PROBLEMS DURING COST CONTROLE

Prepared by:Salimullah Am-552953M.com (3rd semester)

Cost ControlDefinition: The process of managing or reducing expense is known as cost control

Many business use cost control to reduce expense and increase profitability

Cost Controlling is one of the most challenging aspects managers face. Most times, during any project there are problems with project control and record keeping.

Monitoring

Accounting

Maintaining

Cost estimating

Cost accounting

Project cash flow

Company cash flow

Direct labor costing

Overhead rate costing

Thorough planning of the work to be performed

to complete the project

Good estimating of time, labor, and costs

Timely accounting of physical progress and cost

expenditures

Periodic re-estimation of time and cost to

complete remaining work

Poor estimating techniques

Out-of-sequence starting and completion of

activities and events

Inadequate work breakdown structure

No management policy on reporting and

control practices

Poor work definition at the lower levels of the

organization

Inadequate formal planning

Poor comparison of actual and planned costs

Comparison of actual and planned costs at the wrong level of

management

Unforeseen technical problems

Material escalation factors that are unrealistic.

Poor comparison of actual and planned costs

Organization:

Inadequate Work Breakdown Structure Poor work definition at working levels

Accounting: Inability to account for cost of material on applied basis

Analysis: Determination of status not based on work package completionComparison of actual vs. planned costs at improper level

Revisions:Failure to maintain valid measurement baseline

Proposal Phase Failure to understand customer requirements Underestimating time requirements

Planning phase Omissions Inaccuracy of the work breakdown structure Misinterpretation of information Use of wrong estimating techniques

Negotiation phase Procurement ceiling costs Negotiation team that must “win this one”

Contractual phaseProposal team different from project team

Design phaseAccepting customer requests without management

approval Problems in customer communications channels and

data itemsProduction phase

Excessive material costs Specifications that are not acceptableManufacturing and engineering disagreement

In more than 1,000 locations around the globe,

we provide high-quality management of border terminals,

manufacturing and engineering excellence, logistics and multi dimensional freight

services. We're there wherever you go – With 12,000 employees and three decades

of experience, we make sure things always go right.

NLC Construction NLC Engineering & Construction NLC Freight Services Modern Border Terminals NLC Tolling National Express Freight Train NLC Polymers NLC Institutes

Commodity shortages Natural calamities or transporters’ strikes

often put strain on the Country’s logistic system.

NLC is then called in by the Government of Pakistan to restore normalcy through professional handling of the crisis situations.

NLC delivered efficient services during the earthquakes, Floods and war effected areas

Problems of feedback in NLCNLC unlike many is manufacturing situations because it is concerned mostly with one-off projects.Each new contract often has a fresh management team; labor is transient and recruited on an ad hoc basis.Sites are dispersed throughout the country and this tends to cause problems in effective communication with other parts of the company; subcontractors and 'lump' labors are common. Added to all these are ever-changing weather conditions. The problems encountered in the provision of feedback are related to conflicting interests, and poor communication.

Problems of Cost Overrun in NLC.Macro Economic Factors The cost of construction is basically the cost of money, the cost of material, the cost of labor and the cost of management. Top three factors identified by the survey results i.e. Fluctuation in prices of raw materials, Unstable cost of manufactured materials, High cost of machineries are markets related problems. Unlike a manufactured commodity, construction industry is mainly market driven. Prices can, and sometimes do, changes on an almost daily basis. These rapid changes in many cases cause problems for vendors to commit to one fix price.

Management Factors Some cost overruns are unavoidable because they cannot be reasonably prevented, such as those due to unanticipated events, however overruns due to design plan or project management problems are avoidable because they could have reasonably been foreseen and prevented. The project control procedure can help management identify its current position related to a future position

Strong Industry Base

Sustained Growth in Production and

Exports

Easy Availability of Production Resources

Surplus Production for Local and Export

Markets

Good Local and International Reputation

Lack of Innovation and Technology

Development

Absence of Vision to identify weaknesses

Lack of Funds to Take Up New Projects

Lack of Professional Expertise within Industry

Lack of Research & Development

Future Growth Potential Rising Demand Emerging Export Markets Developing a Long Term Vision and Strategy

Research to Develop New Products Focus on Cost Optimisation Possible switch over to Cement Roads Availability of Finance

High Incidence of Taxes

High Input Cost

Decline in Profitability

Inadequate Bulk Loading Facility at Ports

Rising Oil prices

The survey results indicated that the majority of cost overrun factors (88%) lie in medium severity impact range. Attention should be paid to these factors as they cause considerable increase in the cost of the project initially estimated. Findings reveal that both internal and external aspects of business setting contribute to cost overruns. Macro economical factors affect the cost of the construction project most severely. Among all factors leading to cost overruns, management related factors are those which can be controlled and prevented most easily as they are the in-house factors. Business and regulatory environment is dysfunctional and need drastic changes, more scientifically proven methods, tools and techniques may be adopted instead of the orthodox practices Almost every project in the local industry faces cost overruns when executed. Minimum range of cost overrun in percentage of the estimated cost is at least 10 %. Medium sized firms are more prone to cost overruns in comparison with small and large firms, main reason for which being that they are in the transitional phase where they need to take more risk to get more business and establish them.

Macro Economic Factors Fluctuation in prices of raw materials and cost of manufactured materials are

severe when these elements are in short supply, to stabilize the cost of materials, increase of supply of materials can be useful to break the monopoly of few suppliers controlling the supply chain of the market.

Management Factors Thorough estimation process for project costs calculations, with vigilant

planning, keeping in view trends of inflation and depreciation factors, cost variations trends in sector and country with lead to smoother implementation and achievement of desired cost control.

Business and Regulatory Environment Factors The government should think of adopting, not just the conventional

contracts but also the design-build contracts, direct negotiation contracts and other types of contracts. Alternative procurement strategies such as best value procurement should also be adopted in the projects undertaken by government, semi- government bodies and agencies.