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PROBLEMS DURING COST CONTROLE
Prepared by:Salimullah Am-552953M.com (3rd semester)
Cost ControlDefinition: The process of managing or reducing expense is known as cost control
Many business use cost control to reduce expense and increase profitability
Cost Controlling is one of the most challenging aspects managers face. Most times, during any project there are problems with project control and record keeping.
Monitoring
Accounting
Maintaining
Cost estimating
Cost accounting
Project cash flow
Company cash flow
Direct labor costing
Overhead rate costing
Thorough planning of the work to be performed
to complete the project
Good estimating of time, labor, and costs
Timely accounting of physical progress and cost
expenditures
Periodic re-estimation of time and cost to
complete remaining work
Poor estimating techniques
Out-of-sequence starting and completion of
activities and events
Inadequate work breakdown structure
No management policy on reporting and
control practices
Poor work definition at the lower levels of the
organization
Inadequate formal planning
Poor comparison of actual and planned costs
Comparison of actual and planned costs at the wrong level of
management
Unforeseen technical problems
Material escalation factors that are unrealistic.
Poor comparison of actual and planned costs
Organization:
Inadequate Work Breakdown Structure Poor work definition at working levels
Accounting: Inability to account for cost of material on applied basis
Analysis: Determination of status not based on work package completionComparison of actual vs. planned costs at improper level
Revisions:Failure to maintain valid measurement baseline
Proposal Phase Failure to understand customer requirements Underestimating time requirements
Planning phase Omissions Inaccuracy of the work breakdown structure Misinterpretation of information Use of wrong estimating techniques
Negotiation phase Procurement ceiling costs Negotiation team that must “win this one”
Contractual phaseProposal team different from project team
Design phaseAccepting customer requests without management
approval Problems in customer communications channels and
data itemsProduction phase
Excessive material costs Specifications that are not acceptableManufacturing and engineering disagreement
In more than 1,000 locations around the globe,
we provide high-quality management of border terminals,
manufacturing and engineering excellence, logistics and multi dimensional freight
services. We're there wherever you go – With 12,000 employees and three decades
of experience, we make sure things always go right.
NLC Construction NLC Engineering & Construction NLC Freight Services Modern Border Terminals NLC Tolling National Express Freight Train NLC Polymers NLC Institutes
Commodity shortages Natural calamities or transporters’ strikes
often put strain on the Country’s logistic system.
NLC is then called in by the Government of Pakistan to restore normalcy through professional handling of the crisis situations.
NLC delivered efficient services during the earthquakes, Floods and war effected areas
Problems of feedback in NLCNLC unlike many is manufacturing situations because it is concerned mostly with one-off projects.Each new contract often has a fresh management team; labor is transient and recruited on an ad hoc basis.Sites are dispersed throughout the country and this tends to cause problems in effective communication with other parts of the company; subcontractors and 'lump' labors are common. Added to all these are ever-changing weather conditions. The problems encountered in the provision of feedback are related to conflicting interests, and poor communication.
Problems of Cost Overrun in NLC.Macro Economic Factors The cost of construction is basically the cost of money, the cost of material, the cost of labor and the cost of management. Top three factors identified by the survey results i.e. Fluctuation in prices of raw materials, Unstable cost of manufactured materials, High cost of machineries are markets related problems. Unlike a manufactured commodity, construction industry is mainly market driven. Prices can, and sometimes do, changes on an almost daily basis. These rapid changes in many cases cause problems for vendors to commit to one fix price.
Management Factors Some cost overruns are unavoidable because they cannot be reasonably prevented, such as those due to unanticipated events, however overruns due to design plan or project management problems are avoidable because they could have reasonably been foreseen and prevented. The project control procedure can help management identify its current position related to a future position
Strong Industry Base
Sustained Growth in Production and
Exports
Easy Availability of Production Resources
Surplus Production for Local and Export
Markets
Good Local and International Reputation
Lack of Innovation and Technology
Development
Absence of Vision to identify weaknesses
Lack of Funds to Take Up New Projects
Lack of Professional Expertise within Industry
Lack of Research & Development
Future Growth Potential Rising Demand Emerging Export Markets Developing a Long Term Vision and Strategy
Research to Develop New Products Focus on Cost Optimisation Possible switch over to Cement Roads Availability of Finance
High Incidence of Taxes
High Input Cost
Decline in Profitability
Inadequate Bulk Loading Facility at Ports
Rising Oil prices
The survey results indicated that the majority of cost overrun factors (88%) lie in medium severity impact range. Attention should be paid to these factors as they cause considerable increase in the cost of the project initially estimated. Findings reveal that both internal and external aspects of business setting contribute to cost overruns. Macro economical factors affect the cost of the construction project most severely. Among all factors leading to cost overruns, management related factors are those which can be controlled and prevented most easily as they are the in-house factors. Business and regulatory environment is dysfunctional and need drastic changes, more scientifically proven methods, tools and techniques may be adopted instead of the orthodox practices Almost every project in the local industry faces cost overruns when executed. Minimum range of cost overrun in percentage of the estimated cost is at least 10 %. Medium sized firms are more prone to cost overruns in comparison with small and large firms, main reason for which being that they are in the transitional phase where they need to take more risk to get more business and establish them.
Macro Economic Factors Fluctuation in prices of raw materials and cost of manufactured materials are
severe when these elements are in short supply, to stabilize the cost of materials, increase of supply of materials can be useful to break the monopoly of few suppliers controlling the supply chain of the market.
Management Factors Thorough estimation process for project costs calculations, with vigilant
planning, keeping in view trends of inflation and depreciation factors, cost variations trends in sector and country with lead to smoother implementation and achievement of desired cost control.
Business and Regulatory Environment Factors The government should think of adopting, not just the conventional
contracts but also the design-build contracts, direct negotiation contracts and other types of contracts. Alternative procurement strategies such as best value procurement should also be adopted in the projects undertaken by government, semi- government bodies and agencies.