Construction Project Cost Management

This assignment delves into the complexities of managing costs within a construction project. It examines a case study where a project manager faces unexpected production costs, leading to personal financial contributions to cover the shortfall. The analysis highlights the importance of meticulous cost planning, effective monitoring, and control measures throughout the project lifecycle. The document also explores various resources and best practices for successful construction project cost management.

Project closure report
(Residential House Construction Project)

Table of Contents
1. EXECUTIVE SUMMARY .......................................................................................................................3
1.1 Project Overview................................................................................................................................3
1.2 Project Performance Summary...........................................................................................................3
1.3 Follow-on Actions..............................................................................................................................4
1.4 Lessons Learned..................................................................................................................................4
2. PROJECT PERFORMANCE ...................................................................................................................4
2.1 Financial Status...................................................................................................................................4
2.2 Schedule Performance........................................................................................................................5
2.3 Achievement of Scope........................................................................................................................5
2.4 Variances from Original Business Case.............................................................................................6
2.5 Lessons Learned..................................................................................................................................8
3. PROJECT REPORTS ...............................................................................................................................9
3.1 Project Manager..................................................................................................................................9
3.1.1 Project Summary.........................................................................................................................9
3.1.2 Events that affected Project Performance...................................................................................9
3.1.3 Team Performance......................................................................................................................9
3.2 Project Sponsor.................................................................................................................................10
REFERENCES.............................................................................................................................................11

Illustration Index
Illustration 1: Construction cost.....................................................................................................................7
Index of Tables
Table 1: Calculation of Variance...................................................................................................................6

1. EXECUTIVE SUMMARY
1.1 Project Overview
The project was about the construction of a four bed room residential house for middle
income families in Adelaide which aimed at applying and implements relevant project
management skills and competencies in order to complete the construction work within planned
time schedule and budgetary limit. It is decided to build residential house in Abeleaide because
as per the statistical data median selling price of houses at the placed rose by 17.1% from 2012-
2017. Diverse and regularly increasing consumer demand for environmental friendly houses
were the reason responsible for increasing house prices. All the activities took place by
complying with Building Code of Australia (BCA), co-friendly materials, health & safety
standard & environmental protection laws. The project intends to hire skilled workers and trained
builders in Master Builders Australia (MBA) & Housing Industry Association (HIA) so as to
construct residential house in accordance with the client requirements and specification. Besides
this, constructor paid focus on managing the consumption of energy, water conservation and
minimal of wastage. The entire project based on carrying out eco-friendly and sustainable
construction work by giving full respect to the environmental safety and security. Various project
management practices and integration plan i.e. quality management practices, time management,
risk management framework, proper use of resources, change control implementation,
monitoring and controlling etc. were being followed in order to obtain the targeted deliverable
and outcome.
1.2 Project Performance Summary
The project performance did not show a superb performance because actually, the
construction work of residential houses in Adelaide finished within 12 months at an actual cost
of 300000 Project delay was the result of lack of required sources, late approval, change in
project plan, excessive rain and lack of coordination, however, high price of material and
construction supplies, imperfect estimation and equipment breakdown resultant high cost. In
despite of this, manager has adequately followed quality management practices covering work
breakdown structure, quality plan and strict follow up of quality metrix and quality assurance
system. Timely quality audit conducted in order to identify defects along with the reasons so as

to comply with the approved standards. Strategies actions taken places by the team to overcome
deficiencies and build high quality, environment friendly residential houses in Adelaide.
1.3 Follow-on Actions
Follow up actions will include assessing the quality of residential house that have been
prepared. It helps in assessing whether the material been used were quality enough to hold the
building for long (Svejvig and Andersen, 2015). Further, it is important to note that follow up
action will include renovation plan as well where the project manager have to renovate the
houses after every 1 year in order to regain its strength and stability as well. Adverse effect of
natural disasters can also be considered in this phase.
1.4 Lessons Learned
It is important that the top level management, that is, project manager must be actively
involved in the project to assess its quality. It is also important that human resource such as
labors, workers and other people involved in the project are managed effectively for their
optimum utilization (Alves and et.al., 2012). Moreover, they are also provided with facilities that
keep them motivated upto the completion of the project management of human resources Risk
management is another factor which can be related to availability of raw material, completing the
project within the specific time period etc. Besides this, rain can also ruin the construction.
Hence, it is important to carry out the process considering all the important factors.
2. PROJECT PERFORMANCE
2.1 Financial Status
The expected project budget for the construction work set at AUD 291,390 comprising
expenditures on planning, designing, approval from the government for which target expenditure
expected at $3,000, cost of material estimated at $178,000, labor cost at $90,000 and
constructor’s fee and consultant fee is projected to $110,000. Although, in order to make sure
that actual expenditure does not exceed the targeted limit, various techniques of cost
management and control has been applied, still, actual cost incurred in the project exceeded the
budgetary constraints. It is because of eventual cost overrun with regards to material price and
construction supplies and imperfect forecasting as well that leads to high actual cost in the
construction work. Besides this, electrical faults, safety concerns and equipment breakdown were

