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					University of Palestine                           Faculty of Eng. Application
                                                  & Urban Planning
Cost Analysis & Management.             Construction Management Department
HW1                                              First Semester 2009/2010
St. Na: Mohammed said khader     St. ID :420050051
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Any hard copy or direct submission to the lecturer will not be
The font size of your writing should be 14

Dead line for submission 31.10.09

Answer the followings:

   1. Differentiate between the site overhead and office overhead.

   Site Overhead

   Contractor project costs are usually grouped either as “direct costs” or
   “indirect costs.” Direct costs include labor, material and equipment
   installed as part of the work, and construction tools and equipment, all
   of which are charged to specific construction tasks. Indirect costs are
   those that cannot be identified with a specific construction activity but
   support the project as a whole, as, for example, costs of the project site
   management staff and the site office. Indirect costs are usually called
   “site or project overhead.” They are also called “general conditions,”
   since the site management usually performs tasks required by the
   general conditions of the contract. Some indirect costs are one-time
   costs, e.g. setting up the job trailer, and others are time-related, e.g. the
   monthly rental cost for the job trailer or salaries for the project site

   Office Overhead

   Home office overhead represents the costs of the activities of the
   Contractor’s home, or corporate, office necessary to run the business
   and to support the projects in the field. These overhead activities
   include management, accounting, sales and marketing, rent, utilities,
   insurance, and so forth. Usually, the Contractor’s accounting system
   does not distribute these costs directly to specific projects. For
   example, an accounting clerk may work on several projects during a
   day but on the time card enters all 8
University of Palestine                        Faculty of Eng. Application
                                               & Urban Planning
Cost Analysis & Management.          Construction Management Department
HW1                                           First Semester 2009/2010

   hours on one line item called “accounting.” It is also difficult to
   distribute home office costs to specific jobs. How does the salesperson
   distribute time to different active projects when his or her efforts do
   not support any ongoing projects? Therefore, home office overhead
   costs are usually posted to accounts that are not project related, and
   lumped together, they are called the home office overhead “pool”. The
   question remains: What portion of the home office overhead pool is
   used to support a specific job? The pool may be apportioned or
   allocated among the various jobs using some basis, e.g. based on the
   percent of total revenue contributed by each project or on the percent
   of total labor used by each project.

   2. Explain how indirect office overhead is included in contract

   When preparing a proposal budget, always start out assuming that full
   indirect costs will be applied. In the event that indirect costs may be
   reduced or waived by exception, you might be able to increase your
   programmatic budget by rebudgeting from indirect to direct costs.
   However, if you present a sponsor with a budget that does not include
   indirect costs, and it turns out that indirects are applicable, you will
   probably end up having to reduce funds budgeted for program
   activities in order to cover indirect costs.
   If you think an award might be subject to lower-than-standard
   overhead, contact the DANR Office of Contracts and Grants. We can
   check to determine if the University has already granted an exception
   for an individual sponsor’s program or if a request to waive overhead
   in the particular case will be successful.
University of Palestine                          Faculty of Eng. Application
                                                 & Urban Planning
Cost Analysis & Management.            Construction Management Department
HW1                                             First Semester 2009/2010

   3. Why contingencies is added to the cost of construction project.

       Engineers can estimate project costs using different methods.
       Estimates can be developed based on project parameters and major
       cost elements. It may include analysis of historical bid data, actual
       cost or a combination of methods. Special care must be taken to
       make a complete capital cost estimate. A common error in the
       economic analysis and budgeting is the underestimation of project
       construction and related costs. Contingency funding is a fiscal
       planning tool for managing the risk of cost escalations and
       covering potential cost estimate shortfalls. Inclusion of a
       contingency amount in the cost estimate will minimize the impact
       of cost increases inherent in an overly optimistic estimate and
       provide for an earlier discussion of how potential circumstances
       can be addressed.

   4. What is the difference between the capital cost and the
      construction cost.

       Capital costs are costs incurred on the purchase of land, buildings,
       construction and equipment to be used in the production of goods
       or the rendering of services. In other words, the total cost needed to
       bring a project to a commercially operable status. However, capital
       costs are not limited to the initial construction of a factory or other
       business. For example, the purchase of a new machine that will
       increase production and last for years is a capital cost. Capital costs
       do not include labor costs except for the labor used for
       construction. Unlike operating costs, capital costs are one-time
       expenses, although payment may be spread out over many years in
       financial reports and tax returns. Capital costs are fixed and are
       therefore independent of the level of output.

       construction cost Expense incurred by a contractor for labor,
       material, equipment, financing, services, utilities, etc., plus
       overheads and contractor's profit. Costs such as that of land,
       architectural design, consultant and engineer's fee are not
       construction costs.

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