Optimal Techniques for Cost Reduction and Control in Construction Sites

Abstract

Despite the availability of various control techniques and project control software many construction projects still do not achieve their cost objectives. Research in this area so far has mainly been devoted to identifying causes of cost overruns. The earned value is a leading technique in monitoring and analyzing project performance and project progress. Although, it allows exact measurement of project progress, and can uncover any time and cost deviations from the plan, its capability in reporting accepted level of deviation is not well studied. There is limited research geared at studying factors inhibiting the ability of contractors to effectively control their projects. To fill this gap, a survey was conducted on 22 construction project organisations. It was noted that most project managers and contractors in Egypt find difficulty in controlling project costs due to problems which include Change order, Changes in the design, Errors in the design, current economic situation deterioration, Delay project and Rising prices of materials. The study was able to establish that the problem was actually not the techniques to use but rather the lack of knowledge of the techniques, the poor management of the cost control methodology, and the general poor site organisation and inadequate supervision. In addition, the main object of this study is to demonstrate the use of Activity Based Costing (ABC) approach as an alternative cost accounting system to the Traditional Cost Accounting System to determine the real and accurate cost of the projects. Activity Based Costing (ABC) prevents cost distortions which traditional cost accounting can not provide, this study presents an application of ABC and an example of applying ABC to construction projects. The conclusions of the study show that the application of ABC leads to better knowledge in tender pricing, more ability to estimate the cost and updating costs data. It also saves the suitable information which are necessary to enter the bidders and to compete to win them. This system helps in supervising and controlling the activities which the company do, and to make rational and correct decisions. The results of this study recommended that there is a need to change the traditional awarding system for contracts from the first lowest bidder to the most accurate one.