some of the reasons encountered for cost overrun (Turner, 2016). Project manager had
undertaken various steps to track material cost includes purchase order, material storage, and
control of theft by strong supervision and material receiving control as well. In contrast, regular
monitoring of project progress and performance review help them out to mange labor cost
(Martinelli and Milosevic, 2016).
2.2 Schedule Performance
The expected completion duration of construction work decided to 10 months (300 days)
from the project charter approval to the completion on 5th October 2018. However, still, the
actual completion duration goes beyond the scheduled time to 12 (360 days) months. It is
because of some unintended risk that took place in the project, more importantly, shortage of
required construction material, labor supply and financial constraints. In addition to this,
improper planning, technical & electrical failure, communication issue, sudden changes in
project plan, external conditions, lack of coordination, labor absenteeism, inefficient site
management and change in design were the reasons founded responsible for the project delay. In
despite of this, unfavorable weather conditions i.e. during rain, it was not possible for the
builders to carry out construction work that delayed the completion period (Nicholas and Steyn,
2017). However, still, various time management practices such as activity resource list, schedule
development and control helps project manager to control the possible delay to the minimum
extent and complete the construction work as early as possible (Steyn and et.al., 2016). The
results drawn identified that the project did not completed within the anticipated time frame.
2.3 Achievement of Scope
The scope of the project was to hire talented and skilled laborers and highly experienced
builders to construct an environmental friedly four bed room residential house. Thus, it covers
hiring, training, contracting with suppliers, material procurement, carrying out construction
work, administration, monitoring and controlling as well (Allen, Thallon and Schreyer, 2017).
The success of the project do not founded any issue of scope creeping because all the activities
were the part of planned scope. Besides this, under the change implementation, various changes
that have been introduced during the project such as change in construction design were
approved by the board after assessment of scope inclusion or exclusion criteria to avoid any
scope creeping possibilities (Cleland and Ireland, 2006). Moreover, tight managerial
supervisions helps to ensure that all the activities conducted are the part of project scope.

2.4 Variances from Original Business Case
Table 1: Calculation of Variance
Material Estimated Cost
(AU$) Actual cost Variance
Planning, designing and
Government approval 3,000 2500 500
Plumbing and sewage material 9,000 10000 -1000
Concrete Column and Beams 12,000 13000 -1000
Slab and Floor covering
materials 15,000 15000 0
Electric wiring materials 10,000 12000 -2000
Windows and Doors 50,000 51000 -1000
Paints, Finishes and Adhesives 6,000 6500 -500
Wood and timbers 4,000 4000 0
Cement 1,500 1500 0
Bricks for foundation and
walling 2,400 2500 -100
Roof and ceiling material 26,000 35000 -9000
Labor 90,000 80000 10000
Firefighting system installation 9,000 10000 -1000
Fencing 10,000 9000 1000
Consultants fee and contractors 20,000 18000 2000
Contingency 23,490 30000 -6510
TOTAL 291,390 300000 -8610

