Labour, Material and Labour, Material and Euipment UtilisationEuipment Utilisation

Bh. Nagabhushana RaoBh. Nagabhushana Rao

Labour ProductivityLabour Productivity Quantity of labor hours in performing a task in Quantity of labor hours in performing a task in

construction is more susceptible to the influence construction is more susceptible to the influence of management than are materials or capitalof management than are materials or capital

Construction output may be expressed in terms Construction output may be expressed in terms of functional units or Rupees. In the former case, of functional units or Rupees. In the former case, labor productivity is associated with units of labor productivity is associated with units of product per labor hour, such as cubic metres of product per labor hour, such as cubic metres of concrete placed per hour or kilometres of concrete placed per hour or kilometres of highway paved per hour. highway paved per hour.

The value of construction in this regard is not The value of construction in this regard is not measured by the benefit of constructed facilities, measured by the benefit of constructed facilities, but by construction cost. but by construction cost.

Factors Affecting Job-Site Factors Affecting Job-Site ProductivityProductivity

Job-site productivity is influenced by Job-site productivity is influenced by many factors which can be many factors which can be characterized either as labor characterized either as labor characteristics, project work conditions characteristics, project work conditions or as non-productive activities. or as non-productive activities.

The labor characteristics include: The labor characteristics include: age, skill and experience of workforce age, skill and experience of workforce leadership and motivation of workforce leadership and motivation of workforce

The project work conditions The project work conditions include among other include among other factors: factors:

Job size and Job size and complexity complexity Job site accessibility Job site accessibility Labor availability Labor availability Equipment utilization Equipment utilization Contractual Contractual agreements agreements Local climate Local climate Local cultural Local cultural characteristics characteristics particularly in foreign operations particularly in foreign operations

The non-productive activities The non-productive activities associated with a project may associated with a project may or may not be paid by the or may not be paid by the owner, but they nevertheless owner, but they nevertheless take up potential labor take up potential labor resources which can otherwise resources which can otherwise be directed to the project. The be directed to the project. The non-productive activities non-productive activities include among other factors:include among other factors:

Indirect labor required to maintain the Indirect labor required to maintain the progress of the project progress of the project

Rework for correcting unsatisfactory Rework for correcting unsatisfactory work work

Temporary work stoppage due to Temporary work stoppage due to inclement weather or material shortage inclement weather or material shortage

Time off for union activities Time off for union activities

Absentee time, including late start and Absentee time, including late start and early quits early quits

Non-working holidays Non-working holidays

Strikes Strikes

Labor CharacteristicsLabor Characteristics Performance analysis is a common tool for assessing worker quality and Performance analysis is a common tool for assessing worker quality and

contribution. Factors that might be evaluated include:contribution. Factors that might be evaluated include:

Quality of Work - caliber of work produced or accomplished. Quality of Work - caliber of work produced or accomplished. Quantity of Work - volume of acceptable work Quantity of Work - volume of acceptable work Job Knowledge - demonstrated knowledge of requirements, methods, Job Knowledge - demonstrated knowledge of requirements, methods,

techniques and skills involved in doing the job and in applying these to techniques and skills involved in doing the job and in applying these to increase productivity. increase productivity.

Related Work Knowledge - knowledge of effects of work upon other Related Work Knowledge - knowledge of effects of work upon other areas and knowledge of related areas which have influence on assigned areas and knowledge of related areas which have influence on assigned work. work.

Judgment - soundness of conclusions, decisions and actions. Judgment - soundness of conclusions, decisions and actions. Initiative - ability to take effective action without being told. Initiative - ability to take effective action without being told. Resource Utilization - ability to delineate project needs and locate, Resource Utilization - ability to delineate project needs and locate,

plan and effectively use all resources available. plan and effectively use all resources available. Dependability - reliability in assuming and carrying out commitments Dependability - reliability in assuming and carrying out commitments

and obligations. and obligations. Analytical Ability - effectiveness in thinking through a problem and Analytical Ability - effectiveness in thinking through a problem and

reaching sound conclusions. reaching sound conclusions. Communicative Ability - effectiveness in using orgal and written Communicative Ability - effectiveness in using orgal and written

communications and in keeping subordinates, associates, superiors communications and in keeping subordinates, associates, superiors and others adequately informed. and others adequately informed.

Interpersonal Skills - effectiveness in relating in an appropriate and Interpersonal Skills - effectiveness in relating in an appropriate and productive manner to others. productive manner to others.

Ability to Work Under Pressure - ability to meet tight deadlines and Ability to Work Under Pressure - ability to meet tight deadlines and adapt to changes.adapt to changes.

