2013, pp245-277). Vendors and contractors also offer significant source of the design related information entailing operating capacity, production rates, operating life and corresponding maintenance schedules that might possess implications for the O & M costs. Experience with identical projects entailing both estimates and actual costs are normally utilized as source of cost dat. Engineering judgment ought to be taken into consideration where the cost data is taken from another project require adjustment into the account site or corresponding technology specific parameters. Cost estimating software and databases are also used as sources of cost data since majority of them are software tools mainly designed to approximate the cost for the entire selected cost elements of an alternative (Ribeiro, 2011, pp213-344). The main government sponsored software tools entail MCACES and UPB (Kirkham, 2013, pp245-277). Use of examples (all examples need to refer to UK text/documentation) Cost estimate at tender stage normally take places in stages namely preliminary estimate, appraisal estimate, proposal estimate, approved estimate, pre-tender estimate and post contract and achieved cost (Kirkham, 2013, pp245-277). Consider a simple example in the computation of estimation for small repair. A price will be produced for the underlying removal and replacement of the prevailing sanitary ware within a small domestic bathroom. This example only takes into consideration the cost of labour. Utilizing an itemized unit rate approach, assume a labour rate of £20 per hour: £ Disconnect and take out bath 2 men for 2 hours 80.00 Disconnect and take out WC 1 man for 2 hours 40.00 Disconnect and take out wash basin 1 man for 1 hour 20.00 Remove fittings from site 2 men for 0.5 hour 20.00 Skip charge 80.00 Unload new fittings 2 men for 0.5 hour 20.00 Install and connect bath 2 men for 1 hour 1 man for 2 hours 80.00 Install and connect WC 1 man for 3 hours 60.00 Install and connect wash basin 1 man for 1 hour 20.00 420.00 Van for 2 days 100.00 £520.00 Take into consideration operational estimation of two items I. Two operatives will be required for the operations but we can work in both the bathroom at the same rate II. In case they finish work during an afternoon it is unlikely that they would go to another site and finish off their remaining working day It might also occur that rather than pay for the skip it may be probable for the operative who cannot get into the bathroom to run old fittings to the underlying local tip (Parker, 1995, pp34-87). Looking at the job from an operational estimating viewpoint: 2 men for 1 day 360.00 1 man for 1 day 180.00 Van for 2 days 100.00 Tipping Charge (say) 80.00 £720.00 The prevailing difference within the two totals highlights a major problem in estimating utilizing purely unit rates for items such as accomplishing an accurate utilization of labour. Conclusion The cost of tendering at the prevailing microscopic level can be approximated on the underlying foundation of the anecdotal evidence and corresponding documented sources. Nevertheless, this is normally significance from the point of view of the massive procurement organization. The main sources of cost data that numerous engineers and organizations employ in the process of cost estimate at tender stage entail cost estimating guides, Vendor or contractor quotes, experience with identical projects, cost approximating software and database; experts’ judgments, and prices for same projects; Bibliography Ribeiro, J. M. (2011). International development project appraisal, execution planning and monitoring. Montréal, Presses internationales Polytechnique. Parker, G. W. (1995). Achieving cost-efficient quality. Aldershot, England, Gower. Smith, N. J. (1995). Project cost estimating. London, T. Telford. Uher, T. E., & Loosemore, M. (2003). Essentials of construction project management. Syndey, University of New South Wales Press Kirkham, r. (2013). Ferry and Brandons Cost Planning of Buildings. Chicester, Wiley. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=1124636. Read More