COST-SIGNIFICANCE APPLIED TO ESTIMATING AND CONTROL OF CONSTRUCTION PROJECTS

by Munther Musa Saket

A thesis submitted in fulfillment of the requirements for the Degree of Doctor of Philosophy in the Department of Civil Engineering of the University of Dundee. December 1986

Table of Contents

Chapter 1 INTRODUCTION 1.1 General

1 1 2 4 6 6 6 10 12 15 16 16 27
29

1.2 Problem Statement 1.3 Research Objectives

Chapter 2 THE PRINCIPLE OF COST-SIGNIFICANCE

2.1 Bills Of Quantities And Cost-significance. 2.1.1 Reassessment of bills and methods of measurement 2.1.2 'Reappraisal of estimating approaches using bills of quantities 2.2 The 80/20 Rule 2.3 Price Distribution In Bills Of Quantities 2.4 Fitting a Theoretical Distribution to Bill Prices 2.4.1 The Pareto distribution 2.5 Summary
Chapter 3 DEVELOPMENT OF A NEW ESTIMATING APPROACH

3.1 Introduction 3.2 Evaluation Of Current Estimating Perforrnace. 3.3 The Concept Of Cost-significance 3.4 Theoretical Basis For A New Estimating Approach 3.4.1 The basic equations. 3.4.2 Iterative solution of equations (3.1) and (3.2)

29 29 32 36 36 37

3.5 Experimental Results Of Using The Iterative Procedure On Priced 39 Bills Of Quantities 3.6 Iterative Estimating 3.6.1 Basic procedure 3.6.2 Explanation of steps 6 and 10 3.6.3 Accuracy of iterative estimating 3.6.4 Factors affecting choice of cost-significance level. 3.7 Summary 44 44 45 48 49 50

Chapter 4
TESTING ITERATIVE ESTIMATING IN PRACTICE A CASE STUDY 4.1 Objectives 4.2 Bills Of Quantities And Estimating Performance Analyses. 4.3 Present Estimating Approach 4.4 Testing Iterative Estimating. 4.5 Application Of Iterative Estimating 4.6 Discussion Of Results 4.6.1 Level of accuracy. 4.6.2 Time saving 4.6.3 Ease of use. 4.7 Summary Chapter 5 ITERATIVE ESTIMATING AND VARIATIONS 5.1 Introduction 5.2 Variations In Tenders 5.3 Proposed Methods For Dealing With Variations 5.3.1 Method 1 5.3.2 Method 2 5.3.3 Method 3 5.3.4 Method 4 5.4 Effect Of The Proposed Methods Upon The Final Account. 5.4.1 Notation 5.4.2 Error using Method 1 5.4.3 Error using Method 2 5.4.4 Error using Method 3 5.4.5 Error in Method 4 5.5 Analysis Of Tenders And Final Accounts 5.6 Errors In Tenders And Final Accounts. 5.7 CrAique Of The Four Methods. 5.8 Summary Chapter 6 A REVIEW OF PROJECT COST AND TIME CONTROL SYSTEMS 6.1 Introduction 6.2 General 6.3 Forecasting

52

52 52 54 57 57 59 62 63 64 64 66 66 66 68 68 69 69 69 69 69 70 73 73 74 74 75 79 80 83

83 83 83

iii 6.3.1 Time estimates 6.3.2 Cost estimating 6.4 Monitoring 6.5 Control 6.5.1 Time control 6.5.2 Cost control 6.6 Integration Of The Control Functions 6.6.1 Introduction 6.6.2 Estimating 6.6.3 Cost and time 84 85 86 87 87 88 93 93 93 94

6.7 Review Of Integrated Control Systems 95 6.7.1 Project Cost Model (PCM) 95 6.7.2 "COMPASS" management information and project control 96 systems 6.7.3 "PRIM" Project Integrated Management System 96 . 97 6.7.4 Kaskoulas and Grazieli's proposed system 98 6.7.5 Sears's proposed system 98 6.7.6 Conclusions 6.8 Improvement And Simplification Of The Control Process Chapter 7 Proposed Control System 7.1 Introduction 7.2 Project Breakdown Structure 7.3 Control System Specifications In Terms Of Output Produced. 7.3.1 Network analysis 7.3.2 Diagnostics' 7.3.3 Course of action 7.4 Input Data Required For Control System. 7.4.1 Planning data 7.4.2 Progress data 7.5 The Analysis Processes. 7.5.1 Networks 7.5.2 Diagnosis process 7.5.3 Course of action process. 7.6 Discussion 99 102 102 103 103 105 108 115 119 119 121 124 124 126 129 132

136 Chapter 8 CONCLUSIONS & RECOMMENDATIONS FOR FURTHER RESEARCH 8.1 Conclusions 136

iv

8.2 Recommendations For Further Research

142

Appendix I 145 Statistical comparison of Cost-Significance Factors for civil engineering and building projects Appendix II Relationship between the Pareto equations and the 80/20 rule Appendix III Convergence Of The Iterative Procedure Appendix W Derivation of the modification factor 147 150

154

Appendix V 156 Results of testing iterative estimating for the first two tenders of Table 4.2 Appendix VI Verification of the assumption in section 5.4.4 References 162

164

List of Figures

Figure 2-1: Histogram showing number and value of items for each price range (average of 24 bills) Figure 2-2: Cumulative value versus cumulative number envelope (24 bills) Figure 2-3: Cumulative number above item value vs. item value (average of 24 bills) Figure 2-4: Cumulative value above item value vs. item value (average of 24 bills) Figure 2-5: Cumulative number above item value vs. item value for actual and Pareto-fitted distributions (average of 24 bills) Figure 2-6: Cumulative value above item value vs. item value for actual and Pareto-fitted distributions (average of 24 bills) Figure 2-7: Cumulative value vs. cumulative number for actual and Pareto-fitted distributions (average of 24 bills) Figure 3-1: The relationship between cost-significance numbers and value factors and cost-significance (C-S) level, averaged for 24 bills of quantities. The graphs (c) and (d) show the coefficients of variation of the C-S factors at the different levels of cost-significance. Figure 3-2: Cumulative value Vv above item value v versus item value v Figure 3-3: Iterative solution of equations (3.1) and (3.2) Figure 4-1: Estimating procedure chart & where iterative estimating fits Figure 5-1: Sources of error in iterative estimating Figure 6-1: The control cycle Figure 7-1: An example of an activity sub-network, with planning data

17

18 19 20 24

25 26

35

38 40 56
71

94 107

Figure 7-2: An example of a diagnostic report using a simulated project 116 data Figure 7-3: An example of a predictive report for the same simulated 117 work package as in figure 7-2 Figure 7-4: An example of a report produced by the course of action' 120 technique

vi

List of Tables

Table 2-1: Results of analysing a sample of 24 bills of quantities to determine value and number proportions of CSI's Table 2-2: Variation of value and numbers factors with project type and value Table 2-3: Results of linear regression analysis for bill number 1, using different minimum values of v. Table 2-4: Results of fitting equations (2.2) and (2.3) to 24 bills of quantities using linear regression analysis for v min = vTable 3-1: The relationship between cost-significance levels and cost-significance value and numbers factors, averaged for 24 bills of quantities. Table 3-2: Results of applying the iterative procedure to bill number 11 Table 3-3: Results of applying the iterative procedure to priced bills of quantities. The results are averaged for 24 tested bills. Table 3-4: The 95% ranges of cost-significance numbers factor corresponding to the 8 levels of cost-significance. Table 3-5: Ranges of cost-significance numbers factors corresponding to the 8 levels of cost-significance. Ranges are modified to allow for overestimation of number of marked items. Table 4-1: Results of analysing 15 bills to determine the cost-significance factors. Table 4-2: Results of testing iterative estimating in practice Table 4-3: Tender analysis of the 6 tested tenders Table 5-1: Results of analysing 15 bills and associated final accounts

14 15

22 23 33

42 43

46 47

53 60 61 76 77 78 106

Table 5-2: The value factors representing a measure of the variation with respect to CSI's, NCSI's and extra items. Table 5-3: Errors in tender and final account using iterative estimating, with different combinations of a' and ee Table 7-1: An example of project breakdown levels

Table 7-2: Example of planned project network produced by the system 109 using day numbers since start. Table 7-3: Example of updated project network produced in day 109 numbers since start. Table 7-4: Example of a planned activity subnetwork produced in days 110 since start of activity.

vii

Table 7-5: Example of an updated activity subnetwork produced in days 110 since start of activity Table 7-6: Example of a predicted project network produced in days 111 since start Table 7-7: Example of a predicted activity subnetwork produced in days 111 since start of activity , 122 Table 7-8: Planning data form (by activity) Table 7-9: Daily labour/plant allocation sheet (by work package)
,. 125

ERRATA PAGE xi
xii

LINE 5 2 16 15 2 15 29 17 10 19 24 co1.5, row 8 18 13 27 13 31 1 12 1 3 9 16 9:co1.4 co1.5 co1.8 23:co1.4 co1.5 co1.8 8:co1.4 10:co1.5 co1.8 20:co1.4 22:co1.5 :co1.8 9:co1.4 co1.5 co1.8 20:co1.4 22:co1.5 co1.8 22 9

ERROR
priniciple integate letigation

CORRECT

7 21 24 29 29 30 34 37 39 43 55 58 66 67 74 75 81 85 91 92 105 109

v . >v
ararLal Performace

principle integrate litigation v. =v actual Performance

3.5% 1.9%
cost-significace approxiamate sucessive

1.5%
cost-significance approximate successive

29.9
contigency comptent renogotiation reamaining

19.9
contingency competent renegotiation remaining

8% 2%
assesed sited similarily bugeted remaing

9% 1%
assessed cited similarly budgeted remaining

110

111

12 26 3 21 26 3 2 9 2 9 10 1 12 29 6 2 12 5
so as no to resourc -hours
V = [H)1 -I] xi 00% 1 ---,

15 23 0 24 23 0 4 7 0 10 9 0 18 23 0 7 7 0
so as not to resource-hours

115 121 126 127

/D

V3- [ H' H xIVO ] 1 x100% 1 C i - 11x 100% R. = 1 C.

1

R. = { i i -] x100% 1 m. c.
1 1

14' c'

128 141 13

= 14[C1 - [M]iCia Q

C = iMikj- [Isq[C112' r Q integrated

intergrated

viii

ACKNOWLEDGEMENTS

I wish to express my gratitude to my supervisor Professor R.M.W. Horner for his continuous encouragement and support throughout the past three years. Thanks are also due to the members of the Construction Management Research Unit for their useful comments and advise regarding this work. I wish also to express my thanks to the Science and Engineering Research Council for supporting me financially. Ackowledgement is made to the various companies and organizations for their cooperation in offering access to their documents, and advise to the author. Finally, I would like to express my special gratitude to my parents for their love and support at all times.

bc

DECLARATION

I hereby declare that this thesis has been composed by me, and that it is a record of work completed by myself, and has not previously been accepted for a higher Degree.

--.7..i..,.,
Munther Musa Saket

CERTIFICATE

This is to certify that Milther Musa Saket has done his research under my supervision, and that he has fulfilled the conditions of Ordinance 14 of the University of Dundee, so that he is qualified to submit for the degree of Doctor of Philosophy. Prof.R.M.W. Homer

xi

ABSTRACT

A study of the price distribution of bills of quantities has shown that about 80% of the value is attributed to about 20% of the items. It has also been shown that items of greater value than the mean value of all items contribute about 80% to the total bill value. This relationship, from which the priniciple of cost-significance derives, has been used to develop a new estimating technique - iterative estimating - which enables the prediction of the total value of a bill of quantities by pricing only about 30% of the items. Iterative estimating has been tested and shown to give accurate results using historical bills. The technique has also been tested in practice on six 'live' tenders. Iterative estimating produced tenders which were on average 0.7% lower, and more consistent than conventional tenders. Moreover, a saving of at least 50% in pricing time has been achieved using iterative estimating. A relatively stable relationship has also been shown to exist between any price level less than twice the mean price, and the value of items with higher prices. This relationship has made it possible for iterative estimating to be applicable not only at the mean price level, but also at all price levels less than twice the mean. The choice of the price level would depend upon the required level of accuracy, estimators' skill and experience, estimating turnover sought, and the time available to produce estimates. The effect of iterative estimating on final accounting has been considered, and using historical data, four methods of dealing with variations have been proposed and shown to yield very accurate long term results. In the short term, errors of the order of + 4.5% in 2/3 of the times have been predicted. The use of the principle of cost-significance in construction control has also been considered. in order to identify the favourable features of control systems, a review of both integrated and non-integrated cost and time control systems proposed for and/or practiced in the construction industry has been carried out. Based on the findings of that review, combined with the application of the principle of cost-significance, a new control system has been proposed. The system uses an operational model of construction, with a

xii built-in bias towards the controllable cost-significant items of work, to integate the various functions of control. The main features of the system are a hierarchical project breakdown structure, integrated cost and time control through the use of project network and sub-networks, diagnosis of progress information to detect variances from plan and causes of such variances, prediction of the effect of current progress situation on future progress, and the provision of advice on optimum courses of rLiedial action. The proposed system is in skeleton form and needs further development.

xiii

NdTATION

This is a list of the most commonly used notation in the thesis. Inevitably, some symbols are used to denote more than one variable, but where this occurs the meaning of the notation is made clear and no confusion should arise. Other notation used in the appendices is on the whole not included in this list. Symbols are also defined in the text where they first occur, and at other appropriate points. cost-significance value factor a a' a cost-significance value factor used in iterative estimating 'correct' cost-significance value factor in conventionally priced bill

A 1 number of quantity units to be completed to return to plan A 2 hours to be worked to return to plan A 3 output(productivity in units/hour) to be achieved to return to plan A 4 available amount of money(L) to be spent to return to plan a C. C: 1 C r Pareto's distribution coefficient planned hourly cost of resource i actual hourly cost of resource i allowable remaining cost to complete work package real cost variance real cost difference

C c total cost variance C u unit cost variance duration

D'

total hours in progress for work package

allowable remaining duration for work package(hours) 1 e e missed cost-significant items' value as a fraction of total value of measured items (e f) 1.2,3,4 final account error associated with Method 1,2,3,or4

e t error in iterative estimating sum of all extra items' values in conventional final account

xiv sum of all extra items' values in iterative final account EF ES FF 1 earliest finish in days since start earliest start in days since start free float (days) allowable hourly cost of gang to be used to complete work package total resource-hours planned H' total recorded resource-hours worked Pareto's distribution parameter
LF LS

latest finish in days since start latest start in days since start cost-significance numbers factor

M. M 1.'

planned resource-hours for resource i actual resource-hours worked by resource i frequency density of items having values between v and v+8v number of measured items number of items with greater values than v

Ni

number of items with greater values than 7) number of items with greater values than cost-significant items i.e. number of

start delay

N 2 delay due to late preceding work packages N 3 delay not due to preceding work package 0 1 productivity (unit/hr) to be achieved for remaining part of work package total paid hours 1 predicted overspending by completion (.C) for work package

P 2 P1 as a % of planned cost for work package P 3 predicted delay of work package P 4 predicted extra duration needed to complete work package P 5 predicted extra duration in excess of plan to complete work package predicted productivity variance for work package P 7 predicted extra overall resource-hours than planned needed for work package

P s P s P 10 13 11 P 12 P 13 P 14 Q Q1

P7

as a % of total plannned resource-hours for work package

predicted extra hours of work than planned

P9

as a

of total planned hours for work package

predicted resource-hours spent on work package as a % of planned total predicted avoidable and unavoidable delays as a % of that expected predicted avoidable delay as a % of that expected predicted unavoidable delay as a % of that expected work content in terms of quantity of work in work package quantity of work done Q-Q total value of extra cost-significant items as a fraction of E

r c rn R.
S

measure of the variation in cost-significant items' value =Vf/Vt measure of the variation in non-cost-significant items' value =v fiv t cost variance for resource i sum of final values of measured items in conventional final account sum of final values of measured items in iterative final account sum of values of measured items in conventional tender sum of values of measured items in iterative tender total float(days) item value in bill of quantities mean value of measured items value corresponding to the cost-significance level x ith approximation of using iterative estimating

f f

St St TF

Vf v ' f v t v t' Vo Vv

final value of non-cost-significant items in conventional final account final value of non-cost-significant items in iterative final account value of non-cost-significant items in conventional tender value of non-cost-significant items in iterative tender total value of measured items total value of items with greater values than v total value of items with greater values than
T)

xvi

total value of items with values greater than cost-significant items' value (Vo)
Vv n

i.e.

ith approximation of Vo using iterative estimating value of cost-significant items using iterative estimating final value of cost-significant items in conventional final account final value of cost-significant items in iterative final account

V
V

Vt value of cost-significant items in conventional tender V' value of cost-significant items in iterative tender

V 0 progress delay V 1 % complete variance

V 2 V 3 V 4 V 5 V 6 V 7 V 8 V 9

productivity variance overall resource-hours variance working hours variance resource variance delays variance avoidable delay variance unavoidable delay variance overall delay cost-significance level =

Y a expected avoidable delay as a % of total resource-hours H Y a Y' actual avoidable delay measured in resource-hours expected unavoidable delay as a % of total resource-hours H actual unavoidable delay measured in resource-hours.

CHAPTER 1 INTRODUCTION
1.1 General Construction management consists of three essential functions. Firstly, the time and cost elements of the construction project are forecast. Forecasts take the form of cost and time plans. Secondly, the progress of construction is monitored. Monitoring is carried out with the objective of obtaining information about progress that enables comparisons with planning information to take place. Thirdly, the progress information is compared with planning information to depict any variances and act in a corrective manner. There are a number of important considerations in each of the above functions. The forecasting function should reproduce or model the construction process accurately, breaking down the project realistically into its constituent time and cost elements. Furthermore, the amount of detail iAorporated in the forecast should not be excessive, so that subsequent use of time and cost plans as standards against which progress is monitored would be facilitated, not inhibited. The monitoring function should be compatible with the planning function. In other words, the factual information collected from site should be based upon, and directly related to the same model on which planning information is based. This will facilitate direct comparison between planned and actual performance, and will allow a feedback link between planned and achieved performance to be established for forward planning and future use. Moreover, the progress information to be collected must be governed by the control objectives. That is, management should decide what to control before embarking upon the collection of progress information. In deciding what to control, consideration of controllable and uncontrollable factors should be made. Some elements of construction are to a large extent outwith the control of site management. for example materials' prices and labour pay-rates. Some other elements however, are controllable such as labour productivity and material wastage, and management effort should be mainly directed to such factors. Moreover, elements of construction vary in their

cost and time -significance, and consequently management effort should be proportionally distributed. Therefore, if the control objectives are clearly defined, then combined with a compatible basis for both planning and factual data, a 'lean' monitoring system will be developed, requiring the collection of an optimum amount of progress information. The control function must consist ideally of four main parts. Firstly, progress information must be compared with planning information to establish quantitative variances. Secondly, the comparison process must be made in such a way that makes it clear what caused the variances. Thirdly, a facility to consider alternative courses of action and to judge the projected outcome of alternatives must be incorporated. Fourthly, a corrective course of action must be chosen and implemented. All the above functions have to be carried out regularly, and in sufficiently short periods of time to enable corrective action to be fruitfully implemented. Futhermore, in the light of experience gained during the progress of construction, original plans and targets may be modified to make the control process more realistic. This requires careful management consideration.

1.2 Problem Statement

The majority of construction management systems practiced in the industry fall short of the ideal outlined in the previous section. The forecasting function is mostly based on bar charts or project networks representing the time breakdown, and on bills of quantities representing the cost breakdown. Although the use of bar charts as time schedules is more widespread than the use of networks, bar charts suffer from their inadequacy to model the interdependence of construction activities, and consequently are not as useful as networks as a basis for the control of project duration. However, a survey of 400 top construction firms in the U.S.A. (20) revealed that 45% of those firms seldom or never used network techniques. Most firms which did use network techniques only used them to plan the job and did not refer to them as the work proceeded in a control capacity. Other firms using networks only used them as a sales extravaganza or in response to clients' requirements. Futhermore, with the use of computers, complicated networks were frequently developed which would be extremely hard to

understand and use, especially with the large output of data producf.d. Another drawback associated with the use of networks is that most firms using network techniques do not use the same model to represent costs. Networks are frequently used to represent the time elements of construction, while cost elements are represented by a totally different model mostly based on the bill of quantities. In construction, cost and time elements are inseparable, so it is unrealistic to model each element using a different model. Bills of quantities are the common form of cost estimates. A bill of quantities prepared by one of the standard methods of measurement aims essentially at a description of the scope of the completed works. Skoyies (55) argues that such a bill does not attempt to reproduce the processes by which the production cost of the project will actually be incurred. The work is measured in units which relate labour to the physical measurement of materials and is summarised by trades, so that it does not correspond in terms of time, with the way money is expended on site. What is communicated in a conventional bill is a description of the project in terms of the materials used rather than the work to be done. Therefore, a bill of quantities is not a realistic model of the construction process. Another drawback of bills of quantities is the amount of detail they entail. A bill of quantities comprises a list of every item required to complete the permanent works. This renders the bill a complex and lengthy document. Despite efforts to reduce the length of bills, the latest Civil Engineering Standard Method of Measurement specifies over 12.000 standard items. and bills of quantities containing several thousand items are commonplace. Such complexity and detail cause the functions of pricing and subsequent valuation to be very time-consuming, and based on bill items. cost feedback and comparison becomes extremely difficult. The problems in the monitoring function stem primarily from two factors. Firstly, the models on which the monitoring sy3terlis are based are mainly bills of quantities and project networks. T:sing such models will result in having to divorce time and cost elements and in having to collect a large amount of data. The second factor often stems from the confusion between accounting and control systems. The purpose of an accounting system is to monitor profit or loss, and to identify where costs are incurred. It is

necessary, therefore, to record the source of every incidence of expenditure. In order to control a project, however, one is not interested in every cost, but only in those items where variances would have a significant effect on the project outcome. In addition to the above shortcomings in the forecasting and monitoring functions which have a direct bearing upon the control functions, most control systems in use in the industry suffer from the following drawbacks: a. although most of the current control systems aim at identifying variances, they do not portray the causes of these variances: b. there are no simple formal procedures within the majority of current control systems to 'experiment' with alternative corrective courses of action and project the outcome of alternatives in order to determine an optimum course of action. In short, therefore, construction management control systems suffer from four major shortcomings: frequently they contain too much detail; they are often inaccurate; they do not diagnose the causes of variances; and they provide no guidance as to the optimum course of remedial action. 1.3 Research Objectives This thesis is devoted towards the application of the principle of cost-significance in the fields of estimating, monitoring and control of construction projects. The principle of cost-significance is derived from the fact that in construction, a relatively small number of items contribute a large proportion of the total project cost. It has been established that in bills of quantities, about 80% of the total bill value is contained in the 20% highest cost items (2,26,40,50). If these cost-significant items could be readily identified. then by only pricing them and applying an appropriate factor to their total price (e.g. 1/0.8), the total tender value would be arrived at. This would simplify and reduce the time required for pricing. This is the basis of a new

estimating approach to be investigated and developed in this thesis. Another application of the principle of cost-significance lies in the field of

monitoring and control. It is intended to investigate the possibility of developing a simple model of the construction project based upon cost-significant work operations which are wholly made up from packages of cost-significant bill items. If monitoring and control efforts were directed towards these operations then one would be effectively controlling about 80% of the project cost. Furthermore, because of the anticipated reduction in detail through the use of the principle of cost-significance, it may be possible to incorporate within the control procedures a diagnostic capability that would determine both the magnitude and cause of variances from plan. Alternative courses of action to remedy adverse variances could also be evaluated. In short, therefore, the aim of this research is to find a way of extracting a simple cost model of the construction process, which can be used both for pricing and for control. If such a model can be found, it should be possible to integrate and computerise many management control functions in a relatively simple fashion. Moreover, if the cost model is sufficiently simple, then it may be possible to build in some relatively sophisticated diagnostics to determine the cause of any variances that might occur, and to indicate possible remedies. To achieve the above objectives, a study of the disribution of prices in bills of quantities is carried out. This is reported in chapter 2. Based on the findings of chapter 2, a new estimating approach - iterative estimating is developed in chapter 3. Chapter 4 reports on the results of testing iterative estimating in practice. The effect on variations and final accounting of iterative estimating is considered in chapter 5. The rest of the thesis will contain a review of control systems in use in the construction industry, and based on the findings therein, and on further proposed simplifications through. the application of the principle of cost-significance, a new control system is proposed. This is reported in chapters 6 and 7.