The above table shows the detailed analysis of estimated and actual cost been taken up
while building residential houses. The overall estimated cost of the project was AUD 291390
which increased to AUD 300000 when the project was actually conducted. It showed a variance
on AUD 8610 in comparison to the estimated one. From the above graph, it can be interpreted
that, the actual cost is AUD 8610 more than that of estimated cost. There are various cost which
have shown negative variance. Roof and ceiling material have shown negative variance of 9000.
It is due to increasing in the cost of the material. Moreover, the quantity of material which was
estimated was lower than the actual one. It depicts lack of estimation values and budgeted plan
prepared by the manager. Further, a negative variance in contingency is also reflected in the table
which shows that the entity have to pay for unnoticed liabilities which has arisen in the project
while the construction of residential houses. It is due to increase in the duration of the project
which has attracted it to more liabilities. Negative variance in other costs have also been assessed
which includes, plumbing and sewage material, electric wiring material, windows and doors,
bricks for foundation and walling and fire fighting system installation. It is due to increase in the
prices of material that was required to complete the tasks. The project also had to deal with
economic changes which created higher variance in the cost.
Estimated Cost (AU$) Actual cost Variance
-50000
0
50000
100000
150000
200000
250000
300000
350000
Total construction cost
Illustration 1: Construction cost

There are various costs which has shown no variance. It means that actual cost is equal to
the estimated one. Hence, the manager was able to assess it in effective way. It includes, slab and
floor covering material, wood and timbers and cement. The budget decided for the project was
able to meet the needs of the material in efficient way. It reflects proper planning of the cost for
the required material having zero variance.
There are few costs which shows positive variance. It means that the project was able to
utilize fewer funds in comparison to what was allotted by the project manager (Rose, 2013). A
large positive difference in the actual and estimated cost shows inability of the project manager
to allot appropriate funds for the particular activity. The major positive variance is contributed by
labor charges. It was estimated that labor will cost will be AUD 90000. However, the actual cost
incurred is AUD 80000. The other AUD 10000 can be utilized in different activites.
2.5 Lessons Learned
Area or field Issue Success/
Problem
Impact Recommendations
Procurement Contract
requirement
Manager
was not
fully
involved
in the
contract
process.
All the essential
requirement were not
adequately enclosed in the
contract which require
certain modifications and
has a direct impact over
completion date.
Contract personnel along
with the top authority, more
importantly, project manager
must be actively engaged in
the contracting procedure so
that unnecessary
modifications can be
prevented (Tabassi and et.al.,
2016).
Management
of human
resources
Award
planning
No
incentive
plan was
made for
the
At the project completion,
staff moral was low which
resulted conflicts.
It is necessary to create a
award plan to recognize and
valuing personnel effort for
boosting their morale.

performan
ce
reognition
of
workers.
Risk
management
Approval Delayed
approval
Late approval resultant
project delay.
A contingency plan must be
designed for the possible
delay in the approval time.
Besides this, it should also
cover external impacts like
weather conditions (rain ),
resource constraints and
others and examine its impact
over schedule and cost as
well continuously over
project life cycle (PLC).
3. PROJECT REPORT
3.1 Project Manager
3.1.1 Project Summary
To
The manager,
The project was about the construction and delivery of a four bed room residential
apartment. It was made for middle income earning family living in Adelaide. A plan was made
by the managing team to complete the project inside according to the time schedule and resist
spending to the planned budget. The project was kept Eco-friendly by the construction company
as per the provisions of the government. The house was constructed taking in account and
complying with Building Code of Australia (BCA), co-friendly materials, health & safety

standard & environmental protection laws. The house promised to the client in 10 months. But
the actual time taken exceed to 12 months of construction(Kerzner, 2013). This delay happened
due to the change in project plan, rain, lack of resources and late approvals. For the construction
of the project the budget was set by the management team. The actual expenditure exceeded the
amount set in the budget which created another problem for the project. The budgetary crisis was
created duet to the sudden increase in the materials used in the construction of houses and also
the prices for tools increased in the period. All this created a break down or gap in the budget and
actual expenditure. The team of skilled workers and experienced builders was assembled
construct the apartment. Another big reason for the delay of work was the non cooperation of the
workers within themselves (Burke, 2013). In spite of all the issues faced during the construction
of the residential house the quality of the work kept to the best level. The standards given were
matched in the best way and the house created were of supreme quality. Regular quality audits
were conducted in order to check the segments of work done and also the reason behind the
dealer was found out by the team and rectified to achieve the standard quality and Eco-friendly
and also complying with all the laws.
3.1.2 Events that affected Project Performance
The project performance was evaluated to be mediocre due to the delay in time also the
budget given was exceeded by the construction team. These delays took place due to number of
factors.
 Materiel : The budget set by the managing team exceeded by the construction team as
the price of the material suddenly increased during the course of the construction. This
also resulted in the delay of the project as the material arrived late which hampered the
construction.
 Site management : The site of the construction was ill managed and not controlled by the
builders. The builders did not monitor and the site and failed to provide proper working
environment to the workers which create morale loss in the workers and their working
efficiency was disrupted (Walker, 2015). Therefore, the project was not completed on
the anticipated time.
 Late approvals : The government approvals took more time than estimated which
provided hindrance in the construction process. The approval process stopped the
construction of the house creating a delay in time given. Due to this the project
performance was degraded.

