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1. Introduction
Traditional approach to estimating construction costs assumes two kinds of costs, indirect
and direct. Direct costs are those of individual executions of positions of building
structure for which most often accepted average standards of outputs are those for
corresponding technological possibilities of production (expenses of labour, material,
services and engines). Indirect costs include all other project costs, and are typically
divided into construction site expenses and company expenses. Current economic
situation (market economy, transition, high degree of risk in business operations, ...) a
perceived need to establish quality control system as well as quality in project
management, require new approach to project costs that would make transparent cost
structure a possibility.
2. Main Part
The often emphasized need for establishing the quality control/quality assurance system
in business environment as well as for quality control in project management requires
defining (establishing) a system, process and procedure definitions, work instructions and
specifications. It is more complex in case of construction project management since
construction is always in different location, under new conditions and product is usually
not the same. Project management process means “planning, organization, supervision
and control of all aspects of the project in order to achieve project goals” and it includes
the following processes: overall project management, project scope management, time
management, cost management, quality management, human resources management,
facilities management, managing communications, risk management and procurement
management (ISO 10006). Thus, models to establish the systems of quality control and
project management have to be universal in order to cover a great deal of various
situations that may arise in construction projects. In this paper it will be pointed out the
following, in connection with the construction projects: system definition, process
definition, within the establishment of the system for quality management a model for
project costs calculation that will be a sound basis for project management processes.
Among fundamental requirements with regards to project cost which are emphasized by
ISO 10006 ( quality standards in project management) and ISO 10014 ( quality standards
in economy quality managing) regulations are:
- estimating and managing all project costs and assuring project completion within
the limits of project estimates through development project cost structure,
budgeting of the project, project costs control;
- distribution of all expenses with regards to project phase, organizational units
OBS (organizational breakdown structure), work units WBS (work breakdown
structure), key resources RBS (resource breakdown structure), and types of
expenses (account codes), or some other expense classification specific to
particular trades, but not included in general expenses;
- distinguishing among conforming costs (due to good quality) and mon-
conforming costs (due to bad quality).
0 0
deviation interval deviation interval
This chart should be defined for each influence of any identified cause of risk to any part
of calculative price.
Using “Monte Carlo” analysis, it is possible to determine the interval of expected project
budget, and to predict coverage of risk, in other words, percentage wise, how much it is
certain that offered price will not be exceeded. Step-by-step, it looks like this:
Using a random numbers generator a series of random numbers in interval from 0 to 1 is
formed. This way, obtained random numbers are transferred through cumulative chart of
probability deviation to random numbers from scope of defined interval for every part of
price and its corresponding risk. This way random numbers are formed with wanted
distribution of probability for each of our price parts and its corresponding risk separately.
Random project budget is obtained as a sum of random “pretended” parts of price. With
enough numbers of passes (iterations), a chart distribution probability of outcomes of
project budget can be formed. From its cumulative probability distribution chart a price
could be read that corresponds to exactly chosen probability of outcomes that project
budget will not exceed expected. Enough iterations is when the distribution chart become
convergent.
generated random number
Cumulative chart of
cumulative chart
of probability
probability of project budget
1 deviation 1
0.85
probabiliti distribution
of calculated project budget
If Ci represents parts of calculative price “i” and there are altogether “m” of them which
are affected by risk (parts of calculative price are execution of individual positions,
construction site installation and disassembly, construction site expenses, project
organization expenses, basic organization expenses and owner representatives expenses),
Xij represents random variable deviation from calculative price in given pass for every “j-
th” risk which affects i-th price Ci. There are “ni”-th Xi –s and as many as there are
identified risks affecting individual price parts Ci. Random calculated project budget C
,in one iteration, is defined as
C=C1*(1+(X11+...+X1n1))+C2*(1+(X21+...+X2n2))+...+ Cm*(1+(Xm1+...+Xmnm))
4. Risk Control
Carrying out and revising of risk plans is done by comparing planned (calculated) values
of project price components to the real ones which are determined during project duration
(based, for example, on check lists or quality observations) respecting assumed risk
causes in comparing them with real risks that have happened during a project ( identifying
them through the life of project). In the phase of control (comparison) of price part
regarding the plan throughout duration of project it is necessary to identify the real risk
that has happened, in other words, to identify a deviation from planned (or determined)
price and determined deviation’s cause. Such control charts could be used to predict
(estimate) quantitative and qualitative influence of a certain risk cause on a certain price
element. Thus, through multiple test readings (controls), it will be possible to determine a
link between risk causes and a probability deviation of predicted calculated price (project
costs) by establishing an identified risk causes control list at the beginning of calculation
(estimation), as well as by recognizing those risk causes’ influence on price and on a
deviation control list of planned cost elements and realized project costs, always taking
into account risks that have already happened.
3. Conclusion
For better quality in managing projects and risks within them attention should be paid to
the following:
-standardization of general and individual technical work and service conditions in
construction business, standardization of works description, as well as standardization and
regulation of work processes: single task completion (either carrying out tasks –
hardware, drawing technical documentation- software, services or processed products),
installation and disassembly of construction site, construction site managing, construction
managing, projects managing, basic organizations managing and work processes of owner
representatives,
-creating a model, at the company level, for risk identification, risk prediction
(quantitative analysis of risks effects on projects), risk awareness and risk control, as
prerequisites for establishment of a good quality system 9001:2000 in construction
business companies.
4. References
Vose D. Risk Analysis, 2001, England, ISBN 0-471-99765-X,
R.Lončarić, (1996) Organizacija uzvedbe graditeljskih projekatat, ISBN 953-96085-2-X
M.Radujković, Upravljanje rizikom kod graditeljskih projekata, Građevinar, 1997, ISSN
0350-2465,
M.Radujković, Voditelj projekta, Građevinar 52, 2000, 143-151, ISSN 0350-2465,
G.Bučar,Normativi građevinskih radova, Građevinar, 1998(3),155-158, ISSN 0350-2465,
J.Marušić(1994), Organizacija građenja,FS Zagreb, ISBN 953-6051-04-4,
R.B.Angus, N.A.Gundersen,(1997) Planing, Performing and Controling Projects,
Prentice Hall, ISBN 0-13-255381-3
William R.Duncan,(1996)A Guide to the Project Management Body of Knowledge
ISBN1-880410-12-5,
R.Dellen,E.Uhlmann(1996):Qualitats management,Rudolf Mueller,ISBN 3-481-01044-3,
Sikavica, Novak, (1999) Poslovna organizacija, Informator, ISBN 953-170—074-5,
M.Žaja, (1991)Ekonomika proizvodnja, Školska Knjiga, Zg, ISBN 86-03-00099-9,
T.Pejović,Izvori i struktura rizika kod planiranja građevinskih projekata,1997,
magistarski rad
Priručnik za konzultantske usluge u investicijskoj izgradnji, Koprojekt-Zagreb, 1991
ISO 10014:1998, ISO 10006:1998, HRN ISO 9000-2:1994, EN ISO 9000-1:1994
Wayne Winston (2000) Financial Models Using Simulation and Optimisation,