CHAPTER 2 THE PRINCIPLE OF COST-SIGNIFICANCE

2.1 Bills Of Quantities And Cost-significance. It is well known within the construction industry that about 80% of the value of a project is contained within about 20% of the number of items in a bill of quantities (2,26,40,50). This 80/20 'rule' was originally proposed by Vilfredo Pareto, an Italian economist (15,23,24,25). In 1897, Pareto found a distinct regularity in the distribution of incomes in a number of countries.He found that 80% of the incomes in a country was earned by only 20% of the population. Other scholars found that this 80/20 rule applied to other fields such as costing (19), sales and materials control in production (28), and stock and stores control (32). In construction, the bias in the price distribution in bills of quatities combined with the size of bills implies that there exists an unnecessary amount of detail. The impact of this implication can be seen from the following considerations: 2.1.1 Reassessment of bills and methods of measurement The inclusion of a large number of non-cost-significant items in bills of quantities is an inherent characteristic of the way bills of quantities are prepared.. The effort expended by estimators in pricing such items is in disproportion to the returns achieved from these items relative to other items. This factor, combined with the inadequacy of bills of quantities to model the processes by which the production cost of projects is incurred gave rise to attemp ts by the industry to redesign or modify the ways in which bills are prepared. The Building Research Establishment (53,54) proposed a new format for preparing bills called 'operational bills' (OB's). In an OB instead of presenting the work by trades measured in accordance with standard methods, work is described as a series of operations. The operations represent work to be done, each operation being a stage of work done by a man or a gang of men uninterrupted by the work of other men or gangs of men. The sequence of operations is also selected to satisfy the physical requirements of the building design. OB's have been used in projects and

studied closely by BRE, but their wide adoption by the industry has been hindered by the fact that estimators are not so familiar with pricing on an operational basis. To meet these difficulties BRE developed an intermediate form of document - the bill of quantities (operational format). In this form of bill the work is again analysed by operations but under each operational heading work is described according to conventional methods such as the 'Standard Method of Measurement '(56). Bishop (9) argues that the central problem of operational cost models is the conflict between the need for precision in order to define the operation and the need for generality as a basis for feedback. Bishop argued that operational bills had to resolve the conflict of interest between: 1. The need for precision: Estimators working at speed and under pressure should be able to identify the character, scope and location of an operation. It would also be important that descriptions should be sufficiently precise to admit only one interpretation - if not confusion and letigation would follow. The task of interpreting operational descriptions would be simplified by the materials listed with each operation and by operational drawings for those would show, at a glance, the relation between an operation and other work at its boundaries. Unfortunately, operational drawings of one form or another, would be time consuming to prepare. 2. Feedback: Feedback of cost information is an important function in relating design to production. The essential requirement for facilitating the feedback function is the avoidance of unique descriptions for operations differing only insignificantly in content for, if this occurs, it will be difficult. if not impossible, to transfer the experience obtained on one job to another. That is the advantage gained by analysis of a project by operations will be offset by the absence of a simple measurement of work content and the ability to generalize particular experience.

Hence, Bishop concluded, the central problem of communication of cost information would seem to be the resolution of the conflicting requirements for precision of description, on the one hand, and for generality, on the other. This would be essential for the succesful adoption of operational bills. Another criticism of OB's when used for civil engineering projects, put forward by Barnes (3), is that they require the compiler of the bill to accurately predetermine the sequence of work, for the tender drawings to be complete, and for there to be few variations to the work. No new form of bill for civil engineering work which relied on these conditions would be justified, as under the same conditions many of the shortcomings of the conventional bill would disappear. Instead, Barnes suggests that any modification to conventional bills of quantities should take into account the effect upon costs of the methods and timing of construction, not just that of quantities of work. It is the principle of proportionality of cost to quantity in conventional bills, Barnes argues, that has led to the belief that the quantity of every component envisaged or provided is a factor significant to the cost and value of the work as a whole. Most bills of quantities consequently contain a large proportion of items which are of sufficiently small value that the accuracy of the prices and quantities put against them has negligible effect upon the accuracy of estimating or valuation of the work
as

a whole. Recognition of the importance of reflecting the way in which costs arise

during construction in a bill of quantities is the basis of the 1976 Civil Engineering Standard Method of Measurement (CESMM). Method related charges were introduced in the CESMM to allow the contractor to insert items of work which relate to his intended method of execution,"the cost of which is not to be considered as porportional to the quantities of other items, and for which he has not allowed in the rates and prices for other items (CESMM). Method related charges may be fixed or time-related. Thus the time factor and the working , methods are taken into consideration in building up the cost model. Further minor developments of CESMM have recently been carried out, and a CESSM, 2nd edition has been produced. The Standard Method of Measurement of Building Works has also gone through a continuous process of development since its first edition in 1922.

Due to the recognition of weaknesses in the last edition, SMM6, a. SMM Development Unit was set up to suggest improvements for a new edition, SMM7. Bennett (7) states that the main weaknesses in SMM6 which the development unit has been asked to deal with are, firstly, the fact that SMM6 produces bills of quantities that are too complicated since they contain more detailed items than are needed to cost work realistically, and secondly, SMM6 allows work that has not been designed adequately to be described as though it were fully designed. Regarding the first main weakness, it is thought that since one of the justifications of measuring minor items and details is to build up a picture of the difficulty or complexity of the work, it is more useful to provide the picture contained in the drawing, while ensuring that the rules of measurement identify all the cost-significant items in all buildings (7). The development unit has therefore set itself a target of a 50% reduction in the number of items in bills of quantities. Another intended improvement is that SMM7 will distinguish between fixed and time-related costs, thus reflecting the cost production process more realistically. A more radical approach to the wider problems relating to the conventional contracting relationships has been proposed by the British Property Federation. BPF proposed a system for building design and construction the main objective of which is to regulate the relationships of the Client, Professionals and Contractors to produce a building of better quality more quickly and at a lower cost. What is of concern here is that bills of quantities are not used. Tenders are invited against the drawings and specifications produced by the design team. The tender is submitted in the form of an outline of a priced schedule of activities-a schedule of the design, management and the construction activities. The schedule of activities includes a programme for each activity and a statement of resources to be used. From the Contractor's point of view, the schedule of activities has the advantage that as well as allowing him to price on an operational basis, it can be used directly for monitoring costs and progress during construction, thus establishing a close relationship between the tenders and subsequent site cost control and planning (12). Barnes(5) argues that although bills can work well and play a part in a good construction management system, they begin to cause more trouble than they save when

they become a substitute for drawings and specifications, when they get too complicated and when the picture of the cost of work they contain becomes unrealistic. To manage without them on the jobs where the BPF system is used will be a very constructive experience for clients and contractors involved. It may not be the unmitigated horror which the conservative critics of the BPF system predict. 2.1.2 Reappraisal of estimating approaches using bills of quantities The realization of the immense amount of detail in bills of quantities, the bias in price distribution and the inaccurate picture of production cost that bills portray have all been major factors in attempts to modify current methods of measurement and bill formats. Another effect of the above factors has been to modify the estimating approach in a way that reduces the effort and complexity in current estimating, while retaining the bill of quantities in its available format. One of the first attempts to simplify the estimating as well as the control functions was undertaken by Moyles(40). Based on conventional bills of quantities, Moyles combined the 80/20 rule with operational grouping to propose a new estimating method. After receiving the bill of quantities and other tender documents and deciding to tender, the contractor breaks down the project into a number of operations relating to main constructional elements. Then the estimator inserts the operation number against bill items. Pricing the items is initially done using approximate rates for ranking purposes. The items are then arranged in a descending order of approximate value, and the cost-important items contributing 80% of the total are closely examined to improve their pricing accuracy. The prices of the rest of the items are modified by a factor equal to:
TOTAL OF COST-IMPORTANT ITEMS BY ACCURATE ESTIMATE

TOTAL OF COST-IMPORTANT ITEMS BY APPROXIMATE ESTIMATE Computer processing is used to group the items into their corresponding
operations, as well as in the arrangement of items in descending order, and in applying the factor to the approximate prices of the non-cost-important items. The function of cost control is based upon the operations thus establishing a. feedback loop between estimating and control.

11 The advantages of Moyles's system are simplicity,reduction in estimating effort, absence of complicated coding of cost elements, accommodating any bill format, the gradual introduction of operational estimating and establishing a relatively simple feedback mechanism between the site and the estimating 'department. Moyles tested the system on two live projects and concluded that the estimating part was fairly successful but the control and feedback part proved to be unsuccessful mainly due to the amount of disruptions, delays and variations that took place. There are two main disadvantages with Moyles's system. Firstly, all the bill items have to be fed into the computer, and arranged in order of value to identify the cost-important items. This is a time consuming operation. Secondly , although Moyles recommended that the project was broken down into no more than 20 operations, all the bill items, whether cost-important or not, were to be assigned to a relevant operation. This, on the one hand, makes the 20 operation limit quite difficult to achieve, and on the other makes it extremely difficult for feedback data from site to be assigned to the right item unless estimating has been done on a purely operational basis. A simple method of identifying cost-important items was proposed by Shereef(50). He defined cost-significant items as those measured items in the bill of quantities contributing 80% of the total value of measured items. Using 25 bills of quantities he confirmed that 20% of the measured items contributed 80% of the total measured value. By further analysis of the 25 bills he showed that the 20% cost-significant items were also those measured items with values greater than the mean value of all measured items. Shereef also attempted to find a theoretical distribution that fitted the price distribution of bills of quantities using regression analysis. If the price distribution could be defined within acceptable accuracy levels, the total price of a bill could be determined by pricing only a small number of items. Shereef suggested one theoretical distribution which although in accuracy terms was not ideal, served to demonstrate the viability of the approach as an aid to the estimating process. Although Shereef's finding concerning the mean value defining the level of cost-significance is very useful in identifying cost-significant items from priced bills, the problem still remains that so far no method of identifying

12

cost-siginificant items from unpriced bills exists. Shereef(50) suggested that this problem might be approached by isolating cost-significant items from a number of priced bills using his approach, comparing the results, and repeating the process until significant results were obtained. A similar approach to Shereers suggestion was undertaken by the Property Services Agency (PSA) (44). Harmer (26) reported that PSA were carrying out studies to develop an estimating system based on the 80/20 principle. The PSA (44) believes that if the bill items of greater cost-significance could be readily identified they will encourage quantity surveyors to direct their thoughts to such items. At the same time. cost data could be published in a manner which would encourage a more significant and realistic approach to estimating. The PSA(44) analysed 50 bills of quantities representing a typical cross-section of PSA building projects in the 250060 to LIM range, but excluding housing; civil, mechanical and electrical engineering; extensive alteration; and refurbishment projects. Data from the fifty bills was analysed to see how the number of bill items and their value related for individual work sections. It was found that the contribution of the 20% highest value items in any work section, excluding preliminaries and external works, ranged between 69% and 87%, and averaged 78% of the value of that work section. The relative significance of each work section was also established (e.g. concrete accounted on average for 17% of the total number and 26% of the total value of measured items). A coding system was then devised to segregate items of major and minor cost significance and classify items within these broad catergories. The use by quantity surveyors of this estimating data with individual rates adjusted for local factors should result in reliable and prompt estimates with a tolerable margin of accuracy. Computer facilities are essential to facilitate data storage, updating and retrieval. 2.2 The 80/20 Rule In an attempt to confirm the 80;20 rule. 85 hills of quantities have been analysed. The bills covered a very wide range of both civil engineering and building projects (from house alterations to reservoirs), with tender values ranging between 10000 and .4.2M. The bills covered the main methods of measurement in use in the U.K., e.g.the standard method of measurtnent of building works, civil engineering standard method of measurement and the

13

method of measurement for road and bridge works. The bills Were obtained from at least ten different sources, covering work for both public and private clients over the last ten years. The purpose of the analysis was to find out the proportion of total value and number of measured items that cost-significant items represent. The definition of cost-significant items (CSI's) used in this analysis was those measured items whose individual values were greater than the mean value of all measured items. The proportion of total value that CSI's contribute is termed the cost-significance value factor, while the proportion of the total number of items that CST's represent is the cost-significance numbers factor. Preliminaries, prime cost and provisional sums were all excluded from the analysis. Table 2.1 shows a sample of the results. From the results, the following can be concluded: 1. CSI's account on average for 81.5% of the - total value of measured items, with 2 in 3 bills having CST's in the range 77.4% - 85.6% of the total measured items' value; 2. CSI's represent on average 18.5% of the total number of measured items, with 2 in 3 bills containing CSI's in the range 14.3%- 22.6% of the total measured items' number. However, when the bills are divided into the two broad groups of civil engineering and building, the results are: 1. Civil Engineering projects: CSI's represent on average 83.9% Of the total value of measured items, with 2 in 3 bills containing CSI's in the range 80.4%- 87.4% of the total measured value, and 17.3% of the total number of measured items, with 2 in 3 bills in the range 12.5%-22.1% of the total number of measured items. 2. Building projects: CSI's represent on average 80.4% of the total value of measured items, with 2 in 3 bills containing CSTs in the range 76.5%- 84.3- of the total measured value, and 19.0 -6 of 0 the total number of measured items, with 2 in 3 bills in the range 15.4% - 22.6% of the total number of measured items. 3. The cost-significance value factor for civil engineering projects is significantly higher than that for building projects (Appendix I).

14

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15

4. The cost-significance numbers factor for building projects is significantly higher than that for civil engineering projects (Appendix I). The effect of tender value upon the cost-significance factors was also investigated. Building and civil engineering projects were classified into two value classes: 'less than 100,000', and 'more than 100,000'. A. comparison of means test using the t-statistic was then carried out upon the cost-significance factors. The results showed that, at the 1% level of significance, for building as well as civil engineering bills, the mean cost-significance value factor for the 'less than .100,000' class was significantly lower than that for the 'greater than 100,000' class; while the mean numbers factor was significantly higher. Table 2-2 shows the results.

TABLE 2.2 : Variation of value and numbers factors with project type and value

Building Costsignificance Factors Value factor mean range in 2/3 of bills 78.9 <E1OOK Ntaabers factor 21.5 Value factor 81.7

Civil Engineering

nloca
Numbers factor 17.6

<float
Value factor 77.7 Numbers factor 22.5 Value factor 85.1

>MOE Numbers factor 16.3

75.5-82.3

18.4-24.6

78.4-84.6

14.6-20.6

76.1-79.3

21.5-23.5

82.7-87.5

11.7-20.9

Another factor that seems to affect the cost-significance factors is the type of project. For example, water and sewer projects have a significantly higher value factor and lower numbers factor than roads and bridges projects at the 5% level of significance. No similar inference with similar significance proved possible for other types of projects from the available data. 2.3 Price Distribution In Bills Of Quantities The high contribution to the total value of a relatively small number of items in bills of quantities produces a highly skewed distribution of prices. Figure 2-1 shows a histogram of the relative number and value of items in every price range, averaged for the 24 bills of table 2.1. The region, whose

16

price range starts from the mean price, represents the cost-significant items (CSI's). Another way of conveying the bias in the distribution as well as the variation between bills can be seen in figure 2.2. The cum.mulative sum of prices above a given price is plotted against the corresponding cumulative number of items, in percentage values, for the same 24 bills. The plot also broadly confirms the 80/20 rule. The relationship between any price level and the cumulative number of higher prices is shown in figure 2.3. In the figure, the bottom 20% of the items, approximately, represent the cost-significant items. Figure 2.4 shows cumulative value versus item value. Approximately the bottom 80% of the value in figure 2.4 corresponds to the cost-significant items. Both figures 2.3 and 2.4 represent average values for the same 24 bills of table 2.1. 2.4 Fitting a Theoretical Distribution to Bill Prices Earlier attempts by Shereef (50) to fit theoretical functions to the distribution of prices in bills of quantities had unsatisfactory results, although the 80/20 rule was confirmed. As the 80/20 rule is sometimes referred to as the Pareto rule, it was decided to investigate how well a Pareto distribution fitted the actual distribution of prices. 2.4.1 The Pareto distribution A number of writers have discussed the theoretical and statistical background of Pareto's work (1,11,16,17,34,36). Pareto's frequency density function was used as the basis for modelling the distribution of prices in bills of quantities. The frequency density function is of the form: n = where n = frequency density of items having values between v a,nd v+8v v = item value a,K = distribution parameters In order to establish the number of items with values greater than any given value, equation (2.1) is integrated once:

( 2 .1)

17

Figure 2.1. Histogram shoaing number and vatue of 'items for each price range (average of 24 bills).

70 60 50 40 ru.
boa

NU1VBER VALUE

30 20
10

CSI's

200

400
PRICE

600

800

( % OF MEAN PRICE )

18

Figure 2.2. Cumulative value versus cumulative number envelope (24 bills).

80
n

>
>

uJ = 60

Ui

-J

< - 40
g
" 0 be

20

0 0

20

40

60

80

CUM. NO. Nv (
S OF TOTAL NO. )

19

Figure 2.3. Cumulative number above 'item vaule vs. item value (average of 24 bills).

80

0 0 200 400 600

800

ITEM VALUE v ( % OF MEAN VALUE )

20

FIgure 2.4. cumulatIve value above Item value vs. Item vaLue (average of 24 bILLs).

80

200

400

600

800

ITEM VALUE v ( % OF MEAN VALUE )

21

Nv = f n dv = f aKv(-"--1).dv Nv = K v-a Where Nv = number of items with values greater than any given value v. And the value of these Nv items is Vv = f n v .v.dv = f aKv-adv aK Vv = v a-1 (2.3) (2.2)

For each of the 24 bills, values of Nv and Vv were calculated at different values of v. Linear regression analysis was then conducted on the logarithmic form of equations (2.2) and (2.3), using different minimum values of v. The values of a and K were therefore obtained together with the correlation coefficient (r) for each set of data. A typical set of results is shown in table
2-3.

> The best fit was achieved for v min

is

in the majority of cases, where

T.,

the mean item value.

For values of minimum v less than -V, the

correlation coefficients were unacceptably low. It was therefore concluded that equations (2.2) and (2.3) could be used to model the distribution of prices in a bill of quantities for all values of v greater or equal to if. The results for all 24 bills are shown in table 2-4. The actual curves of Nv versus v, Vv versus v and Vv versus Nv were compared with the theoretical curves obtained by using the values of K and a in table 2-4. The averaged results for the 24 bills are shown in figures 2-5, 2-6 and 2-7. It can be seen that the Pareto's equations do not fit the whole distribution of prices in a bill of quantities, but provide a reasonable approximation for values of v greater than or equal to the mean. Although at v >if the Pareto model gives a reasonable fit of the actual distribution, it overestimates both the cumulative value ( 111)) and number of items (ND) greater than the mean. This is so because the Pareto equation causes VT) and to increase unrealistically towards infinite values as the value v

22

TABLE 2.3 : Results of linear regression analysis for bill number 1, using different minimum values of v. Bill No. 1.

Vo = 19,788 Nv = Kv
a

N = 135 aK Vv = 3-=-T
(t -

-a

a)

0.2 0.4 0.6 0.8 1.0 2.0 4.0 6.0

3,359 7,395 6,508 11,568 16,338 124,674 557,916 7,423,040

0.955 1.085 1.168 1,254 1.305 1.524 1.725 2.083

-0.955 -0.971 -0.977 -0.978 -0.980 -0.978 -0.944 -0.941

38,144 72,253 117,267 212,551 288,109 1,427,890 15,028,100 143.083 x 10 6

1.440 1.525 1.593 1.674 1.715 1.934

2.238

-0.881 -0.913 -0.933 -0.943 -0.949 -0.949 -0.934 -0.935

2.536

23

TABLE 2.4 : Results of fitting equations (2) and (3) to 24 Bills of Quantities using linear regression analysis for vmin =

Bill No

Total Value Total Number of Measured of Measured Items Items Vo 19,788 31,349 352,823 23,837 11,320 43,351 76,176 31,007 1,972,690 73,817 3,029,960 54,598 1,828,790 77,478 98,541 230,316 64,511 74,597 1,076,900 10,742 109,404 91,403 94,288 27,219 135 171 173 467 152 706 520 948 598 601 412 574 470 654 808 848 624 819 279 200 1,629 473 776 134

Nv = Kv K a

-a r*

Vv n

aK a - 1

-a+1 r*

1 2 3 4 5 6 7

28,861 1.305 -0.98 53,278 1.298 -0.97 263,518 1.060 -0.97 25,649 1.337 -1.00 12,779 1.288 -0.95 17,191 1.141 -0.99 15,120 1.021 -0.99 53,222 1.367 -0.96

288,033 1.715 -0.95 968,873 1.789 -0.94 2,856,638 1.41 -0.95

75,684 1.590 -0.99 150,545 1.771 -0.91 68,949 1.429 -0.99 115,546 1.360 -0.97 359,877 1.752 -0.89

a
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

371,929 1.020 -0.99 11,846,210 1.376 -0.92 32,058 1.141 -0.99 284,806 1.509 -0.95

3,031,308 1.160 -0.98 167,534,1821.560 -0.93 14,376 1.068 -0.99 99,136 1.300 -0.95 223,795 1.410 -0.98 146,063 1.140 -0.99 89,242 1.34 -1.00 118,970 1.449 -0.95 0.93

346,083 1.003 -0.99 12,723,489 1.384

1,379,280 1.740 -0.88 1,771,957 1.750 -0.93 1,566,894 1.480 -0.96 407,161 1.62 -0.99 482,690 1.599 -0.92

51,156 1.210 -0.97 3,528 1.050 -0.95 158,979 1.406 -0.98 24,457 1.042 -0.99 79,281 1.251 -0.99 9,384 1.057 -0.98

494,70 1.090 -0.99 26,474,710 1.530 -0.95 41,716 1.580 -0.91 955,151 1.715 -0.91 376,612 1.491 -0.94 524,198 1.559 -0.96 200,672 1.573 -0.94

* r: coefficient of correlation from linear regression analysis

24

Figure 2.5. CumuLative number above item value vs. item value for actrual and Pareto-fitted distributions (average of 24 bilis).

80 cc 60

-J t--

40

bit

20

200

400

600

800

ITEM VALUE v ( % OF MEAN VALUE )

25

Figure 2.6. Cumulative value above item value vs. item value for actual and Pareto-fitted distributions (average of 24 bilis).

80

200

400

600

800

ITEM VALUE v ( % OF MEAN VALUE )

26

Figure 2.7. Cumulative value vs. cumulative number for actual and Pareto-fitted distributions (average of 24 bills).

0
20 40 60 80

CUM. NUMBER Nv ( % OF TOTAL NO.)

27

decreases. This implies that the 80/20 rule does not arise from the Pareto equation at the mean value level. The theoretical analysis shown in Appendix II confirms this conclusion. It shows that rather than at the mean value level, it is at 0.561) that the Pareto equations lead to the well-known 80/20 rule. 2.5 Summary 1. The amount of detail and complexity in bills of quantities has prompted the industry to: a. redesign methods of measurement to reduce detail and complexity in both building and civil engineering projects; b. concentrate estimating and control efforts on cost-important items, which are identified either by classification and experience gained over many projects, or by defining cost-significant items as that predetermined fraction of items contributing a predetermined fraction to the total cost (e.g.80/20 rule). 2. Using the definition of cost-significant items as those measured items whose individual values are greater than the mean value of all measured items, and analysing 85 bills of quantities covering a very wide range of projects, it was found that on average, those items contributed 81.5% to the total value, and 18.5% to the total number of measured items. 3. Cost-significance factors seem to depend both on bill value and project type. For civil engineering projects, the value factor is greater than that for building projects; the numbers factor is lower. Bills of value less than 100,000 produce lower value and higher numbers factors than bills of value greater than 100,000. 4. The Pareto distribution fits the price distribution in bills of quantities reasonably well. The best fit is for items whose values are greater than the mean, i.e. cost-significant items.

28

5. Pareto's model is not accurate enough for prediction purposes, as it departs from the actual distribution quite markedly for items with values less than the mean value. 6. The 80/20 rule for items greater than the mean cannot be derived from Pareto's equations. However, Pareto's equations can produce the 80/20 rule for items greater than 0.56 times the mean (Appendix II).

