Cost Engineering

Dr. Nabil I El Sawalhi

Associate professor

Construction Management

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Labor Productivity and Analysis

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Labor

Labor cost is classified in number of ways:

1. Direct versus indirect cost

2. Recurring – non recurring cost

3. Designed – non designed cost

4. Exempt – non exempt cost

5. Wage – salary

6. union – non union

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• Other ways of classifying labor.

• Social factors,

• political factors and

• educational factors and

• type of work

• Also payment for wages may be based on attendance or performance.

• We will adopt direct – indirect classification formula.

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Basic Principle for Estimating Labor

• Total cost of labor = total work hour (i) X wage rate (i)

• Total work hours = quantity of work (i)/ productivity rate (i).

• Time may be individual or for crew

• Time is expected by unit of time, minute, hour, day ….

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Direct Labor Costs

• Direct labor costs are defined as

• base wages plus labor cost additives including

– payroll taxes,

– fringe benefits,

– travel, and

– overtime

• In addition to the actual workers, there are generally working crew foremen who receive an hourly wage and are considered part of the direct labor costs.

Indirect Labor Costs

• Indirect labor costs are wages and labor cost additives paid to contractor personnel whose effort cannot be attributed to a specific construction task.

• Superintendents, engineers, clerks, and site cleanup laborers are usually included as indirect labor costs (overhead).

• CREWS

• Direct labor cost requirements are broken into tasks of work.

• Since each task is usually performed by a labor crew including equipment, the crew must be defined, costed, and a production rate established for the task.

• Crews may vary in size and mix of skills.

• The number and size of each crew should be based on such considerations as having sufficient workers to perform a task within the construction schedule and the limitation of workspace.

• Once the crews have been developed, the task labor costs can be determined based on the production rate of the crew and the labor wage rates

• WAGE RATES • The rate will include the base wage rate plus labor

overtime, payroll taxes and insurance, fringe benefits, and travel or subsistence costs

• OVERTIME AND SHIFT DIFFERENTIAL • Overtime • Overtime should be included in the labor cost computation

when work in excess of regular time is required. • Overtime labor cost is normally calculated as a percentage

of the base wage rate. • It is usually based on time and one-half, but may be double

time depending on the existing labor agreements. • Tax and insurance costs are applied to overtime, but fringe

benefits and travel and/or subsistence costs are not.

TAXES AND INSURANCE

• Rates • Rates for all taxes and insurance should be verified

prior to computation • Workman's Compensation • Workman's compensation and employer's liability

insurance costs should be included in the composite wage rate.

• Insurance rates from insurance companies providing this type insurance.

• The project compensation rate is based on the classification of the major construction work and applies to all crafts

Total Percentage of Taxes and Insurance

• The total percentage of the above taxes and insurance is summed and then applied to the basic hourly wage rate plus overtime for the various crafts.

• Example 5-2 illustrates the method for deriving the total tax and insurance percentage.

• Example 5-2 • Workman's compensation and employer's liability 7.60%

• State unemployment compensation 3.20%

• Federal unemployment compensation 0.80%

• Social Security & Medicaid 7.65%

• Total taxes and insurance 19.25%

Wages • Wages is defined in the context of the job.

• It may be one worker and his toolbox, or crew with one equipment , or crew with several equipments.

• The mythical of Man hour

• “Man hour” is defined as one worker working for one hour.

• “man year” is 52 weeks of work with the popular 40 hours in each week, Or 2080 hours

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• “a man month” is 173.3 hours per month or (40x52)/12=173.3.

• Man minutes or man weeks are not familiar to be used.

• Man hours are regularly used for estimating.

• In theory, man hours can be effective if they are relatively constant, pre-known, and unaffected by changes in wage rate, overtime, connectivity between the trades.

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• When applying man hour, it is credentials need to be openly understood such as:

• Guess from experience

• Time spent as actual clock hours

• Adjustment of actual clock hours to allowed time

• Measurement and analysis of the workers time with respect to constructive and non productive effort and idleness

• Data book

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Labor cost

• The labor cost component of a building project often ranges from 30to50%, and can be as high as 60% of the overall project cost.

• calculate the total worked hours in the year, and the cost per worked hour.

• The calculation is complicated by difference between hour worked and the hours paid which exceeds the hour worked by such items as overtime, public holiday and inclement weathers.

