I/EC Guidebook for Technical Management
COSTS
Measuring Significant Cost Elements These are some of the variables that m a k e it impossible to guarantee that any estimate w i l l equal the actual job cost By H. Carl Bauman, American Cyanamid Co.
Λ Λ ε ο υ τ the only portion of his estimate t h e cost engineer c a n b e absolutely sure of a t the t i m e of p r e p a r a t i o n is t h a t in w h i c h h e records q u o t e d prices for e q u i p m e n t m a t e r i a l a n d small subcontracts. A t best h e m a y "firm u p " from 30 to 4 0 % of t h e expected final project cost. T h e bulk of his estimating effort still lies in areas subject to m u c h variation even d u r i n g the life of a small project. Local conditions at t h e j o b site c a n h a v e considerable effect on cost of materials a n d supply of labor. E v e n in a n a r e a w i t h a m p l e labor supply, the q u a l i t y a n d productivity c a n h a v e a major effect on the project t i m i n g a n d cost. Strikes m a y often be anticipated based on l a b o r c o n t r a c t d a t e , b u t their d u r a t i o n c a n n o t be predicted. A b a d siege of i n c l e m e n t w e a t h e r c a n play h o b w i t h the best estimate. T h e quality of the construction super visory personnel is a most i m p o r t a n t consideration for efficient j o b cost control b u t is n o t generally k n o w n to the cost engineer at the t i m e of the estimate. I t is i m p o r t a n t t h a t the units for m e a s u r i n g work progress b e estab lished early in the construction p r o g r a m . Particularly does this a p p l y to items in the estimates for w h i c h allowance sums h a d been set u p . F o r instance, if a n allowance h a d been m a d e for spare p a r t s originally, t h e item should be re placed w i t h a list of a c t u a l spares r e q u i r e d , limiting the total cost if possible to the estimated sum. Simi larly, lists should be prepared p r o m p t l y , to cover blanket allow ances for nonprocess e q u i p m e n t such as office a n d l a b o r a t o r y furniture a n d e q u i p m e n t , m a i n t e n a n c e shop tools, a n d cafeteria furnishings a n d
field, to serve as a m e a s u r e of per formance a n d a guide to craft hours r e q u i r e d for each operation. Prog ress c a n be m e a s u r e d in terms of a c t u a l against scheduled m a n - h o u r s . A tight control can t h e r e b y be kept on costs. A n a p p r e c i a b l e portion of the l a b o r cost of installing e q u i p m e n t is a t t r i b u t e d to the auxiliary e q u i p m e n t required for erecting process units. I n c l u d e d is the rental or purchase cost less salvage of such tools as cranes, hoists, a n d welders, a n d the labor cost of their operation. T h e cost of such " e q u i p m e n t r e n t a l s " ranges from 10 to 1 5 % of the total process e q u i p m e n t cost on most chemical p l a n t projects. I t is n o t u n u s u a l for this cost to e q u a l the total e x p e n d i t u r e for all craft labor on the project. F e w d a t a are available to show a b r e a k d o w n of the cost of e q u i p m e n t rentals allocated to spe cific items of e q u i p m e n t . T o control this large item of capital expense it is e x p e d i e n t to estimate its value as a percentage of either total e q u i p m e n t or total labor cost. Control of the estimated sum is obtained by allocating machine rental time a n d o p e r a t i n g m a n - h o u r s , by code, to work items on which they are used. An e q u i p m e n t rental allocation sheet showing distribution
e q u i p m e n t . Allowances for labor items should be r e d u c e d as soon as practicable to a reasonable m a n - h o u r schedule based on specific work units. F o r instance, a l a b o r allowance in dollars for the o p e r a t i o n of a c r a n e should be broken d o w n to the n u m ber of items to be h a n d l e d by the c r a n e a n d t i m e estimated for h a n dling e a c h piece. T h i s p r o c e d u r e of tying a unit q u a n t i t y a n d u n i t t i m e t a g to e a c h work item establishes the m e a s u r e by w h i c h progress vs. esti m a t e c a n be assessed a n d controlled accordingly. Setting Equipment O f all work items the setting of e q u i p m e n t is most readily m e a s u r e d . T h e project control estimate shows a total m a n - h o u r figure for e a c h e q u i p m e n t item. As a rule several crafts are engaged in erecting almost every piece of e q u i p m e n t . L a b o r e r s clear t h e a r e a of obstructions a n d d e b r i s ; iron workers m a y be r e q u i r e d to bolt the e q u i p m e n t to b u i l d i n g steel supports; millwrights will align m o v i n g p a r t s ; a n electrician m a y be r e q u i r e d if a m o t o r is involved ; a n d riggers a n d c r a n e operators will b e needed if the piece is very large, heavy, or unwieldly. A schedule similar to T a b l e I, based on the esti m a t e can be quickly p r e p a r e d in the
Table 1.
