Project Management Assignment: Cost-Management Plan By Best Construction WA Limited

Question

Task:In this project management assignment, you are required to write a report containing a cost-management plan for a project based on the scenario. You will require to spend 6-8 hours to complete this project. You must demonstrate that you can, on multiple and complex projects, successfully (i) Work closely with others to determine resources against budgetary frameworks; (ii) Prepare a budget and cost-management plan for a project; (iii) Monitor costs across a project's life cycle including solving cost variations and analysing possible alternatives; (iv) Record expenditure, create accurate financial reports and review cost-management processes..

Project:
Johny English, the founder and chief executive of Best Construction WA Limited, Perth, received a phone call one afternoon from a local resident, Ms Kate Sumner, requesting a quote to design and build a large storage shed on her property. Ms Kate told him that she required a large shed, big enough to store her garden tools and utility vehicle and spaces for a workbench and fertilisers. She also specified that the shed must have power, water and a toilet. Ms Kate wanted work to commence in 8 weeks and would like the job completed no more than 4 weeks after that so she would have a place to store her vehicles before the winter rains came.

Ms Kate asked Johny English to come up with a design and quote to build her shed in one week’s time. She told Johny that she was obtaining three quotes from three different builders and that she would select her preferred builder based on four criteria. These were quality, the ability to start and finish on time, and cost. Ms Kate said she would like to spend no more than A$80,000 on the shed.

Johny knew he would have to come up with a winning design, so he would need to put his designer, Madeleine, on the job of coming up with some innovative designs. Johny would also have to source higher?quality building materials to give him the edge in meeting Ms Kate’s stringent evaluation criteria over his competitors. Johny also knew that he would need to plan the human resources necessary to complete the job in the time frame required. He knew it would not be too much of a problem getting some of his construction workers to start in 8 weeks’ time but he was not sure about the availability of his subcontractors—Ben the electrician, Greg the plumber, Douglas the glazier and Steve his fencing contractor—because they were all very busy.

After signing the contract Johny would need to submit a development application and construction certificate to the local council and await their approval. Ms Kate’s final selections for colour and style of shed materials would need to be finalised.

Once all that had been accomplished Johny and his team of four would have to prepare the site for construction. This would involve performing underground cable service checks and, perhaps, contracting a surveyor to locate existing boundaries as the shed was going to be built close to the boundary with another resident’s property. The site would need to be cleared, temporary site facilities (such as a toilet, site fencing, power and water) would have to be established, the site set out and the formwork built. Following this, the site would be excavated. While the excavation was taking place Johny would need to remember to book a council inspection for the formwork prior to concreting, as well as booking the concrete truck, a date for the shed to be delivered, a date for the shed installation team to put the shed into place, and dates for his subcontractors to come and install power and water.

After pouring the concrete and finish his team would need to strip the formwork. At this time Johny could invoice Ms Kate for a progress payment, as this represented a milestone in the project. Following this the shed could be delivered and installed, Ben the electrician could be called in to connect the mains power, Greg the plumber could connect the water and install the toilet and Douglas the glazier could install the windows. While they were busy doing that Johny and his team could start clearing the site, removing any rubbish and the temporary site amenities. Once all these tasks were accomplished the job would be at practical completion. Johny would then meet with Ms Kate, present her with a final bill and hand over the keys to the shed.

In small groups of 2-3 people, you must complete the following tasks:
1. Working within your set budget, discuss and identify the resources you will require for the project with your group members. Design and complete a resource requirement sheet for each of the following major resources relevant to your project:

1. Equipment
2. Facilities
3. Fees and charges
4. Human resources
5. Materials
6. Services
7. Statutory costs.

2. Develop a WBS for this project. Now, prepare a project budget using either the top-down approach or the bottom-up approach. You must answer the following question:

1. What approach did you use?
2. How did you identify the project costs?
3. What are the direct and indirect costs?
4. Are there any possible risks that may occur throughout the project?
5. What is your budget tolerance?

3. Prepare a cost management plan for your project. You must answer and complete the following questions

1. What tasks produce costs?
2. What materials are required?
3. Create a timeline for the completion of the project
4. Identify one cost control tool you may use to manage the project costs
5. Identify who will manage the project costs and identify three organisational polices and or procedures applicable to your role in a project
6. Provide details of any mathematical formulae you have used to measure the costs of the project
7. Provide details of any contingencies
8. Have you identified any key performance indicators you will use? How will these KPI’s be measured?

4. In order to monitor the estimated costs against your actual expenditure within the project, design and complete a critical path schedule. You must ensure the following are recorded:

1. Estimated costs vs. Actual costs
2. Possible alternative actions you may take.
3. Who would approve the alternative actions you have suggested?

