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Construction Accounting and Financial Management

Construction Accounting and Financial Management. Chapter 7 Managing Costs. Material Purchases. Purchase orders approved by project manager Supervisor has limited authority to approve small purchase orders. Materials Purchases. Materials Purchases. Labor Costs. Hard to control

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Construction Accounting and Financial Management

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  1. Construction Accounting and Financial Management Chapter 7Managing Costs

  2. Material Purchases • Purchase orders approved by project manager • Supervisor has limited authority to approve small purchase orders

  3. Materials Purchases

  4. Materials Purchases

  5. Labor Costs • Hard to control • Tracked by timecards • Must be processed quickly

  6. Labor Costs

  7. Subcontracts • Often requires progress payments • Hard to determine percent complete

  8. Subcontracts

  9. Subcontracts

  10. Equipment • Hard to control • Controlled like labor • Use equipment time cards • Be sure equipment is returned as soon as the project is done with it

  11. Other Costs • Where possible, use purchase orders • When a purchase order has not been used, approval by project manager is required • For example, for utility bills

  12. General Overhead Costs • Must be managed as aggressively as construction costs

  13. Job Profitability • Update weekly • Cost to complete • Estimated cost at completion • Estimated profit • Include committed costs even if not tracked in the accounting system

  14. Cost Loaded Schedule • Prepare schedule • Assign cost to the tasks • Determine the weekly or monthly costs

  15. Earned Value • Measures performance with regards to • Schedule • Cost • Ignores items which do not have a cost • For example, submittals

  16. Budgeted Cost of Work Scheduled(BCWS) • The expected cost of the work that is scheduled to be performed during a specific period of time

  17. Budgeted Cost of Work Performed(BCWP) • The expected cost of the work that is actually performed during a specific period of time

  18. Actual Cost of Work Performed(ACWP) • The actual cost of the work that is performed during a specific period of time • Hard to calculate in a timely matter because of lag in receiving and processing invoices

  19. Schedule Performance Index (SPI) • SPI = BCWP/BCWS • Measures progress of work • Results >1 : Ahead of schedule=1 : On schedule<1 : Behind schedule

  20. Cost Performance Index (CPI) • CPI = BCWP/ACWS • Measures control of budget • Results >1 : Under budget=1 : On budget<1 : Over budget

  21. Labor Cost Performance Index (LCPI) • Same as CPI except it only looks only at in-house labor • LCPI = BCLP/ACWP • BCLP = budgeted cost of labor performed • ACLP = actual cost of work performed • Measures control of in-house labor costs

  22. Labor Cost Performance Index (LCPI) • Results >1 : Under budget=1 : On budget<1 : Over budget

  23. Total Estimate Cost at Completion • TEC at C = Total Estimate/CPI • Assumes CPI will not change

  24. SPI/CPI Target levels

  25. Project Closeout Audit • Validate data • Find areas where performance was better than expected • Learn how to repeat it • Find areas where performance was worse than expected • Learn how to avoid it

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