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Working time • The minimum earnings for construction

workers is 39 hours based on 5 days working per week.

• during the 44 weeks summer period the working hours per day is 8.0 hrs to 5.30.

• This gives 8 hours + one over time working hours in summer and 7 hours from Monday to Thursday + 2 over time hours in Fridays making all working hrs is 39 hrs and + 6hrs OT.

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• During winter, the 8 working hrs from 8 a.m to 4.30 p.m. this gives 8 hrs per day from Monday to Thursday plus 7 hours on Friday + one OT hrs giving the working week 39hrs + one OT hrs

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• Holidays

• 2 w Summer Holiday

• 4 D Easter Holiday in Summer.

• 7 D Winter Holiday.

• 5 D Public Holiday in Summer.

• 3 D Public Holiday in Winter.

• The total holiday is 29 D or 5 W + 4 D

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• Inclement weather and Sick leave

• Assume 60 hrs inclement weather and 3D sick leave in summer and 2D sick leave in winter.

• Weeks worked in one week.

• Total weeks in years = 52 Ws

• Holidays = 5 Ws + 4 Ds

• Sick leave = 1 W

• Weeks worked in a Year= 45 Ws + 1 D

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• Calculation of hrs worked

• Total hours in year:

• Summer Period , 44 Ws X 45 hrs = 1980 hrs

• Winter Period, 8 Ws X 40 hrs = 320 hrs

• Total = 2300 hrs

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• Hours not worked due to holidays: • Total holiday in summer = summer Holiday +

Easter Holiday +Public Holiday = 2Ws + 4 Ds + 5 Ds = 19 days.

• Hours not worked due to summer holidays= 19 Ds X 9 hrs = 171 hours.

• Total holidays in winter = winter + public • = 10 Ds X 8 hrs = 80 hrs • Total hrs not worked due to holidays = 171+80=

251 hrs

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• Hours not worked due to inclement weather = 60 hrs

• Hours not worked due to sick leaves = (3 Ds X 9 hrs) + ( 2 Ds X 8 hrs) = 43 hours

• Total hours not worked = 354

• Total hours worked in one year 2300 hrs – 354 hrs = 1946 hrs

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• Calculation of over time:

• Possible over time worked in summer = 44 Ws X 6 hrs = 264

• Less 19 day holiday and 3 Ds sick leaves

• Over time not worked = 22 ds X 1 work hrs = 22 hrs

• Over time worked = 242.

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Productivity Measurement

• “time is the measure of productivity”.

• The measurement of time is limited mostly to direct labor.

• There are four methods for measurement of construction time

• 1. Job-ticket reports

• 2. Non repetitive one-cycle time study

• 3. Multiple – cycle time study

• 4. Work sampling

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Job-ticket reports and man hour analysis

• The job ticket is just time card with additional information.

• Information for man-hours analysis is obtained from the job ticket or the foreman report.

• Worker may completed this own job ticket.

• The ticket used for time and cost control.

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Example

• Consider Table 2.2 for welding operation where job tickets are used to observe the productivity.

• No verification needed for the ticket by foreman.

• Job tickets are collected for similar work and spread sheet is devised for the data.

• Table 2.3 where welding operation for a building are collected

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Job tickets (Table 2.2)

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emplyee No. 505 Name: Neil

order No. 101 Date: June 11

Location: 2nd floor Job No.

Part Name: Gusset, A36 Part No. 6682

Time stopped : 11:43 Time start : 9:15

Quantity : 3

Arc weld gusset, 36x18x1/2 to column 54 in. of double welding. Overhead welding

Operation

Spread sheet example for arc-welding analysis (Table 2.3)

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Part No Material thickness method actual manhours

remerks allowed MHs

6682 steel

3/4x24 in

Arc weld

2.47 Fillet 2 sides

1.24

7216 steel

1/2x8.4 in

Arc weld

1.06 No change

1.06

8313 steel

3/16x34.4 in

Arc weld

1.18 Increase by 25%

1.48

Non repetitive one cycle time study (day time study)

• It is non repetitive because in construction we are unable to study more than one cycle of a construction job.

• It provide information for cost analysis and estimating.