5. Lastly, you must demonstrate your ability to identify all areas of expenditure. Create a financial report that is laid out clearly and is easily understandable. The report must review the cost management processes you took. When preparing the report make sure your report includes the following:

1. Identify and apply of each of the following:
   1. Budgeting processes;
   2. Budgeting tools;
   3. Budgeting techniques.
2. Identify and apply of method and tool used for costing and cost analysis.
3. Develop a budget for the project.
4. Ways to evaluate the cost management of the project.
5. Organisational polices and or procedures applicable to the role in the project

Answer

Introduction
The cost management plan as developed within this project management assignmentis considered as a document that generally helps in mapping and controlling the budget. It also helped in doing estimates of the costs and also allot resources to the correct area. In this assessment, a report has been made containing the cost-management plan from Best Construction WA Limited, Perth for a local resident regarding design and building a large storage shed on her property.

Task 1
Discussion
a) Equipment
In this project, the equipment has been used to build the large storage shed. Equipment such as welding machine used for making the structure of the shed, hammer, saw, screwdriver, drill machine, nail gun, and framing square.

b) Facilities
The facilities in this project are involved with providing the facility for the workers in the project including their safety, infrastructure, along with their washing and eating facilities.

c) Fees and charges
Fees and charges in this project are incorporated with supervising the project by the surveyor for locating the existing boundaries and underground cable service. Including that the fees and charges also involved with the executing charges for excavation procedure and for completion of the project.Along with that labour charges, procurement charge, designing charge and consultation charges have to be included as a part of fees structure of designing the building

d) Human resources
The human resources in this project involved the tasks of managing the project for planning it to be complete within the time frame. As a part of human resource, Ben being in charge of electric department, glazier work by Douglas, Plumbing work by Greg and fencing work by Steve have to be progressed

e) Materials
The materials which have been used in this project are included with the metal for making the structure and the metal sheet for the roof, including that wood, brick, concrete, glass, and resin have been used for building the shed.

f) Services
The services in the project are associated with the labor and service charges including cleaning the land before and after the project for removing the rubbish and temporary site amenities.

g) Statutory costs.
In this project, the statutory costs are involved with the planning and regulation application for assigning the council inspection for the formwork.

Task 2
Development of WBS

Figure 1: WBS structure of the project
Source: created by presenter The above WBS structure has helped in recognizing the important activities that need to be completed within the 5 phases of the project. Initiation phase of the project associated with site inspection and preparing the site for the development of the large shed also performs in the phase. Involvement of the WBS structure will enable the project manager to develop visual planning that will assist in monitoring the progress of the large storage shed building project.

Development of project budget

Bottom-up approach has been involved within the budgeting process that allows the project manager to recognize the specific and general task that will control the expenditure.

Involvement of approach
Bottom-up approach has been used in the project that helps in recognizing the specific to general task of the project. With the application of the approach, specific characteristics of the project have been revealed and identify the opportunities within the project that will add value to the project. On the other hand, involvement of the approach also helps in establishing effective communication between stakeholders of the project so that an impressive outcome can be delivered and the end of the project.

Figure 2: Bottom-up approach
(Source: Castillo et al.., 2018)

Identification of project cost
Inclusion of the parametric estimation technique can help in recognising the project cost and also help in calculation of estimated time and financial resources that are essential to complete the project. Parametric estimation is one of the common techniques that will estimate the cost of different levels of granularity. It is one of the successful approaches for repeat baked construction tasks.

Figure 3: Parametric estimation
(Source: Kumaraswamy et al.., 2017)

Direct and indirect cost
Direct costs are the costs that are directly associated with the project attributes. Such as purchasing equipment that is required for completing the project (Forcada et al.., 2017).

Direct cost: raw materials, equipment, labour cost and other production cost.
On the other hand, indirect costs are not fiercely attributable to the project such as overhead cost of the project, personnel fringe benefits and others.

Indirect cost: utilities, supplies, payroll services and benefit and perks programs.
Potential risk of the project
One of the potential risks of the project is cost risk that can escalate the overall budget of the project. The cost risk can appear due to the poor planning and cost estimation of the project. On the other hand, performance risk is another risk that can generate inconsistency within the project. Operational risk and strategic risk can also appear within the project that has the ability to prevent the generation of an ideal outcome from the project.

Budget tolerance
Involvement of budget tolerance will allow the project manager to introduce flexibility within the finance management of the project. The project manager will be allocated 90% of the total budget to allow some tolerance to the project and control the rate of expenditure. Therefore, inclusion of contingency planning will help in managing the risk of the project and allow the project manager to develop an alternative plan if the main plan fails to develop the desired result. As the client of the project is very particular about the quality of project outcome and materials, therefore, the project manager required to invoke alternate ideas to generate desired result.