Security Sensitivity - ability to handle confidential information Security Sensitivity - ability to handle confidential information appropriately and to exercise care in safeguarding sensitive appropriately and to exercise care in safeguarding sensitive information. information. Safety Consciousness - has knowledge of good safety practices Safety Consciousness - has knowledge of good safety practices and demonstrates awareness of own personal safety and the and demonstrates awareness of own personal safety and the safety of others. safety of others. Profit and Cost Sensitivity - ability to seek out, generate and Profit and Cost Sensitivity - ability to seek out, generate and implement profit-making ideas. implement profit-making ideas. Planning Effectiveness - ability to anticipate needs, forecast Planning Effectiveness - ability to anticipate needs, forecast conditions, set goals and standards, plan and schedule work conditions, set goals and standards, plan and schedule work and measure results. and measure results. Leadership - ability to develop in others the willingenss and Leadership - ability to develop in others the willingenss and desire to work towards common objectives. desire to work towards common objectives. Delegating - effectiveness in delegating work appropriately. Delegating - effectiveness in delegating work appropriately. Development People - ability to select, train and appraise Development People - ability to select, train and appraise personnel, set standards of performance, and provide personnel, set standards of performance, and provide motivation to grow in their capacity. < li>Diversity (Equal motivation to grow in their capacity. < li>Diversity (Equal Employment Opportunity) - ability to be senstive to the needs Employment Opportunity) - ability to be senstive to the needs of minorities, females and other protected groups and to of minorities, females and other protected groups and to demonstrate affirmative action in responding to these needs. demonstrate affirmative action in responding to these needs.

These different factors could each be assessed on a three These different factors could each be assessed on a three point scale: (1) recognized strength, (2) meets expectations, point scale: (1) recognized strength, (2) meets expectations, (3) area needing improvement. Examples of work performance (3) area needing improvement. Examples of work performance

in these areas might also be provided.in these areas might also be provided.

Inventory ControlInventory Control

General objective of inventory control is General objective of inventory control is to minimize the total cost of keeping the to minimize the total cost of keeping the inventory while making tradeoffs among inventory while making tradeoffs among the major categories of costs viz.,the major categories of costs viz.,

Purchase costs Purchase costs Order cost Order cost Holding costs Holding costs Unavailable cost Unavailable cost

The The purchase costpurchase cost of an item is the unit of an item is the unit purchase price from an external source purchase price from an external source including transportation and freight costsincluding transportation and freight costs

The The orderorder cost reflects the administrative cost reflects the administrative expense of issuing a purchase order to an expense of issuing a purchase order to an outside supplier. Order costs include expenses outside supplier. Order costs include expenses of making requisitions, analyzing alternative of making requisitions, analyzing alternative vendors, writing purchase orders, receiving vendors, writing purchase orders, receiving materials, inspecting materials, checking on materials, inspecting materials, checking on orders, and maintaining records of the entire orders, and maintaining records of the entire process. Order costs are usually only a small process. Order costs are usually only a small portion of total costs for material management portion of total costs for material management in construction projects, although ordering in construction projects, although ordering may require substantial time. may require substantial time.

The The holding costsholding costs or or carrying costscarrying costs are are primarily the result of capital costs, handling, primarily the result of capital costs, handling, storage, obsolescence, shrinkage and storage, obsolescence, shrinkage and deterioration. deterioration.

Capital cost results from the opportunity cost Capital cost results from the opportunity cost or financial expense of capital tied up in or financial expense of capital tied up in inventory. inventory.

Handling and storage represent the Handling and storage represent the movement and protection charges incurred movement and protection charges incurred for materials. Storage costs also include the for materials. Storage costs also include the disruption caused to other project activities by disruption caused to other project activities by large inventories of materials that get in the large inventories of materials that get in the way. way.

Obsolescence is the risk that an item Obsolescence is the risk that an item will lose value because of changes in will lose value because of changes in specifications.specifications.

Shrinkage is the decrease in inventory Shrinkage is the decrease in inventory over time due to theft or loss.over time due to theft or loss.

Deterioration reflects a change in Deterioration reflects a change in material quality due to age or material quality due to age or environmental degradation. environmental degradation.

The The unavailability costunavailability cost is incurred when is incurred when a desired material is not available at a desired material is not available at the desired time. In manufacturing the desired time. In manufacturing industries, this cost is often called the industries, this cost is often called the stockoutstockout or or depletiondepletion cost. Shortages cost. Shortages may delay work, thereby wasting labor may delay work, thereby wasting labor resources or delaying the completion of resources or delaying the completion of the entire project. Again, it may be the entire project. Again, it may be difficult to forecast in advance exactly difficult to forecast in advance exactly when an item may be required or when when an item may be required or when a shipment will be received.a shipment will be received.