29

CHAPTER 3 DEVELOPMENT OF A NEW ESTIMATING APPROACH

3.1 Introduction
The previous chapter has highlighted the problems of detail, price bias and the inaccurate reflection of production cost in bills of quantities. It has also been suggested that one way of dealing with these shortcomings is to modify the estimating approach in a way that reduces the effort and complexity in current estimating while retaining the bill of quantities in its current format. The objective of this chapter is to use the principle of cost-significance as the basis for proposing an estimating approach that will both simplify the process of estimating and reduce the time it requires without adversely affecting the accuracy of the final estimate siginifcantly. The results of practical tests on the system are reported in Chapter 4, and the effect on final accounting in Chapter 5. 3.2 Evaluation Of Current Estimating Performace. Estimating is a process that is based upon three main factors: a. estimating data; b. experience; and c. hunches. The accuracy of estimating is a function of these factors. Estimates for different purposes may be produced in different ways. What is of concern here is to establish the cost estimating performance at the most detailed stage, i.e. in pricing bills of quantities. Morrison (39) studied the estimating performance of quantity surveyors. He defined the mean estimating accuracy as the mean deviation between the quantity surveyor's estimate produced by pricing the bill of quantities, and the lowest acceptable tender recieved in competition for the project. By analysing about 900 estimates produced by seven quantity surveying organisations, Morrison established that the mean accuracy achieved by quantity surveyors was 12% with 2 in 3 estimates falling within the standard deviation of 3.5% of that mean accuracy. This reinforces the Property Services Agency's (43) similar finding of a mean accuracy. defined in the same way, of 13%. Both, the PSA and Morrison, found that accuracy improved on larger and more familiar types of projects. The best achieved accuracy found by the PSA was 7% for large scale public housing.

30

Morrison(39) claimed that there were five main contributing factors that produced such a low quality performance by quantity surveyors. Firstly he asserted that, by definition, the accuracy of quantity surveyors' estimates could not improve upon the variability of lowest tenders. He claimed that lowest tenders varied by less than 6.6% in 2/3 of the cases. Therefore, the best performance of quantity surveyors attempting to predict the value of the lowest tender would be equal to the level of variability found in the lowest tenders. Secondly, the variability of the sources of data used in estimating would also affect the accuracy. The third factor was the inherent error attached to the estimating technique. Morrison argued that the accuracy of the total estimate depended on both the variability of individual item estimates and the price distribution of items. He claimed that 92% of the individual items' estimates varied in the range - 100% to + 100%. He combined this with Skinner's (52) finding that the top 20% of the items in bills of quantities contributed 86% of the total value to conclude that the effect on the total estimate of the variability arising from inaccuracies in individual item estimates was a reduction in accuracy of 1.9% in 2/3 of the cases. Fourthly, because two exactly similar projects rarely existed, Morrison claimed that the accuracy of any estimate would become dependent upon the suitability and quantity of the price data available. And fifthly, because it is impossible to control the circumstances in which cost data is generated, it will be necessary to make adjustments to take account of such factors as time, location, market conditions, site conditions, etc. Such adjustments would be another source of variation in quantity surveyors' estimates. Beeston (6) concluded from a study of quantity surveyors' estimating performance that estimating accuracy was 11% on average, and he attributed that to local factors, building function and value, quantity surveyors intuition and observed estimating variability using present methods in the best way under average circumstances. Contractors. however, seem to perform better than quantity surveyors. Barnes (3) carried out a study of 159 completed civil engineering projects, and compared actual net cost incurred and estimated net cost. He concluded that one in three estimates diverged from the actual net cost by more than 6%. Barnes argued that this result would imply that a group of estimates for the same work would be likely to vary to the same extent, i.e. if profit

31

margins were excluded from tenders submitted for one project, the variation of tenders from the actual net cost would also be within 6% in 2/3 of the cases. He asserted that the reason for variation in tenders was 90% due to estimation of net cost, and 10% due to differing profit margins. Futhermore, he showed that the large number of low-cost items exerted a negligible influence upon the total tender accuracy. This finding was also implied in the PSA report (43) that estimating accurcy was closely linked to high-priced items. The PSA report (43) which also claimed that contractors' tenders varied (from the lowest tender) by an average of 6%, stated that the main reasons for the variation in contractors' estimates were the assessment of labour cost, choice of labour output rates, plant costs,construction method and the level of profit and overhead cost. Moyles (40) suggested that improvements in contractors' estimating performance would be achieved if contractors spent more effort in the assessment of labour and plant costs, especially those which were of higher cost-significance. The author carried out a study of the estimating performance of a major national contractor (46) on 68 tenders for jobs of various types submitted in the period 1983 to 1985. The tendering accuracy defined as the mean variation from the lowest tender, was found to be 6.2% with a standard deviation of 5.4%. The reasons for the better accuracy achieved by contractors as opposed to quantity surveyors stem primarily from the different approach to estimating
that each follows. Whereas quantity surveyors produce estimates on a

quantity-related basis, using cost data derived at best from previous similar projects, and price preliminaries as a lump sum, contractors estimate at a resource level, using more uptodate cost information, taking into account the methods and timing of construction, and pricing preliminaries in detail. Another facet of contractors' estimating performance is the cost to the contractor of preparing a tender. Barnes (3) claimed that on average it cost the contractor ,E4 to price one item in a bill of quantities. Moyies (40) suggested that it cost the contractor 0.5% of the value of the tender to price
the bill of quantities. A chief estimator at a national contractor's firm

quoted the author a figure of 0.25% of the value of the tender. Whatever the actual cost to the contractor of the estimating process, it is obvious that

32

considerable savings may be achieved if the size of the bill of quantities or the number of items to be priced is reduced, especially if one considers that in these competitive times contractors win at best 1 in 5 of the tenders they submit (46). In other words, on average, assuming a profit margin of 5% of the tender value, contractors lose up to half that margin in estimating costs. Moreover, if the time spent on estimating is reduced, not only will the cost go down, but also the number of tenders the contractor will be able to submit will increase, thus increasing his chance of winning more work. One important conclusion from the above discussion is that improvements in estimating performance of both quantity surveyors and contractors would stem from a shift in emphasis towards the high-cost items. If the bill items of greater cost significance could be readily identified, it would encourage estimators to direct their thoughts to such items, and to reduce the time spent pricing the high proportion of low cost items which does not have a significant effect upon estimating accuracy. At the same time, cost data could be collected,analysed and recorded in a way which would encourage a more significant and realistic approach to estimating and project control.
3.3 The Concept Of Cost-significance

It has been shown in the previous chapter that the mean value of measured items in a bill of quantities defines the value above which lies, on average, 81.5% of the total value of measured items. In other words, at a level of cost-significance (sr) equal to the mean (Ti) the cost-significance value factor a) equals 81.5%. This seems to suggest that a relationship exists between the cost- significance level (-Cr) and the cost-significance value factor (a) . Further analysis of the 24 bills of quantities of table 2.1 was carried out to investigate this relationship. For every bill, the cost-significance value factor (a) and numbers factor m) were calculated at different levels of cost-significance ranging between one tenth and ten times the mean value () of the measured items. The results were averaged for the
24

bills. Table

3.1 shows the averages, standard deviations and the coefficients of variation of both cost-significance value and numbers factors at the different levels of cost-significance. The following important points can be drawn from the

33

TABLE 3.1 The relationship between cost-significance levels and costsignificance value and numbers factors, averaged for 24 bills of quantities Cost-significance Value (% of total) Factor a 98.5 96.3 94.2 92.0 90.2 81.8 75.5 69.4 64.6 61.0 53.9 48.3 41.9 37.2 34.4 30.7 28.0 Standard Deviation 0.25 0.40 0.80 1.10 1.77 3.24 4.29 5.82 6.64 7.30 8.35 8.51 9.61 9.85 9.56 9.59 10.20 Coefficient of variation 0.25% 0.42% 0.85% 1.2% 2.0% 4.0% 5.7% 8.4% 10.3% 12.0% 15.5% 17.6% 23.0% 26.5% 27.8% 31.2% 36.3% Cost-significance Numbers (% of total) Factor m 66.2 51.4 42.7 36.6 32.0 19.8 14.7 11.2 8.9 7.8 5.8 4.4 3.3 2.5 2.2 1.7 1.4 Standard deviation 10.00 8.30 7.50 6.40 5.46 2.97 2.33 1.61 1.44 1.35 1.24 0.74 0.55 0.45 0.46 0.41 0.37 Coefficient of variation 15.1% 16.2% 17.5% 17.5% 17.0% 15.0% 15.8% 14.4% 16.2% 17.3% 21.5% 16.9% 16.9% 17.8% 21.3% 24.0% 25.5%

Costsignificance Level

x=4/9

0.10 0.20 0.30 0.40 0.50 1.00 1,50 2.00 2.50 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

34

results: 1. the cost-significance value factor (a) varies slightly from bill to bill, at any given level of cost-significance (x), where x=/v. This can be seen from the corresponding coefficients of variation; 2. variation in (a) increases linearly with the level of cost-significance (x). This can be seen from figure 3-1d. It can also be seen that at low levels of cost-significance, say at x<1.0, the coefficients of variation are very small, indicating that the cost-significance value factors are quite reliable; 3. the cost-significace numbers factor at any level of cost-significance, however, has a rather high coefficient of variation, and therefore is less reliable than the corresponding value factor even at low levels of cost-significance (figure 3.1c). 4. the results lead to a general definition of the concept of cost-significance. Cost-significant items will be defined as those measured items in a bill of quantities whose individual values exceed a specified value. This specified value is the cost-significance level which can be represented in value terms () or as a fraction (x) of the mean value of measured items (T,), where x=irlir. The cost-significance numbers factor(m) therefore represents the fraction of the total number of measured items that the cost-significant items represent. Similarily, the cost-significance value factor (a) represents the fraction of the total value of measured items that the cost-significant items represent; 5. if the cost-significant items at any level of cost-significance can be identified, then the total value of measured items may be predicted by only pricing those cost-significant items, summing their prices and dividing the sum by the appropriate cost-significance value factor. The accuracy of the prediction will

35

COST-SIGNIFICANT NUMBER VS. COST-SIGNIFICANT LEVEL

Z UJ CD CC LL.1 80 03 Z z
60

COST-SIGNIFICANT VALUE VS. COST-SIGNIFICANT LEVEL

>2:LJJ UJ =D _J nC nC J nC LJ CD UL CD 40

=
u_
40

n 20

200

400

600

800

200
a

C-S LEVEL (./. OF MEAN VALUE)

aoo UM C-S LEVEL OF MEAN VALUE)

UM

Z 35 UJ Z CD U 30 LL --4 25 UJ L./ > 20 LL

IS

Z 35 UJ U P..n 30 UL U s-n 25 UJ CC CD nC 20 LJ ' U0 IS 10 5 200 4 00 600 800 0 0 200 400 600 800

u.<

10

C-5 LEVEL (7. OF MEAN VALUE)

C-5 LEVEL (7. OF MEAN VALUE)

Figure 3.1. The relationship

between cost-significaree numbers and value factors and the costsignificance(C-S) Level., averaged for 24

bills. Figures (c) and (d) show the co-

efficients of variation of the C-S factors at the different Levels of cost- significance.

36

depend on the aecuracy of the factor used. This serves as a basis for a new estimating approach. 3.4 Theoretical Basis For A New Estimating Approach 3.4.1 The basic equations. Let Vo = total value of measured items; N = total number of measured items; = any item value; = mean value of measured items = Vo/N; = cost-significance level in value terms; Vv = sum of items' values whose individual values are greater than v; V9 =sum of items' values whose individual values are greater than 9, = cost significant items' value at a level of cost-significance = =
= cost-significance level as a fraction of 1);

a = cost-significance value factor = V9/Vo. Table 3-1 shows that for any value of 9, there exists a corresponding value of a. For example, at a level of cost-significance 9=0.5v -, the value of cost-significant items equals 90.2%(3.5%) of the total value of measured items in 959-' of the cases. 0 Consider figure 3-2. The curve represents a typical relationship between any item value (v), and the sum of items' values (Vv) above that item value. In mathematical terms, this relationship can be symbolised as: Vv = f(v) (3.1)

The slope of the straight line in figure 3-2 represents the ratio between the cost-significant value (V9)at a certain cost-significance level 9, and that cost-significance level (9),i.e. aN Vv= v (3.2)

The point of intersection of the straight line and the curve defines both

37

the cost-significant items' value(Vir), and the value of the cost-significance level from which, knowing the total number of measured items (N), the cost-significance level(x) and the corresponding cost-significance value factor (a), the total value of the measured items can be calculated as N.I,or Vir/a. However, a direct solution of equations (3.1) and (3.2) is not possible without fully defining the function f(v) in equation (3.1). In chapter 2 it has been demonstrated that the Pareto equation:

VI/

a-1

v(1-a)

(2.3)

serves as a reasonable approximation of the relationship between Vv and v, but only for values of v > ii. Moreover, the values of a and K vary from one bill to another. In other words, had the Pareto equation. (2.3) been a good representation of the whole distribution of items' prices, and had a and K values been known, a direct solution of equations (3.1) and (3.2) would have been possible as: [NI (a-I) 1-a Vo = a (1_1 without having to price any items.
3.4.2 Iterative solution of equations (3.1) and (3.2)

(3.3)

If an initial guesstimate (Vo) 1 , of the total value of measured items is made. and a level of cost-significance (x) is chosen, then an approxiamate value of the cost-significance level (v 1) can be calculated as v = x(Vo) N

This is represented as point

1 in figure 3-3. The sum of all measured items

whose values are greater than v 1 , i.e.Vv i , is represented by point 2 in figure 3-3. If this value is divided by the cost-significance value factor (a) which corresponds to the chosen level of cost-significance (x). a better estimate (Vo) 2 of the total value is obtained, and consequently a better approximation of the value of the cost-significance level (v 9) will be This is N represented by point 3 in figure The sum of all measured items whose again divided by the cost-significance value factor (a), a better estimate
x(VI;)2

values are greater than v 9 . Vv.., is represented by point 4. If this value is

38

Figure 3.2. CumuLative vaLue (Vv) above item vaLue (v) versus item vaLue (v) .

n*;.---x.7

ITEM VALUE v

39

(Vo) 3 of the total value than (Vo) 2 is obtained, and consequently a better approximation of the value of the cost- significance level (v 3) will be N . This is represented by point 5 in figure 3-3. If this procedure is repeated a sufficient number of times, it will converge on the actual cost-significant value (Vii) from which the actual total value of measured items may be calculated as (Vo) n = Vo = , where n = number of iterations plus one. a It is shown in appendix III that the iterative procedure will converge for all levels of cost-significance that lie in the range 0.1 to 2.0 times the mean value in 97.5% of the cases. It is also shown that the rate of convergence is higher for lower chosen levels of cost-significance. 3.5 Experimental Results Of Using The Iterative Procedure On Priced Bills Of Quantities So far it has been theoretically established that the iterative procedure can produce the total value of measured items by only considering the prices of a certain proportion of items depending on the level of cost-significance chosen. In order to prove that the iterative procedure does work in practice, it was tested on 24 priced bills of quantities. As a first approximation, a value of the measured items for each bill was assumed between 50% and 200% of the true (and in this case, known) bill value. The approximate values of the levels of cost-significance ranging between 0.1 and 2.0 were consequently calculated. Then for each level the value of all items greater than the approximate level value was calculated, multiplied by the appropriate cost-significance value factor, and the process repeated until the difference between two sucessive iterations was less than 1%. The following is an example using bill ' number 11 of table 2-1: True value of measured items, Vo=.C3,029.960 total number of measured items. N=412.
x(Vo)3

Initial approximation of Vo, (V0) 1 =121.514.980 Level of cost-significance chosen,x=1.0

(50%) of true value)

corresponding cost-significance value factor a=0.818

Approximate value of cost-significance level v 1 .x.(Vo)i/N

40

FLgure 3.3.

Iterative soLutton of equatLons (3.1) and (3.2) .

Vv.(aN/x)v

Vv-f(v)

VI

V3

V2

ITEM VALUE v

41 V1 =

3,677

All items of value >.C3,667 were picked up total value of items >L3,667, Vv i = 2,782,190

total number of items >.C3,667, Nv i =124.

Second approximation of Vo, (Vo) 2 Vv i /a =3,401,210

Similarily,

v2 = x (Vo)2/N -=-.C8255 Vv2 = 2,501,160 Nv 2 = 72

Third approximation of Vo, (Vo) 3 Vv27a =L3,057,653

Two more iterations produced (Vo) 5 =L3,105,220 which was within 1% of (Vo) 4 . Therefore, the final approximation of measured items' value =L3,105,220, which is 2.48% above the true value, produced by only considering the prices of 30.1% of the total number of measured items. The procedure was repeated using an initial approximation of twice the true value. The final approximation of Vo was again 3,105,220. The procedure was also- repeated using different levels of cost-significance. The results are shown for one bill in table 3-2. The results confirm that the accuracy of the iterative procedure increases
as the level of cost-significance drops, but at the expense of considering the

prices of a higher proportion of items. The results also support the finding in the previous section that the iterative procedure has a higher rate of convergence, assessed by the lower number of iterations required, at lower levels of cost-significance. Results of applying the iterative procedure to 24 priced bills of quantities

42

TABLE 3.2 Results of applying the iterative procedure to bill number 11

Bill number: 11

Description: Bridge

Vo = 3,029,960

N "412

Initial approximation of Vo = 0.5Vo = 1,514,980 Costsignificance Level, x 0.1 0.2 0.3 0.4 0.5 1.0 1.5 2.0 Final approximation of Vo, (Vo) n 3,030,140 3,046,570 3,050,290 3,075,130 3,076,260 3,105,220 3,109,350 3,158,660 No. of iterations (n - 1) 2 3 3 3 . 3 4 4 4 Error x 100% [(Vo) n - Vo]/Vo Max. no. of items considered, % of N 70.6 57.3 50.5 45.6 41.7 30.1 23.1 18.9

0.01 0.55 0.67 1.49 1.53 2.48 2.62 4.25

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44

in the same manner as above are shown in table 3-3. A number of conclusions can be drawn from the results: 1. convergence was achieved at all the chosen levels of cost-significance for all the tested bills, confirming the theoretical findings in the previous section; 2. the error in the final approximation increased as the level of cost-significance increased; 3. the lower the level of cost-significance, the more items' prices were needed; 4. faster convergence was achieved at lower levels of

cost-significance; 5. in 2/3 of the cases, the error in the final approximation lay within the range 6.2% depending on the chosen level of cost-significance. This implies that provided the cost-significance value factor is accurately predicted using historical bill data, and continuously updated using new bill data, the iterative procedure is capable of producing estimates at reasonable levels of accuracy by only pricing a proportion of the measured items. This is the basis of a new estimating approach - iterative estimating. 3.6 Iterative Estimating 3.6.1 Basic procedure With a little modification, the iterative procedure can be used to determine the total value of measured items in a bill of quantities by only pricing a proportion of the items. The procedure is as follows: 1. Guess the total value of measured items in the bill of quantities. (Vo) 1 2. count the number of measured items, N 3. choose the level of cost-significance, x ;

45

4. calculate the approximate value of the cost-significance level, v1 .x.(Vo)i/N 5. mark in the bill all measured items expected to have value greater than v ' and count their number Nv 6. if the number of marked items, as a fraction of the total number, falls within a predetermined range then price all those items, otherwise go to step 10. Calculation of the range is explained in the next sub-section 7. calculate the sum of all items >v 1 , Vvi 8. obtain a closer approximation (Vo) 2
to

the total value by

dividing Vv i by the appropriate cost-significance value factor, a, that corresponds to the chosen level of cost-significance x 9. repeat steps 4 to 8 , using (Vo) 2 , until (Vo) i - (Vo) i_ i is acceptably small. 10. If Nv. does not lie in the predetermined range, multiply v. byx., where x. is the cost-significance level corresponding to the closest range into which Nv i lies, and return to step 5. 3.6.2 Explanation of steps 6 and 10 It has been established earlier in this chapter that for every cost-significance level x,. there exists a corresponding cost-significance value factor a, and numbers factor m. which vary about a mean value (table 3-1). Table 3-4 shows the range of values of m in 95% of bills corresponding to any value of x. If at the chosen level of cost-significance x, the estimator marks Nv items, then had the first estimate (Vo) i been correct, Nv N (=rni) would have fallen in the range of m corresponding to x. But v = x 1 .13 and xi) = correct value of cost-significance level therefore = XI v 1

46

Table 3-4: The 95% ranges of cost-significance numbers factor corresponding to the 8 levels of cost-significance. Costsignif. level,x

0.1

0.2

0.3

0.4

0.5

1.0

1.5

2.0

Costsignif. numbers 0.47 factor,m to (95% 0.86 range)

0.35 to 0.68

0.28 to 0.57

0.24 to 0.49

0.21 to 0.43

0.14 to 0.26

0.10 to 0.19

0.08 to 0.14

but as m1 corresponds to x 1 then x 1 will be that cost-significance level in whose range of m values m/ lies. Therefore if m 1 does not lie in the range of m corresponding to x, then a better estimate of For example: Let the chosen level of cost-significance x= 1.0 let the number of marked items Nv i. = 0.35N, i.e.m1=0.35;
as m 1 does not fall in the range 0.14 to 0.26 corresponding to x=1.0,
V

will bexv1'

and the closest range m 1 falls into corresponds to x1=0.5; therefore modify v 1 by a factor = x/x i = 1.0/0.5 = 2. Another point to consider, however, is that when the estimator starts marking items whose value may lie above v 1 , he will come across some items of whose values he may not be confident which he will mark just in case. Moreover, he will probably fail to mark some items whose values are in fact greater than v 1 . The overall effect will be that he will mark more items than in fact lie above v 1 . Therefore Nv will be overestimated. To allow for this, the upper limits of the numbers factors should be increased in proportion to the extra items incorrectly marked, say by one standard deviation. Table 3-5 shows the modified version of table 3-4 having taken into account the above effect. It must be stressed here that the application of the modification factor (x/x i ) simply has the effect of improving the initial estimate, and has no

47

TABLE 3.5 Ranges of cost-significance numbers factors corresponding to the 8 levels of cost-significance. Ranges are modifed to allow for overestimation of number of marked items.

Costsignificance level, x

0.1

0.2

0.3

0.4

0.5

1.0

1.5

2.0

Cost-significance numbers factor, m (modified range)

0.47 to 0.96

0.35 to 0.76

0.28 to 0.65

0.24 to 0.56

0.21 to 0.48

0.14 to 0.29

0.10 to 0.22

0.08 to 0.16

48

bearing whatsoever on the value of the final estimate.