• A time recording is essential by using electronic timer or video camera

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Procedures follow theses steps:

1. inform the labor under control

2. record job, equipment, worker , environment conditions, before and during the timing.

3.time the work and write down the job elements as the job proceed,

4. as the key steps of the job change, record the new elements along with the elapsed time.

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5. record the time consumed by each element as it occurs.

6.Rate the pace at which various elements of work are performed.

7. Calculate the normal time

8. Adopt preapproved allowances, calculate the allowance multiplier and extend normal time to a standard time.

9. Express the standard in common units of productivity.

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• Normal time is found by multiplying a selected time for the element by rating factor using

• Tn = To x RF

• Tn= normal time, hours, days, etc.

• To = observe time, hours,…

• RF= rating factor, arbitrary set, number

• If the worker is judged to be fast , then the rating factor is greater than 1.0 say 1.1.

• If the selected cycle is 1.2 hr , then normal time is 1.2x1.1 = 1.32 hr

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• Allowance for interruptions are divided into three components: personal, fatigue, and delay (PF&D)

• The personal is 4-5% in USA

• Typical allowance for fatigue is 5%

• Delay can vary from 0.0 to 25%

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Allowance multiplier is

• Fa = 100% / (100%-PF&D%)

• Fa is Allowance multiplier for PF&D

• The final step is to find the standard productivity

• Hs = Tn x Fa

• Hs = standard time for construction job per unit

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Multiple-cycle time study and man-hour analysis

• It observing several cycles, on the same occasion or on different ones

• At each location, time is calculated for crow using stop watch. At the end of each element the watch is reset to zero and timing began again for next element.. The timing is suspended if the worker are idle.

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Working Sampling Man hour

• Work sampling is a technique for gathering information about large segment of a work force population.

• It is used to measure labor efficiency and equipment utilization and their cost

• Advantages of work sampling include:

• Productivity measurement and improvement

• Statistical definition

• Relatively low cost

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• On work sampling only discrete observation are made.

• The key to accuracy is the number of observation.

• P’i = Ni/N

• P’I = observed proportion of occurrence i

• Ni = instantaneous observation of event i

• N = total number of random observations

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• A model for estimating work sampling cost

• Hs = (Ni/N)HR(1+PF&D)/Np • Hs= standard man-hours per job element • Nrh= event I observation number • H = total man hours worked during man hour

sampling • R= rating factor • PF&D= personal, fatigue & delay • Np = construction unit accomplished during the

period of observation.

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Wage & Fringe Rate

• Labor cost (Wages or Salaries) are major ingredient of an estimate.

• Labor cost constitute 40% in heavy construction cost.

• A wage is paid by hour, day or week

• Payroll cover two classes of workers, first for Management, second hourly labor of direct

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Fringe benefits

• It is one of the cost of labor. Wages is the total sum of labor cost.

• Fringe benefits which are related to wages represent 30% of the actual labor cost .

• Wages and fringe effects are calculated by one of two methods:

• Wage only

• Wage and fringe combined

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Partial listing of fringe cost may include:

• Legally required payments(social security, unemployment, insurance, worker compensation)

• Voluntary or required payment such as group Insurance & pension plans.

• Wash-up time , paid rest period, travel time

• Paying for time not worked, holidays, vacations & sick pay.

• Profit sharing payments, service awards,and payment to union stewards

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Types of Construction Labor

• A crew is a team of workers, which can be of the same trade or composite of many different trades.

• Due to the diverse nature of the different tasks associated with all the building systems, many types of craftsmen from many different trades are required in a building construction project.

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Components of Labor Costs

• Labor costs in construction are determined by two factors: monetary and productivity.

• The monetary factor is related to hourly wage rates, wage premiums, insurance, fringe benefits, and taxes.

• Construction productivity = quantity of work/ produced time duration.

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• An example of this calculation used to determine the work hours for a painting

• job can be seen below

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example

• For example, assume that a crew for a work item includes three bricklayers and two helpers.

• The crew works for three days under straight time (8-hr day) to complete the work package. The wage rate for each bricklayer is $28.55 and each

• helper is $22.40. In this instance, the total cost of labor is $ 3131 as determined by computations

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ALLOWANCES IN ESTIMATION

• Normal Time = Observed time × Rating factor

• Observed time and rating factor are obtained during the time study of an operation or a job.