COST ESTIMATIONCOST ESTIMATION

Bh. Nagabhushana RaoBh. Nagabhushana Rao

Costs Associated with Costs Associated with Constructed FacilitiesConstructed Facilities

The costs of a constructed facility to The costs of a constructed facility to the owner include both the initial the owner include both the initial capital cost and the subsequent capital cost and the subsequent operation and maintenance costs. Each operation and maintenance costs. Each of these major cost categories consists of these major cost categories consists of a number of cost components. of a number of cost components.

Capital CostCapital CostThe capital cost for a construction project includes the The capital cost for a construction project includes the expenses related to the initial establishment of the expenses related to the initial establishment of the facility:facility: Land acquisition, including assembly, holding and Land acquisition, including assembly, holding and improvement improvement Planning and feasibility studies Planning and feasibility studies Architectural and engineering design Architectural and engineering design Construction, including materials, equipment and labor Construction, including materials, equipment and labor Field supervision of construction Field supervision of construction Construction financing Construction financing Insurance and taxes during construction Insurance and taxes during construction Owner's general office overhead Owner's general office overhead Equipment and furnishings not included in construction Equipment and furnishings not included in construction Inspection and testing Inspection and testing

Operation and Maintenance Operation and Maintenance CostCost

The operation and maintenance cost in The operation and maintenance cost in subsequent years over the project life cycle subsequent years over the project life cycle includes the following expenses: includes the following expenses:

Land rent, if applicable Land rent, if applicable Operating staff Operating staff Labor and material for maintenance and repairs Labor and material for maintenance and repairs Periodic renovations Periodic renovations Insurance and taxes Insurance and taxes Financing costs Financing costs Utilities Utilities Owner's other expenses Owner's other expenses

Approaches to Cost Approaches to Cost EstimationEstimation

A cost estimate establishes the base line of A cost estimate establishes the base line of the project cost at different stages of the project cost at different stages of development of the projectdevelopment of the project

Virtually all cost estimation is performed Virtually all cost estimation is performed

according to one or some combination of the according to one or some combination of the following basic approaches:following basic approaches:

Production functionProduction functionEmpirical cost inferenceEmpirical cost inferenceUnit costs for bill of quantitiesUnit costs for bill of quantities Allocation of joint costsAllocation of joint costs

Production function Production function In microeconomics, the relationship between the In microeconomics, the relationship between the

output of a process and the necessary resources is output of a process and the necessary resources is referred to as the production functionreferred to as the production function

In construction, the production function may be In construction, the production function may be expressed by the relationship between the volume of expressed by the relationship between the volume of construction and a factor of production such as labor construction and a factor of production such as labor or capital.or capital.

The amount of output Q may be derived as a function The amount of output Q may be derived as a function of various input factors x1, x2, ..., xn by means of of various input factors x1, x2, ..., xn by means of mathematical and/or statistical methodsmathematical and/or statistical methods

Then one can find a set of xs that maximises Q, by Then one can find a set of xs that maximises Q, by optimisationoptimisation

Empirical cost inference Empirical cost inference Empirical estimation of cost functions Empirical estimation of cost functions

requires statistical techniques which requires statistical techniques which relate the cost of constructing or relate the cost of constructing or operating a facility to a few important operating a facility to a few important characteristics or attributes of the characteristics or attributes of the systemsystem

Usually, this is accomplished by Usually, this is accomplished by

means of regression analysis means of regression analysis techniques techniques

Unit costs for bill of Unit costs for bill of quantities quantities

A unit cost is assigned to each of the A unit cost is assigned to each of the facility components or tasks as facility components or tasks as represented by the bill of quantitiesrepresented by the bill of quantities

The total cost is the summation of The total cost is the summation of the products of the quantities the products of the quantities multiplied by the corresponding unit multiplied by the corresponding unit costs costs

Straightforward but quite laborious Straightforward but quite laborious in application in application

Allocation of joint costs Allocation of joint costs Allocations of cost from existing Allocations of cost from existing

accounts may be used to develop a cost accounts may be used to develop a cost function of an operationfunction of an operation

In construction projects, the accounts In construction projects, the accounts for basic costs may be classified for basic costs may be classified according to (i) labor, (ii) material, (iii) according to (i) labor, (ii) material, (iii) construction equipment, (iv) construction equipment, (iv) construction supervision, and (v) construction supervision, and (v) general office overheadgeneral office overhead

These basic costs may then be allocated These basic costs may then be allocated proportionally to various tasks which proportionally to various tasks which are subdivisions of a project. are subdivisions of a project.