3.6.3 Accuracy of iterative estimating

The accuracy of iterative estimating depends on two main factors: 1. the accuracy of the cost-significance value factor used (a); 2. the ability of the estimator to identify all the items whose values lie above a specified value. Let Vo = total value of measured items; (Vo) = iterative estimate of Vo a = correct value of cost-significance value factor; a = value of cost-significance value factor used in iterative estimating; = correct value of cost-significant items; Vv= value of cost-significant items by iterative estimating; ee

= missed cost-significant items' value as a faction of the

measured items' value = - Vvn)/Vo

Define the error in iterative estimating as the difference between the final iterative estimate (Vo) n and the conventional estimate Vo, as a fraction of Vo, i.e. (Vo).-Vo e t = Vo Vv but (Vo) . = Vre.Vo a a Vo-e Vo aa e e c -1 - therefore, e t =

(3. 4)

e.g. if an estimator fails to identify a number of items which turn out to contribute 1% to the total, i.e. e e =19. and if the correct cost-significance value factor is a, =0.841 (at x=1.0), as is

49

the case for bill number 11 of table 2.1, while the estimator uses a factor a=0.818 (mean value for the 24 bills of table 2.1), then et = 0.841 0.818 0.01 -1 0.818

= 0.028 - 0.012 = 1.6% i.e. the iterative estimate will be 1.6% higher than the conventional estimate. One point to bear in mind however, is that estimating accuracy in general is largely dependent upon the accuracy of the high cost items. As estimators using iterative estimating will only have to price cost-significant items, they will have an ample chance to direct their efforts towards improving the accuracy of the prices of those items and consequently the overall accuracy of iterative estimating.
3.6.4 Factors affecting choice of cost-significance level. The choice of the cost-significance level for the purpose of iterative estimating is governed by the following main factors:

1. the ability of estimators to identify, without pricing, the items with values greater than the value determined by the cost-significance level: the price distribution of items in bills of quantities (figure 2.1) reveals that more items lie at low levels of cost-significance. This increases the chance of missing items as the chosen level of cost-significance drops, and the accuracy of the final estimate suffers consequently. Therefore this factor makes a choice of higher levels of cost-significance more favourable. 2. the variation of the cost-significance value factor a : it was shown earlier in this chapter that, from the analysis of 24 bills, the coefficient of variation of a increases as the level of cost-significance increases. This means that it is more likely for the difference between the 'correct' cost-significance value factor

50

and the chosen factor for any bill to increase as the chosen level of cost-significance increases, with an adverse effect on accuracy. Therefore, this factor encourages the choice of a low level of cost-significance. 3. the desired reduction in the estimating time: the number of items to be priced, and consequently the estimating time drops as the chosen level of cost-significance increases. It can be seen, therefore, that the first two factors have a direct effect upon the accuracy of the final estimate, whereas the third factor affects the estimating time. Savings in time however, will enable more accurate pricing of cost-significance items and consequently of overall accuracy to be achieved. Moreover, time savings achieved using iterative estimating provides a chance to increase estimating turnover. Therefore, in order to choose an optimum level of cost-significance, the following points need to be considered: i. the required level of accuracy ii. the estimator's skill and experience iii. the estimating turnover iv. the time available to produce an estimate. For the purposes of testing iterative estimating in practice, it was decided to use a level of cost-significance (x) equal to one. At this level, the value factor (a) exhibits reasonably small variation (coefficient of variation = 4%), and the number of items to be priced is generally less than 30%.
3.7 Summary

1. The mean estimating accuracy achieved in the construction industry is 12% for quantity surveyors and 6% for contractors. 2. A shift of emphasis towards high-cost items both improves the overall accuracy of estimating and reduces the time spent in pricing the large proportion of low cost items. 3. Using the concept of cost-significance levels, it has been shown that there exists a relatively stable relationship between

51

cost-significance levels (x) and corresponding cost-significance items' values represented by cost-significance value factors(a). 4. An iterative procedure has been developed using the relationship bewtween (x) and (a) which enables the prediction of the total value of measured items by only considering the prices of a proportion of the number of measured items. 5. The iterative procedure has been shown to converge for all cost-significance levels between 0.1 and 2.0 using the data available. 6. A new estimating approach-iterative estimating- has been developed based on the iterative prodedure. 7. The accuracy of iterative estimating is a function of the variation in the cost-significance value factor (a) at any given level of cost-significance(x), and the ability of estimators to identify items whose prices are higher than a given price. 8. Iterative estimating has been tested in practice. The results are reported in the next chapter.

52

CHAPTER 4 TESTING ITERATIVE ESTIMATING IN PRACTICE - A CASE STUDY 4.1 Objectives

This case study involves research carried out in the estimating department of a large national construction company over a one month period with the following objectives: 1. to study the present estimating approach at the firm; 2. to analyse priced bills and estimating performance; 3. to carry out live tests of iterative estimating on projects to be tendered for by the firm Bill price analysis and subsequent testing of iterative estimating were carried out at a level of cost-significance x=1.0. 4.2 Bills Of Quantities And Estimating Performance Analyses. Fifteen priced bills of quantities were analysed to establish the cost-significance value and numbers factors at the x=1.0 level of cost-significance. The results are shown in table 4.1. The last six bills were priced using conventional and iterative estimating and subsequently analysed. The bills covered both civil engineering and building projects tendered for in the previous three years. In some bills it was noted that certain sections which were sublet to domestic subcontractors were not priced item by item. Lump sums appeared frequently for a number of items. In analysing those bills two approaches were used: 1. groups of items which had one lump sum were considered as one item, cost-significant or otherwise depending on their price: 2. the number of items with lumped prices were considered when calculating the total number of items. but when cost-significant items were isolated, each lump sum was considered as one price. The second approach tended to increase the value factor by up to 2.5O.

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In bill number 6, for example, using the first approach a=0.854, whereas using the second, a=0.879. This result is expected because using the second approach, the total number of items considered is higher than that using the first approach. This results in - a lower mean value, and consequently more bill value to accumulate above it, hence the higher value factor. In most cases, however, not too many items were lumped into one price, and hence the second approach was generally used. The analysis showed that the mean value of the cost-significance value factor was 0.818, with a coefficient of variation of 3.7%. This result compares extremely well with that for the 24 bills analysed in the previous chapter (mean value factor =0.818, coefficient of variations =3.2%). The numbers factor, however, had a mean of 0.163 and a coefficient of variation of 15.7%, compared with 0.198 and 15.0% for the 24 bills. As regards tendering performance, out of 163 tenders over the previous three years, the firm secured 17% of the total value of the tenders, and succeeded in one in every five tenders. Tender accuracy averaged 6.2% with a standard deviation of 5.4% for 68 analysed tenders. Estimating cost was quoted to be approximately 0.25% of the tender value. 4.3 Present Estimating Approach The estimating approach is summarised in the estimating procedure chart shown in figure 4.1. When the tender documents arrive, in the form of specifications, drawings. bills of quantities etc, the estimator studies them and prepares an initial tender report. In his report the tender is broken down into its various components of provisional and prime cost sums, nominated subcontractors, own work and preliminaries. An assessment of the value contained in each component is made. An assessment is also made of the labour, plant and materials content and value. An initial estimate of the total tender is hence proposed. The tender report is then considered by management, and a decision whether to tender or not is made. If management decides to tender. the estimator will collate the bills of quantities for the issue of inquiries to

55

domestic suppliers and subcontractors. The estimator and the planner will then both issue the inquiries according to an agreed division of work. The estimator and planner will then arrange for a site visit in order to familiarise themselves with the site conditions, and take note of any conditions that may affect cost and duration of the project. In conjunction with the contracts manager, the planner will then prepare a programme, and design any required temporary works. The estimator will start pricing the bill items mainly by building up rates for the majority of measured items from labour ,material and plant contents. He will also carry out a comparison and selection process of domestic suppliers' and sub contractors' quotes which will have started to arrive by then. A continuous process of 'chasing' quotes will be in operation by the estimator and the estimating services section. After pricing the own-work items, the estimator and planner will embark on calculating and pricing preliminaries. This is done following a standard procedure which defines the various components of preliminaries cost under a number of headings, e.g. personnel, temporary buildings, general services, plant, sundries, finance, fluctuations, design fees, contigency and adjustments. After the pricing process is completed and after receiving the majority of the suppliers' and subcontractors' quotes, the item rates will all be extended, and the bill total obtained. The estimator will then prepare a finance statement which is similar to the initial tender report, i.e. provisional sums, prime cost sums, nominated subcontractors, own subcontractors, measured work and preliminaries, in which estimates are presented, and labour, plant and materials contents are abstracted. At the tender settling meeting, the estimator, planner and contracts manager will discusg the tender with management, and consider any necessary adjustments, overhead, risk and profit margins. Decisions will be taken according to many factors including risk, market conditions, work load. location, project complexity and 'gut feeling' based on experience. Decisions will consequently be carried out, adjustments made and the tender will be finalised and submitted to the client. In some cases, mainly civil engineering projects, the bills of quantities will be submitted to the client at this stage,

56

21 11 O A 1102 a

57

before the determination of the successful tenderer. For tenders where bills are not required at this stage, if the firm is chosen as the successful tenderer, the bills will have to be submitted within a short period, e.g. four working days. 4.4 Testing Iterative Estimating. As a result of the choice of the level of cost-significance at x=1.0, the iterative estimating procedure was modified as follows: 1. Guess the total value of the measured items (Vo)i; 2. calculate a mean value of those items by dividing the initial guess (Vo), by the number of measured items No, i.e. .(Vo)i/No;

3. mark in the bill all items expected to have value greater than the mean r) i , and count those items (N-))1; 4. if 10% <(Ni5) 1 < 30% of the number of measured items (No) then price all marked items. If not, go to step 9; 5. calculate the sum of all items' prices which are higher than T)i. This sum is (Vi))1; 6. obtain a new approximation (Vo) 2 to the bill value by dividing (Vi3) 1 by the mean value of the cost-significance value factor calculated from analysis of historical bills; 7. calculate a new mean value 152 = (Vo)2/No; 8. repeat steps 3 to 7 until (Vo)i,-(Vo)i is acceptably small; 9. if (Ni)). does not lie between 0.1 No and 0.3 No, multiply (Vo)i by the modification factor [(Ni4 1 1 (0 .19 No)1 084 to obtain a better initial estimate, and return to step 2. Derivation of the modification factor is explained in appendix IV. 4.5 Application Of Iterative Estimating It was initially decided to test iterative estimating alongside the conventional method used by the firm. In order to minimize the amount of extra time involved in applying both estimating procedures, the following

58

decisions were made: 1. The initial guess of the value of measured items was to be kept deliberately low. This would cause the number of marked items to be more than otherwise expected. But as long as the number was within the 30% limit, no more marking of items in further iterations would be necessary. 2. Once the estimator had completed the marking process above, he would go through the bill, pricing the marked items accurately, and spot pricing all other items. Although strictly speaking iterative estimating does not require pricing any items other than those marked, it was the estimator's view that because spot pricing of the low-value items was a very fast process and should not cost a comptent estimator any significant time or effort, and because clients expected reasonable prices against all items in the bill, it would be wise to have a price against all items. The initial objective of comparing iterative estimating with conventional estimating was therefore modified to comparing: a. an estimating approach where the high-cost items (initially marked) were to be priced accurately with a complete build-up of rates, and all other items were to be spot priced, and b. iterative estimating enhanced by the fact that apart from initially marking the high-cost unpriced items, all iterations were to be carried out on an already priced bill. This comparsion was carried out on six tenders. The results fcr the first two tested tenders are detailed in appendix V. The results for the six tenders are summarised in tables 4.2 and 4.3. From the results. the following points are noted: 1. the six tenders related to building projects ranging in value between .C250,000 and .C3,300,000; 2. the number of measured items ranged between 200 and 2.500

59

items; 3. the cost-significance value factor averaged 0.810 with a coefficient of variation of 4.6%, which compares favourably with the results for the 85 bills analysed in chapter 2 (average 0.815, and coefficient of variation = 5.0%); 4. for every tender, a running mean value of the cost-significance value factor from previously analysed bills was used for iterative estimating. The running mean was adjusted in each bill to be priced to take account of the lumping of prices in sub-contractors' quotations. The amount of the adjustment was intuitively defined. The value factor was chosen before the total bill value was known; 5. using iterative estimating the maximum number of items priced was 28.3% of the total number of measured items; 6. two out of six tenders were won using the firm's tender values. Iterative estimating would have won the firm one tender instead; 7. the average accuracy of the firm's tender, defined as the percentage difference from the lowest tender, was 3.4%, with 2/3 of the tenders' accuracy falling in the range 0-7%. The average accuracy of the iterative tenders, defined in the same way, would be 2.7%, with a range of 0.4% to 5.0% in 2/3 of the tenders. 8. the difference between the iterative tenders and the firm's tenders was on average -0.6%, with 2/3 of the iterative tenders falling in the range -2.1% to 1.0% of the firm's tenders.
4.6 Discussion Of Results

The main purpose of this exercise was to determine the viability of iterative estimating as an alternative to the conventional estimating approach practiced by the firm. The overall performance of iterative estimating may be judged in terms of three main factors:

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TABLE 4.3

Tender analysis of the 6 tested tenders.

Tender Number

Tender Position of Firm's Tender

Tender Position of Iterative Tender 3rd 7th 1st 3rd or 2nd 2nd 3rd

% Difference from Lowest Conventional Tender 0 1.94 0 4.38 9.39 4.50 Iterative Tender 0.86 3.33 -0.22 3.05 6.28 3.10 Highest Tender 8.37 1.94 2.50 10.25 11.50 9.56

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62

1. level of accuracy; 2. time saving; 3. ease of use.

4.6.1 Level of accuracy.

The analysis of tendering performance of the firm has shown that the tendering accuracy achieved averaged 6.2%, with 2 in 3 tender falling in the accuracy range of +0.8% to 11.6%. The achieved tendering accuracy of the six tested tenders, however, averaged 3.4%, with a 2/3 range of 0-7%. The corresponding values for the iterative tenders were an average of 2.7% and a 2/3 range of 0.4% to 5.0%. Although it is clear that the size of the sample (6 tenders) prevents any sweeping conclusions to be made, nevertheless the results do seem to indicate that iterative estimating produces comparable tendering accuracy to that of the firm. As for the difference between the iterative estimate and the firm's estimate, the results show that it averages -0.9% and varies by 3.9% for 2 in 3 estimates. The main factor causing this variation is the choice of the cost-significance value factor. It has been shown earlier that the value factor for the firm's analysed bills averaged 0.818, and varied by + 0.029 for 2 in 3 bills. This implies that the iterative estimate will exhibit a corresponding variation of 0.029/0.818.+3.5%, which compares with the actual variation (3.9%). However, as the iterative estimate relates to the measured items only which represent a fraction of the total tender, typically 30% to 70%, the tender variation will therefore be reduced by that fraction. From the results, the difference between the iterative and the conventional tenders averaged -0.6% and varied from the average by -1.6% for 2 in 3 tenders. In choosing the value of the cost-significance value factor. a number of considerations were taken into account. Firstly. the historical averaze value of the factor was modified slightly to account for lump sum quotes from subcontractors. As explained earlier this would tend to increase the value of the factor. Experience gained from the study of this effect in historical bills was used to quantify the amount of modification needed. The second consideration was the ability of the estimator to pick up all items above an

63

initial guessed mean price. It was observed that in all six tenders the estimator initially missed some items. The value of those missed items, upon consequent pricing, ranged between 0.1% and 1.0% of the total tender value, and the consequent effect on the iterative estimate would have been a reduction in that estimate by up to 0.01/0.818=1.22%. But as the estimator went through the pricing process of the marked items, and as he got more fimiliar with the items and prices, he was able to identify some of the initially missed items, thus reducing the effect on the final estimate. In this exercise, however, because of the spot-pricing process, all the initially missed items were identified, and therefore no allowance was made for their effect. If no spot-pricing was to take place, however, the estimator would have to, firstly, determine the fraction of the total tender he would normally miss, which can easily be assessed through simple tests of skill in picking up unpriced items above certain price levels. Secondly, he would have to modify either the total estimate, or the value factor used, to make up for that predetermined fraction. A third consideration in choosing the value of the cost-significance value factor is matters relating to tendering policy, e.g. competitiveness, eagerness to win the tender,etc. Such policy decisions may be accommodated within iterative estimating by modifying the value factor. For example, in the light of experience and tendering performance over a number of previous iterative tenders, the value of the factor may be increased in highly competitive tenders, or reduced under less competitive circumstances. Another factor that will affect the overall accuracy of iterative tenders is the pricing accuracy of the high-cost items. It has been shown earlier that the accuracy of high-cost items is the major determinant of the overall accuracy of tenders. As iterative estimating reduces the number of items to be priced so drastically, the estimator will have more time to concentrate on the pricing of the high-cost items, and will therefore end up with more accurate prices, and consequently, tenders. 4.6.2 Time saving The estimator's approach to estimating which started with an initial guess of the measured work value, then picking and accurate pricing of items above

64
above the guessed mean, and spot-pricing of all other items resulted according to the estimator in a 50% saving in his estimating time. The estimator claimed that, having adopted this approach to estimating for almost one year, he had been able to double his tendering turnover. However, in order to understand where such time saving lies one needs to consider the various methods of estimating applied to the bill items. Those sections of the work which are to be subcontracted need not be estimated by the Contractor's estimator, whether iterative estimating or conventional approaches are used. Hence, no time saving is achieved in this part of the estimating process through the use of iterative estimating. The proportion of subcontracted work items vary greatly from one firm to another. For projects undertaken by the firm in question, 30% of the work is typically subcontracted. The remainder of the work is conventionally estimated in one of three ways: operational estimating, unit rate estimating and spot-pricing. Operational estimating involves defining a work operation, the resources needed to carry it out, and consequently its cost in the form of a lump sum. This sum is subsequently spread amongst the relevant bill items. In building projects, operational estimating is used to a much lesser extent than civil engineering projects, mainly due to the larger plant element in the latter. The six tested tenders all related to building projects and operational estimating was only applied to about 5% of the work items, e.g. excavation work. For such items, iterative estimating would only offer a saving in estimating time if some of the operations were non-cost-significant. Unit rate estimating involves building up a rate for individual bill items from their labour, plant and material contents, to which some allowance for profit and overheads is added. Some bill items, however, are of too small a value to warrant a rate build-up. Instead, they are spot-priced, or in the case of computer-aided estimating, a price is allocated to such items automatically from a price data base. The extent to which rates are built up as opposed to spot-pricing varies from one estimator to another. The estimator involved with this work used the rate build-up method for the majority of the measured items. If the principles of iterative estimating are involved, the estimator can quickly identify the 70% of the items which are

64A non-cost-significant, and for which a spot price will suffice perfectly well. The table below illustrates the way in which iterative estimating reduces the number of items for which the estimator must build up a rate. Subcontracted Operational Unit rate Spot estimating build-up pricing Work Conventional Iterative Estimating 30 30 5 5 60 20 5 45

This accounts for the saving in estimator's time. For estimators who would conventionally spot-price a higher proportion of items (than 5%), iterative estimating offers the advantages of providing a sound theoretical basis for allowing them to spot-price 70% of the items, and it enables them to identify those items with confidence. 4.6.3 Ease of use. One of the advantages of iterative estimating is that the contractor using the method does not need to change any of his existing procedures because iterative estimating aims to reduce the number of items which have to be priced and does not affect the way in which the price is compiled. In this exercise, it was found that the iterative estimating prodecure was very easy to apply, and fitted smoothly within the pricing framework used by the firm, especially when the iteration part was computerised. The only potential difficulty is in relation to sub-contractors' quotes. In some instances, some quotes arrive so late that the estimating process will have been completed. If the contractor decides to accept and include those quotes in his tender, then it will be a matter of modifying the list of the initially picked items and maybe carrying out the iterative process again. This can be made very simple if the process is computerised. 4.7 Summary 1. Iterative estimating has been tested on six 'live' tenders, at a level of cost-significance x=1.0.

65 2. Comparison of iterative and conventional tenders indicates that, on average, slightly lower and more consistent tenders were produced using iterative estimating. However, more tests have to be done to confirm this finding. 3. Iterative tenders varied by -2.8% to +1.4% from conventional tenders. 4. The reasons for the difference between iterative and conventional tenders are: a. the cost-significance value factor varied between 0.77 and 0.87; b. the proportion of cost-significant items that the estimator failed to identify ranged between 0.10% and 3_0% of tle tender value. 5. Because iterative estimating leads the user to identify the high proportion of non-cost-significant items on which the estimator needs not spend any significant estimation time ana effort, estimating time may be significantly reduced. This saving applies mainly to the items that would have been estimated using unit rate estimating, and to operations of non-cost-significant value. 6. Time saving could be used in improving the pricing accuracy of the high-cost items, and consequently of the tender, as well as increasing tendering turnover, and consequently the chance to win more tenders. 7. Iterative estimating is simple to implement, and fits smoothly within conventional estimating procedures and pricing frameworks, especially if the process is computerised. 8. The effect of pricing cost-significant items only, using iterative estimating, on variations and final accounting is dealt with in the next chapter.

66

CHAPTER 5 ITERATIVE ESTIMATING AND VARIATIONS

5.1 Introduction

Iterative estimating has been shown to produce total tender values of reasonable accuracy by pricing only a proportion of the items in a bill of quantities. However, for the purposes of financial control and interim payments to the contractor, it has been standard practice to have a rate against the majority of bill items. How then can variations and interim certificates be valued if only 30% or fewer of the bill items are priced? If work as defined by the drawings, specifications and bill items is carried out exactly as defined, with no variation taking place then the answer is simple. Valuation can be simply based upon the cost-significant items' prices, adjusted by the cost-significance value factor. In the real world, however, variations to the defined work in terms of extra work, omitted work and changed quantities are an inherent characteristic of construction. It is the objective of this chapter to propose a number of alternative methods of dealing with variations as applied to iteratively estimated tenders and to
assess the effect of each method on the final account in comparison to

conventional practice.
5.2 Variations In Tenders

Variations in construction work from the initial definition incorporated in drawings, specifications and bills of quantities can take one of two forms: a. work which is no longer required; b. extra work required In relation to bill items, therefore. variations may imply that some items are omitted, some altogether new work items are added, some items undergo such change in quantity or definition that necessiates a renogotiation of rate, and some items simply undergo a change of quantity. The most detailed study of variations in tenders was carried out by Barnes (3). From a study of 32 completed contracts Barnes showed that on average variations to the work accounted for an increase of 11% of the tender value. This was broken down to: a. 12% increase due to increased-quantity items;

67

b. 10% decrease due to decreased-quantity items; c. 21% decrease attributed to unused items; and d. 30% increase due to new and changed-rate items; Barnes also investigated the relationship between item value in the bill of quantities and the variation upon its value in the final account. He showed that the 80% lowest value items changed on average by 1.67% of the total final account value. He claimed that if the 80% lowest value items were not priced, but instead an allowance for their total value were included in the rates for the remaining associated items, the effect on the final account would be a mere 0.6% change. If the adminstration cost of pricing those items were taken into account, the overall effect would be even less significant. Alternatively, if the 80% lowest value items were priced very inaccurately (e.g. to an accuracy of 72%), while the reamaining items were priced accurately (e.g. to 12%), then on the one hand the accuracy of the tender total would not be significantly different from that had all items been priced to the same accuracy (e.g. to 13%). On the other hand, the effect on the final account of variations in the 80% least value items would be even less significant. Barnes's work confirmed that the potential exists for reducing the number of items to be priced , or the effort in pricing bill items, and it is a matter of proposing new simple methods capable of: 1. producing reasonably accurate tender sums; 2. producing final accounts values which do not differ significantly from conventional practice; and 3. dispersing the climate of contention surrounding the pricing of variations. It has already been shown that iterative estimating applied at a level of cost-significance x=1.0 is capable of producing reasonably accurate tenders, with the advantage of saving a significant proportion of estimating time. Before progress can be made towards reducing the understandable reluctance to introduce the system, a reasonable method must be found of dealing with

68

the final account. This is the main concern of the rest of this chapter. 5.3 Proposed Methods For Dealing With Variations Four different methods of dealing with the pricing and valuation of variations in individual bill items were investigated. All four methods rely on the use of iterative estimating at the x=1.0 level of cost-significance to produce a tender value. The common features of the four methods are: 1. cost-significant items (CSI's) are those items which have values greater than a mean value arrived at using iterative estimating; 2. the same cost-significance value factor (a) is used in all four methods; 3. the cost-significance value factor used (a) is the average factor obtained from analysis of the user's own historical data; 4. the fraction of the total value that non-cost-significant items (NCSI's) represent is assumed in all four methods to be (1-a); 5. extra items are defined as totally new items relating to new work required, and those items which undergo such variation that new rates are negotiated and agreed; 6. only measured items are considered in the analysis. Preliminaries, prime cost and provisional sums are excluded. 5.3.1 Method 1 Using this method, the estimator would only insert in the bill prices for CSI's. while NCSI's are left unpriced. The total value of measured items is calculated using iterative estimating, and is equal to the total value of CSI's divided by the value factor (a). The value of variations relating to CSI's is increased by a factor 1/a. Extra work items of less value than the mean value calculated using iterative estimating are ignored in the final account. To compensate for those items. extra items with greater value than the mean are increased in value by a factor 1/a. Hence, the total value of measured items in final account will be made up of the original CSI's and the extra 'cost-significant' items, both increased by a factor 1, a.

