Chapter 7: Managing Costs
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain the monitoring and controlling process
• Explain the processes used to monitor and control construction expenses.
• Explain how job costs reports are used to monitor and control costs.
Instructional Hints
• Emphasize that one of the most important keys to controlling costs is to monitor costs and
hold employees responsible for costs, schedule, quality, and safety. If we hold them
responsible for only costs, it will come at the expense of safety, quality, and schedule.
Activities
• Obtain job costs reports for a local construction project. Divide the class into groups and
have them discuss:
o How the reports can be used to control costs,
Instruction Resources
• The figures and tables from this chapter in electronic format and PowerPoint slides can be
found at the instructor’s website.
Solutions to the Textbook Problems
1. The key steps of the monitoring and controlling process include establishing a baseline,
collecting data, assessing the data, and, if needed, taking corrective action.
3. Hold the superintendent and crew foreperson responsible for the productivity and costs of
4. Although ownership costs are easy to predict for a year, the number of billable hours for a
5. An internal change order is used to move money from the contingency to a budget line item
6. Budgets that have insufficient funds hold employees responsible for meeting costs that they
7. For the cost performance index to be accurate, the budget cost of work performed must be
8. A project close out audit is used to identify those things that helped to control costs so that
9. The monitoring and controlling of construction costs is done by establishing a budget,
10. Week 1 = $1,000 + $4,000 = $5,000
11. Week 1 = $2,200
Week 2 = $19,600/2 = $9,800
12. The budgeted cost of work scheduled is as follows:
BCWSA = $22,000(2/3) = $14,667
BCWSB = $17,000(2/2) = $17,000
13. The budgeted cost of work scheduled is as follows:
BCWSA = $10,000(3/4) = $7,500
BCWSB = $2,000(2/2) = $2,000
BCWSC = $3,000(1/2) = $1,500
14. The cost performance index is calculated using Eq. (7-2) as follows:
15. The cost performance index is calculated using Eq. (7-2) as follows:
16. The total estimated cost is $54,000 ($22,000 + $17,000 + $15,000). The total estimated cost
17. The total estimated cost is $26,000 ($10,000 + $2,000 + $3,000 + $1,000 + $6,000 + $4,000).
18. The company needs to make changes to their accounting system. The changes included the
following:
• The company needs to be able to establish a budget for each of the custom option and
track the option’s costs against its budget. To do this, each option needs to be listed
separately in the job cost ledger. One way to do this is to set up cost codes for the options.
However, this will not allow the company to track cost by trade for the individual options.
19. See Instructor’s website\Homework Excel Problems\Problem 07-19.xlsx.