ConstructionPro Week, Volume: 4 - Issue: 24 - 06/19/2015

Developing an Effective Cost-Control System – Part 2

Management Analysis and Other Considerations

Last week, we introduced some of the issues field personnel must deal with in collecting and entering accurate time-card data for cost-control purposes. Today, we explore more details in the process of measuring production plus steps management and field supervisors can take to further improve accuracy.  Meaningful and timely data are key to uncovering possible problems and more accurately forecasting completion cost and schedule.

 

Field Feedback

An important role of management is providing feedback to field supervisors. If management challenges supervisors about unreasonable productivity variances, supervisors are more likely to pay attention to the time and quantities they enter. Notice the use of the word “challenges.” This should be an open discussion meant to determine facts and assist the supervisor in understanding your reliance on accurate data. It is always possible that mitigating reasons cause the production to be off, in which case timely notice letters should be issued.

 

Managers who brandish cost information around like a club demanding more productivity are asking for problems. Field people have a favorite trick, too, that senior management must know. It’s called banking the production. If they have a particularly good shift that accomplishes a lot, it is not uncommon to hold back some quantity so it can be turned in on a bad shift. This totally flies in the face of good management, so field supervisors must understand the importance of keeping accurate information, not just being consistent for the sake of consistency.

 

Time-Productivity Relationships

Establishing a way to compare production to cost so it is possible to track fluctuations in productivity is vital. Unreasonable fluctuations show either the work is not progressing as planned or the submitted time does not agree with the work on the product report. Again, going back to experiences observed on past projects, we found one supervisor was always reporting quantities for one activity and time for another. Almost weekly, he would have to be called to find out what was correct—one was always off because the time and production did not agree. If supervisors are banking production quantities, it is harder for management to spot issues that could be the result of subsurface conditions, field disruption or another claimable issue.

 

Equal Comparisons

The quantities you report and the way activities are identified must be clearly measurable and distinguishable from other activities. For example, suppose a project calls for a slab on grade, such as sidewalks, floors or footings. The required finish elevation must hold to a tolerance of, say, one-quarter inch. Because the concrete rests against undisturbed ground (either rock or earth), the ground fluctuation may result in more or less concrete than planned. Owners know this and pay to a neat line or by the square foot. The estimator clearly used the same model to estimate the bid. Therefore, to measure the production, the field supervisor and the estimator must measure the same things.

 

It is not enough to have a planned quantity listed on a quantity reporting form. The supervisor must understand what is included in that measurement quantity. If the field supervisor measures the concrete that comes off the truck but the estimator measures a theoretical pay line, a badly managed activity could look good until the quantity overruns. By then, it’s too late to fix. Fluctuations may call attention to a potential change or to a production problem, but they can only be observed with accurately measured data. Best of breed contractors have hand-off meetings between estimating and project management personnel (field and office supervision) so all parties work with the same reporting cost and quantity information.

 

Periodic Testing

Another concept that escapes some contractors is that the measured quantity must periodically be tested. There might be a cap for a certain item, beyond which a red flag should go up. Perhaps a certain amount of material should be consumed during an activity. Failure to consume as much material as required should raise a red flag. Take the example of an electrical contractor who kept meticulous track of weekly quantities of pipe and wire that were installed. The problem was that the installed materials were never tracked against the purchases—people just made up production numbers to keep the job looking good. There were no caps on the quantities and the change orders were not incorporated into the budget. Therefore, there was nothing to call management’s attention to the issues. Production looked good but was, in fact, horrible!

 

Final Thoughts

Tying production and cost together is critical to getting accurate and useful cost information. Some trades do not lend themselves to easy measurement and it may be better to work on the earned value method of budget versus cost analysis. Next time, we will discuss various earned value methods and see how they work to help measure and control overall production on jobs that may be difficult to track in detail.

 

 

This is the part of an ongoing series of articles on project and cost controls by retired construction cost consultant Larry True.

 

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