Task 3
Cost management plan
Purpose
Purpose of the cost management plan is to complete the project of building a large storage shed within a limited budget and estimated time period. In order to complete the project within $80,000 budget and 8 weeks of time, it is essential for the project manager to identify the constraints in the project so that effective strategies can be avoided to maintain the progress of the project.

Scope
Identification of internal and external cost components of the building shed project can be achieved by cost management plan. Internal and external cost components of the project are, Internal: project team members, resources, equipment, installation of power and certification. External: budget of the project, certification and insurance.

Cost management role and responsibilities
Project sponsor
Johnny English, chief executive and founder of Best Construction WA Limited, Perth, is the project sponsor of building a large storage shed for Ms. Kate Summer within 8 weeks of time. Johnny and associates are responsible for managing the budget of the project and delivering it within a limited time period.

Project manager
Johnny English is the project manager of the shed construction project and he is responsible for managing the day-to-day activities of the project and updating the order as per the current requirement of Ms. Kate Summer.

Project team
Role of the project team to execute the assigned duty in accordance with the cost management. Johnny and his team of four members need to support each other so that all the variables within the project can be attained.

Contractor support
Contractor of the project is responsible for presenting a work breakdown structure that will point out the dependent and independent activities of the project. Execution of work packages that are aligned with the proposed budget is the responsibility of the contractor.

Cost management approach
Cost planning and estimation
Associated team members and the project manager of building large shed projects are responsible for managing the cost of the project and completing the project within an $80,000 budget and 8 weeks of time. Involvement of work breakdown structure will enable the project manager and constructor team to recognise the dependent and independent activities of the project and complete the task within the estimated timeline. Allocation of the budget needs to be approved by the project manager and if required, the project manager of the large storage shed building project will adjust the allocated budget after reviewing the tasks. As the project sponsor and project manager of the large storage shed bulking project is the same, therefore, changes in the baseline of the cost do not require any additional approval of authorities.

Cost tracking
In order to track the cost of the project, team members of the construction project will record their work by invoking appropriate time sheets with a categorised labour section and WBS cost account (Lam, 2020). The project manager needs to collect the time sheets for calculating the cost of labour work and a copy of any type of additional costs that are associated with the development shed for the property need to be collected by the project manager. Actual cost of the project needs to be estimated by the project manager and compare the actual cost with the baseline cost of the project that will help in generating a variance report which include all types of variance analysis.

Cost metrics
Cost metrics such as cost performance index (CPI) need to be reported on a weekly basis as it helps in projecting the relationship between the earned value and actual cost (EV/AC). Calculation of scheduled performance index (SPI) will also help in measuring the progress of the project against estimated progression. If the value of SPI is less than 1 then less work is completed within the project and if the value is more than 1, then more work has been performed than estimated

Cost Produce Task
The Cost-produce task has been incorporated with the cost while providing a service by the company. The costs of the projects fall into three fundamental categories including the direct cost, profit, and overhead, along with the general conditions (Pan et al.. 2018). For executing this project these tasks have been identified which helped in the completion of the project. The tasks produce the costs usually done by building work breakdown structure which helped in identifying each subtask containing the required resources, materials, and equipment for finishing the project.

Required Material
In this project, the required materials are metals, woods, brick, concrete, glass, and resin (plastic). The metals in the project have been used in making the structure including that the roofs have been made with metal sheets (Ronald et al.. 2020). The concrete has been used while doing the foundation and concreting of the shed, and the brick has been used in making the walls. Including that, the woods and glasses have been used in making the window and door frame in which the glass has been installed for the window.

Timeline of the project

Cost control tool
The cost control tools are incorporated with the cost management plan which helped in measuring the variances of cost from the initial point of time for taking appropriate actions (Konior and Szóstak, 2020). In this project, the cost control tools helped in regulating the costs of materials, equipment, other costs involved with the human resources, fees and charges, facilities, and statutory costs. As a result, the cost management plan of this project used tools like budget, cost monitoring, and cost estimation for providing the service at the lowest possible budget by recognizing and eliminating unnecessary costs.

Managing cost of the project
The project manager is generally responsible for estimating and managing the cost of the project. On the other hand, application of workplace health and safety can ensure the protection of employees. Occupational health and safety can allow the project manager to mitigate all the potential risk factors for the workplace and take immediate action upon occurrence of unwanted incidents. Anti-discrimination policy is another policy that will allow the organisation to treat their employees equally and prohibit practice of any type discriminatory practice. Lastly maintaining the confidentiality of the clients and employee’s personal information is necessary for the organisation. Project managers need to ensure that employees do not use the personal information of customers for their own gain.

Formula use of calculate cost
Important formulas:
Cost variance: earned value - actual cost
Cost performance index: EV/AC
Scheduled variance: EV-PV (planned value)
Schedules performance index: EP/PV

Details of contingency
Time and cost contingency is one of the common uncertainties that can impact the outcome of any type of construction project (Jung et al.., 2021). Project contingency plan will allow the project manager to prepare an alternative plan to use the financial resources for the success of the project. In this case, book the council inspiration can be a time-consuming process that can impact on the whole-time frame. On the other hand, developing and clearing the temporary facilities involved extra use of financial resources.

