Costing for the Installation of Hot Mixed Asphaltic Concrete Paving
Costing is the determination of the estimate of the cost of all inputs that are used in any form of construction or installation. This involves determining the total costs of capital, materials, labor and any professional charges that may be required in the construction of any proposed project. The cost of an installation project is usually based upon the totals in the construction contract/s plus other direct installation based costs. These do not include fees paid to professional consultants and engineers, right-of-way, cost of land or any other form of costs defined as the owner’s responsibility in the contract document.
Proper documentation gives support to the credibility of cost estimates, helps in analysis and adjustment of the program cost. It also enables assessors to effectively review the cost estimate. These records could also form a basis for future cost estimation. The accuracy levels of installation cost estimates differ in various steps of project implementation. This ranges from ball-park figures in earlier stages to relatively dependable figures for control of the budget before the actual installation. Thus, because decisions reached at the onset of a project’s life cycle are often more tentative than decisions in later stages, the estimates on cost made at the onset are expected to be of lesser accuracy. This is mainly due to the fact that the cost estimate’s accuracy is reflective of the availability of information on whose basis the estimate is drawn.
Costs Associated with Hot Mixed Asphaltic Concrete Paving in Commercial Projects.
The installation capital cost for projects of laying asphalt paving includes expenditure related to initial establishing of the installation. The expenses include feasibility and planning expenses, engineering designs and documentation, construction including labor, material and equipment. Other costs may also include field supervision for installation, construction financing, taxes and insurance involved in the installation, owner’s office overheads, furnishing and equipment not included in the installation as well as testing and inspection fees.
The total amount of each cost component is dependant on the size, nature and location of the project in question as well as the management’s organizational structure-just to mention but a few. However, the ultimate goal any project’s owner is to obtain the lowest possible total installation cost that falls within the objectives of the investment. In budgeting for installations, an allowance for un-expected costs is always made (contingencies). This is due to the fact that deviant variations may occur in the budget’s estimate. These costs may be included in each item’s cost or in other cases they may be incorporated into a single group of installation contingency. Contingencies are deduced from historical records and experience as well as the anticipated complexity of the installation. Adjustments by contingencies inclusions may be necessitated by design changes, differences in the nature of the site from the expected, schedule changes and general administrative changes such as changes in wage rates. Third party impositions such as permit fees that may come up during installation could also necessitate contingencies.
The Actual Cost Estimation Procedures-Approaches to estimation of costs
One of the biggest management task for an asphalt pavement installation project is cost estimation. Cost estimation activities lays the basline of the costs of the project in the sequential steps of the installation of the paving. The estimation of cost at a specific stage of the installation reflects a deduction provided by the estimator or engineer based on data that is available. The (AACE)-American association of cost engineers- defines cost engineering as an area in which the practice of engineering experience and judgement is used in the implementation of scientific techniques and principles to the challenges of estimating costs, control of cost and profitability.
Almost all cost estimating is done by a combination or one of the following general costing approaches:
Unit costs for bill of quantities.
A cost unit is dedicated to every task and each facility component depending on the representation in the bill of quantities. Therefore, in order to get the total costs; unit costs are multiplied by the quantities estimated and summed up to give the total cost figure. This is a parametric model of costing that employs the use of project parameters (characteristics) in a mathematically desingned model that predicts the costs of aproject. The costing model could be as simple as using the cost per square metre of asphalt paving to approximate costs for large areas to be covered by the paving. In some instances this could be as complex as the use of multiple varying factors to determine the cost of installation-such as the number of drainage holes and kerb sides for the paving. This method is straightforward in its simpler form of principle, though; it it a very tedious and laborious method (‘Cost estimation’, n.d).
The initial step in the use of this method would involve the differentiation of a project into broken down, singular tasks. In this case these tasks can be exemplified by tasks such as grading, excavation of drainages trenches, establishment of drainage holes and channels, compaction, leveling and laying of the asphalt as well as its compaction. Tasks that may come later in the sequence may involve building of side-kerbs, installation of signs and recovery of vegatation around the site-just to mention but a few. These tasks have to be accomplished in order for the installation to be complete, and thus; form the scope of works. The determination and defination of these tasks is followed by the assessment of quantities of elements such as material or labor required for each task. All defined tasks and their assigned costs are then summed, and thus; form the total cost of the installation project. Task disaggregation/decomposition varies greatly depending which estimate level is selected.
A simple formula for the calculation of unit cost:
Supposedly, an installtion project could be decomposed into ‘n’ units (tasks) to be used in the estimation of cost. Qi could then be taken as the ith element’s quantity and Ui as the unit cost that talys with the quantity. In this case the formula for calculating the total cost for the installation would be as follows:
In this formula ‘n’ would be the number of tasks involved in the installation of the pavement and ‘Y’ would be the total cost for the project. Depending on the situation of the site and techniques used, or the management of the process of installation, the cost unit that was estimated, (Ui) for the component elements may be changed accordingly (‘Cost estimation’, n.d).
Allocation of joints costs-method for cost estimation
Joint cost allocation is a principle applied in costing that allocates costs in existent accounts to different components (elements). This allocation could be used to form a function of cost. The principle in the methodology is that each expense can be attributed to a specific activity of the operations. The idea is that any joint cost allocation should be related by through causal effect to the basic cost category. In a few instances causal relationship may fail to exist. In this asphalt paving installation basic cost may include materials, construction supervision, labor, general office overhead and construction equipment. These are the basic costs that should be proportionately allocated to the defined tasks which are decompositions of the whole paving project (Johnson & Kaplan, 1987).
