Labour, Material and

Euipment Utilisation

Bh. Nagabhushana Rao

Labour Productivity

Quantity of labor hours in performing a task in

construction is more susceptible to the influence
of management than are materials or capital
Construction output may be expressed in terms
of functional units or Rupees. In the former case,
labor productivity is associated with units of
product per labor hour, such as cubic metres of
concrete placed per hour or kilometres of
highway paved per hour.
The value of construction in this regard is not
measured by the benefit of constructed facilities,
but by construction cost.

Factors Affecting Job-Site

Productivity
Job-site productivity is influenced by
many factors which can be
characterized either as labor
characteristics, project work conditions
or as non-productive activities.

The labor characteristics include:

age, skill and experience of workforce
leadership and motivation of workforce

The project work conditions

include among other
factors:
Job size and
complexity
Job site accessibility
Labor availability
Equipment utilization
Contractual

The non-productive activities

associated with a project may
or may not be paid by the
owner, but they nevertheless
take up potential labor
resources which can otherwise
be directed to the project. The
non-productive activities
include among other factors:

Indirect labor required to maintain the

progress of the project
Rework for correcting unsatisfactory
work
Temporary work stoppage due to
inclement weather or material shortage
Time off for union activities
Absentee time, including late start and
early quits

Labor Characteristics
Performance analysis is a common tool for assessing worker quality and
contribution. Factors that might be evaluated include:

Quality of Work - caliber of work produced or accomplished.

Quantity of Work - volume of acceptable work
Job Knowledge - demonstrated knowledge of requirements, methods,
techniques and skills involved in doing the job and in applying these to
increase productivity.
Related Work Knowledge - knowledge of effects of work upon other
areas and knowledge of related areas which have influence on assigned
work.
Judgment - soundness of conclusions, decisions and actions.
Initiative - ability to take effective action without being told.
Resource Utilization - ability to delineate project needs and locate,
plan and effectively use all resources available.
Dependability - reliability in assuming and carrying out commitments
and obligations.
Analytical Ability - effectiveness in thinking through a problem and
reaching sound conclusions.
Communicative Ability - effectiveness in using orgal and written
communications and in keeping subordinates, associates, superiors
and others adequately informed.
Interpersonal Skills - effectiveness in relating in an appropriate and
productive manner to others.
Ability to Work Under Pressure - ability to meet tight deadlines and
adapt to changes.

Security Sensitivity - ability to handle confidential information

appropriately and to exercise care in safeguarding sensitive
information.
Safety Consciousness - has knowledge of good safety practices
and demonstrates awareness of own personal safety and the
safety of others.
Profit and Cost Sensitivity - ability to seek out, generate and
implement profit-making ideas.
Planning Effectiveness - ability to anticipate needs, forecast
conditions, set goals and standards, plan and schedule work
and measure results.
Leadership - ability to develop in others the willingenss and
desire to work towards common objectives.
Delegating - effectiveness in delegating work appropriately.
Development People - ability to select, train and appraise
personnel, set standards of performance, and provide
motivation to grow in their capacity. < li>Diversity (Equal
Employment Opportunity) - ability to be senstive to the needs
of minorities, females and other protected groups and to
demonstrate affirmative action in responding to these needs.
These different factors could each be assessed on a three
point scale: (1) recognized strength, (2) meets expectations,

Inventory Control
General objective of inventory control is
to minimize the total cost of keeping the
inventory while making tradeoffs among
the major categories of costs viz.,
Purchase costs
Order cost
Holding costs
Unavailable cost

The purchase cost of an item is the unit

purchase price from an external source
including transportation and freight costs
The order cost reflects the administrative
expense of issuing a purchase order to an
outside supplier. Order costs include expenses
of making requisitions, analyzing alternative
vendors, writing purchase orders, receiving
materials, inspecting materials, checking on
orders, and maintaining records of the entire
process. Order costs are usually only a small
portion of total costs for material management
in construction projects, although ordering
may require substantial time.

The holding costs or carrying costs are

primarily the result of capital costs, handling,
storage, obsolescence, shrinkage and
deterioration.
Capital cost results from the opportunity cost
or financial expense of capital tied up in
inventory.
Handling and storage represent the
movement and protection charges incurred
for materials. Storage costs also include the
disruption caused to other project activities by
large inventories of materials that get in the
way.

Obsolescence is the risk that an item

will lose value because of changes in
specifications.
Shrinkage is the decrease in inventory
over time due to theft or loss.
Deterioration reflects a change in
material quality due to age or
environmental degradation.

The unavailability cost is incurred when

a desired material is not available at
the desired time. In manufacturing
industries, this cost is often called the
stockout or depletion cost. Shortages
may delay work, thereby wasting labor
resources or delaying the completion of
the entire project. Again, it may be
difficult to forecast in advance exactly
when an item may be required or when
a shipment will be received.

