Study on Project Cost Control of Construction Enterprises
By: R. Max Wideman
Abstract With the increasing maturity of construction market, the competition between construction enterprises is becoming fierce. The project profit is gradually decreasing. It demands that all construction enterprises enhance their cost control, lower costs, improve management efficiency and gain maximal profits. This paper analyses the existing problems on project cost control of Chinese construction enterprises, and proposes some suggestions to improve project cost control system.
Key Words ：Construction enterprises, Project management, Cost control
After joining the WTO, with Chinese construction market becoming integrated, the competition among architectural enterprises is turning more intense. Construction enterprises must continually enhance the overall competitiveness if they want to develop further at home and abroad construction market. Construction Enterprises basically adopt the \management-centered\model, therefore, it is particularly important to strengthen project cost control.
1.The Current Domestic Project Cost Classification and Control Methods
Cost refers to the consumption from producing and selling of certain products, with the performance of various monetary standing for materialized labor and labor-consuming. Direct and indirect costs constitute the total cost, also known as production cost or manufacturing cost. Enterprise product cost is the comprehensive indicator to measure enterprise quality of all aspects. It is not only the fund compensation scale, but also the basis to examine the implementation of cost plan. Besides, it can provide reference for product pricing
According to the above-mentioned definition and current domestic cost classification, construction project cost can be divided into direct costs and indirect costs. Direct costs include material cost, personnel cost, construction machinery cost, material transportation cost, temporarily facility cost, engineering cost and other direct cost. Indirect costs mainly result from project management and company's cost-sharing, covering project operating costs (covering the commission of foreign projects), project's management costs (including exchange losses of foreign projects)and company's cost-sharing.
At present the main method for domestic construction enterprises to control project cost is to analyze cost, naming economic accounting, which is the major components of cost management and the analysis of economic activities. In accordance with its scope of target and deep-level of content, GM project cost analysis method can be divided into two categories, namely, comprehensive analysis of project cost and cost analysis of unit project
Comprehensive analysis of project cost. It is carried in terms of budget and final accounts, cost reduction programs and construction installation costs. The methods used are as follows: (1) comparing the estimated cost and actual cost. Check the result to reduce cost, lower cost index and budget status. (2) comparing actual cost and project cost. Check cost reduction programs as well as the windage between the actual cost and plan cost. Inspect the rationality and implementation of techniques organizational measures and management plans.(3) comparing lower cost of the same period last year. Aanalyze causes and propose the improving direction. (4) Comparison between engineering units in cost-cutting. Identify the units cost-reducing, which finishes projects, with a view to further cost analysis.
Cost analysis of unit project. Comprehensive analysis only understand project cost overruns or lower. If we want to get more detailed information, each cost item analysis of unit project is needed. Analysis mainly from the following aspects:
(1) Materials cost analysis. From the view of material stock, production, transportation, inventory and management, we can analyze the discrepancy impact of material price and quantity, the cost-reducing effectiveness resulting from various technical measures, the loss from poor management.
(2) Labor cost analysis . From the number of employment, hours of use, ergonomics, as well as wage situation, we can identify the savings and waste during labor use and fixed management.
(3) Construction machinery cost analysis. From the construction options, mechanization degree, mechanical efficiency, fuel consumption, mechanical maintenance, good rates and utilization, we can analyze the yield and cost discrepancy of fixed-class ergonomics, the cost of poor classes, focused on improving mechanical utilization efficiency and waste caused by poor management.
(4) Management cost analysis. From construction task and organizational staffing changes,
non-production personnel changes, as well as other expenditure savings and waste, we can analyze management fees and justify the rationality of expenditure.
(5) Technology organization measures implementing analysis. It can increase experience for future establishment and implementation of technical organization projects.
(6) Other direct costs analysis. Focus on the analysis of second removal and water, electricity, wind, gas and other expenses situation during construction.
2. The shortcomings of cost-control methods
At present, domestic construction projects cost-control methods have played a significant role for Chinese construction industry and construction enterprises to reduce cost and gain sustainable development. However, we should be aware that these methods exist some shortcomings as follows:
2.1 Lack of systemization.
Presently, the cost control of construction enterprises is a simple control on cost. In fact, project cost control is closely related with project plans and progress, quality and safety. Therefore, cost control should include above-mentioned elements.
2.2 Lack of real time
Modern project management is increasingly tending real-time management and forward-looking management, paying more attention to \emphasizing as much as possible to identify and solve problems before problems occur. The current control system is to control after problems occur, which can't avoid loss.
In addition, current cost-control method is static. It can't monitor and reflect timely costs change, therefore, this method can't provide the support of decision-making for projects management under construction.
2.3 Lack of error-checking and error-correcting mechanism
The current cost-control method is the single-class without error-checking and error-correcting mechanism. If mistakes occur in the future, we can't discover timely, or even impossible found. 2.4 Lack of compatibility
There is lack of compatibility between project cost-control and project finance and corporate management system. The project budget is built on ration, but project financial item subjects are based on current financial general regulation. This is not consistent between
methods. Specific to the software, financial sector of domestic construction enterprises is generally adopting some general financial software, such as UF, IBM. The software is not specifically for the development of construction enterprise, not reflecting the special nature of construction enterprises. However, the budget software is also not considered financial aspect. The lack of compatibility leads to void labor and low management efficiency. At the same time, it increases the probability of error information and error decision
2.5 Limitation on notions and quality of personnel
These days, most of construction enterprises are faced with the shortage of qualified personnel during improving cost-control system. It is difficult to find a suitable person with budget and financial knowledge and practical experience in project management.
3. Suggestions for improving domestic cost-control methods
From the view of enterprises and projects, project cost control is a system engineering. It needs standardization and systematization, closely related to many factors. If current domestic construction enterprises want to establish a practical and efficient cost control systems, the cost-control methods must be improved as follows:
3.1 Establish systemic cost-control system
According to the specific situation of enterprises, company's cost-control guiding documents should be developed. Based on current fixed budget, enterprises develop work breakdown structure of specific conditions. And on these base, along with progress, quality and safety factors, cost control system will be established ultimately, including the establishment of project cost real-time control (the first class by full-time staff in the execution of project cost control, reporting cycle for one week or fortnight), project cost integrated control (the second class, by financial officers in the execution of projects, reporting cycle for fortnight or a month) and corporate cost control (the third class, by company's financial sector, reporting cycle for a month or a quarter). Such three class cost control system resolve the problems of real-time and error-correcting mechanism.
3.2 Develop specific control processes
According to enterprises' specific circumstances, we should formulate specific control processes, identify levels for controlling reporting periods, and arrange specific persons to monitor. Throughout reporting period, two kinds of data or information need to be collected: (1)
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