Indirect cost BehaviourAn estimator, at the time of costing, computes all the indirect costs in detail or evaluated by using predetermined company norms. The estimator apportioned these indirect costs to the direct costs for calculating the final production cost. But this not adequate for planning, budgeting and controlling costs.

• A) Variable costs tend to vary directly with the volume of production, ie. Work done or output. No production means no cost. Cost rises as the volume of production increases. These costs change at a rate (assumed) to changes in the volume of production as shown below.

• Examples of indirect costs are telephone running expenses, camp messing expenses and office stationery expense.

• B) Fixed cost do not show any appreciable fluctuations with changes in production levels. These costs are either one-time costs like the camp construction cost or periodic costs such as supervisor’s salary, or are monthly recurring expenses like monthly rent for project office and monthly depreciation for project construction equipment.

• C) Semi-variable costs are partly variable in nature. Examples of these are telephone expenses, which consist of fixed installation expenses, and variable operating expenses, which vary with the volume of work or production activities.

COST CONTROL PRELIMINARIES:Cost control related TerminologyThese is a functional difference in the use of terms planned

cost of production budget, standard costs, earned value and production cost of work done with respect to a work package.

a) Planned costs reflect the costs of production planned under normal prevailing conditions.

b) Standard cost stands for the production costs achievable under efficient operating conditions.

c) Earned value of work preformed implies the monetary value of the work completed. In contracted projects, it is equal to the work done at contract rates. Earned value analysis is the method for measuring and analysing project performance at constant rate.

d) Production cost of work done. It is the total expenditure (direct and indirect) incurred in execution of work.

e) Budget at completion (BAC). In contracted projects, unless revised for extra work or other reasons, it is equal to the total value of work done at agreed contracts rates.

Contractor’s Cost Control Approach:Contractor’s cost control focuses on the causes for planned cost

changes and how to mitigate, allow or prevent cost changes from the happening. A project cost control system for effective implementation, as far as feasible, should be easy to understand and simple to implement, without creating any interdepartmental and interpersonal conflicts. The system should have least response time, thus enabling quick monitoring and prompt divisions based on simple cost and earned value control report complied by the cost accountant contract manager.

Nature of Contractor’s cost control

Therefore, a construction contractor cost control system can focus on the following.

• Direct cost control• Contribution control• Budgeted cost control• Performance control using Earned value

management system.

Measurement of In-progress Activity

• The method of measurement of in-progress work done percentage varies with the nature of work. Some use rule 50-50 rule, where 50% progress is taken when the work starts and remaining 50% when is completed; another rule is 0-100%, where 90% or 100% progress considered when the work is completed; and the practice in contracted work is to measure pro-rata quantity of work completed at control rate. In construction, the various methods of measuring progress of the different types of work can be categorized as under

1. Workdone