 Rain : Rain played a critical part in the delay of the project. Due to the sudden rain and
indefinite rains in the Adelaide region the construction was stopped for a period. This
event created delay and the degraded the performance.
 Project plan : Due to the non viable element in the project plan. The plan had to made
again by the team which hindered the construction and created delay in the time of the
project.
 Lack of resources : Another event that caused degradation in the performance of the
project was the lack of resources during the construction (Hwang, 2013). This deficiency
in the resources caused a severe delay which lead to breakage in time bound.
 Cooperation of team : The project was highly influenced by the teams work. The
workers did not work with cooperation among each other. This lead to delay in time of
construction.
 Time schedule: The time schedule was not followed by the construction team which
created gap in the completion time. The breach was 2 months extra from the scheduled
time. This factors effected the performance of the project.
3.1.3 Team Performance
The managing committee of construction company hired a team for the construction of a
four bed room Eco friendly house for a middle income earning family. The team was made up of
skilled workers and experienced builders. The team was given the task of construction,
administration, controlling and monitoring of the work (Meredith Belbin, 2011). Lack of
cooperation was found among the team which lead to the delay in completion of the project.
With the further details it was found the team has a low morale. There was no provision for
rewards in team for good performance. This created low morale among the team members and
their work was effected due to that which lead to project delay.
3.2 Project Sponsor
As per the commitment made by the sponsors, all the resources were made available by
them during the construction period. It helped in smooth completion of project. The cost released
by the sponsor matched to the cost management plan submitted by the manager. Cost control
report was also submitted to them to get the funds from their side. However, the actual
production was more than the stated one. It led the project manager to pay from the pocket as
well in order to cover up the cost.

REFERENCES
Books and Journals
Allen, E., Thallon, R. and Schreyer, A. C., 2017. Fundamentals of residential construction. John
Wiley & Sons.
Alves, A. C. and et.al., 2012. Project Based Learning in first year, first semester of Industrial
Engineering and Management: some results. project management. 19. p.20.
Burke, R., 2013. Project management: planning and control techniques. New Jersey, USA.
Cleland, D. L. and Ireland, L. R., 2006. Project management. McGraw-Hill Professional.
Hwang, B. G. and Ng, W. J., 2013. Project management knowledge and skills for green
construction: Overcoming challenges. International Journal of Project
Management, 31(2), pp.272-284.
Kerzner, H., 2013. Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Martinelli, R .J. and Milosevic, D.Z., 2016. Project management toolbox: tools and techniques
for the practicing project manager. John Wiley & Sons.
Meredith Belbin, R., 2011. Management teams: Why they succeed or fail. Human Resource
Management International Digest, 19(3).
Nicholas, J. M. and Steyn, H., 2017. Project management for engineering, business and
technology. Taylor & Francis.
Rose, K. H., 2013. A Guide to the Project Management Body of Knowledge (PMBOK® Guide)
—Fifth Edition. Project management journal. 44(3).
Steyn, H. and et.al., 2016. Project management: A multi-disciplinary approach. FPM Publishing.
Svejvig, P. and Andersen, P., 2015. Rethinking project management: A structured literature
review with a critical look at the brave new world.International Journal of Project
Management. 33(2). pp.278-290.
Tabassi, A. A. and et.al., 2016. Leadership competences of sustainable construction project
managers. Journal of Cleaner Production. 124(10). pp.339-349.

Tabassi, A. A. and et.al., 2016. Leadership competences of sustainable construction project
managers. Journal of Cleaner Production. 124(10). pp.339-349.
Turner, R., 2016. Gower handbook of project management. Routledge.
Walker, A., 2015. Project management in construction. John Wiley & Sons.