Code
Item
50-1 50-2 50-3
Column Heat exchanger Gas compres-
50-N
Pump
Equipment Erection Manpower Sche;dule Craft Man-H ours CarTotal Labor pen- Iron Mill- Elee- Rig Crane in ers ters worker wright trician ger oper. est. 10
15
20
50
··
..
25 20 20
130 50 300 8
Act. total
100
15 3 40
5 2 20
200 75 550
180 70 580
5
1
1
15
14
VOL. 5 1 , NO. 11
·
NOVEMBER 1959
63 A
I/EC
G u i d e b o o k for Technical Management—COSTS
Table II.
Schedule of Equipment Rental and W a g e s at Chemical Plant (Job 0000, Month of May 1058) Equipment Rental Cost $ Actual Estimate
Labor 3ost, S Estimate Actual
Code Chemical area 251-1 Ammonia stor. tank 251-71 Slurry stor. tanks 251-141 Slurry feed tanks 251-501 Carbon steel piping 251-502 Alloy piping 251-533 Motor wiring 251-704 Elevation 251-706 Formwork 251-733 Platform steel Average labor cost at $2.75/hour. 251
7J" J "l" l iTI",!'iTTT rTr
sufficient to set u p a convenient u n i t as a basis for m e a s u r e m e n t . For e x a m p l e , the cubic y a r d as a unit is not a true m e a s u r e of the actual work progress nor the cost of concrete. A cubic yard of slab concrete will cost as little as 535 installed. Yet a y a r d of a thin r i n g foundation for a tank will cost as m u c h as $150. T h e difference in cost is largely d u e to labor expended for m a k i n g forms, placing reinforcing steel, and t a m p ing a n d finishing. A true unit of m e a s u r e m e n t of construction progress for concrete must reflect the variables affecting cost: concrete, forms, a n d reinforcing steel, w h i c h together account for from 85 to 9 0 % of the total in-place cost ( T a b l e I I I ) . It is not e n o u g h to know t h a t a certain joli will require 10,000 cubic yards of concrete. T o measure progress it is most i m p o r t a n t to control against a schedule which reflects the complexity a n d therefore total m a n - h o u r s r e q u i r e d to place the total y a r d a g e . Schedules can be p r e p a r e d from the take-off sheets used to order m a t e r i a l for the j o b . D u e allowances, of course, must be m a d e for re-use of wood or p a t e n t forms. I n this case work will be
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Figure 1. W e e k l y progress chart unit l a b o r cost for concrete (place, finish, cure, rub, patch, grout)
of rental a n d o p e r a t i n g labor costs enables . scheduling of construction e q u i p m e n t time, permits detection of excessive use or idle time, a n d serves as a b a r o m e t e r of installation progress ( T a b l e I I ) . Projection of cost of labor to complete installation is facilitated with periodic d a t a reports provided by c h a r t s similar to Figures 1 a n d 2. W o r k Progress
W h e t h e r progress is m e a s u r e d b y the methods described or by a survey of percentage completion by the experienced construction superintendent's eye, following e q u i p m e n t installation progress affords no special problems. It is a n o t h e r m a t t e r to assess fairly a n d properly the progress of piping, electrical, insulation, a n d concrete installations. T h e experienced appraising eye techn i q u e often leads to optimistic evaluations of work progress. It is not
Table 111.
Code 501 520 525 530 703 730
64 A
Description 2 inch C.S. pipe 2 inch 85% magnesium insula tion Temperature recorders NEMA Size I and II G.P. motors Concrete Forms Reinforcing steel Structural steel
40 350 200
47 344 227
90 650 450
105 599 466
1500
1320
3200
2755
50 50 170 100 450
46 68 156 145 388
110 45 300 200 890
75 33 272 272 615
performed on the forms in each newuse a n d must be scheduled to reflect the true work b u r d e n . As u n i t costs for the concrete c o m ponents are reported, periodic, checks c a n be m a d e against the estimated values. S u c h units will tend to be erratic initially b u t soon settle d o w n to reflect a true c u m u l a t i v e u n i t cost for the work. T h i s is illustrated in Figure 1 for cost of placing concrete. N o t e how widely the earlyc u m u l a t i v e costs varied. T h e constancy of the over-all cost is evident after several m o n t h s of pouring. Piping W o r k Progress
O n most j o b s it is diilicult to evaluate the d a y - b y - d a y status of p i p i n g work. Often an overrun of the estimate in this area is revealed only w h e n it has become actuality. A simplified schedule is used for pinpointing piping work progress. H e r e the n u m b e r of joints for e a c h type a n d size of piping is used as the work unit (see N o v e m b e r 1958 a n d J a n u ary 1959 Cost columns). A quick count c a n be m a d e in the field, from construction drawings, of all n u m b e r of p i p i n g joints (two for couplings, (Continued on page 66 A)
Schedu le of Labor Cost of Materials Installai ion
Quantity 1,000 joints 2,000 sq.ft. 10 25
16,860 255,000 1,500,000 500 tons
INDUSTRIAL AND ENGINEERING CHEMISTRY
Estimated Unit Cost, $ quantity 16,000 4MH/JT 2,000 Sq. ft. 1,000 15,000
Ea. Ea.