69

5.3.2 Method 2 Again, the estimator would only insert in the bill prices for CSI's, while NCSI's are left unpriced. The total value is arrived at in the same way as Method 1. The value of variations relating to CSI's is increased by a factor 1/a, to which is added the value of all extra items to obtain the final account value. 5.3.3 Method 3 The estimator would insert in the bill CSIs' prices as before. However, NCSI's are priced equally and the prices inserted in the bill, such that their sum makes up the fraction (1-a) of the total value of measured items. Therefore, all bill items would have prices inserted against them, and variations are calculated in relation to those prices just as they are conventionally. 5.3.4 Method 4 This method is similar to Method 3. The only difference is that instead of pricing NCSI's. equally, they would be priced roughly (spot-priced) providing that their total value equals (1-a) times the total value of measured items. 5.4 Effect Of The Proposed Methods Upon The Final Account. 5.4.1 Notation In conventional practice,let: S t = sum of all measured items' values in the tender; V t = total value of CSI's in the tender; v t = total value of NCSI's in the tender; a = cost-significance value factor; S f = sum of all measured items' values in the final account:
V f v

total value of the tender's CSI's in the final account: total value of the tender's NCSI's in the final account:

E = sum of the values of all extra items in the final account;

70

rc = Vf/Vt .. a measure of the variation in CSIs' value; rn = vf/vt .. a measure of the variation in NCSIs' value; r = total value of extra CSI's as a fraction of E. The level of cost-significance is taken as the tender value of measured items. Using iterative estimating, the corresponding values to S t , Vt , vt , a, S P V P v f' E are S'' V t'' v s', a'' 'f ' V'' v'' E' respectively. ' R' f f t The value of CSI's not identified by the estimator using iterative estimating may be taken to be of the order of V t - .V. (see figure 5-1); hence, the fraction that missed items represent of S t is: V t -V ' t ee s
t

(c.f. section 3.6.3)

The accuracy of the iterative estimate has been shown in, section 3.6.3 to be: ee a -1 e t = , - a a
(3.10)

Define the error in the final account value using the four proposed methods
as:

ef = (Si - Sf) /St

5.4.2 Error using Method 1

S ' = + f a' and Sf =

V

V' f

rE' a

f + v f -I- E hence the error in the final account using this method is , E '.r (ef) 1 = { T - Vf v f +k --;- - E ) } / St a but V f
v =--

r c Vt n vt

== r

= r n (1-a) St and Vi = Vf - final account value of CSI's

missed

by the estimator;

assuming the missed items to vary between tender and final account as

71

Figure 5.1. Sources of error in iterative estimating .

ITEM VALUE v

72

would the rest of the CSI's, then Vi = Vf - (Vt - Vt') rc = Vf - (ee .S t) rc As extra items include new items and changed-rate items, it is reasonable to assume that the value of new items is independent of the existing prices of bill items. Moreover, renegotiation of rates will involve: a. some CSI's: new rates will be the same conventionally and using Method 1; b. some NCSI's:
as NCSI's using Method 1 will have zero rates, it is expected

that renegotiated rates may vary slightly between conventional practice and using Method 1. It is not likely that this slight difference will have a marked effect upon the total value of the final account, especially if the renegotiation process is not affected by the zero rates inserted in the tender. It can be assumed therefore that: E E' Therefore, (e1) 1 = Vree.St.r, a ' r r .V t a r V
c t

rn (1-a)S t +

1)

/ St

=
But
V St

e.S.r e t c

rc V t - rn (1-a)St +

- 1)

/ St

therefore (ef) = rc a a I.
(5.1)

r .a

rii(1-a)
St

1)

73

5.4.3 Error using Method 2 Vf' S' = + E' f a' and S f = V f v E hence (ef) 2 = [ V; - Vf - vf + (E' - E) / St

Using the same assumptions as in Method 1 concerning the variation of the missed CSI's, and E' E, it can be shown that ( 5.2) el a - r .a - r(1-a) (ef) 2 r I , c a a

The equation indicates that the error is independent of extra items, otherwise it is similar to the error of Method 1.
5.4.4 Error using Method 3

S f' = Vf' and

E'

S f = Vf v f E from Method 1: e = rV - e.St s c ct Assume that the equally priced NCSI's using Method 3 will vary in total by a fraction equal to that had they been conventionally priced, i.e. v' = rn.v' t Verification of this assumption is shown in appendix VI)therefore, v' = rn (1-a') =r V'
"a

(1-a') n

and using: V' =Vt - e et 'S t and assuming as previously: E' = E it can be shown that e t .r n - e e( r c -r n ) (ef)3 (5.3)

74

5.4.5 Error in Method 4 S f = V f' and

S f = V f v f

E'

From Method 1: rc V t - e e .S t' r c Barnes (3) has demonstrated that very inaccurate pricing of the 80% least Vf
=

valued items, as opposed to pricing them reasonably accurately, while pricing the rest of the items with reasonable accuracy will cause a negligible change in the variation of those low-value items. As the NCST's, which represent about 80% of the measured items. are spot-priced using Method 4, it can be similarly assumed that the total variation of these NCSI's will be equal to that total variation had all the items been priced conventionally. Therefore, vf v f - = -= r hence, as in Method 3 r v' = u (1-a') (V t - e e S t ) f a' and assuming as previously E' = E the same expression is obtained for (ed 4 as that for (ef)3' i.e. (ed 4 = et .r.- ee (r, -
5.5 Analysis Of Tenders And Final Accounts

(5.4)

To quantify the amount of variation between tender and final account, a number of priced bills and their associated final accounts have been analysed. The data relates to
15

completed contracts covering both building and civil

engineering projects. The average contract value is 400,000. The values of CSI's and NCSI's were abstracted from the bills and final accounts, as well as the values of cost-significant and non-cost-significant extra items. The results are shown in table 5.1. From the results it can be concluded that , as a percentage of the tender value of measured items; 1. CSIs' tender value dropped on average by 8%;

75

2. NCSIs' tender value dropped on average by 2%; 3. Extra items' value represented on average 14%, and 4. the tender value of measured items increased by 4% in the final account. In order to investigate the effect of the four methods of dealing with variations, the factors a, rc , rn , r and E/S t were calculated for every project. The results are shown in table 5-2. 5.6 Errors In Tenders And Final Accounts. The results in table 5.2 have been used to calculate the tender error (et) and the final account error (ed using the four proposed methods. The results are shown in table 5.3, averaged for the 15 projects. As the tender error depends on the choice of the cost-significance value factor (a') and the fraction of missed items (e e), both factors were varied to depict the effect upon the resulting errors. The mean value of (a) for the 15 projects was found to be 0.837. When this value is used in iterative estimating, i. e. a'=0.837, and assuming e p=0, the mean error in the iterative tender is zero. This implies that if a sufficient number of historical bills of quantities has been analysed to obtain an average value of (a), then this average will not be statistically different from the real average associated with future tenders. Therefore, in the long term, tender errors caused by the use of the historical average will tend to cancel out. For individual tenders however, in 2/3 of the cases they will have errors in the range 4.5%. As to final account errors, Methods 3 and 4 produce zero errors on average with 2 in 3 final accounts having errors in the range 4.4%. Method 2 will produce a final account undervalued by 1% on average. However, in the previous chapter it has been shown that the fraction of missed items e e was, at most. approximately 1%. If this value is used in calculating the errors while still using a'=0.837, then Methods 3 and 4 will produce tenders undervalued by 1.2% and final accounts also undervalued by 0.8% on average, whereas the corresponding figures for Method 1 are 1.2% and 1.9%, and Method 2, 1.2% and 2.1%. Therefore, again Methods 3 and 4 produce the minimum errors.

76

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77 TABLE 5.2 The value factors representing a measure of the variation with respect to CSI's, NCSI's and extra items.

Project number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 mean standard deviation

Eis n 0.872 0.871 0.961 0.777 0.808 0.675 0.720 1 0.986 0 0 0.912 0.735 0.752 0 0.671 0.361 0.298 0.241 0.228 0.114 0.208 0.056 0.282 0 0.323 0.002 0.006 0.156 0.058 0.150 0.007 0.142 0.117

0.811 0.801 0.835 0.836 0.791 0.847 0.841 0.781 0.879 0.834 0.896 0.889 0.863 0.865 0.783 0.837 0.037

0.731 0.836 0.835 0.951 0.710 0.994 0.879 0.942 0.942 1.000 0.762 0.792 1.018 0.950 1.014 0.890 0.106

0.784 0.881 0.950 1.001 0.838 0.922 0.859 1.007 1.273 0.932 0.903 0.972 0.958 1.329 0.919 0.969 0.148

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79

Using other values of a', 0.827 and 0.847, and ee ,0.00 and 0.01, it can be seen from table 5.3 that Methods 3 and 4 always produce final account errors closest to the tender errors. In other words, for winning tenders prepared using iterative estimating, Methods 3 and 4 produce an average amount of variation very close indeed to conventional methods. Another important finding can be drawn from a consideration of the most probable value of ee . If estimators assess their skill in identifying, without pricing, CSI's, they will be able to predict a value of e e . When they use iterative estimating, they can improve the resulting tender and final account accuracy by reducing the average value of the cost-significance value factor (a') by an amount equal to the predicted value of e e . In table 5.3 this effect can be seen from observing the errors values when a'=a-e e = 0.837-0.01=0.827, and e e =0.01. The average tender error equals zero, and the final account errors are very small overall, compared with other choices of (a') and (e e ). Moreover, in order of least resulting final account errors, Methods 3 and 4 come first, Method 1 second, and Method 2 third. However, the average error of the four methods ranges between -1.0% and +0.3%, which implies a reasonably similar performance of the four methods. In short, therefore, provided an accurate average cost-significance value factor is determined, and estimators assess their performance in identifying CSI's, iterative estimating can achieve accurate tenders and final accounts in the long term, with short term errors, on individual projects, of approximately 4.5% of conventional tender value of measured items in 2/3 of the cases.
5.7 Critique Of The Four Methods.

It has been shown from the results that Methods 3 and 4 produce average amounts of variations very close indeed to conventional methods. However. because the spot-pricing process is a fast process involving little effort from a competent estimator, and because clients expect reasonable prices against items in the bill, it would seem that Method 4 is more appropriate to use than Method 3. Comparing Method 1 with Method 2, the following advantages of the former can be concluded:

80

a. the final account error is slightly smaller; b. there is no need for the valuation of extra work of non-cost-significant proportions. It follows, therefore, that more accurate results may be achieved, and more time is saved using Method 1 rather than Method 2. Therefore, the choice of the method to be used may be limited to Methods 1 and 4. Method 1 has the following advantages over Method 4: a. there is no need to price non-cost-significant items; b. there is no need to assess variations associated with non-cost-significant items; and c. there is no need to assess extra work of non-cost-significant proportions. However, the adoption of Method 1 requires some consideration and modification of the revelant contractual aspects to facilitate its use in practice. Method 4 has the advantage of a slightly smaller final account error and of producing variations which are very close to conventional ones. Hence, the decision to use either method will depend on the weight the parties involved will attach to the advantages or drawbacks of the two methods.

5.8 Summary
1. Conventional methods of assessing variations in construction work involve considerable effort with disproportionate returns in the assessment of variations in non-cost-significant items of work. 2. Previous research has shown that the size of bills of quantities can be drastically reduced by eliminating non-cost-significant items without any significant effect on final account. 3. Four methods were proposed to assess variations for tenders priced by iterative estimating:

81

a. Method 1: Variations in cost-significant items and in extra work of cost-significant proportions are increased by a factor 1/a. b. Method 2: Variations in cost-significant items are increased by a factor and added to the value of all extra items.

c. Method 3: Non-cost-significant items are given equal prices such that their sum represents a fraction (1-a) of the total, and variations are assessed as they would be conventionally. d. Method 4: Non-cost-significant items are priced roughly to give a sum equal to (1-a) times the total. Variations are assesed as they would be conventionally. 4. Analysis of 15 historical bills and final accounts has shown that the four methods produce very accurate tenders and final accounts in the long term, with a short term error range of 4.5% in 2/3 of the projects. 5. Method 4 is more appropriate to use than Method 3 because: a. spot-pricing NCSI's is a very fast process; b. all items in the bill will have a reasonable price; c. inserting equal extended prices requires calculating the rates for all NCSI's if these are to be inserted. This adds to the time to be expended using Method 3. 6. Compared to Method 2, Method 1 produces slightly more accurate final accounts. and does not require the assessment of extra work of non-cost-significant proportions. Hence. Method 1 is more appropriate to use than Method 2. 7. Although Method 4 produces slightly more accurate final accounts than Method 1, the latter offers the advantage of a saving in

82

time and effort since no work of non-cost-significant proportions is considered in the pricing and evaluation process. However, the choice of the method to be used depends on the weight attached to the advantages of either method by the parties involved.

83

CHAPTER 6 A REVIEW OF PROJECT COST AND TIME CONTROL SYSTEMS

6.1 Introduction
The problem of cost and time control in construction has been tackled by many researches and practitioners. In this chapter, it is intended to review the main methods of construction control in order to identify the shortcomings as well as the advantages of such methods as a preliminary step towards proposing a new control system. The main considerations of this chapter are therefore: 1. to review the main methods of construction control proposed for or practiced in the industry; 2. to identify the advantages and shortcomings of those methods; 3. to discuss the need to integrate the processes of control; 4. to review any existing integrated control systems and the problems encountered in such systems; 5. to propose potential solutions to such problems; 6. to propose, as a result of the above review, the main features of a new control system. 6.2 General The process of construction control consists of the following essential functions: 1. forecasting the cost and time elements of the project; 2. monitoring progress with respect to the forecast; 3. controiling cost and time b y comparing actual performance with that forecast and acting to correct any adverse variances.

6.3 Forecasting
Forecasting involves the preparation of time and cost estimates.

84

6.3.1 Time estimates The most common time estimates (plans) take the form of bar charts and networks. Although the use of bar charts is more widespread than the use of networks, the ability of networks to model the interdependency of construction activities makes them a more useful basis for modelling project durations. Networks can be of two types: activity-on-arrow and

activity-on-node (precedence) networks. The use of these methods is explained by many writers (10,13,14,27,37). A large amount of research has been carried out in this field, and a significant number of time planning systems have evolved, many of which are based upon the Critical Path Method (8,20). As for the use of these systems, Davis(20) revealed that most firms which used the Critical Path Method (CPM) only used it for planning the job, and did not refer to it as the work proceeded in any control capacity. Other firms used it as a sales extravaganza or in response to clients' requirements. The full potential of the method has therefore been hardly realised. Birrel (8) argued that one of the reasons was that CPM was originally developed for military projects which had few resource constraints, while cost savings and efficient use of resources are major priorities in other types of construction. He therefore concluded that CPM did not cater sufficiently for cost and resource objectives and hence was not sufficient as a tool for control. Lester (37) claimed that it was the tendency towards producing complicated networks through the use of computers that was the main stumbling block for efficient use of network techniques. He argued that the large amount of printouts, reports, summaries.etc. made it very difficult to read, let alone digest, such output. Hence, large computerised networks did not give the necessary control and quick response that was expected of them. Management would then draw the conclusion that network analysis was either unworkable or not really applicable to the project in hand. A report by NEDO (41) supported Lester's argument. The report compared. among other things. the planning techniques on 18 construction sites in the U.K. , Europe and U.S.A. The report found that although a great deal of sophistication went into programming U.K. power station

85

projects, schedules were overrun. One of the reasons sited was that complicated networks were useful in developing an initial programme, but subsequently, though they might show how badly one had done, they did not indicate how to recover the situation. Networks need therfore to be simplified, permitting simple and rapid feedback, and pointing out where action must be taken.

6.3.2 Cost estimating

Cost estimating is the other facet of the planning and forecasting functions. The objectives of a cost estimate can be summarised as follows: 1. to provide a basis for tenders; 2. to provide a standard for evaluation of performance; 3. to forecast future resource requirements; 4. to forecast cash flow; 5. to define the money payable to the contractor; 6. to aid the assessment of the effect of variations; 7. to supplement specifications for quality control. A cost estimate may be produced by different methods, but has to represent the cost breakdown of the construction project, and at its best be an accurate model of the construction processes. The range of cost models and the methods of preparation of cost estimates have been discussed earlier in the thesis. What is of concern here is the favourable features that a cost model will have which will provide a reasonable basis to link the estimating to the monitoring and subsequent control functions. It has been shown earlier that cost models based on an operational basis serve the above objective well. The current cost models in use in the construction industry are bills of quantities. These suffer from two basic drawbacks. Firstly, they do not reflect the way in which costs arise during construction, and seccndlythey contain too much detail for estimating, and for their direct use in cost monitoring and control. It follows therefore that until the format of bills of quantities is modified in such a way as to overcome the above drawbacks, intermediate techniques have to be developed to reduce the effect of these

86

drawbacks. One technique is the use of the principle of cost-significance. Its use in estimating and evaluation of variations has already been demonstrated in previous chapters. The principle can also be used in the subsequent monitoring and control functions. If cost-significant items (CST's) are grouped together in a meaningful way, cost-significant work packages may be formed. These packages will represent work operations and may be used as the basic blocks for cost and time control. Guidelines for this packaging process are outlined in the next chapter. Moreover, in order to further simplify the use of work packages in the monitoring and control functions, similar or 'like' work packages may be grouped together to form cost-significant activities. Thus a work breakdown structure will result, the units of which are cost-significant activities, work packages and bill items. An example of this process is shown in the next chapter. The idea of forming meaningful work operations from bill items is not new. The Building Research Establishment's proposed bill of quantities operational format contained meaningful site operations, each defined in terms of a number of conventional bills of quantities' items (55). Jackson(31) also proposed a functional (operational) model of construction totally based on CESM.M items. Incorporating the principle of cost-significance within a project breakdown structure would provide the extra advantage of reducing the amount of unnecessary detail. 6.4 Monitoring The main purpose of monitoring the progress of construction projects is to effect control by comparing factual with planned progress. The design of a monitoring system has to take into consideration two basic factors: firstly the form in which the project is planned, and secondly the elements of construction that need to be controlled. Hence, the amount of data required within any monitoring system is determined by plan and control objectives. The monitoring process involves three basic activities: 1. data collection; 2. data allocation through the use of a coding system; and 3. data collation in a way that allows direct comparison with the plan. The data collection activity involves the recording of progress information relating to cost and time elements of construction. The collected data needs

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to be coded for identification and subsequent collation. The number and complexity of codes depends on the degree of detail required. However, greater numbers and complexity of codes breed inaccuracies and inertia in staff who operate the monitoring system. Harris and McCaffer (27) asserted that in monitoring systems where coded cost headings are used, misallocation of collected data items increased significantly as more cost headings were used. They concluded therefore that there should be a drive towards using 'coarse' coding systems, with a few (about 15) cost headings to avoid gross errors. The idea of limiting control, and therefore monitoring, to high-cost elements of construction has been suggested by a number of writers. Cooke (18) stated that if there were a modest number of highly significant cost items in a bill of quantities, then there would be sound logic in limiting control to those items. Warszawski (62) argued that as control was variance oriented rather than cost oriented, it might be limited to selected and more significant items. A work breakdown structure as suggested in the previous section may provide a stepping stone towards an ideal monitoring system in a number of ways. Firstly, it may provide a practical link between the monitoring and planning functions on the one hand, and the monitoring and control functions on the other, because all these functions would be based upon meaningful units which are site operations. Secondly, concentrating upon the cost-significant elements of construction would reduce the amount of data to be collected. Thirdly, due to the reduction in data and the inambiguity of the operations, there would be less chance of misallocation and more understanding of the process. Fourthly, simple coding of collected data may result from the proposed work breakdown structure. And fifthly, the amount and complexity of data collation and manipulation for subsequent use in a control capacity would be reduced. 6.5 Control 6.5.1 Time control The majority of time control systems use bar charts or project networks
as

their basis. Having produced a planned bar chart or network of the

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project activities, data on progress need to be collected and compared to plan. Control, therefore, can be achieved in two steps: 1. compare collected data with plan for each activity and establish any time variance. This will highlight the areas where management attention and possible action are needed; 2. modify and update the plan using factual progress data. It is of prime importance that any variance from plan is identified in time for action to be taken. Therefore, data needs to be collected and analysed in short and regular time periods. For this to be possible, complexity of networks is to be avoided, and analysis results are to be clear, simple to produce and not too detailed. The use of computers will be advantageous especially if they are installed on site, and the tendency to increase the amount of detail in input and output, which is encouraged by the computing potential, is restrained.

6.5.2 Cost control

There exists a number of cost control systems in use in the construction industry. Although the systems may vary in the principles they encompass and the methods by which they are synthesized and applied, they are all attempts at establishing variances between expected and actual performance figures. Variances may be: a. cost variances: variances between estimated and actual unit or total cost may be the criteria for control; b. quantity variances: the difference between the amount of work done and that expected indicates where management action may be required. Quantity

variance may also be applied to material usage.

C.

productivity variances: productivity of workers and machinPs may be monitored against that expected, and variances established. Cost control may be based upon one of the two following procedures,

Warszawski(62) argues:

89

1. revenue oriented cost control: basically, comparison of costs and

revenues is carried out. The main features of this procedure are:

a. all control operations are performed within the accounting system; b. it can only be applied if payments to contractors are on a measured basis with unit rates; c. with accurate measurement, accurate profits may be calculated, purely historical information is produced, and thus no direct management action is prompted. 2. standard oriented cost control: this procedure is based upon physical or economic standards, and employs the following principles: a. the procedure focuses on expenses which are controllable by site management (e.g. not overheads and profits); b. control is input rather than output oriented, controlling the variance between estimated allocation of resources for an activity, based on accepted standards, and their actual expenditure; c. indirect project activities, e.g. administration and facilities set-up. may be budgeted and controlled in the same way as activities directly associated with output. The advantages of standard oriented over revenue oriented control are: 1. there is complete compatibility between the budgeted and recorded input quantities. and between budgeting and scheduling; 2. focusing on input variances allows management by exception. Overruns can be spotted and traced; 3. it allows recording and storage of productivity data for future use.

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The limitations of standard oriented cost control, however, are: 1. the large number of distinctive activities and associated resources required; 2. the elaborate coding system and data handling involved. A number of systems developed for the purpose of cost control have been developed and used in the construction industry. Harris and McCaffer (27) described the following systems: 1. by overall profit or loss: at contract completion the contractor compares the sums of money he has been paid with the costs incurred in purchasing materials, payments for labour, subcontractors, plant and overheads. The figures are normally extracted from the financial accounts; 2. profit or loss on each contract at valuation dates: the total costs are compared with valuations; 3. unit costing: costs of various types of work are recorded separately. The costs, both cumulatively and on a period basis, are divided by the quantity of work of each type that has been done. This provides unit costs which can be compared with those in the tender; 4. systems based on the principle of standard costing: for each type of work, variances are calculated basically by comparing the value of the output with the cost of producing it. To reduce the difficulty of applying such a system in construction, an alternative approach is to assess the value of the work done in relation to the contract budget which in turn must reflect the amount that the contractor can expect to be paid; 5. PERT/COST: this system involves dividing the project into work packages and 'networking' them. The values of work packages are assessed in advance. Time update of the network provides

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the value of work done as a 'by-product' of the calculations. The value can be related to cost code, provided that the work package information is similarily arranged. Thus, when incurred costs are recorded against the same codes, variances can be calculated. This system is most suitable with the use of operational billing. To the above, Cooke (18) added three more control techniques in use: 1. random cost checks applied to selected operations to indicate the actual outputs being achieved. Data is collected on costs, outputs and conditions of work and compared to expectations; 2. short term planning/cost control: this involves the preparation of weekly plans of cost and value of proposed work for that week. Supervision and cost control coalesce when the management monitors the work as it takes place, and takes immediate action while the work is in progress; 3. pre-targeting operations: the work is developed by various management consultants and research organizations. The method involves detailed weekly planning and organizing the work so that the operations and sequence of work Dow smoothiy. ReasonaNe targets are set and clear instructions are given. This method is costly in terms of specialist planners, but that may be off-set by savings resulting from improved productivity. The elements of cost to be controlled in a construction project are labour. plant and materials. Labour (and plant) cost is com posed of the following elements: 1. man-hours per unit of work (productivity); 2. price per man-hour; and 3. quantity of work performed. A control system should be able to pick out the variances caused by each

92

of the preceding elements. Teichlz (59) stated that the methods of labour cost control were: 1. progress analysis: a budget schedule is prepared showing the estimated rate of progress for each major work item. Actual progress is then compared to the schedule; 2. man-hour analysis: for each work operation a budget of man-hours per unit of work is prepared. Actual man-hours and work quantities are collected to enable a comparison of actual and bugeted productivity. This method therefore reflects quantity and productivity variance, but not cost variance; 3. cost analysis: the least complex cost analysis consists of comparing the actual unit cost of work to that budgeted. Data on cost, quantities and productivity may be collected in a more complex system, and all three variances analysed. Material cost consists of the following elements: a. purchasing cost; b. acquisition cost; c. holding cost; d. transport cost; and e. a provision for wastage. Purchasing cost is outhwith management control, apart from attempting to obtain reasonable quotes. Balancing acquisition and holding costs involves the use of operational research techniques, and a significant amount of literature deals with this aspect. The Building Research Establishment (57,58) commissioned a study of materials wastage on construction sites. Amongst the main conclusions of the study was that material wastage on construction sites could be most effectively reduced through a change of attitudes towards waste, and the use of common sense in planning the use and handling of materials.

