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UNIT
- III
2 MARKS
are the probtems which occurred in cost control?
During the execution of a proiect, procedures for project control and record keeping
become indispensable tools to managers and other participants in the construction
process. These tools serve the dual purpose of recording the financial transactions that
occur as well as giving managers an indication of the progress and problems associated
with a project.
The problems of project control are aptly summed up in an old definition of a project as
',any collection of vaguely related activities that are ninety percent complete, over
budget and late." The task of project control systems is to give a fair indication of the
existence and the extent of such problems'
1. what
2.NamethetypesofAccountingorMethodofAccountlng.(MaylJune2oo7)
1. Completed-Contract method
2. Percentage of completion method
3.
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theprojectmanagementformakingdecisionsforthefutureandnotofthepast.
In construction projects, generally there are two parties whose lnvestments are
various
standards,
responsibility centers of operating divisions, relating the cost incurred ]^,ith
analyzing the reasons for variances, and presenting the results of monitoring to
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for
projecting cash requirements and income on individual projects' This usually goes hand
in hand with the proieit management philosophy of the execution of construction. In
cases where the critical path method (CPM) or PERT scheduling is employed, it is
posslbletogeneratecashflowdirectlyfromtheseschedules.Therehasbeengood
success, although the complexity of the programmers at times has led to technical
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difficulties.
what are the objectives of cost control?
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6. What are tlie stag.es of work at which cost control is affected? (May/.run
2(,12)
is Very much essential in the cost analysis to give the various items, certain syrnbols
or code numbers by which they can be identified without taking pains to write the full
description every tirne.
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1.
2.
3.
4,
5.
6.
plan of operations, indicating the amounts required for achieving assigned targets,
and the expected receipts frorn sales or the value of work done'
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project.
It.is essentially a planning document. It outlines the financial plan of the
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> It specifies the future financial course of action for steering the project.
> It speclfies a standard for measuring effectiveness and efficiency with which
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of
of total project
reductions.
(i)
3. Economic choice
4. Financing problems
be
cost
1. Pay back
2. Return on capital employed
3. Discount cash flow method.
1.
2.
3.
4.
23. Explain the order-of cash flow status report? (Mayllun 2609)
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Costs
Billings
Payables
Receivables
Cash position
In addition to cost control, project managers must also glve attention to monitoring
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Delays in construction represent additional costs due to late facility occupancy or other
factors.
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The overall project budget requires buy-in from management and from
owners of the Business Plan.
Breaking this overall budget into WBs-related parts permits the project manager
and each task leader to control their own performance.
II h
IL sirc costs invotved in a project. (AprlMay 2OOa)
fbG -c EE types of costs in a typical project:
. Fi=d
o rU*iable
o Died
e Indrect
e Sunk
3G Dfrerentiate cost committed and cost exposure. (Nov/Dec
2OO8,
Aprl&ay 2Dtt)
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(Nov/Dec 2oo8)
Accounts receivable represents money owed by entities to the firm on the sale of
products or services on credit. In most business entities, accounts receivable is typically
executed by generating an invoice and either mailing or electronically delivering it to the
customer, who, in turn, must pay it within an established timeframe, called credit terrns
or payment terms,
35. What
and
2OO9)
the
reporting
of any
completed.
construction projects.
is
in
.
.
Only active tasks are included in the report. An active task is one which has not been
terminated and has not yet completed the final stage of the workflow used to
manage the task.
You cannot run this report for archived jobs.
37. What are the advantages of accounting system? (l't aylJun 2Ot2)
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Speed
38. How witt you estimate the progress of a proiect? (Nov/Dec 2012)
The more accurate your estimate of project cost is, the better able you will be to manage
your project's budget. Therefore, estlmating a project's costs is important for several
reasons:
. It-enables you to weigh anticipated benefits against antlcipated costs to see whether
the project makes sense.
. It ailows you to see whether the necessary funds are avallable to support the
proiect.
. it slrves as a guldeline to help ensure that you have sufficient funds to complete the
project.
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Target S-curve
Value and Percentage S-curves
The s-curve shape arises during early contract stage, because of lesser number
of activities and hence, the expenditurb curve is relatively flat.
.
o
To
Production Schedule.
is
The Production Schedules should contain the following information for each task:
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required.
proifrr
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Equipment: The computer you use to compose the copy for the brochure
Management and adminlstrative salaries: A portion of the salaries of upper
managers and staff who perform the administrative duties necessary to keep your'
organization functioning.
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16 marks
What are the obicctives of co,st controt? Exptain. (8 Marks) (l,raylJune
2(,(,7,2012)
> To locate Areas of fnefficient Functioning
During the course of coflstruction, if there is in-efficient functioning
' the
at any stage or
work is carried out in ah unecondmical mdnn"r, ttr"n in" ..Itlnt
data is
used so that the remedial action can be taken well in time.
"t
Cost control data gives the day to day costs incurred on the various
' and
of work
thus provides a.n immediate warning to the site engineeriitems
whether
the
construction cost is going higher than the estimated one.
o If the methods of cost control are not used, then any loss in the construction of the
project will be known only at the end and then it *orra
o".Lrn" loo tate to do
anything except to accept the losses.
> As a Basis for preparing Estimates
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The unit rates of.the cost for various items of work can be
charked out after the
comple-tion of a job and these would help in preparing realistic
estimates for similar
works for which the contractor may like to tendei his did.
However, the costs also depend upon the local conditions
as well as the labour rates
prev.iring in that particula. area. ihus, the unit
rates of costs inourJ'not arways be
ao-plied to simirar types of.works and appropriate adjustments
srrouiJ ue maoe to get
efficient output of the work.
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r'Needlesstosay,thisincreaseinexpectedcostsisnotawelcomechangetothe
project manager.
2.
BILLINGS
r'ThisrowsummarizesthestateofcashflowswithresPecttotheownerofthefacility;
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3.
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ruEles
to material suppliers,
The Payables row summarizes the amount owed by the contractor
labor or sub-contractors'
material
At the time of this report, i6,71g,:I}3 had been paid to subcontractors/
yet
been
not
have
but
suppliers,.and ottrers. liv-oiJeJ oi si,:oo,oe9 have accumulated
paid.
r'Retentionof$3gl,6Tlhasbeenimposedonsubcontractors,and$343,653indirect
labor expenses has been occurred,
4.
RECETVABLES
r'Thisrowsummarizesthecashflowofreceiptsfromtheowner.Notethattheactual
payments or
ieicipts from the o*n"r .uy differ from the amounts billed due to delayed
retainage on the part of the owner.
Thenet-billedequalsthegrossbilledlessretentjonbytheowner.In-thiscase,gross
and the
biled is $g,276,62L tu, .nz*n-in lne uittings row), the net billed is $8,767'673
retention is $514,948.
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CASH POSITION
ac;;ni.
t'YXii,ilr)1r".:1fl;i
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management approved financial plan of operations, indicating the amounts required for
achieving assigned targets, and the expected receipts from sales or the value of work
done.
A project budget reflects the.financial plan of the operations, divided into responsibility
centers
with specific goals clearly outlined along with the costs expected to
be
incurred.
The Primary purpose of having a budget is to assign financial targets and resources to
each responsibility centers, to co-ordinate their activities, to form the basis for
controlling programmed, and to make the participants cost conscious instead of
purposeless routine working. The basis of the budget is the project plan and its
schedule
of work.
6. Explain the importance of forecasting the activity cost contro!. (Nov/Dec 2ooa)
For the purpose of project management and control, it is not sufficient to consider only
the past records of costs and revenues incurred in a project, Good managers should focus
upon future revenues, future cosls and technical problems.
Cost analysis aims to predict
future
2.
3.
Jo'b status
4.
Definition: The project budget is the well co-ordinate management approved financial
plan of operations, indicating the amounts required for achieving assigned targets,
and the expected receipts from sales or the value of work done.
A project budget reflects the financial plan of the operations, divided into responsibi,ity
centers with specific goars crearry outlined arong with the costs expected
incurred,
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to
be
The primary purpose of having a budget is to assign financial targets and resou.ces
to
each responsibility centers, to co-ordlnate their activities, to form the basis for
controlling programmed, and to make the participants cost conscious instead of
purposeless routine working. The basis of the b.udg.et is the project plan
an{ its scledule,
or work.
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In a construction project, the client and the contractor have separate budgets.
The client is construction budget is primarily a capital budget designed to formulate
tirne-phase funds requirement and the sources from which these funds are to
be
provisioned' It also includes the expenditure on procurement
of land, consultant fee,
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The contractor's budgeL is.. resources, cost and: sales income oriented budget. It
includes income and expeadit,re statements, cash frow, barance sheet etc
2.
3. It
an
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Financial accounts
of an organisation always
In
an
organisation
all the expense transactions are recorded in a general ledger'
The general ledger of accounts is the basis for management reports on particular
project as well as financial accounts for the entire organlsatlon. oLher components of
a financial accounting system includes:
4.Theaccountpayablejournal:Thisisintendedtoproviderecordsforbillsreceived
from vendors, material suppliers, subcontractors and other outside parties. Invoices
of
charges are recorded as checks issued in payment' Charges to individual cost
accounts
are posted to general ledger'
5.Accountsreceivablejournals:Toprovidetheoppositefunctiontothatofaccounts
6.
payable. In this Journal, billings to clients are recorded as well as receipts' Revenues
received are posted to general ledger.
lob cost ledgers: Summarizes the costs associated with partlcular project arranged
in the various cost accounts used for the project budget'
recorded
as both a
in journals. With double entry book keeping, each transaction is recorded
debit and credit to the particular accounts in the ledger'
project
For example: Payment of a suppliers bi II represents a debit or increase to a
cost account and a credit or reduction to company's cash account' Periodically, the
Posting
transaction information is transferred to ledger accounts. This irocess is called
and may be done instantaneously or daily in computerized systems'
Inrecivingaccountinginformation,theconceptsofflowsandstocksshouldbekept
in mind. Daily transactions reflect flows of rupees entering or leaving the organisation.
9.
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fSrtrow
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2o1o,
Last Week
Last Month
Last Year
rrent
31 - 60 Dat/s
51 - 90 Days
91 - ilIOIEF
120 + Drrs
Cu
TOTALAU.
COLLECiION RATTOS:
Total AP vs. Collections
Total AR vs. Collectlons
o/o
o/o
accounts, lncluding
omCaion Foportion.
Pryables: The payables now summarize the amount owed by the contractor to material
slmfetrs, labour, sub-contractors. The total payables are equal to the total projdct
shovrn in the first row of costs.
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Hr.flGS Thb row summarizes the cash flow of receipts from the owner. Note that the
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expenses
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moment in time.
Balance Sheet
of financiar position rs a
summary of the financiar barances of a sore proprietorship, .business
a
partnership,
a corporation or other business organization, iuch
as an LLC or un t-t-p, nrr"tr,
liabilities and ownership equlty are ristea
as or a specific date, such as the end of
its financiar year' A barance sheet is often
described as a ,,snapshot of a
company's financiar condition". of the four
basic financial statemeRts, the barance
sheet is the onry statement which appries
to a singre point in time of a business,
calendar year,
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(MaylJune
drange orders representing changes in the "final" design are often issued to
incorporate changes desired by the owner,
Beyond the direct updating of activity durations and cost estimates, project
rnirnagers should have mechanisms available for evaluating any type of schedule
clrange.
Updating activity duration estimations, changing scheduled start times, modifying
the estimates of resources required for each activity, and even changing the
project network logic (by inserting new activities or other changes) should all be
easily accomplished.
In effect, scheduling aids should be directly available to project managers.
Fortunately, local computers are commonly available on site for this purpose.
"Percentage completion
FoFds.
Percentage of completion Method: The actual costs are reported on the income
statement plus a proportion of all project revenues equal to the proportion of work
completed during the period.
The proportion of work completed is computed as the ratio of costs incurred to date and
the total estimated cost of the project.
14. Describe the retationship between cost and schedute information. (Nov/Dec
20t2)
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in
projects.
But
elemehts.
Project costs and schedures are recorded and reported in separate apptication
programs,
Project manager must then perform the tedious task of rerating the two sets
of
information.
The primary difficulty in integrating schedule and cost information is the level
of
details required for the effective integration. A singre project activity invorves
numerous cost account categories.
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to
resoufces.
work
accounts.
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