COST ESTIMATION
Bh. Nagabhushana Rao

Costs Associated with

Constructed Facilities
The costs of a constructed facility to
the owner include both the initial
capital cost and the subsequent
operation and maintenance costs. Each
of these major cost categories consists
of a number of cost components.

Capital Cost
The capital cost for a construction project includes the
expenses related to the initial establishment of the
facility:
Land acquisition, including assembly, holding and
improvement
Planning and feasibility studies
Architectural and engineering design
Construction, including materials, equipment and labor
Field supervision of construction
Construction financing
Insurance and taxes during construction
Owner's general office overhead
Equipment and furnishings not included in construction
Inspection and testing

Operation and Maintenance

Cost

The operation and maintenance cost in

subsequent years over the project life cycle
includes the following expenses:
Land rent, if applicable
Operating staff
Labor and material for maintenance and repairs
Periodic renovations
Insurance and taxes
Financing costs
Utilities
Owner's other expenses

Approaches to Cost
Estimation
A cost estimate establishes the base line of
the project cost at different stages of
development of the project
Virtually all cost estimation is performed
according to one or some combination of the
following basic approaches:
Production function
Empirical cost inference
Unit costs for bill of quantities
Allocation of joint costs

Production function
In microeconomics, the relationship between the
output of a process and the necessary resources is
referred to as the production function
In construction, the production function may be
expressed by the relationship between the volume of
construction and a factor of production such as labor
or capital.
The amount of output Q may be derived as a function
of various input factors x1, x2, ..., xn by means of
mathematical and/or statistical methods
Then one can find a set of xs that maximises Q, by
optimisation

Empirical cost inference

Empirical estimation of cost functions
requires statistical techniques which
relate the cost of constructing or
operating a facility to a few important
characteristics or attributes of the
system
Usually, this is accomplished by
means of regression analysis
techniques

Unit costs for bill of

quantities
A unit cost is assigned to each of the
facility components or tasks as
represented by the bill of quantities
The total cost is the summation of
the products of the quantities
multiplied by the corresponding unit
costs
Straightforward but quite laborious
in application

Allocation of joint costs

Allocations of cost from existing
accounts may be used to develop a cost
function of an operation
In construction projects, the accounts for
basic costs may be classified according
to (i) labor, (ii) material, (iii) construction
equipment, (iv) construction supervision,
and (v) general office overhead
These basic costs may then be allocated
proportionally to various tasks which are
subdivisions of a project.

Types of Construction Cost

Estimates

Construction cost estimates may be viewed from

different perspectives because of different
institutional requirements
Cost estimates can best be classified into three
major categories according to their functions
A construction cost estimate serves one of the
three basic functions:
design
bid
control
For establishing the financing of a project, either
a design estimate or a bid estimate is used

Design Estimates

For the owner or its designated design

professionals, the types of cost estimates
encountered run parallel with the planning
and design as follows:
Screening estimates (or order of
magnitude estimates)
Preliminary estimates (or conceptual
estimates)
Detailed estimates (or definitive estimates)
Engineer's estimates based on plans and
specifications

In the planning and design stages of a project, various

design estimates reflect the progress of the design
At the very early stage, the screening estimate or order
of magnitude estimate is usually made before the
facility is designed, and must therefore rely on the cost
data of similar facilities built in the past
A preliminary estimate or conceptual estimate is based
on the conceptual design of the facility at the state
when the basic technologies for the design are known
The detailed estimate or definitive estimate is made
when the scope of work is clearly defined and the
detailed design is in progress so that the essential
features of the facility are identifiable

Bid Estimates
For the contractor, a bid estimate submitted to
the owner either for competitive bidding or
negotiation consists of direct construction cost
including field supervision, plus a markup to
cover general overhead and profits.
The direct cost of construction for bid estimates
is usually derived from a combination of the
following approaches.

Subcontractor quotations
Quantity takeoffs
Construction procedures

Control Estimates
For monitoring the project during
construction, a control estimate is
derived from available information to
establish:

Budget estimate for financing

Budgeted cost after contracting but prior
to construction
Estimated cost to completion during the
progress of construction.

For the owner, a budget estimate must be adopted

early enough for planning long term financing of
the facility. Consequently, the detailed estimate is
often used as the budget estimate since it is
sufficient definitive to reflect the project scope
and is available long before the engineer's
estimate. As the work progresses, the budgeted
cost must be revised periodically to reflect the
estimated cost to completion. A revised estimated
cost is necessary either because of change orders
initiated by the owner or due to unexpected cost
overruns or savings.