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6.6 Integration Of The Control Functions 6.6.1 Introduction The previous review of the control functions and systems highlights the fragmented approach by a large section of the industry to construction control. Estimating, for instance is based upon one model, e.g. bills of quantities, while control is based upon another, e.g. a critical path network. Cost is monitored on a monthly valuation of work basis, for example, while time is monitored on a bar chart or network basis. Such a fragmented approach to the construction control functions gives rise to a number of disadvantages. Firstly, the data collected for the purposes of one function will not be used in any other. Secondly, there may be a significant amount of repetition in data collection and manipulation due to the natural overlap of the control functions. Thirdly, basing the functions on different models prevents feedback of data from one function to another, and consequently the chance to improve performance within one project as well as in future projects is reduced. The rest of this chapter will therefore discuss the need for integrating the control functions, review proposed integrated control systems, and draw main conclusions concerning an ideal. integrated approach to construction control, highlighting possible improvements and simplification. 6.6.2 Estimating The idealized concept of estimating and control suggests that the estimated resource requirements are used as the basis for preparation of programmes and cost plans. The resources are applied to the job. and the actual performance in terms of progress and cost is monitored and compared with the plans. Any variance is noted and the information used to modify future estimates for similar work, thus completing the cycle of eAimating and control. On most construction. however, the control cycle. as Duff (22) points out does not contain estimating as an integral part (Figure 6.1). Estimating can be, and often is, by-passed altogether so that experience gained on one contract is rarely used in estimating the cost of the next.

94

Figure 6-1: The control cycle

MODIFY Estimation ANALYSE PERFORMANCE AND REPORT MONITOR PERFORMANCE

PLAN (Cost and duration)

6.6.3 Cost and time

A cost estimate has a great deal in common with a time plan in the conventional form of a network or a bar chart. The cost estimate, Sears (48) argues, is a model of the cost structure of a project made prior to the start of a project. It is an estimate of future costs and, therefore, contains a degree of uncertainty. Similarly, a network is a model of the time structure of a project and is also made before the fact and under uncertain circumstances. Time durations are based on experience drawn from previous projects. Both models are used as standards against which performance is compared. New factual data is used to update and revise both models. Therefore, cost control can be visualized as being a parallel function to time control, and both are so closely related that Sears (48) quite reasonably concludes that attempting to control cost and time independently may be unrealistic. It therefore seems that a realistic and a more effective control process will integrate the control functions on three levels: 1. estimating: in making estimating an integral part of the control process; 2. time and cost: in accommodating both timP and cost within a realistic construction model; and 3. information produced in one function should be usefully utilised in the other functions of control.

95

6.7 Review Of Integrated Control Systems 6.7.1 Project Cost Model (PCM) PCM (42) is a computer system for project planning and cost control. It consists of a number of computer packages which can be used separately, but can be combined to produce an integrated planning and cost control system. PCM can be used in five main ways: 1. preparing a program or schedule; 2. resource planning and calculating resource requirements; 3. costing and estimating; 4. progress monitoring through the successive substitution of actual data for predicted data as the work proceeds; 5. cash-flow forecasting where costs and revenues are allocated to time periods. P CM will produce resource loaded barcharts, resource requirements. synthesis of project costs, progress reports, and cash flow information. The output can be presented in tabular and graphical forms. The input data includes: 1. quantities of work; 2. unit costs of materials or subcontractors; 3. time-based costs of labour and plant; 4. staff costs; 5. resource requirements; 6 output or production rates; 7. sequence or timing constraints; and 8. resource availability limits. The above data is specified for each element into which the project work is divided by the user.

96 j-

6.7.2 "COMPASS" management information and project control systems COMPASS (63) is an integrated system for management providing project control, management information and communication facilities. The main constituent packages are: 1. Microcompass: this is a modular network planning package for either precedence or arrow networks. The constituent modules provide for time analysis, resource levelling and reports and graphic generators. A database link is provided to provide information for the other functions of the system. 2. Interest: the purpose of this package is to aid building and civil engineering contractors' estimators to build up rates in a variety of ways from first principles and by using stored cost and performance data. The package also aids in producing estimators' reports, pricing bills of quantities and making available the estimators' records for other functions such as cash flow forecasting, planning, valuation and costing. 3. Micro-Valuations: this is a microcomputer valuation package which produces information on measure, cost and value at different stages of the project, using bill information, client's payments and incurred costs. The system can produce cost-value comparisons on a time basis, and on a major activity basis. 6.7.3 "PRIM" Project Integrated Management System Schlick (47) describes PRIM as a system which integrates the estimating function with monitoring and reporting functions. From manual take-off, elemental data is coded and fed to the computer. Work done (per item) is measured and fed into the computer, where a comparison in terms of cash and durations is made. The reports produced are mainly: 1. a bill of quantities' description; 2. for each item, the amount of resources used and the measure of

97

work done; 3. payment requests reports; 4. cost control reports, where a comparison between costs to date and those expected is shown; 5. a deviation report which flags out items for which measured quantities have exceeded the estimate by an arbitrarily chosen money limit. 6.7.4 Kaskoulas and Grazioli's proposed system Kaskoulas and Grazioli (35) describe an integrated management system which requires the project to be divided into operations and sub-operations. The main functions of the system are: 1. estimating total cost using sub-operations' work quantities with unit prices for labour, plant and materials, productivities, and indirect costs represented in equivalent quantities or as a percentage of direct cost; 2. scheduling at the operations (not sub-operations) level. The links between estimating and scheduling are provided by the identity of the work operations and their durations; 3. cost budgeting using some of the estimating and scheduling outputs, augmented by periods of payments. initial project funds and retention. Output provides cumulative cost distributions for materials, plant and labour, and total project costs on the basis of operation start times chosen anywhere between earliest and latest start times, together with the effect this choice would make on the cost budget. Cash-flow re ports for the whole project are also produced; 4. updating and control: as work proceeds, completed operations are replaced by a single 'update' operation. Operations in progress have their cost and time data modified if necessary, and the

98

scheduling and budgeting take place again. Linear cost and time consumption is assumed. Output will be new durations, and cost of operations in terms of labour, plant and materials cost. 6.7.5 Sears's proposed system Sears (48) proposes a system that would integrate the Critical Path Method with cost control. Usual CPM data is used in conjunction with quantity and cost data to form the integration basis of this system. Planning data is compared to progress data to produce cost and time progress reports, cash-flow forecasts, time-cost trade-off diagrams, etc. 6.7.6 Conclusions From the preceding review one would conclude that the following characteristics are essential to an integrated control system: 1. integration of the various functions of control such that the output of one component of the system becomes part of or all of the input to the following components; 2. breaking the project down into meaningful site operations, and using these as the basis of all the control functions. Shrivastav (51) asserted that a well-conceived predetermined work breakdown structure is a good basis for interfacing cost and time data. Moreover, the following characteristics would be favourable in an integrated control system; 1. the amount of input data should be reasonable (35); 2. coding systems for cost elements should be simple (21,27.51); 3. proposed systems should utilise inputs and outputs that are familiar to the construction enviroment, otherwise the status quo will be 'offended' (35,40); 4. systems should not require excessive work to implement. and consequently the procedures within the system must be as close
as possible to the procedures in current use (35);

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5. systems should be easily understandable by site managers (4); 6. systems should be forward looking (21,27,61). This means that the systems should indicate variance in time for effective action to be taken; 7. systems should be cost effective. 6.8 Improvement And Simplification Of The Control Process In order to develop an effective project control system, and to curtail the large amount of detail, which complicates the process of control, down to an optimum level, the following four main themes, which are to be applied in proposing a new control system in the next chapter, are proposed: 1. The construction process is to be modelled realistically on an operational basis. 2. Control effort is to be biased towards the more costly items of construction, through the application of the principle of cost-significance. 3. The control process is to be based upon the controllable elements of construciton. Labour and plant costs represent a large segment of construction cost. The control of labour and plant, therefore, is of prime importance. Labour cost elements are pay rate, amount of work done and productivity. The first two elements are to a large extent predefined and uncontrollable by site management. Therefore, it is through the control of productivity that effective control of labour cost may be achieved. Homer (29) asserts that if labour costs are 30% and profits V; of total cost, then a 10% reduction in labour cost, through improved productivity leads to a 6e6 increase in profit. It is. therefore, to the pursuit of improved productivity that management must turn their attention. Materials costs are also to a large extent uncontrollable by site management, apart from wastage. It is, therefore, on such controllable factors that

100

management must spend the greatest effort. 4. The input data used in a control system must be effectively used. This is best done through the use of computers. Current development of computer technology has made it possible for powerful hardware and software to be acquired at reasonable cost. Site-based micro-computers are very important for effective and quick operation of computerised control systems. The other facet of computerised control systems is the software to be used. Information based expert systems seem to present a very desirable option for use in construction control. Expert systems use domain specific knowledge to simulate the reasoning of an expert in the field in order to perform intelligent tasks. Based on heuristics and empirical knowledge, expert systems can solve ill-structured problems at or near the performance level of an expert. McGartland and Hendrickson (38) argue that as many of the problems in project monitoring and control are ill-structured and not well-defined, heuristic methods, as used in expert systems, rather than algorithmic approaches would be more appropriate in solving such problems. The design of an expert system and its subsequent success rely heavily on the ability to formalize and represent the knowledge within a discipline. One popular method of storing the knowledge is in a series of IF .... THEN rules. A knowledge base is therefore set up containing possibly hundreds of such rules each expressing facts which a user
or

an expert can read and understand. The most straightforward

uses of expert systems are for diagnosing faults and offering advice. Applied to construction control, this may mean that not only can variances from plan be spotted, but also the reasons for such variances and the possible corrective courses of action may be suggested. However, developing an expert system for

101 construction control purposes is outwith the scope of this thesis. Nevertheless, some of the useful aspects of expert systems, namely diagnostics and interactive solution finding, will be used in developing a new integrated control system. This is described in the next chapter.

102

CHAPTER 7 Proposed Control System

7.1 Introduction This chapter is concerned with proposing a control system with the following main features: 1. a project breakdown structure based on cost-significant items; 2. progress monitoring of both time and cost in an integrated fashion; 3. network analysis of planning and progress data using a critical path approach; 4. diagnosis of progress data in relation to planning data to establish variances at various levels of detail, as well as the cause of such variances; 5. prediction of progress position based upon achieved progress; 6. determining a suitable course of action to correct variances in an interactive fashion. The subject of control in the proposed system will be the labour and plant resources only, as they represent the major portion of controllable factors in any construction project. Skeleton computer programs are also developed to facilitate the quick and standardised application of the control system on site. The system will be explained in terms of: 1. the output information produced; 2. the input data required to facilitate the calculation of output: 3. the processes by which the input is manipulated to produce the required output.

103

7.2 Project Breakdown Structure The construction project is modelled, for estimating and control purposes,
by cost-significant activities, cost-significant work packages and cost-significant items. In this way, about 80% of the cost of construction is considered, with possibly a similar fraction of the project duration, as Robertson's (45) and Shaheen's (49) results indicate. Cost-significant items are grouped together into meaningful work packages. Although the difficulties in establishing rules by which cost-significant work packages can be defined are recognised, and much further work needs to be done, the following preliminary guidelines are proposed:

1. a work package has to represent an identifiable site operation in

order to distinguish it easily from other work packages; 2. a work package has to represent an uninterrupted operation to simplify the monitoring and control procedures. If interruption is necessary, the work may be split into two separate packages; 3. each work package must have one trade only involved with it, with one productivity figure (quantity per unit time). This will make the work package the basis of direct control of labour and plant productivity, and will simplify the allocation of time and cost to the relevant resources used; 4. a work package must have a defined amount (quantity) of work to simplify the calculation of variances such as % complete and productivity variances; 5. as far as possible, each work package should be defined in such a way as to exclude non-cost-significant items from falling within it.

Work packages are then grouped into cost-significant activities with the following guidelines in mind for simplicity and ease of identification and understanding purposes: 1. the activity must represent a meaningful and uninterrupted work operation;

104

2. the activity must consist of 'like' or similar work packages in

nature. Each of the three levels of breakdown will serve as the basis of one or more of the functions of the construction control cycle: 1. cost-significant items will serve as the basis of estimating and of productivity and cost feedback, thus integrating the estimating function into the control cycle; 2. cost-significant work packages will serve as the basis of the immediate cost and time control functions for the project in part and in total; 3. cost-significant activities, which will be similar to the activities on a conventional bar chart, will serve as the basis of time control in terms of the overall project. An example of the item-work package-activity hierarchy is shown in table 7.1. The table also serves to illustrate the simple coding system which may be used to correlate the hierarchy levels. The time and cost control functions will be facilitated through the use of the following techniques: 1. Network analysis: activity-on-arrow networks will be used at two levels of detail: a. project network: cost-significant activities will be the elements of this network; b. activity sub-networks: constituent cost-significant work

packages will be the elements of each activity sub-network.

2. Diagnostics: variances and their causes will be established for individual work packages. The variances will also be used to predict the position at completion for each work package. 3. Course of action: progress positions of both work packages and

105

activities will be used to determine the effect of a specific course of action on the future progress of work packages, activities and the whole project. 7.3 Control System Specifications In Terms Of Output Produced. For control purposes, the system produces output relating to the use of three main techniques: 7.3.1 Network analysis Using standard network analysis techniques, the following six types of output are produced: 1. Planned project network Planning network data is used to produce durations, earliest/latest starts and finishes, floats and critical path(s) for the project's constituent cost-significant activities. 2. Updated project network Planning network data is used in conjunction with actual durations of completed activities and remaing durations of activities in progress to produce updated durations, earliest/latest starts and finishes, floats and critical path(s) for the project's constituent cost-significant activities at any stage of the project. 3. Planned activity sub-networks Planning network data is used to produce durations, earliest/latest starts and finishes, floats and critical path(s) for each cost-significant packages. sub-network. 4. Updated activity sub-networks Planning network data is used in conjunction with actual durations of completed work packages and remaining durations of work packages in progress to produce updated durations, activity's constituent cost-significant work

Figure 7.1 shows an example of an activity

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Table 7-1: An example of project breakdown levels Cost-significant activity 2.Foundations , Cost-significant work package 2.1.Blinding Cost-significant items 2.1.1.Plain in-situ concrete blinding. 2.2.Reinforcement mild steel bars diam <20mm length <12m 2.2.1.Mild steel bar reinforcement.20mm and under, 12m length or less. 2.2.2.Mild steel bar reinforcement,16mm and under, 12m length or less. 2.2.3.Mild steel bar reinforcement, 8mm . and under, 12m length or less. 2.3.Formwork, inclination to horizontal 85- 900 2.3.1.Formwork more than 300mrn wide, at any inclination more than 85 up to and including 900 to the horizontal. 2.3.2.Formwork less than 300mm wide, at any inclination more than 85 up to and including 90 to the horizontal. 2.4.In-situ concrete
30/ 20, 22.5/20.

2.4.1.In-situ concrete class 30 90

2.4.2.Insitu concrete class 22.5 20.

in foundation, classes

107

FIGURE 7.1. An example of an activity sub-network with planning data .

(I)

(5) 5

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DF-SCRIPTION

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RIMER

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108

earliest/latest starts and finishes, floats and critical path(s) for each cost-significant activity's constituent work packages at any stage of the project. 5. Predicted activity sub-networks Planning data is used in conjunction with actual durations of completed work packages and predicted durations, based upon achieved progress, of work packages In progress to produce predicted durations, earliest/ latest starts and finishes, floats and critical path(s) for each cost-significant activity's constituent work packages at any stage of the project. 6. Predicted project network Planning data is used in conjunction with actual durations of completed activities and predicted durations of activities progress to produce predicted durations, earliest/latest starts and finishes, floats and critical path(s) for the project's constituent cost-significant activities at any stage of the project. A calendar option is incorporated into the analysis in order to produce the above types of output in 'dates' form. Examples of the above types of output are shown in tables 7-2 to 7-7. 7.3.2 Diagnostics As the title implies, this technique has been developed in order to evaluate time and cost variances from plan, as well as trace the underlying causes of such variances. The technique is applied to work packages in progress, and is capable of producing diagnosis reports based on weekly as well as cumulative progress data. Another facet of this technique is its ability to produce a predictive report outlining the possible future effects of the current variances at completion of the work package under consideration. The diagnosis logic is as follows. Delay on schedule is first calculated, taking into consideration both start delay and progress (% completion) delay. Start delay is further analysed into two possible components: delay due to

109

Table 7-2: Example of planned project network produced

by the system using day numbers since start.
PROJECT NETWORK ACTIVTY ******* 1.EXCAV 2.FOUNDS 3.PREFAB 4.DUMMY 5.ERECT D * 12 14 11 0 18 ES ** 0 12 12 26 26 LS ** 0 12 12 26 26 EF ** 12 26 26 26 44 PLANNED DURATION = 44 LF ** 12 26 26 26 44 TF ** 0 0 3 0 0 FF ** 0 0 3 0 0 CRIT? ***** CCC CCC N-C CCC CCC

D : Duration; ES : Earlist start; LS : Latest start; EF : Earliest finish LF: Latest finish; IT: Total float; FF: Free float; CCC: Critical N-C: non-critical

Table 7-3: Example of updated project network produced

in day numbers since start.

ACTIVTY ******* 1.EXCAV 2.FOUNDS 3.PREFAB 4.DUMMY 5.ERECT

*
0 5 2 0 18

ES ** 21 21 21 26 26

LS ** 21 21 21 26 26

EF ** 21 26 26 26 44

LF ** 21 26 26 26 44

TF ** 0 0 3 0 0

FT ** 0 0 3 0 0

CRIT? ***** CCC CCC U-C CCC CCC

110

Table 7-4: Example of a planned activity subnetwork produced

in days since start of activity.

ACTIVITY (2). FOUNDS PACKAGE ******* 1.BLIND 2.REBAR 3.FORM 4.DUMMY 5.CONC D ES ** 0 2 2 7 9 LS ** 0 2 2

DURATION: 14 DAYS

DAY OF UPDATE:0

a.
** 2 7 9 9 14

*
2 5 7 0 5

LF ** 2

TF
** 0 2 0 2

FF ** 0

9
9

o
2

9 9

9
14

GRIT? ****** CCC N-C CCC N-C

ccc

Table 7-5: Example of an updated activity subnetwork produced

in days since start of activity
ACTIVITY (2). FOUNDS PACKAGE ******* 1.BLIND 2.REBAR 3.FORM 4.DUMMY 5.CONC D ES ** LS ** 9 9 DURATION: 15 DAYS EF ** LF ** 9 10 10 10 15 IF ** 0 DAY OF UPDATE:9 FF ** 0 CRIT? **** CCC U-C CCC N-C CCC

*
0 0

1
0 5

9 9 9
9 10

9 9
10 10 15

1
0

o
0 1 0

9
10 10

1
0

111

Table 7-6: Example of a predicted project network

produced in days since start
PREDICTED PROJECT NETWORK PACKAGE ******** 1 EXCAV 2 FOUNDS 3 PREFAB 4 DUMMY 5 ERECT D ES ** 0 12 12 29 29 LS ** 0 12 12 29 29 EF ** 12 29 29 29 47 LF ** 12 29 29 29 47 TF ** 0 0 6 0 0 FF ** 0 0 6 0 0 CRIT? ****** CCC CCC N-C CCC CCC

*
12 17 11 0 18

Table 7-7: Example of a predicted activity subnetwork produced

in days since start of activity
ACTIVITY (2). FOUNDS PACKAGE ******** 1 BLIND 2 REBAR 3 FORM 4 DUMMY 5 CONC D ES ** 0 2 2 7 12 LS ** 0 2 2 12 12 EF ** 2 7 12 12 17 LF ** 2 12 12 12 17 TF ** 0 5 0 5 0 FF ** 0 0 0 5 0 CRIT? ****** CCC N-C CCC N-C CCC

*
2 5 10 0 5

112

late preceding work packages, and delay not due to preceding work packages whether by choice or necessity. % completion is compared to plan to establish progress delay, and is then analysed into two possible components: achieved productivity with respect to that planned, and the actual man/plant-hours spent relative to plan. The latter is also further analysed to determine the causes of any variance from plan, which may be: 1. the difference between actual and planned working hours; 2. the difference between actual and planned resources

(men/plant)used; and 3. the amount of avoidable and unavoidable delays being different from expectations. As for cost, actual unit cost, and total cost predicted from incurred costs so far for the work package are compared to plan. Two possible causes for any unit and total cost variances are investigated: hourly costs of each resource being different from plan, and achieved productivity being different from plan. Finally, the planned cost, taking into account the amount (quantity) of work completed, is compared with actual cost incurred and any variance is calculated. The variances calculated to facilitate the diagnosis process are: 1. Progress delay 2. % complete variance 3. Productivity variance 4. Overall resource-hours variance 5. Working hours variance 6. Resource variance 7. Delays variance 8. Avoidable delay variance 9. Unavoidable delay variance 10. Start delay 11. Delay due to late preceding packages 12. Delay not due to preceding packages V0 V1 V, V3 V4 V,. 3 V6
V7

V8 N1
N2

N3

113

13. Overall delay 14. Unit cost variance 15. Total cost variance 16. Individual resource cost variance for resource i=1,2,3,4 17. Real cost difference 18. Real cost variance

V9 Cu Ct Ri

Cr C
P

Using the predefined variances, which relate to one work package, the diagnosis report takes the following form: 1. Progress is (V 1 + 100) % of plan; with a corresponding

slippage/saving on schedule of V 0 hours. The contributing factors are: a. productivity is (V2 +100)% of that expected; b. the overall resource hours worked are (V3 +100)% of those planned; because: i. (V4+100)% of the planned hours of work have been spent on the job; ii. during the actual time spent on the job; (V5+100)% of the planned resource-hours have been employed; iii. the overall avoidable and unavoidable delay is (V6+100)% of that expected caused by: avoidable delay being (V7 +100)% of that expected, and unavoidable delay being (V8 +100)% of that expected. 2. Actual start is (N 1 ) days behind/ahead of plan. Preceding work packages delayed/allowed us to start (N 2) days behind/ ahead of plan. 3. Consequently, our overall position is (V 9 ) days behind / ahead of

114

programme. 4. The unit cost of labour and plant on this work package is (Cu +100)% of that expected, although actual cost is (Ct+100)% of that expected at this time. This is so because: a. the hourly cost of: i. the principal resource is (R 1 +100)% of that expected; ii. second resource is (R2 +100)% of that expected; iii. third resource is (R3 +100)% of that expected; iv. fourth resource is (R4 +100)% of that expected. b. productivity is (V2 +100)% of that expected. 5. In real terms, therefore, there is a cost overrun/saving of .C(Cr); i.e. (Cp)% of total planned cost. Figure 7-2 shows an example of a diagnostic report using simulated data. The predictive report, which also applies to any work package in progress. is based upon the calculation of a number of variances using planning and progress data. Definition and method of calculation of the variances is detailed later in this chapter. However, the same logic as in diagnosis is applied to actual performance data after extrapolation of that data to its predicted completion values. The predictive report takes the following form: 1. We will be overspending/underspendIng by 2.413 1), (or P2%). 2. We will complete this work package (P3) days late early. 3. We will need (P 4) more hours to complete this work package, which is (P5) hours more/less than planned. 4. Productivity will be (P 6)% of that expected. 5. We will have used up (P.7) (i.e. P 80 ) more/less overall resourchours than planned. 6. We will have spent (P 9) (i.e. P 10%) more/less hours on the job

115

than planned. 7. During the hours spent on the job, we will have employed (P11)% of the planned resource-hours. 8. We will have total avoidable and unavoidable delays ( P 12)% of that expected. 9. Avoidable delay will account for (P 13 )% of the total expected avoidable delay. 10. Unavoidable delay will account for (P 14 )% of the total expected unavoidable delay. Figure 7-3 shows an example of a predictive report for the same simulated work package as in figure 7-2.
7.3.3 Course of action

The real value of the information produced by the control system so far lies in directing management's thought towards acting in a corrective manner to reduce variances from plan and remove the causes of such variances. A standard procedure has been developed to aid site management in achieving this objective. The 'course of action' procedure will deal with one work package at a time in two ways: 1. Using both planning and progress data, the procedure calculates the remaining quantity of work to be completed, the remaining duration, the required productivity to be achieved to return to plan, and the amount of money to be spent so as no to exceed the planned amount. This information is presented. for the work package under consideration, in the following form: To return to plan. we must: a. Complete A 1 units (of quantity). b. Spend only A hours. c. Work at an output of A 3 units/hour. d. Spend only A4 pounds; or

116

Figure 7.2. An example of a diagnostic report using simulated project data.