92,730 204,000 75,000 30,000
CY SF Lb.
1 ton
Actual Unit cost, S 4/MH 1 100 600
5.50 0.80 0.05 60
(Juan tity 1,050 at 4.5MH 2,100 10 25
117,000 250,000 1,480,000 480
Unit cost, S 4.2/MH 0.90 90 580
5.35 0.82 0.048 62
ProOver jected Actual (Under), S Cost, 3 19,845 3,845 1,890 (110) 900
14,500
(100) (500)
90,950 205,000 71,040 29,760
(1,780) 1,000 (3,960) (240)
I/EC
G u i d e b o o k for Technical Management—COSTS the construction period. This is a condition where progress which has been staled as, say, 5 % per week for months with a given work force suddenly must be reduced to frac tions of a 1 % per week, to prevent the a n o m a l y of showing total com pletion of more t h a n 1 0 0 % . Field Expense
Figure 2 . Operating and mainte n a n c e costs, t e m p o r a r y construction facilities
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valves, elbows, three for tees, etc.). Costs in m a n - h o u r s per j o i n t are available from studies of previous j o b experience, a n d are reflected in the project control estimate. T h e merit of this method is twofold. It provides a means of measuring actual m a n - h o u r s required to install the piping. It affords an almost daily check of actual unit m a n - h o u r expenditure against estimated q u a n tities. T h e advantages for project ing costs to completion are obvious. Similarly, work units for the in stallation of instrumentation, electricals, insulation, a n d steel can be scheduled to provide a working basis for progress measurement. T h e pro cedure m a y seem to require a con siderable a m o u n t of paper work. Experience has taught that a system atic a p p r o a c h using otherwise neces sary take-off information reduces the problem to m a n a g e a b l e clerical effort, inexpensive c o m p a r e d to the alterna tive of " e y e - a p p r a i s a l " progress. A further a d v a n t a g e of the work unit m e a s u r e m e n t a p p r o a c h is in its timeliness. W h e n new work is a d d e d to drawings, the additional quantities arc logged on the schedule sheets, thus always keeping in focus total m a n - h o u r s required for com pleting the project. Most construc tion schedules arc p r e p a r e d from the original control estimate and seldom changed d u r i n g j o b life. T h e failure to a m e n d the scheduled project c h a r t results in " d r a g g i n g " progress per centage reports at the latter p a r t of
INDUSTRIAL AND ENGINEERING CHEMISTRY
Field expense is another i m p o r t a n t cost area requiring the discipline of good m e a s u r e m e n t units. R e p r e senting the bulk of the overhead for the construction phase of the project, it can run between 8 a n d 1 1 % of total installed j o b cost. Typical expenses arc for t e m p o r a r y buildings, roads, railroads, walks, piping, and elec trical a n d the m a i n t e n a n c e thereof. Also included are the costs for con struction tools, office personnel and supplies, field n o n m a n u a l personnel, warehousing expense, taxes, a n d insurance. Schedules for temporary structures can be p r e p a r e d showing approxi m a t e sizes a n d estimated m a i n t e nance material a n d m a n - h o u r s neces sary to keep them in a d e q u a t e serviceable condition d u r i n g the j o b life. Similarly, a j o b n o n m a n u a l m a n n i n g schedule will serve as a week-by-week m e a s u r e m e n t of such requirements. A monthly plot of each field expense account will m a i n t a i n close surveillance of ex penditures vs. estimated cost. Figure 2 is a plot of actual costs of m a i n t e n a n c e of t e m p o r a r y buildings a n d a p p u r t e n a n c e s for a recent grass roots project. T h e line showing original estimated cost is promi nently accented. T h e price of good on-the-job cost control is constant vigilance u n d e r the guidance of the cost engineer. W i t h so m a n y factors beyond his control at the time of the estimate, successfully tried methods of cost control using proved m e a s u r e m e n t techniques can assure that final cost will be kept reasonably close to the estimate.
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