• Various allowances are considered in estimating the standard time for a job.

• Allowances are always expressed as % of Normal Time and are added to Normal Time to compute the Standard Time

Exercise

• What are the types of allowances that should be considered when calculating the standard time of work.

• Standard Time = Normal Time + Allowances.

• Standard Time is time required to complete one cycle of operation (usually expressed in minutes).

• Standard Time for a job is the basis for determining the standard output of the operator in one day or shift

Need for Allowances

• Any operator will not be able to carry out his work throughout the day without any interruptions.

• The operator requires some time for his personal needs and rest, and hence such time should be included in standard time.

• There are different types of allowances, and they can be classified as follows :

1. Relaxation Allowance

• This is also known as Rest Allowance.

• This allowance is given to enable the operator to recover from the physiological and psychological effects (Fatigue) of carrying out the specified work and to attend to personal needs.

• Relaxation allowance consists of :

• (i) Fatigue allowance, and

• (ii) Personal needs allowance.

• (i) Fatigue allowance is intended to cater for the physiological and psychological effects of carrying out the work.

• This time allowance is provided to enable to operator to overcome the effect of fatigue which occurs due to continuous doing of the work (monotony etc.).

• Relaxation allowance (Fatigue allowance and Personal needs allowance put together) is commonly 5% to 10% (of normal time).

• (ii) Personal needs allowance : This allowance is provided to enable the operator to attend to his personal needs (e.g. going to toilet, rest room, etc.).

2. Process Allowance

• It is an allowance to compensate for enforced idleness of the worker.

• During the process, it may be likely that the operator is forced to be idle due to certain reasons, such as :

• (i) When the process is carried out on automatic machines, (the operator is idle after loading the job on the machine).

• (ii) When the operator is running more than one machine (as in the case of cellular manufacturing).

• Process allowance varies from one manufacturing situation to another depending on factors such as hazardous working conditions, handling of heavy loads, strain involved, mental alertness required etc. Generally 5% of the normal time is provided towards process allowance.

3. Interference Allowance

• This allowance is provided where in a cycle of operation, there are certain elements which are machine controlled.

• The operator cannot speed up those elemental operations.

• This allowance is also provided when one worker is working on several machines

4. Contingency Allowance

• This is a small allowance of time which may be included in the standard time to meet unforeseen items of work, or delays (e.g. waiting for raw materials, tools).

• Contingency allowance is 5% (maximum) or Normal Time.

5. Special Allowances

• These allowances are a policy matter of the management, e.g. when

• the job is newly introduced or when a new machine or new method is introduced, because worker takes some time to learn the new method or job; Special allowance is also provided depending on the working conditions such as noise, dust, etc.

• Once the normal time is obtained, the standard time can be estimated or obtained by adding all the allowances to normal time.

• Standard time = Normal time + Allowances

• Example 1 : In a manual operation, observed time for a cycle of operation is 0.5 minute and the rating factor as observed by the time study engineer is 125%. All allowances put together is 15% of N.T. (Normal Time). Estimate the Standard Time

• Solution : • Observed time for a cycle = 0.5 min. • Rating factor = 125% • Normal time=Observed time×Rating factor=0.5×

1.25 = 0.625 min.

• Allowances = 15% of Normal Time

• Standard Time = Normal Time + Allowances

• = 0.625 min. + (0.15 × 0.625) min.

• = 0.625 min. + 0.094 min.

• = 0.719 min.

• = 0.72 min.

• Example 2 : In a manufacturing process, the observed time for 1 cycle of operation is 0.75 min.

• The rating factor is 110%. • The following are the various allowances as % of

normal time : • Personal allowance = 3% • Relaxation allowance = 10% • Delay allowance = 2% • Estimate the standard time.

• Solution : • Basic time or normal time = Observed time × Rating factor • = 0.75 min × 110% • = 0.75 × 1.1 • = 0.825 min. • Standard time = Normal time + All allowances • = Normal time + [3% + 10% + 2%] of normal time • = 0.825 min. + (0.15 × 0.825) min. • = 0.825 min. + 0.124 min. • = 0.949 min. • =0.95 min.

• Standard time is the basis for calculation of standard output (i.e., no. of components produced) in 1 day or in 1 shift (of 8 hours). Incentive schemes are based on the standard output.