CLAVLATIVE VARIAVCES DIAGNOSTIC RSPORT I. PROWESS IS 62.85 CF PLAN. WITH A CORRESPCVVINO SLIPPAGE TIE CONTRIBUTING FACTCS5 ARE. a. PRODUCTIVITY IS 88.75 CF THAT EXPECTED. b. TIE OVERALL RESOURCE-HOLM KINKED ARE 70.8% OF THOSE PLANED BECAUSE,

0# SCIEDULE 17.85 1101175.

L. 91.7% OF TIE PLANED IONS OF war HAVELEEN SPENT N THE 1108,

Li. DORMS THE ACTUAL TLIE SPEW ON HOLRS HAW BEEN EAFLOYED,
77E .1011.

77.35 OF THE PLANED RESOURCE

iLL. TIE MALL AVOIDABLE AND 1114V010413LE LELA7 15 102.95 o:F THAT EXPECTED
CAUSED Bt. AVOIDAELE DELAY BEIN9 88.25 CF DIAT EXPECTED,AND LIPAMVIDAELE DELAY BEING
117.6%

OF 7?i47 EXPECTED.

2. ALTHOUGH PRECEDUN Kair PA1Z161E5 ALLOWED L6 TO START (0) airs EARLIER THAN PLAN. NE IN FACT STARTED (I) anis' sew PLAN. 3. coNsEcterar. MALL POSITICVI 15 3.23 mrs(25.8 MRS) LENIND MCGRAW:

4. RE WIT CO5T OF LWOW AAV PLANT ON THIS SO LECAUSE.

11171C PACKAGE

IS 128.35 C F THAT

EXPECTED.ALTHWOH ACTUAL COST IS 81.05 CF THAT EXPECTED AT THIS TINE.

71115 IS

a. THE Anwar COST CF TIC L. PRIACIPAL RESOURCE 15 114.35 CF RUT EXPECTED, ii. iii. iv. 2nd RESOURCE IS 1005 CF THAT EXPECTED, 3rd R OLRCE IS 1005 CF THAT EXPECTED, 4th RESOURCE IS 1005 OF MAT EXPECTED,

b. PROMICTIVITT IS 88.73 CF THAT EIVECTED. 5. IN REAL TE1I6. THEVERVE. DERE IS A COST OVERRUN OF $121.8 (15.55 CF TOTAL PLUAPED COST).

117

Figure 7.3.

An

example of a predictive report for the some simulated work package as in figure 7.1 .

71E PREDICTED FOS mom AT =PEET ION IS AS FOLLOWS, I. NE WILL s9E OVERWEAVIN8 or $226.3 ( 28.91), Z. NE WILL COWLETE THIS Mr PAQr.46E 5. 14 oars LATE ,
3. NE WILL 1EED 41. 1 1110RE HOLRS TO OMPLE7E THIS

Kw

PAMASE. INI CH 15 33/ HOURS ACRE THAN FUMED, 4. PROVXT/V/77' WILL LE 88. TS OF MAT EXPEC7ED;
5. IE NAL HAVE USED LP /4. 3 ( 12. 811 ) 1CRE OVEVALL

RESOLRCE-HOURS DUN PL4NNEDs

6. IE WILL HIVE SPENT 25.7 I 45.91 I UNE 10185 ON RE

JOB 7144N FLAMED, 7. MUM 77E MOWS SPENT ON 771E 4014 NE WILL HAVE EWLOYED 77.3* CIF 77E FLAMED RE501071Z-HOLOS,
8. NE WILL HAVE 77E TOTAL AVVIDABLE NV LIVAIVIDABLE

DELA?' 116. IS Qv THAT EXPEC77;17, 9. AVOIDABLE oaAr WILL ACCOUNT FOR 99.5S OF TIE TOTAL EXPEC7E0 AVOIDABLE oaAr, 10. LIVAVOIDABLE oaAr WILL ACCOUNT Fa? 132. 7S OF THE TOTAL ENPECTED 1844NOID4BLE MAY.

118

we have already exceeded the total planned cost for this work package by -A 4 pounds. 2. Choosing a realistic course of action in a question-answer form, and calculating the effect of implementing it upon the work package, the relevant activity and the whole project. A realistic course of action may be determined by defining two of the following variables in response to real constraints: a) D I : the allowable remaining duration from present to completion of the work package under consideration; b) CI: the allowable remaining cost to be spent to completion; c) 0 1: the productivity (unit/hour) to be achieved for the remaining part of the work package; d) GI: the allowable hourly cost of the gang to be deployed for the remaining part of the work package. Having defined any two of the above variables, i.e. D i and C 1. or D I and G 1' or C 1 and 0 1' or C 1 and G 1' or 0 1 and G 1' the other two variables may be calculated, and the following report that describes the effect of the choice made is produced: 1. The work package is to be completed in D I hours. 2. A resulting projected work package duration will be calculated and compared to plan. 3. A resulting projected duration of the corresponding activity will be calculated and compared to plan. 4. A resulting projected duration of the whole project will he calculated and compared to plan. 5. The productivity for the rest of the work package has to be 01. 6. A gang whose hourly cost is G 1 at most is to be used.

119

7. The work package is to be completed by only spending C1 pounds on labour and plant. 8. The resulting projected cost of the work package is calculated and compared to plan. 9. The resulting projected cost of the corresponding activity is calculated and compared to plan. 10. The resulting projected cost of the whole project is calculated and compared to plan. The report will guide site management to determine the viability of any chosen course of action, and to vary one course of action in favour of another. As the whole process is computerised, this process is very much simplified. An example of using the 'course of action' technique is illustrated in figure 7-4, which relates to the same simulated work package as in figures 7-2 and 7-3. 7.4 Input Data Required For Control System. Two main types of input data are required: 7.4.1 Planning data Planning data needs to be prepared for the various analysis techniques as follows: 1. Networks: Using standard network techniques, the input data needed is. for every cost-significant activity: a. Activity number (code); b. activity description; c. activity duration; d. I-node and J-node numbers. The same type of data is similarly required for each

120

Figure 7.4. An example of a report produced by the ' course of action ' technique.
TO Rk7URN TO PLAN IPE MIST, 1. COMPLETE 60 WITS, 2. SPEW car 8 HOURS ,
.3. NM AT AN OUTPUT 7.5 WI! T/HDLR CF

4. SPEW CAL,' $240. DO YOU WANT TO DEF IE T II4E TO 03PLETICM 1 Yin Yr TYPE T 11 TO CCIPLE T 10V iN MRS, f20 NE DO YOU WANT TO C' IF COV NOT TO BE EXCEEDED FOR TIE REAM N NO PART OT r TYPE TIE AUNT, 7280 TO COACLUE 77 Erar PACKAGE IN 20 !CURS. I. 110W OUTPUT HAS TO EIE 3 UN I T/HOIR, t. PA4K46E MAT ION WI LL 13E 68 MPS (8.8 DAYS) WWII IS 12 HDURS ACRE THAN FLAMED, 3. ACT-1W TY DIRAT ICH WILL LE 15.5 OAFS ( 124 MRS .1811 CH IS 12 MRS ( 1 . 5 DAYS) AWE THAN PLANED, 4. PflOJECT MAT I OR WILL 45.5 oars (364 HAW 1 . 5 DAYS MORE THAN PLANNED, 8E 5. CHXSE A CMG im AN OUTPUT OF 3 WIT/It?, A10 AN HOURLY COST OF $14. i..
e. I

110W7(77/0

T 145 DIE OR G I NAL FUMED, PACICASE WILL BE $824. NMI CH 15

6. THE RESULT I II6 TOTAL COST FOR 77f

I. 05 T AES TtE OR G I NAL PLANAfED T. TIE RESULT INS PROJECTED V I TY CC6T OF TIE ACTIVITY GWEN CONS I DERAT ION WILL 13E $2984 WI/CH 15 101 . 365 OF PLAN. TIE RESUL 71116 PROJECTED COST OF TIE PROJECT WILL EIE $20072 WI CH IS 100. 213 CF THAT PUKED.

121

cost-significant work package. 2. Diagnostics and course of action For each cost-significant work package, the planning data includes; a. Work package and corresponding activity code and description; b. work content in terms of a quantity of work (Q); c. duration in hours (D); d. total resourc-hours planned (H); e. unavoidable delay expected due to weather and breaks outwith the control of management, as a percentage of total resource-hours planned, (Y.); f. avoidable delay expected through waiting for materials, instructions, drawings, etc., which is within management control, as a percentage of total resource-hours planned, (Ya); g. planned labour and plant resources' description, planned resource- hours (M i) and hourly cost(C i), where i=1 to n, and n=number of resource types used. Table 7-8 shows a proposed planning data recording form for each cost-significant work package.

7.4.2 Progress data

In order to keep track of the work in progress, the following progress data needs to be collected and stored weekly: 1. Networks For each cost-significant activity, the following progress data needs to be input to the system: a. date when progress data is collected;

122

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123

b. starting and completion dates for completed activities; c. starting date for activities in progress; d. if an activity in progress has already exceeded its planned duration, then an expected extra duration is input. Similar data is input for each work package, plus current % complete of package in progress. 2. Diagnostics The following weekly progress data needs to be collected and fed to the system, for each work package: a. Work package and corresponding activity code and description; b. quantity of work done (Q '), estimated or measured; c. total hours in progress (D '): this is the total number of hours the work package in question has been in progress since the start of the week, whether working all that time or not; d. total resource-hours worked (H'): the total recorded resource-hours spent on the work package during the week, including avoidable and unavoidable delays; e. total paid hours (P '): the total number of hours that men/machines have been involved with the work package in question, and is payed for; f. avoidable delays (Y a) measured in resource-hours; ') g. unavoidable delays (Y u measured in resource-hours; h. plant and labour resources used: description, resource-hours worked (M1' ) and actual hourly cost of each resource (Ci' )A proposed daily labour and plant allocation sheet where progress

124

data is recorded is shown in table 7-9. 3. Course of action The data already input to the network and diagnostics packages is used for this package, as well as some of the output of the former packages. In addition, this package requires the user to define two of the variables D 1, section 7.3.3. 0 1 and G 1 as explained in

The choice represents a course of action, the

consequences of which are produced by the package. This process may be repeated until a satisfactory course of action is achieved. 4. Predicted networks The data already stored to facilitate the network and diagnosis techniques is retrieved and used as input to this package. 7.5 The Analysis Processes. 7.5.1 Networks The standard activity-on arrow network technique is used. The concept of an update activity, used by Thompson (60), is used for updating the network and subnetworks. The update activity is created and given a duration equal to the time spent so far since start of work, while the completed activities/work packages are allocated zero durations, and the networks are analysed as usual. All the input and output data is stored in data files for further use in other packages. Predicted activity sub-networks are analysed after allocating durations to the constituent work packages in the following way: 1. work packages which have not started yet are allocated their planned durations; 2. work packages in progress are allocated predicted durations based upon achieved progress. For example, if 50 hours have been spent on one work package which is 20'1 complete, then a 0 predicted duration of 50/0.2 =250 hours is allocated to it;

125

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3. completed work packages are allocated their actual durations. The resulting activity duration is allocated to the activity in progress in the project network, while actual and planned durations are used for completed and future activities respectively. 7.5.2 Diagnosis process The main purpose of this technique is to depict deviations from plan and the causes of such deviations through the calculation of predefined variances. The variances represent the difference between the expected value and the actual achieved value (in previous week or cumulatively) of particular measured properties under consideration. The variances are therefore defined
as follows:

1. Progress delay (V0): V o = D' - .D

2. % complete variance (V1):

vi
[

Q'/D'
Q/D

x no%

3. Productivity variance (V2): [Q'/H' Q/H

V2 =

x 100%

4. Overall resource-hours variance (v3):

V

H'
3 [H x D/D' I

x 100%

5. Working hours variance (V4):

v4 =
x 100-' 0

1 6. Resource variance (V_ : 0) V 5 [111F" 1 ] x 100%

HID

127

7. Delays variance (V6): + Y,: V6 0.01 '(Y+Y) -1 x 100% Ha,, Y:

V7 =

8. Avoidable delay variance (V7): 0.01 II'.Y 1 1 x 100% a

9. Unavoidable delay variance (V8) Y' V = 1 8 { 0.01 H'.Y

11

Ix

100%

10. Start delay (N1): N 1 = actual start - planned earliest start 11. Delay due to late preceding packages (N2): N 2 = earliest permissible start (due to preceding packages) - planned earliest start 12. Delay not due to preceding packages (N3): N 3 = actual start - earliest permissible start 13. Overall delay (V9): V 9 = start delay (N 1) + progress delay (V0) in hours 14. Unit cost variance (Cu): -1 I x 100% where M'I = array of = array of Ci.',C;,C;,C'4 similarly for [MI and [C]. 15. Total cost variance (Ct): Ct = [{
[M [C

'

" MI [C] 1 -1 D

16. Individual resource cost variance (R. M. C.' 1 x 100% R. = 1 Mi.Ci 17. Real cost difference (Cr): i=1,2,3 or 4

128 Cr = [M'I[C1 18. Real cost variance (Cr) C P = [M]CI x 100%

Complementary to these variances are another set of variances which predict the deviation from plan at completion of individual work packages. These variances are defined as follows: 1. Predicted overspending by completion (P1): 13 1 = [1\4 1[ C 1 [M]C]
as a % of planned cost (P2):

Pi P 2 = [m]ici X 100% 2. Predicted delay (133): P 3 = N 1 + 1 D Di (days)

3. Predicted extra duration needed to completion (P4): p 4 -, D' - D ' Q Q which is P 5 hours more than planned, where P D ' - D Q 5Q' 4. Predicted productivity . variance (P6): P 6 --= Q ' /H - 1 I x 100% Q/H

5. Predicted extra overall resource-hours than planned needed

which is P 8 1 of total planned resource-hours. where: 0

6. Predicted extra hours of work than planned needed (139): P 9 P' D which is 13 10% of total planned hours, where:

129

Po P10 D 100% = x 7. Predicted resource-hours spent on the job as a % of planned resource-hours (P11):
P= x 100% 11 H/D

H'/P

8. Total predicted avoidable and unavoidable delays as a % of that expected (P12): P 12

=I Q Q

(Y a '+Y u ')

1 {0.01 11(Y a +Y u )}

1 X 100%
(P13):

9. Total predicted avoidable delay as a % of that expected

P 13 =

F 01:-}, V(0.01 H Ya) 1 x 100%

10. Total predicted unavoidable delay, as a % of that expected (P14): P 14 =

[Q , Y
Q

u /(0.01 H Yu) x 100%

The main assumption in calculating this set of variances is the idea of quantity proportionality. For example, if it cost x pounds to complete Q' units of work, then to complete the work package's Q units, (, x pounds are needed in total. Quantity proportionality is also used in dealing with both cost and time. Although strictly speaking cost and time are not directly proportional to the quantity of work done for the whole project or large sections of it, proportionality is adequately accurate to assume for small sections of work like individual work packages.
7.5.3 Course of action process.

Using the progress information, this technique firstly indicates what needs to be done to get back to plan in the following manner: 1. the quantity of work to be completed (A1): A 1 = Q - Q' (units): 2. the duration left for the remaining part of the work package (A2): A2
=

D - D

(hours);

3. the work output to be achieved for the remaining part of the

130

work (A3): A = Q-Cr 3 D-D (units/hour);

4. the remaining permissible labour and plant cost (A4): A 4 = [MI[C] - [1\41[C1 The above information serves as a guideline to determine an appropriate course of action. A course of action is chosen by assigning values to two of the variables D I, C1, 0 1, and G1 (c.f. section 7.3.3.). If values are assigned to any two of these variables, the other two may be calculated using the following relationships: 01 = Q 1/D1 and G1 = Ci/DI Having obtained the values of the four variables, then the consequences of the chosen course of action may be projected l as follows: 1. The projected duration of the work package = D '+D 1. This value is compared to plan. 2. The projected duration of the corresponding activity is calculated using: a. actual durations of completed constituent work packages; b. projected duration of the work consideration; c. predicted durations of constituent work packages in progress, and d. planned durations of work packages which have not started yet. The resulting projected activity duration will then be compared with its planned duration. 3. The projected duration of the whole project is calculated using: a. actual durations of completed activities;
'Projected durations and costs relate to having chosen a certain course of action, while predicted values relate to achieved performance extrapolated to completion for all work packages in progress, before imposing a course of action.

package

under

131

b. projected duration of the activity under consideration; c. predicted durations of activities in progress, and d. planned durations of activities which have not started yet.

The resulting projected duration of the project is compared to the planned duration. 4. The resulting projected cost of the work package under consideration will be EIVI '1[C 1+C I. This is compared to plan. 5. The resulting projected cost of the corresponding activity will be the sum of: a. the actual cost of the completed constituent work packages; b. the projected cost of the work package under consideration; c. the predicted cost of the constituent work packages in progress, and d. the planned cost of the constituent work packages which have not started yet. The result is compared to the planned cost. 6. The resulting projected cost of the project will be the sum of: a. the actual cost of completed activities; b. the projected cost of the activity under consideration; c. the predicted cost of the activities in progress, and d. the planned cost of activities which have not started yet. This is compared with the planned project cost. The above process is computerised and designed to guide the operator in a question-answer manner to: 1. choose a course of action;

132

2. produce consequences of a chosen course of action; 3. modify the choice and produce corresponding consequences. This process may be repeated for any work package until a satisfactory course of action is found. 7.6 Discussion 1. The proposed control system has been based upon a model of the construction process the elements of which are cost-significant items. The idea of grouping bill items into meaningful site

operations is not new in principle. The Building Research Establishment's work into proposing a new bill of quantities operational format (55), suggests that conventional bill of quantities' items could be allocated to meaningful site operations. Their intermediate proposal was a bill of quantities-operational format containing meaningful site operations, each defined in terms of a number of conventional bill of quantities' items. Although the purpose of BRE's work was to change the way bills were prepared, rather than to use conventional bills as a starting point for a realistic model of construction, the viability of using bill items as the basis of forming meaningful site operations was demonstrated. Jackson (31) proposed a functional (operational) model of construction totally based on CESMM items. Although he did not totally establish the viability of using this model in practice, partly because he attempted to propose a total model that encompassed all CESMM items, still, his work showed the viability of forming meaningful functions (site operations) from conventional bill of quantities' items. 2. The control system proposed in this chapter does not attempt to redesign the conventional bill of quantities and present it in terms of operations, and thus avoids the stumbling block which BRE

133

met in terms of the resistance to its acceptability by the industry. Moreover, the proposed model will be unique to each individual project, rather than a standard model for all projects, thus providing a built in flexibility which Jackson's model lacked. 3. The proposed model, which is based upon cost-significant items, will encompass about 80% of the cost of the project. However, the relationship between total project duration and the duration of the cost-significant activities is less clear. Pioneering work by Robertson (45) and Shaheen (49), suggests that critical path networks based solely on cost-significant activities yield project durations about 80% as long as those derived by traditional means. This is an area where further study is required. 4. Breaking down the project into cost-significant work packages and activities provides a very simple basis for the allocation of cost and time d data. This can be concluded from considering two main features of the proposed system. Firstly, the simple coding used removes a lot of the disadvantages of other control systems with complex coding system in terms of confusion and misallocation of data. Secondly, limiting the allocated data to cost-significant operations, and within those to plant and labour contents only enhances the simplicity of data allocation. 5. The progress data collection form proposed (table 7.9) is based on typical time allocation sheets used in practice. The main differences are: a. one form is used per work package rather than per gang; b. a record of delays (avoidable and unavoidable) is required; c. approximate weekly measure of work done is required. Recording delays enables the finer end of diagnosis to be carried out, but is not of intrinsic value to the control system as is the

134

recording of the quantity of work done. Emphasis on recording realistic values of work measure is therefore very important. 6. As for the diagnosis process, because the amount of data is curtailed through the use of the cost-significance principle, it has been possible to carry out detailed analysis of the data not only to detect broad variances from plan, but also to identify the cause of such variances, and present the results in a simple-to-follow report. Moreover, the diagnostics have a forward-looking capability which produces predictions of future progress based upon current progress. Another feature of the system is its ability to guide site management to the optimum course of action to improve progress performance in a flexible question-answer format, which in its design resembles a number of features contained in expert systems. 7. Storage of planning and progress data provides an ample chance for the integration of the planning and estimating functions on one hand and the rest of the control functions on the other, as both are based upon the same building blocks - cost-significant items. This provides a possible feedback loop between the control functions within one project, and an accumulating data base for use in any future project. 8. On-site computers are essential for the proposed system to achieve its full potential. The ease with which the system may be operated and the weekly monitoring, collection and analysis of data are very important factors for any corrective action to be taken in time. 9. Futher development of the software proposed in the work is necessary for it to achieve its full operational potential. 10. Live testing of the proposed system, although outwith the scope

135

of this thesis, is the next step in this research in order to determine the viability and establish the operational potential of the proposed system.