Identification of KPI

• The budgeted cost.
• Achieving the milestone of the project.
• Number of complaints.
• Number of accidents.
• Use of materials.
• Total working hours.

Measuring KPIs

• Average revenue generation.
• Percentage of wasted time.
• Turnover rate.
• Cost of rework.
• Number of defects.

Task 4
Actual cost vs. estimated cost

The table has shown the difference between actual cost and estimated cost of the construction of large storage shahid development.It has been seen that estimation of labour charge has greatly differed from the actual cost of the project. On the other hand, statutory cost also increased from the estimated cost of the project. In some cases, estimation cost has also reduced in some tasks such as managing project team member cost has been reduced by $ 50, cost of concrete is low in comparison to estimated cost.

Involvement of alternative
In order to control the difference between actual cost and estimated costs, the project manager can include cost effective global resource matrix boundaries to control the cost of resources. On the other hand, effective pipeline management will reduce the occurrence of last-minute scuffling for important resources of the project. The project manager can involve 2 teams and divide the task among them as per their credibility. It will control the overhead cost and reduce the time limit.

Approval of alternative plan
Project manager and project sponsor is responsible for approving the alternatives plan to reduce the gap between estimated cost and actual cost.

Task 5
Budget process
The project manager can include Gantt charts or budget construction templates that will enable the project manager to monitor the rate of expenditure.

Budget tools
The project manager can involve different budgeting tools such as spreadsheets that are available in Google or Google budget or GnuCash for managing the cost of the project (Jung et al.., 2021.

Budgeting techniques
Different types of budgeting techniques are available in the market but the project manager needs to select the technique that can deliver a successful outcome. In this case, activity-based budgeting can deliver desired results as it can divide the fund as per the requirement of tasks.

Costing and cost analysis tools
Bottom-up cost estimating method can be involved in the project to distribute the financial resources as per the necessity of the project (Konior and Szóstak, 2020). On the other hand, variance analysis tools and techniques can be involved to analyse the performance of the project. Preventive and corrective measures can be taken to increase the performance.

Budget of the project
Evaluation of cost management plan
Developing a comprehensive cost management plan and regular review can help in resolving the issues with budgeting. Initial need to address the scope is necessary to generate an effective financial plan for the project.

Organisational policies

• Australian Consumer Law for securing the demands and needs of consumer
• Safe Work Australia should be included as a measure to secure the workspace for workers

Conclusion
From the aforementioned report, it can be seen that the project manager is assigned with the project of delivering a large storage shed for the client. As the client is very particular about the need and not eager to include extra expense in the budget, therefore, the project manager needs to complete the whole project within allocated time and budget to satisfy the need of the customers. In order to gain success in the project, the project manager needs to identify the relatable KPIs of the project and apply relevant formulas so that the success rate of the construction project can be measured.?

Reference list
Castillo, T., Alarcón, L.F. and Pellicer Armiñana, E., (2018). Influence of organizational characteristics on construction project performance using corporate social networks. Journal of Management in Engineering, 34(4), pp.1-9. Available at: https://riunet.upv.es/bitstream/handle/10251/108082/CastilloEtAl2018_AuthorVersion.pdf?sequence=3 [accessed on: 1.11.21]

Forcada, N., Serrat, C., Rodríguez, S. and Bortolini, R., (2017). Communication key performance indicators for selecting construction project bidders. Journal of Management in Engineering, 33(6), p.04017033. Available at: https://ascelibrary.org/doi/abs/10.1061/(ASCE)ME.1943-5479.0000552 [accessed on: 1.11.21]
Jung, Y.I., Lee, C., Kang, K.I. and Cho, H., (2021). Basic Research to Establish a Key Performance Indicator (KPI) System of Earthworks during Construction Project. In Proceedings of the Korean Institute of Building Construction Conference (pp. 85-86). The Korean Institute of Building Construction. Available at: https://www.koreascience.or.kr/article/CFKO202121751309269.pdf [accessed on: 1.11.21]
Konior, J. and Szóstak, M., (2020). The S-curve as a tool for planning and controlling of construction process—case study. Applied Sciences, 10(6), p.2071. Available at: https://www.mdpi.com/668398 [Accessed On: 01.11.2021]
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Pan, M., Linner, T., Pan, W., Cheng, H. and Bock, T., (2018). A framework of indicators for assessing construction automation and robotics in the sustainability context. Journal of Cleaner Production, 182, pp.82-95. Available at: https://www.sciencedirect.com/science/article/pii/S0959652618303597 [Accessed On: 01.11.2021]
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