Sunday, February 28, 2010

The Cost Control Problem in Construction Projects

During the execution of a project, procedures for project control and record keeping become indispensable tools to managers and other participants in the construction process. These tools serve the dual purpose of recording the financial transactions that occur as well as giving managers an indication of the progress and problems associated with a project. The problems of project control are aptly summed up in an old definition of a project as “any collection of vaguely related activities that are ninety percent complete, over budget and late.” The task of project control systems is to give a fair indication of the existence and the extent of such problems.

In this chapter, we consider the problems associated with resource utilization, accounting, monitoring and control during a project. In this discussion, we emphasize the project management uses of accounting information. Interpretation of project accounts is generally not straightforward until a project is completed, and then it is too late to influence project management. Even after completion of a project, the accounting results may be confusing. Hence, managers need to know how to interpret accounting information for the purpose of project management. In the process of considering management problems, however, we shall discuss some of the common accounting systems and conventions, although our purpose is not to provide a comprehensive survey of accounting procedures.

The limited objective of project control deserves emphasis. Project control procedures are primarily intended to identify deviations from the project plan rather than to suggest possible areas for cost savings. This characteristic reflects the advanced stage at which project control becomes important. The time at which major cost savings can be achieved is during planning and design for the project. During the actual construction, changes are likely to delay the project and lead to inordinate cost increases. As a result, the focus of project control is on fulfilling the original design plans or indicating deviations from these plans, rather than on searching for significant improvements and cost savings. It is only when a rescue operation is required that major changes will normally occur in the construction plan.

Finally, the issues associated with integration of information will require some discussion. Project management activities and functional concerns are intimately linked, yet the techniques used in many instances do not facilitate comprehensive or integrated consideration of project activities. For example, schedule information and cost accounts are usually kept separately. As a result, project managers themselves must synthesize a comprehensive view from the different reports on the project plus their own field observations. In particular, managers are often forced to infer the cost impacts of schedule changes, rather than being provided with aids for this process. Communication or integration of various types of information can serve a number of useful purposes, although it does require special attention in the establishment of project control procedures.

No comments: