Construction Costing

CASH FLOW

Ajay K Duggal, NITTTR Chandigarh

Meaning of Cash Flow

Cash flows are inflows (i.e. receipts) and outflows

(i.e. payments) of cash and cash equivalents.

Movement in cash and cash equivalents are not cash
flows.
Types of Cash Flow

The cash flows generated through various activities are

classified as

Operating cash flow.

Investing cash flow.
Financing cash flow.

Ajay K Duggal, NITTTR Chandigarh

Costing of Construction Works (contd..)

Ajay K Duggal, NITTTR Chandigarh

Operating Activities

Ajay K Duggal, NITTTR Chandigarh

Unit Estimate
This technique is used for preparing preliminary estimates generally prepared during

the conceptual planning phase of a project, with less information available with the
estimator.
In this method, the total estimate of cost is limited to a single factor. The examples of
some of the per unit factor used in construction projects are construction cost per
square meter, maintenance cost per hour, fuel cost per kilometer.
The total cost is calculated by multiplying the cost per unit factor with the number of
units of the corresponding factor.
For example, a preliminary estimate is required to estimate the cost of constructing a
new house with floor area of 170 square meter. If the cost per square meter is
Rs.26,900 (assumed), then the cost of constructing the house will be Rs.45,73,000
(Rs.26,900X170).
Similarly the preliminary cost estimate of constructing a given length of highway can
be calculated by multiplying the unit cost i.e. construction cost per kilometer by the
length of highway (in km).
The details of unit cost of different factors can be obtained from records of past
projects. The accuracy of this technique depends on the quality and reliability of the
data available with the estimator.
Ajay K Duggal, NITTTR Chandigarh

Plinth area Estimate (Based on Rough Cost)

Plinth area of a building means Length x Breadth ( roofed portion only )

excluding plinth offsets.

The estimates are prepared on the basis of plinth areas of the various
buildings proposed to be constructed.
The rates are being arrived at the dividing the total cost of construction with
its plinth area.
For example if total cost of a building is Rs. 2 lac and its plinth area is 50 sq.
m. then plinth area rate =2,00,000 = Rs.4000/- per 50 sq.m.
Using this rate as basis of the next construction, approximate or rough cost of
the proposal can be arrived at by multiplying the plinth area of the proposed
building with this plinth area rate.
The following documents are attached with the estimate

(a) Line plan with brief specifications.

(b) Cost of various services added i.e. electric and water supply etc.
(c) North line should be shown clearly on line plan.

Ajay K Duggal, NITTTR Chandigarh

Detailed Estimate
After getting Administrative approval on rough cost estimate, detailed

estimates are prepared.

In this, the estimate is divided in to sub-heads and quantities of various
items are calculated individually. In the end of the detailed quantities, an
abstract of cost giving quantities of each item and rate of every item
according to the sanctioned schedule of rates shall be attached.
In case of non-schedule rates i.e. rates which are not given in the sanctioned
schedule of rates, proper analysis of rates shall be attached.
If however the work proposed to be constructed is located in a remote place,
the provision for the carriage of the material shall be added in the estimate
to avoid any excess over the administratively approved estimate later on.
The detailed estimate shall also provide for the cost of approach road, water
supply, electric installations and acquisition of land etc, so as to call it a
comprehensive estimate.

Ajay K Duggal, NITTTR Chandigarh

Annual repair estimate

In order to keep building and roads in perfect

condition, annual repairs should be carried out as

follow:

(i) In case of a building-white washing, oiling and painting of

doors and windows, cement plaster repairs (inside & outside),
repairs of floors etc.
In no case this annual repair amount should increase more
that 11/2% to 2% of the capital cost of the building.
(ii) In case of a road-filling patches, maintenance of berms etc.

Ajay K Duggal, NITTTR Chandigarh

Complete Estimate

Ajay K Duggal, NITTTR Chandigarh

METHODS OF TAKING OUT ESTIMATES

Centre Line Method

Ajay K Duggal, NITTTR Chandigarh

Methods Contd...
Centre line method
This method is suitable only if the offsets are symmetrical and the
building is more or less rectangular in shape. The centre line of the
building is determined carefully after doing deductions for repeated
measurements (as explained in the next problem).
This centre line acts as length for the complete calculations of the
estimate. If the deduction is not cared for the results of estimates
may be wrong. All the walls should have the same section.
Crossing Method

In this method, lengths and breadths of the masonry walls at plinth

level are taken (internal dimension of the room + thickness of the
walls) for calculating quantities. The symmetrical offsets are a must
as in the case of centerline method

Ajay K Duggal, NITTTR Chandigarh

Methods Contd...
Bay Method
This method is useful and is generally followed in case of building
having several bays. The cost of the one class room is worked out and
then multiplied by the number of bays in that building. The extra cost
of the end walls and difference in framing. If there is any, should be
made, so as to arrive at the correct cost.
Service Unit Method

This method is followed in cases such as school building where there

are so many class rooms. The cost of one class room us worked out
and then multiplied by the number of class rooms to be constructed.
In case of Hospitals, the service unit is a bed, in case of Water Tank, it
is a litre and in case of Cinema Hall, the service unit is a seat.

Ajay K Duggal, NITTTR Chandigarh

Problem (Home Assignment)

Calculate the quantities of the following items from

the given figure, 3.12 up to G.L., using

(a) Centre line method

(b) Crossing method.

1. Excavation for foundations.

2. Cement Concrete in foundations.
3. Brick work in cement mortar (1:4)
Figure In Next Slide

Ajay K Duggal, NITTTR Chandigarh

Ajay K Duggal, NITTTR Chandigarh

Rate Analysis
At various stages in the project management, we need to know:

how much is cost of executing unit amount of the work

how many equipment or labour are required to execute unit amount of an item of work.

These things are required for the purpose of eliminating cost of construction,

material planning, labour and equipment allocation in the scheduling etc.

Obtaining the cost of unit amount of an item is called rate analysis.
To obtain the rate of an item, generally following cost are considered.

cost of material
cost of labour
cost of equipments, plant tools etc.
overhead cost
profit

Ajay K Duggal, NITTTR Chandigarh

Rate Analysis (Contd..)

The costs of these components are determined from the area survey, schedule

of rates published by central and state government; transportation charges

based on the location of the area.
Also we need to know how much is required for execution of the work. Similarly
number of labour and equipment. One has also to include quality mentioned
during construction we shall discuss this pointing detail through case study.
Cost of material To obtain the cost of material in the unit amount of an
item, first specification is studied carefully. Quantity of material required is
calculated and multiplied by the cost to obtain the unit cost. Cost includes
freight, transportation, sales tax, insurance, as well as profit.
Cost of labour Productivity of the labour is very important aspect in
calculation of labour cost. Productivity of the labour depends upon the type of
work, training imparted to the labourer, nature of work, time schedule of the
work, etc.

For example, a mason can do more plastering standing on the floor than working at a height on the
scaffolding. Initially, it takes time to learn the work and gradually productivity increases.

Ajay K Duggal, NITTTR Chandigarh

Rate Analysis (Contd..)

Cost of equipment
Calculation of work-hour used for equipment is dependent upon the

type of equipment utility. Some equipments are used for specific

purpose where as some of it are used for different work
simultaneously. Generally equipment used individually is calculated
for each item of work. For these equipments, it is not possible to
calculate the cost; the equipment charge can be added as overhead.

For example, installation of a batching plant requires special effort and it is not easy
to distribute its initial cost on the concreting. We can incorporate such kind of work
as establishment charges or overhead.

Overhead cost
During the period of construction, a company has to maintain an

office or depreciation of its equipments may take place. This is usually

taken as 2-5% of unit rate.
Ajay K Duggal, NITTTR Chandigarh

Common Schedule of Rates

CSR is a comprehensive list of various items of work and their rates (per unit) to be used in

construction works
Schedule of rates encapsulates all items in tabular form that breaks a job into component

ports so that completion of discrete tasks can be quantified and invoiced separately.
A CSR may contain list of staff, types of labour and plant hire rates etc. CSR is periodically

adjusted for inflation and new items maybe added or obsolete items may be removed from it.
For Instance, a CSR published by Punjab State contains list of daily wages, monthly wages,

brick work, wood work and there are 34 such items that have been described in the schedule.
The rates given in this schedule would be for normal construction and maintenance works.
For large scale projects, specialized and closure works, separate rates maybe determined by
the Chief Engineer of the Department concerned.
The Schedule of Rates also defines which rate to be used in which region, for example Punjab
State CSR talks about planes and sub-mountainous regions.

Ajay K Duggal, NITTTR Chandigarh

Advantages of CSR
The CSR helps an engineer to prepare the estimate of

any civil work, on the basis of items to be used and

taking their corresponding rates
Work has to be carried on the basis of standard
specifications. CSR makes it easy to estimate
variations.
A large pool of contractors can be asked to tender as
the process is inexpensive and quick
Minimum owner supervision is required related to
quality and schedule.
Ajay K Duggal, NITTTR Chandigarh

Non Schedule Items of Works

Estimate is made in two parts:

For schedule items

For Non-Schedule Items

While the rates for schedule items are readily available in the CSR, the non-

schedule item are estimated based on the market rates prevailing at the time of
preparation of estimate.
Having too many non-schedule items in a tender contract may impair the progress
at the execution or billing stage.
Non Schedule items may be added in the estimate on the basis of site conditions,
architectural requirements etc.
N.S.I are also called open market items.
There is no limit to what these items represent and they frequently include travel
and allowances/expenses on a per day basis.
Following prices are generally considered to analyse the working rate of NSI

Transportation/Carriage Cost @ 3% contingency

Contractor Profit and other expenditures @ 15%

Ajay K Duggal, NITTTR Chandigarh

Cost Control: Stages and Methods

Cost Control is concerned with:

Monitoring cost performances to detect variances from the

original estimate
Influencing the factors which create changes to cost baseline to
ensure that those changes are beneficial in future
Managing the actual cost changes as and when they occur
Ensuring that all appropriate changes are recorded accurately
in the cost baseline.

Ajay K Duggal, NITTTR Chandigarh

Cost Control (contd..)

Primarily it can be said that cost control has the

following purpose:

To limit the clients expenditure to within the amount actually

agreed upon by all the parties involved
To achieve a balanced design expenditure between various
elements of the buildings
Exercise overall financial control and relationship between
value of the work completed and valuation of work done every
month.

Ajay K Duggal, NITTTR Chandigarh

Stages of Cost Control

Pre Contract Stage:

During the design stage: Adopt the most economical section that meets the
structural and aesthetical needs
Maximum use of locally available material should be ensured

Post Contract Stage:

Inspecting construction material at source to eliminate defective material being

incorporated at work site
Adopting suitable quantity buying policy to reduce transport expenditure
Exercising proper supervision of labour

Continued valuation of output

Avoiding idle hours of equipment
Keeping overheads to minimum
Adopting appropriate safety measures to avoid accidents because

accidents always lead to cost escalations

Ajay K Duggal, NITTTR Chandigarh

Methods of Cost Control

Can be explained with the help of following schematic diagram

Units of Work Completed

Ajay K Duggal, NITTTR Chandigarh

Other Cost Control Methods..

Provide alternative materials that may include

recycled materials
Use performance based specifications
Continuous Inspection Works
Eliminate limitations that constraints the number of
bidders,
Improve Project Communications
Conduct Constructability Analysis

Ajay K Duggal, NITTTR Chandigarh

Constructability Analysis
Constructability is: an understanding and coordination

of the construction process, and the client's needs and

wishes, to ensure they are planned, scheduled, and
incorporated to enable construction according to the best
practices without re-work delays, disruptions, or
unexpected costs.
Major Constructability Issues

Selection Of Equipment
Selection of Construction Materials
Space Limitations
Pricing and Purchasing of Material
Future Considerations and Serviceability Requirements

Ajay K Duggal, NITTTR Chandigarh

Cost Forecasting
Purpose of cost forecasting is to estimate cost of a project prior

to its construction.
Cost estimates are produced at various stages of the lifecycle of
the project.
An early estimate helps the owner to decide whether the
project is affordable within the available budget, while
satisfying projects objectives.
Forecasting can easily be done with the help of Work
Breakdown Structure (WBS) as it serves as an important
framework for organized project cost data
Historical data from past projects is also referred for
calculating cost of materials, equipment, and labour
Ajay K Duggal, NITTTR Chandigarh

Schematic Representation of Cost Forecasting

Contract
Type

Ajay K Duggal, NITTTR Chandigarh

Misc.
Factors

Project Variations
A variation in the change in the scope of works in a construction

contract is termed as a variation.

Variations mean change (addition or omission) to the works, the
timescale in which the works are to be completed.
Variations maybe in the form of risks or opportunities.

A variation log, if prepared, enables accurate assessment of construction works,

and maintain invoices of stage payments.

Variations maybe due to change in

Design/Drawing>>Quantities>Quality>Working Conditions>Sequence of Work

Cost delay because of operational changes

Variations are of primarily two types

Normal Cost Variation

Schedule Variations

Ajay K Duggal, NITTTR Chandigarh

Further Reading
METHODS OF MEASUREMENT OF BUILDING

AND CIVIL ENGINEERING WORKS

Earthwork - IS 1200 ( Part 1 ) : 1892

RCC Work IS: 1200 ( Part II )-1974
Steel Work IS: 1200 (Part 8)-1993
Brick Work - IS: 1200 (Part 8)-1976
Whitewashing and Painting - IS: 1200 (Part 13)-1994

Ajay K Duggal, NITTTR Chandigarh