by H. Carl Bauman American Cyanamid
I
Co.
COSTS A
W O R K B O O K
F E A T U R E
Mechanics of Project Cost Control
E C
Control is the key to sur v i v a l in a competitive society
Λ Ν Υ estimate of capital cost, no matter how painstakingly prepared, is meaningless without provisions for subsequent control of expendi tures. The exercise of adequate capital cost control starts with preliminary engineering considerations when the project is initially conceived. Physical development of the process should be based on criteria of sim plicity and availability of standard materials of construction. Every profitable process is potentially sub ject to obsolescence by a competi tor's entry into the field with im proved process or method. In the high-obsolescence chemical industry particularly, conservation of design becomes a practical necessity. It is during the preliminary engi neering phase that most benefit may be had from a careful examination and review of alternatives. Should one large storage tank be used in stead of two smaller ones? Are the compressors somewhat overdesigned to be sure to deliver full capacity under all circumstances? Are safety factors conservatively large? To overcome inherent extra cost re sulting from a pessimistic design approach, some companies are ready to accept a process unit which per forms at somewhat less than 100% of design capacity when delivered
to the operators. Experience has taught that minor alterations, im proved operating efficiency, and clarification of product requirements invariably result in increased produc tivity after initial operation. All steps thus taken in engineering to minimize cost are reflected in the details of the project control estimate. Responsibility for the next step in cost control passes to the purchasing department for negotiating and plac ing orders sufficiently within the esti mate to allow for minor variances MANAGER COST
ι 1 1 1 1 FIELD COST ENO.
and normal contractor's extras. From here on in, expenditures of re maining project funds are made in the field and amount to 30 to 60% of the total. Since such expendi tures include all labor, construction equipment and materials, and re maining process piping, electrical, instrumentation, and insulation ma terials, the application of cost con trol centers at the job site is desirable. Figure 1 outlines a typical field organization for a large cost-plus project, showing responsibilities in
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Figure 1 . Outline of α t y p i c a l f i e l d o r g a n i z a t i o n f o r a l a r g e cost-plus project shows responsibilities in cost control I/EC
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periodically the status of all job costs compared with the project control estimate. To keep the price of cost control at a minimum, he draws his information from job personnel necessary to the construction effort, and limits his staff to a clerk or two, depending on job size and com plexity. In a well planned organi zation the cost engineer depends on the job accountant, timekeeper, and construction engineers to provide, through their normal records using the job cost code, the information necessary for project control. Figure 2 shows the flow of infor mation for cost control. At this point it is well to reiterate the neces sity for a "frozen'" project control estimate coded to a standard code of accounts. T h e complexity of con struction makes it important to have a clearly defined description of work items, so that errors in communica tion can be held to a minimum. It provides the common language for quick interchange of information revealing trouble areas needing im-
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the cost control function. The resi dent engineer or client's construction superintendent is responsible for the smooth operation of the construction organization. H e reports to his company's construction manager. During the life of the job, a close liaison is maintained with the proj ect manager or project engineer.
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The field cost engineer assigned to the project is functionally responsible to the manager of cost engineering, but has a "bed and board" responsi bility to the resident engineer. It is the duty of the field cost engineer working with the project cost engi neer in the home office to coordinate, assist in administering, and report
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