The difficulty of determining a causal relationship among associated costs and elements is overcome by evenly distributing joint costs to basic costs for different elements. This can be exemplified by the allocating of costs resulting from supervision to basic costs from different elements on the basis of material, labor and equipment costs. This also includes the distribution of the total overhead expenses to different elements depending on the cost of supervision in the field (Johnson & Kaplan, 1987).
A simple formula for the allocation of joint costs:
This formula decopmoses the paving project into ‘n’ tasks. The sum of basic cost for the installation is defined by ‘y’ and ‘Yi’ defines a task’s cost (task ‘i’). Thus in calculating the amount of total cost of field supervision (F) allocated to task ‘I’ as ‘Fi’, the following formula is put to use:
Similarly, if ‘z’ is taken to be the sum of direct field costs and it contains the sum of basic costs and costs of field supervision, and ‘Zi’ be taken as task ‘I’’S direct field cost. Then the office overheads (G) could be evenly distributed to tasks with task ‘I’ getting ‘Gi’ as its share of the allocated office overheads.
Finally, ‘w’ could be taken as the grand, eventual total cost for this project. This cost includes office overheads, direct field costs due for the projects work. ‘Wi’ is assumed to be the attributable task ‘I’. This form of allocation thus gives these formulas as a means of cost allocation (Johnson & Kaplan, 1987). and Top-down Estimation or Estimation by use of Historical Cost Information
This estimation method utilizes data from previous actual projects to draw projected estimations of cost for current projects. This methodology is useful in instances where there is little or no information about the current installation project. Thus, installation estimations may be drawn based on historical records of similar projects. The data used in this method can only be be useful if it was organized during collection in a format that could make it applicable as a tool for future projections. As a result, data used in cost estimation should always be collected and stored in a manner that will render it useful for future use in the exercise of estimation. This should include its occassional update that will ensure it will always be up-to-date with the current times. In this project’s case cost data published in some print sources could be useful. These are printed by various organizations and could acts as resourceful references. These sources may include periodicals that print construction cost data details, commercial manuals with cost data details, digest that have actual installation project costs and catalogs.
Cost data from historical records must be used with care because changes occur in relative pricing over time and these could cause substantial impacts to the costing process. Another unfortunate fact is that it is dificult to predict the changes that may occur or have occurred on the pricing of tasks and material as a person reviews the material. Additionally, analysis may be carried out erroneously and thus introduce new errors in the whole costing system.
Therefore, data and information retrieved from these records should not be directly applied in the determination of the estimates of costs in this kind of installation. Instead these records should be used as a basis to make a preliminary cost analysis that will later be used to draw finer estimates based adjustments that take into account the current trends and pricing the construction industry. As a result, it should be noted that this is never an effective method on its own. Therefore, it should be used alongside another method in order to draw the closest possible estimate.
Cost indices as an important factor determining estimates on cost in the use of historical data
The use of historical data in making cost estimate decisions requires a closer monitoring of price change indices over time. The changes of prices can be an estimation tool for costs of tasks and material in the future. Input indices of price of material or labor depict the levels of price changes (‘Cost estimation’, n.d).
Price indices are aggregate, weighted measures of fixed quantities of material and labor chosen for a package. For example the price index next year would represent a proportionate difference in the same aggregate weighted measure. This can be attributed to changes that occur in price. The percent change in price index can be computed by the following formula:
Where ‘It’ is the price index for the year t. ‘It’+I stands for price index in the next year t+1.The calculation gives the change in percentage of the price index in the next year ‘t+1’.When the price index for the base year-zero-is set at a 100 then the subsequent years’ price indices will be ‘i1’,’i2’….’in’ for the years one, two onwards. These can be calculated from the differences in the overall price charged for material which is measured in that index (‘Cost estimation’, n.d).
It is of paramount importance that all estimators and costing engineers take note of the fact that there is no single costing method that can be effective on its own. Therefore, they should learn to do costing using the best combination of methodologies that should give an estimate that is closest to the actual cost. This is impportant because poor costing could lead to subsequent poor budgeting that may cause the installation projects to grind to a halt. Additionally, over-estimations or under-estimations will influence the computation of payable fees to designers, engineers and conslutants involved in the project. This is because their payments are based on the scope of works and overall cost of the project.It is not easy to foresee every problem that may arise in the installation and operations of constructing an asphalt pavement. It is been evident that estimates in construction activities’costs have more often than not been underestimated in comparison to their actual costs at completion. This could be attributed to the non-anticipated rise in costs, over-optimism and changes in the initial design that come up during the construction process. Therefore, since prices of future installed facilities are affected by a lot of uncertain factors, its essential for all involved parties to be cognizant of the fact that the risk must be borne by everyone to some extent. These parties include the design engineers, financiers and construction contractors.
‘Cost Estimation’. (n.d). Cost Estimation: Approaches to cost estimation. Retrieved from, http://pmbook.ce.cmu.edu/05_Cost_Estimation.html#5.2%20Approaches%20to%20Cost%20Estimation, viewed on 5th June 2010.
Johnson, H.T. and Kaplan, R.S. (1987). Relevance Lost: The rise and fall of management accounting. Boston, MA: Harvard Business Press.