Types of Construction Cost Types of Construction Cost EstimatesEstimates

Construction cost estimates may be viewed from Construction cost estimates may be viewed from different perspectives because of different different perspectives because of different institutional requirements institutional requirements

Cost estimates can best be classified into three Cost estimates can best be classified into three major categories according to their functions major categories according to their functions

A construction cost estimate serves one of the A construction cost estimate serves one of the three basic functions: three basic functions:

designdesign bidbid control control For establishing the financing of a project, either For establishing the financing of a project, either

a design estimate or a bid estimate is used a design estimate or a bid estimate is used

Design Estimates Design Estimates For the owner or its designated design For the owner or its designated design

professionals, the types of cost estimates professionals, the types of cost estimates encountered run parallel with the planning encountered run parallel with the planning and design as follows: and design as follows:

Screening estimates (or order of Screening estimates (or order of magnitude estimates) magnitude estimates)

Preliminary estimates (or conceptual Preliminary estimates (or conceptual estimates) estimates)

Detailed estimates (or definitive estimates) Detailed estimates (or definitive estimates) Engineer's estimates based on plans and Engineer's estimates based on plans and

specifications specifications

In the planning and design stages of a project, various In the planning and design stages of a project, various design estimates reflect the progress of the designdesign estimates reflect the progress of the design

At the very early stage, the At the very early stage, the screening estimatescreening estimate or or order order of magnitudeof magnitude estimateestimate is usually made before the is usually made before the facility is designed, and must therefore rely on the cost facility is designed, and must therefore rely on the cost data of similar facilities built in the pastdata of similar facilities built in the past

A A preliminary estimatepreliminary estimate or or conceptual estimateconceptual estimate is based is based on the conceptual design of the facility at the state on the conceptual design of the facility at the state when the basic technologies for the design are knownwhen the basic technologies for the design are known

The The detailed estimatedetailed estimate or or definitive estimatedefinitive estimate is made is made when the scope of work is clearly defined and the when the scope of work is clearly defined and the detailed design is in progress so that the essential detailed design is in progress so that the essential features of the facility are identifiablefeatures of the facility are identifiable

The The engineer's estimateengineer's estimate is based on the completed is based on the completed plans and specifications when they are ready for the plans and specifications when they are ready for the owner to solicit bids from construction contractorsowner to solicit bids from construction contractors

Bid Estimates Bid Estimates For the contractor, a bid estimate submitted to For the contractor, a bid estimate submitted to

the owner either for competitive bidding or the owner either for competitive bidding or negotiation consists of direct construction cost negotiation consists of direct construction cost including field supervision, plus a markup to including field supervision, plus a markup to cover general overhead and profits.cover general overhead and profits.

The direct cost of construction for bid estimates The direct cost of construction for bid estimates

is usually derived from a combination of the is usually derived from a combination of the following approaches.following approaches.

Subcontractor quotations Subcontractor quotations Quantity takeoffs Quantity takeoffs Construction procedures Construction procedures

Control Estimates Control Estimates For monitoring the project during For monitoring the project during

construction, a control estimate is construction, a control estimate is derived from available information to derived from available information to establish:establish:

Budget estimate for financing Budget estimate for financing Budgeted cost after contracting but prior Budgeted cost after contracting but prior

to construction to construction Estimated cost to completion during the Estimated cost to completion during the

progress of construction. progress of construction.

For the For the ownerowner, a , a budget estimatebudget estimate must be adopted must be adopted early enough for planning long term financing of early enough for planning long term financing of the facility. Consequently, the detailed estimate is the facility. Consequently, the detailed estimate is often used as the budget estimate since it is often used as the budget estimate since it is sufficient definitive to reflect the project scope sufficient definitive to reflect the project scope and is available long before the engineer's and is available long before the engineer's estimate. As the work progresses, the budgeted estimate. As the work progresses, the budgeted cost must be revised periodically to reflect the cost must be revised periodically to reflect the estimated cost to completion. A revised estimated estimated cost to completion. A revised estimated cost is necessary either because of change orders cost is necessary either because of change orders initiated by the owner or due to unexpected cost initiated by the owner or due to unexpected cost overruns or savings.overruns or savings.

For the For the contractorcontractor, the bid estimate is usually , the bid estimate is usually regarded as the budget estimate, which will be regarded as the budget estimate, which will be used for control purposes as well as for planning used for control purposes as well as for planning construction financing. The budgeted cost should construction financing. The budgeted cost should also be updated periodically to reflect the also be updated periodically to reflect the estimated cost to completion as well as to insure estimated cost to completion as well as to insure adequate cash flows for the completion of the adequate cash flows for the completion of the project.project.