136

CHAPTER 8 CONCLUSIONS & RECOMMENDATIONS FOR FURTHER RESEARCH 8.1 Conclusions

The major conclusions that can be drawn from this thesis are as follows: 1. From analysing 85 wide ranging bills of quantities, it has been established that the cost-significant items whose values exceed the mean value of measured items contribute on average 81.5% to the total value and 18.5% to the total number of measured items. However, there is a small but statistically significant variation in these factors with bill value and project type. For instance, civil engineering projects exhibited a higher value factor and lower numbers factor than building projects. Bills of value greater than .100,000 also produced higher value and lower numbers factors than bills of value less than 100,000. 2. The Pareto distribution fits the price distribution in bills of quantities reasonably well. The best fit is for the cost-significant items whose values exceed the mean value. However; the Pazeto model is not accurate enough for prediction purposes, as it departs from the actual distribution quite markedly for items with values less than the mean value. Moreover, the 80/20 rule for items greater than the mean cannot be derived from Pareto's equations. 3. It has been shown that there is a relatively stable relationship between the level of cost-significance (x) and the value of the corresponding cost-significant items. For example. on average, the sum of all items whose value is greater than half the mean (x=0.5) is 0.902 of the total bill value (0.902 is termed the 'cost-significance value factor',a). The accuracy of this relationship drops linearly as the level of cost-significance

137

increases. At levels of cost-significance less than twice the mean (x<2.0) the coefficients of variation of the value factors are less than 10%. A less stable relationship exists between the levels of cost-significance and the number of cost-significance items expressed as a percentage of the total number of items(m). The coefficient of variation of m ranges between 14% and 26%, with a tendency to increase as the level of cost-significance increases (c.f. table 3.1) 4. Using the relationship between (x) and (a), an iterative procedure has been developed which enables the prediction of the total value of measured items by considering only the prices of a proportion of the measured items (section 3.4.2). Using the available data, the procedure has been shown to converge for all cost-significance levels between 0.1 and 2.0, with faster convergence at lower levels of cost-significance. The procedure has been tested using 24 priced bills of quantities. Very accurate average results have been achieved at all levels of cost-significance (0.1 to 2.0), with the 95% range of accuracy varying between 0.4% at x=0.1, and 12% at x=2.0 (table 3.3) 5. Based on the iterative procedure, a new estimating approach-iterative estimating- has been developed which is capable of producing an estimate of the value of measured items without pricing all items. The number of items which must be priced depends on the level of cost-significance chosen (section 3.6). The accuracy of iterative estimating has been shown to depend on the variation in the cost-significance value factor (a) at any given level of cost-significance (x), and the ability of estimators to identify items whose prices are higher than a given price. For the purposes of testing iterative estimating in practice. it was decided to use a level of cost-significance (x) equal to one, as at

138

this level, the value factor (a) exhibits reasonably small variation (coefficient of variation = 4%), and the number of items to be priced is generally less than 30%. 6. Using the procedure shown in section 4.4,iterative estimating has been tested alongside a slightly modified conventional approach on six 'live' tenders, at a level of cost-significance x=1.0. Comparison of iterative and conventional tenders indicates that, on average, slightly lower, and more consistent, tenders are produced with iterative estimating. However, more tests need to be done to confirm this finding. 7. The observed difference between the iterative and conventional tenders (range -2.8% to 1.4%) may be attributed to two causes. Firstly, the cost-significance value factor for the tested bills varied between 0.77 and 0.87. Secondly, the proportion of cost-significant items that the estimator failed to identify ranged between 0.10% and 1.0% of the tender values. 8. A Significant saving in estimating time may be achieved using iterative estimating especially if unit rate estimating represents a high proportion of the total estimating time. This saving may be utilised in improving estimating accuracy of high-cost items, and consequently of tenders, as well as increasing tendering turnover and consequently the chances of winning contracts. 9. Because iterative estimating does not require any modification of the broad estimating procedures, but merely aims at reducing the number of items to be priced, it will be simple to implement, and fit smoothly within conventional estimating procedures and pricing frameworks, especially if the iteration process is computerised. 10. The potential of extending the use of iterative estimating in final accounting has been considered. Conventional methods of

139

assessing variations in construction work involve considerable effort with disproportionate returns in the assessment of variations in non-cost-significant items of work. Previous research has also shown that the size of bills of quantities can be drastically reduced by eliminating non-cost-significant items without any significant effect on final account. This background has prompted the proposal of a number of approaches for assessing variations for tenders priced by iterative estimating. 11. Four methods of assessing variations in iteratively estimated tenders have been proposed: a. Method 1: variations in cost-significant items and In extra work of cost-significant proportions are increased by a factor equal to the inverse of the cost-significance value factor used, i.e. l a). b. Method 2: variations in cost-significant items are increased 131 a factor (1/a), and added to the value of all extra items. c. Method 3: Non-cost-significant items are given equal prices such that their sum represents a fraction (I-a) of the total,and variations are assessed as they would be conventionally. d. Method 4: Non-cost-significant items are priced roughly to give a sum equal to (1-a) times the total.Variations are assessed as they would be conventionally. 12. Analysis of 15 historical bills and final accounts has shown that the four methods produce very accurate tenders and final accounts in the long term, with a short term error range of +4.5% in 2/3 of the projects.

140

13. Method 4 is more appropriate to use than Method 3 because: a. spot-pricing non-cost-significant items is a very fast process; b. all items in the bill will have a reasonable price; c. inserting equal extended prices requires calculating the rates for all NCSI's, if these are to be inserted. This adds to the time to be expended using Method 3. 14. Compared to Method 2, Method 1 produces slightly more accurate final accounts, and does not require the assessment of extra work of non-cost-significant proportions. Hence, Method 1 is more approiate to use than Method 2. 15. Although Method 4 produces slightly more accurate final accounts than Method 1, the latter offers the advantage of saving more time and effort since no work of non-cost-significant proportions is considered in the pricing and evaluation processes. However, the choice of the method to be used will depend on the weight attatched to the advantages of either method by the parties involved. 16. A review of construction control systems used in industry has revealed that there exists a fragmented approach by a large section of the industry to the functions of forecasting, monitoring and controlling the time and cost elements of construction. Such fragmentation gives rise to a number of shortcomings: a. the data collected for the purposes of one function is not utilised in any other; b. there exists an unnecessary amount of repetition in data collection and manipulation due to the natural overlap of the control functions; and c. basing the control functions on different models prevents feedback of data from one function to another. and

141

consequently the chance to improve performance within one project as well as in future projects is reduced. 17. A realistic and more effective approach to construction control will integrate the control functions on three main levels: a. estimating: in making estimating an integral part of the control process; b. time and cost: in accommodating both time and cost within a realistic construction model; and c. common data: information produced in one function can be usefully utilised in the other functions of control. 18. A review of systems that attempt to integrate the processes of construction control has highlighted the following important characteristics in any intergrated control system: a. integration of the various functions of control is needed so that the output of one component of the system becomes part of or all of the input to the following components; b. the project should be broken down into meaningful site operations, which may be used as the basis of all control functions; c. the amount of input data should be reasonable; d. coding of cost elements should be simple; e. the systems should be easy to understand and implement; f. the systems should be able to predict the effect of current progress on future performance in time for action to be taken; g. the systems should be cost effective. _ 19. Four main themes for improving and simplifying the construction control process are suggested as preliminary guidelines for

142

proposing a new control system. Firstly, the construction process should be modelled realistically on an operational basis. Secondly, the control effort should be biased towards the more costly elements of construction through the application of the principle of cost-significance. Thirdly, the control process should be based upon the controllable elements of construction like labour productivity. And fourthly, the information incorporated within the control system should be optimised and efficiently used, so that not only variances from plan are output, but also possible causes of such variances and corrective courses of action. This will be facilitated through the use of computers on site. 20. A new control system is proposed in chapter 7, the main features of which are: a. a project breakdown structure based on cost-significant items; b. progress monitoring of both time and cost in an integrated fashion; c. network analysis of planning and progress data using a critical path approach; d. diagnosis of progress data in relation to planning data to establish variances at various levels of details, as well as the cause of such variances; e. prediction of future progress position based upon achieved progress; f. determination of a suitable course of action to correct variances in an interactive fashion. 8.2 Recommendations For Further Research 1. In attempting to model the distribution of prices in bills of quantities, the Pareto distribution was shown to be a reasonable

143

model of the distribution of the cost-significant items of higher value than the mean value of all measured items. More work is needed to find a model that fits the whole distribution of prices. 2. Redesigning bills of quantities to reduce the large bias in price distribution and the unnecessary amount of low-cost items in current bills is another area of further research. 3. Prelimenary results of the use of iterative estimating in practice, based on six tests, have shown that iterative estimating produces slightly lower and more consistent tenders than conventional methods. However, more tests are required to determine more conclusively the effect of using iterative estimating upon tendering performance and accuracy. 4. It is proposed that iterative estimating is tested in practice at other levels of cost-significance (x),e.g. x=0.5 and 2.0, in order to establish an optimum level of cost-significance, and the viability of using iterative estimating at such levels of cost-significance. 5. The methods of dealing with variations suggested in chapter 5 need to be tested in practice and further developed to take account of any contractual implications. 6. The use of cost-significant items, packages and activities to model the time elements of construction needs to be further studied to establish the fraction of project duration that they represent, and to examine the viability of their use in time control. 7. The control system proposed in chapter 7 needs to be further developed and tested in practice. Areas where further development is particulary needed are: a. feedback of progress information to the planning functions; b. coding of the constituent elements (i.e. cost-significant items, packages, and activities) generalized for any project:

144

c. development and improvement of data storage and manipulation; d. user friendliness. 8. It seems that the way ahead as far as integrated construction control systems are concerned is through the use of expert systems. Features of expert systems such as diagnostics. easy data handling, and guidance to find optimum solutions are most suitable for construction management. Therefore it is recommended that research is carried out to assess the viability of their use in construction management. Development of an expert system using the main features of the control system proposed in chapter 7 is also recommended.

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APPENDIX I Statistical comparison of Cost-Significance Factors for civil engineering and building projects
Of the 85 bills of quantities analysed, 26 related to civil engineering projects and 59 to building projects The cost-significance factors obtained are as follows: Civil Engineering Cost-significance value factor sample mean, R 83.9 sample standard deviation, s 3.52 numbers factor 17.3 4.76 Building Cost-significance value factor 80.4 3.91 numbers factor 19.0 3.65

1. Comparison of value factors: Null Hypothesis Ho: Ri=i.1,2 i.e. factors are not significantly different Alternative Hypothesis H 1 : 1.Li>p,2 i.e. factor for civil engineering projects is higher than that for building projects Level of significance : choose 1% 5- 1-; ( Using the t - statistic : t = * N/{ 1- + ul where
(s)2 =

(Kennedy & Neville, 33)

.1 1 _ 11,,r

(n -1 ) 2 1s 1
1

(ri,..1)S 2 - 2 -Fri _2 2

n
R2 = S2 = n

Substituting R I = 83.9 ; S 1 = 3.52 ; n 1 = 26 t = 3.913 ;

80.4 3.91 59

2 =

From tables, for n 1 +n 2 -2 degrees of freedom = 83, and at the 1% level of significance, t cruT = 2.644

146 .-.

we reject the null hypothesis

i.e. cost-significance value factor for civil engineering projects is significantly higher than that for building projects at the 1% level of significance. Carrying out a similar analysis for the cost-significance numbers factor we infer that: the cost-significance numbers factor for building projects is significantly higher than that for civil engineering projects at the 1% level of significance.

147

APPENDIX II Relationship between the Pareto equations and the 80/20 rule
The Pareto equations are Nv = Kv-a (2.2) K (i_et) Vv = a-1 where: v = item value Nv = number of items whose individual values are greater than v; Vv = total value of items whose individual values are greater than v; a,K = parameters Let v0= lowest item value T.; = mean item value x = fraction of mean. Nv 0 = Kv 0 " ci = total number of items NT) = Kr) "a aK But Vv = v 0 a_i 0 and = i.e. 71 =

(2.3)

= total value of items

Vvo total value total number Nvo v a-1 0 -,-- fraction of items with values greater than the mean A2.1

NT) = 1 a J.-a Nvo a-1

Similarily VT)

aK _ (i_a) v a-1 aK a-1

aK and Vv 0 = v 1-a a-1 0

148

VT) Therefore Vv,

1-a

aa-1

= fraction of value of items greater than the mean

A2.2

Substituting values of a between 1 and 2, we obtain the following a Nti/Nv0 x 100% Vti/Vv0 x 100% 1.0 0 100 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0

7.2 11.6 14.9 17.3 19.2 20.8 22.1 23.2 24.2 25.0 78.7 69.9 64.4 60.6 57.7 55.5 53.7 52.3 51.0 50.0

From the above table we do not find an ND/Nv o = 20% with a corresponding Vti/Vo = 80%. Therefore we conclude that the Pareto equations do not produce the 80/20 rule for items with values greater than the mean value. In order to find out which value, other than the mean, the 80/20 rule can be derived for, from the Pareto equations, the above analysis is carried out again, but instead of using ti, we use xi:), where x is a constant: Nv = Kv ct 0 0" and = a v oc-1 0 N - (xv) K (xtir

NK(x v ) -a (x11) Nv K v 0"a N (x a -a =Ix.*. Nv oc-1 II V(xi)) and similarily vo =

N(xv1
Nv

A2.3

xa a-1

A2.4

Substituting

= 0.2 in equation A2.3

and we obtain:

0 ix - - 0.8 in equation A2.4 Vo

[a 1-ct x j a- 1

=0.2

149

and

i xa ] it-a a-1

=0.8

which upon solving produce: x = 0.56 and "cc = 1.16 Therefore, for a Pareto distribution with a value of a=1.16, the sum of all items whose value is greater than 0.56V will be 0.8Vo, and their number will be 0.2Nv0 . In other words, the 80/20 rule can be derived from the Pareto equations only if the value of the parameter x=1.16, and even then only for items with value greater than 0.5674

150

APPENDIX III Convergence Of The Iterative Procedure

The iterative procedure explained in section 3.4.2 will converge if any iteration produces an approximate solution which is closer to the real solution than that produced by the preceding iteration. Symbolically, this condition may be represented by: (V). - V 0

Vo

(Vdi

< 1 when ( Vo ) i+ > Vo > (V0 ) i A3.1

and Vo - (Vo)i+J. A3 when ( V0 ) +1 < < V o < (V 0 ) i 1. 2 (VO)i - VO By definition: Vva1 . V 0 1.. = . the iterative procedure produces: V vi
( V 0 ) i+1

therefore a. (V0). = a V0 H-1 The iteration procedure produces: (V0)1 v.=x i where v. = th approximation of the value of the cost-significance level. and by definition: V() vi = therefore (V o ) i = 1-Vo x and the condition (V o ) i < V 0 becomes x i < x Substituting ( V o ) i+ and (V o ) i from equations (A3.3) and (A3.4). into the inequalities (A3.1) and (A3.2), the conditions for convergence become: (ai /a) - 1 1 - (xi/x)
<1 when
xi < X A3.4 x i -1,4-

A3.3

151

and 1 - (a./a) < 1 (xi/x) - 1 N when xi > x

Alternatively, the conditions may be written as: a i xi + < 2 when x1 x a x and a. x. + > 2 a x when x. > x

A3.5

A3.6

In order to test the validity of the inequalities, values of x,xi, a, and ai were derived from table 3-1. In the case of inequality (A3.5), maximum values of ai equal to ai + 1.96 (standard deviation of at), and minimum values of a equal to a-1.96 (standard deviation of a) corresponding to the extreme values of a1 and a in 97.5% of bills of quantities were used. Similarily, for inequality (A3.6), minimum values of ai equal to ai -1.96(standard deviation of ai), and maximum values of a equal to a+ 1.96(standard deviation of a) were used. Table A3.1 shows the values of x.a.,x i,ai used to test the inequalities. All possible combinations of x and xi, and the corresponding a and a1 values were used to test the validity of the inequalities. The result was that both inequalities were valid for: 0.1 < x < 2.0 Therefore the iterative procedure converges for all levels of cost-significance that lie in the range 0.1 to 2.0 times the mean value of measured items in 97.5% of bills of quantities. Levels of cost-significance of 2.5 times the mean and more have, in any case, coefficients of variation greater than 10%, rendering their use as quite inaccurate. As for the rate of convergence, then with reference to figure A3.1 it can be concluded that faster convergence occurs at lower levels of costsignificance.

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Table A3-1: Range of values of x,a,x pai used to test the conditions

of convergence of the iterative procedure

INEQUALITY 3.5 x 0.1 0.2 0.3 0.4 0.5 1.0 1.5 2.0 2.5 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 (a) min 0.980 0.955 0.926 0.898 0.868 0.754 0.671 0.580 0.516 0.467 0.375 0.316 0.231 0.179 0.157 0.119 0.080 xi 0.1 0.2 0.3 0.4 0.5 1.0 1.5 2.0 2.5 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 (ai)max 0.990 0.971 0.958 0.942 0.937 0.882 0.839 0.808 0.776 0.753 0.703 0.650 0.607 0.565 0.531 0.495 0.480 x 0.1 0.2 0.3 0.4 0.5 1.0 1.5 2.0 2.5 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

INEQUALITY 3.6 (a)max 0.990 0.971 0.958 0.942 0.937 0.882 0.839 0.808 0.776 0.753 0.703 0.650 0.607 0.565 0.531 0.495 0.480 xi 0.1 0.2 0.3 0.4 0.5 1.0 1.5 2.0 2.5 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 (a) min 0.980 0.955 0.926 0.898 0.868 0.754 0.671 0.580 0.516 0.467 0.375 0.316 0.231 0.179 0.157 0.119 0.080

153

FLgure A3. I. Convergence of iteratLve procedure at di.fferent LeveLs of cost-sLgni.fLcance .

ITEM VALUE v

154

APPENDIX IV Derivation of the modification factor

It has been shown in chapter 2 that Pareto's equation (equation 2.2) is a reasonable representation of the relationship between any item value and the cumulative number of items with values greater than that value, especially for items whose value is greater than the mean. The objective here is to derive a relationship, using Pareto's equation, between any two item values and the corresponding numbers of items that lie above those values. Let 7) = true mean value of measured items; = approximate mean value of measured items; Ni; = number of items with higher value than I., ND. = number of items with higher value than No = total number of measured items. Pareto's equation is: Nv = K v-a hence Ni; = K .1) -a and Ni;. therefore -a V. K

Or

= 1).

Ni;.
Tr;

J./cv.

but using the results in table 2.1 and 2.2. on average Ni; = 0.19 No and a = 1.19

155

therefore

i N'vi -1-1
=

0.84

l'i

0.19No

In words, if the initial guess of the mean value in iterative estimating produces items outwith the 10%-30% of No range, then a better approximation can be obtained by applying the factor (NTA/0.19N0) 0.84 to the initial guessed mean.

156

APPENDIX V Results of testing iterative estimating for the first two tenders of Table 4.2
Tender 1 This tender was for a single storey extension to an existing warehouse, with external works and drainage. JCT80 (with quantities) building contract and the Standard Method of Measurement, 6th edition were used. Estimating procedure and results: Initial assessment of tender Deduct PC and Provisonal Sums 250,000 -187,100

. 62,900 Deduct Preliminaries (approximate) - 22,900

.-. Intial assessment of measured items, (Vo) i (i.e. own work and domestic sub-contractors)

.C40,000

Number of measured items: No =198 40,000 = 202. 198

... initial mean price 7/3. =

By going through the unpriced bill, the estimator marked those items which he thought were more expensive than 202. Number of marked items = 56 (.28% of No). As those 56 items were within the (10-30%) No limit, they were priced accurately, while all other items were spot priced. The number of items with prices > 202 were counted again after all the items had been priced, and their number was Ni), =56 items, while the sum of their prices was VT)i. . 60,610.99. Dividing V1)1 by a factor of 0.8125 (the mean factor calculated from historical bills of quantities anslysed by that time), a new estimate was

157

obtained: (Vo) 2 = 151 /0.8125 = 60,610.99/0.8125 = 74.598.14 new mean price =

74,598.14

198

= .C376.75

no of items > 376.75 = 34 value of items > 2376.65 = 54,398.62 new estimate =
54,398.62

0.8125 =

66,952.15

new mean

66,952.15

198

= 338.14

No of items > .C338.14 = 37 items value of items > 338.14 = .0 55,479.96 new estimate new mean = 55,479.96/0.8125 = .C68,283.03 = 68,283.03/198 = 344.86

no of items > 344.86 is STILL 37 final estimate of measured items = .C68,283.03 add PC & Prov Sums add Prelims (priced properly) + 187,100.00 + .C19,747.00

Iterative estimating TENDER

.C275,130.03

Whereas the sum of all the measured items' prices = 65,936 add PC & Prov Sums add prelims +187,100 + 19,747.00

.-. The firm's TENDER

272,783

Comments

1. Out of the 56 items initially picked up, and upon pricing, four were below the mean. 2. While pricing the 56 items initially picked up, the estimator noted four items which he missed, and which he believed, as he

158

got more familiar with the items and rates, were more expensive than the mean price at that stage. The value of those four initially missed items was .C1,600. 3. Some sections of the bill involving specialist trades were to be subcontracted, and were usually not priced by the estimator. For that reason the estimator encountered some difficulty in picking up items in those sections which he thought would be more expensive than the mean price. In this particular tender domestic subcontractors' quotes arrived before the completion of pricing the initially marked items, and were consequently inserted in the bill. 4. Some of the subcontractors' quotes were in the form o f a lump sum for a group of items. Those lump sums were inserted in the bill as they came. In this particular bill, lump sums weie of a small proportion in terms of value and number of items they represented, and were considered to have an insignificant effect oil the cost-significance factor (c.f. section 4.2). 5. The difference between the firm's tender and iterative estimating tender 275, = 130 - 272,783 272,783 = 0.86%

6. The firm's tender was successful. Tender 2 A single storey office and stores with a 2-storey plant room. JCT 80 (with quantities) standard form of contract applied, and the Standard Method of Measurement, 6th edition was used. Estimating procedure and results Initial assessment of tender Deduct PC & Prov Sums Deduct nominated subcontractors = .C2,806,600 -.C106,600 -.C1,609,000

159

Deduct preliminaries (approx)

-.C240,000

Initial assessment of measured items, (Vo)i (i.e. own work and domestic subcontractors) Number of measured items No = 2,452 items 851 'OM = 347 2,452

851,000

initial mean price =

By going through the unpriced bill, the estimator marked those items which he thought would be more expensive than 347 Number of marked items = 495 (= 20.2% of No). As those ite as were within the (10% - 30%) No limit, they were priced accurately, while all other items were spot-priced. After the pricing process had been completed, the ,tems with pricc,, greater than 347 were counted. Their number = 446, while the sum of their prices = 1,052,200. The cost-significance factor used in this case was 0.835 (see comments below). A computer program had been developed at that stage which, given the prices of the 466 items, carried out the iteration process automatically. The result was: a. the number of cost-significant items = 358 (14.6% of No) b. the value of cost significant items = 1,017.020 (86.54% of Vo) c. the final estimate of the measured items ADD PC St prov sums ADD Nominated sub-contractors ADD Prelims (properly priced) + = 21,217.989 -L 106,600 1,609.000 254,845

.-. Iterative Estimating Tender Whereas the sum of all measured items' prices

= .C3.188.434 = 1,175,205

160

ADD PC & Prov Sums ADD Nominated Sub-contractors ADD Prelims (properly priced)

+ + +

106,600 1,609,000 254,845

The firm's tender

3,145,650

Comments 1. The bill contained a large number of unusual items. 2. The estimator missed 45 items to a value of .C30,000, while marking the items > 347, which he picked up during the pricing process. Most of these items were unusual. 3. The tender period was very short in the estimator's view 4. The bill contained about 2500 items. Of these, about 500 did not have a single price per item, i.e. a number of items weie lumped together and given one lump sum. The reason for that was that those items related to domestic subconstractors quotes. Some sub-contractors quoted in lump sums as a matter of policy or due to the short time they had to put in a quote. 5. The cost-significance factor of 0.835 was used for the following reasons: a. the mean of the previously analysed bills was 0.829. b. the mean factor was increased to 0.835 to allow for the domestic sub-contractors' lumped-sum quotes following the reasoning explained in section 4.2. The choice of the amount by which the factor was increased was mostly based upon experience. 6. The difference between the firm's tender and that prepared by iterative estimating

161

_ 3 , 188 ,434 - 3,145,650 3,145,650

= 1.36%

7. The firm's tender was unsuccessful. The successful tender was about 60,000 (1.94%) lower than the firm's tender.

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APPENDIX VI Verification of the assumption in section 5.4.4 The assumption is that the equally-priced non-cost-significant items in Method 3 will vary in total by a fraction equal to that had they been conventionally priced. Let pi = conventional price of NCSI N1 =number of NCSI's. N1 Total value of NCSI's = E p. hence, if NCSI's are priced equally, the price of each NCSI 1 would be P = f nT
NI

Let the variation in each conventional NCSI price be a fraction xi; hence, the final value of conventional NCSI's in the final account would be. N1 (I) F c = E (1 + x 1.) p. 1=1 and the final value of the equally priced NCSI's in the final account would be N I F e E (1 + xi)

ii
ill

N1

1=1

Pi }

= -

NI
E p (1 + xi)

Therefore, we need to show that F = Fe for the assumption to be justified. The following computer simulation was carried out: 1. Create N 1 items randomly priced between 1 and ,C10,000 to represent the conventionally priced NCSI's. This would simulate the price range and distribution of NCSI's to an extent which is sufficient for the purpose of this exercise.

163

2. Vary the price of each item by a random fraction x i, where x. lies between the limits -1 to +1. This reasonably simulates the possible variation of individual NCSI's prices between tender and final account 3. Calculate Fc and Fe , using equation (I) and (II), and the NI )/E p.. difference, d =- F c e 4. Repeat the above procedure 200 times to obtain the average difference. The results of the above simulation are: N. 10 100 1000 d x 100% 0.41 -0.08 -0.01

Therefore the difference between F e and F is of such small -ropo: ioll that it is reasonable to assume that Fe = Fc In words, it is reasonable to assume that the variation in conventionally priced NCSI's is equal to that had they been equally priced.

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