CONSTRUCTION PLANNING AND SCHEDULINGCO9T CONTROL MONITORING AND ACCOUNTING

UNIT -

III2 MARKS

1. what are the probtems which occurred in cost control?During the execution of a proiect, procedures for project control and record keepingbecome indispensable tools to managers and other participants in the constructionprocess. These tools serve the dual purpose of recording the financial transactions thatoccur as well as giving managers an indication of the progress and problems associatedwith a project.The problems of project control are aptly summed up in an old definition of a project as',any collection of vaguely related activities that are ninety percent complete, overbudget and late." The task of project control systems is to give a fair indication of theexistence and the extent of such problems'

2.NamethetypesofAccountingorMethodofAccountlng.(MaylJune2oo7)1. Completed-Contract method2. Percentage of completion method

3. Mention some elements of cost control.r' cost control involves processing of cost accounting reports received from various

responsibility centers of operating divisions, relating the cost incurred ]^,ith standards,analyzing the reasons for variances, and presenting the results of monitoring totheprojectmanagementformakingdecisionsforthefutureandnotofthepast.

/ In construction projects, generally there are two parties whose lnvestments areinvolved clients and contractors.

4, Define the term iob control. (AprlMav 2o1o)This method gives an individual or group of individual's responsibility forprojecting cash requirements and income on individual projects' This usually goes handin hand with the proieit management philosophy of the execution of construction. Incases where the critical path method (CPM) or PERT scheduling is employed, it isposslbletogeneratecashflowdirectlyfromtheseschedules.Therehasbeengoodsuccess, although the complexity of the programmers at times has led to technicaldifficulties.

5. what are the objectives of cost control?r' To locate Areas of Inefficient Functioning/ As a Basis for Preparing Estimatesr' Estimation of Profit or Loss

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6. What are tlie stag.es of work at which cost control is affected? (May/.run 2(,12)1. At the design stage2. At the construction stage'

7, write the classification of cost contro! system,1. Profit or Loss with reference to full payment2. Profit or Lbss with reference to partial payments3. Comparison with Standard Costs4. Unit Costing

8. Write some details aSout cost control codes.It is Very much essential in the cost analysis to give the various items, certain syrnbolsor code numbers by which they can be identified without taking pains to write the fulldescription every tirne.

9. Mention the types of cost control,> Alphabetical classification> Decimalclassification

10. Define control estimates based on cost.

For cost control, it is nessa r,!f to hav a master controi estimate for establishingoverall cost control. It is prpar.ed during planning stage itself. It is made of directcosts, indirect cost and funds allocated for contingencies and escalation.

11, write the levets of cost based on cost elements..1. Dtrect manpower costs-salary, wages and other costs2. Direct material at-site delivered costs3. Direct equipment, plant and services cost4, Sub-contract costs5. Indirect on-sire costs-variable, fixed6. Indirect external cosrs-head office overheads, management related and commercial

fixed and variable costs.

12. Define the term budgeting costs.

The project budget is the well co-ordinate management approved financialplan of operations, indicating the amounts required for achieving assigned targets,and the expected receipts frorn sales or the value of work done'

13. Write the importance of proiect budget.

> It.is essentially a planning document. It outlines the financial plan of the project.2

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> It specifies the future financial course of action for steering the project.> It speclfies a standard for measuring effectiveness and efficiency with which

activities are to be performed.14. Write the formuta for measurement of cost performance.

Project earned value, depending upon the nature of the project, can be measrrred in oneor more of the three parameters, i,e., cost, work hours and quantity of work done. Itsprogress is expressed in percentage:Project progress (o/o) = Budgeted cost work performed

15. Define the term cost report.

The cost reports of construction/production centres should reflect a comparison ofstandard and actual costs. In case of functional departments, cost comparison shouldbe made between budgeted and actual costs.

16, What is the management rote in cost control? (AprlMay 2OO8)Cost control can be called effective if the management:

. Implements efficient cost control procedures and systems.

. Develops and updates the control estimates,'

Analyses cost trends to discover potential cost problems and takes remedial measureto control cost.

. Encourages a cost conscience and time conscience attitude.

. continuously examines methods of execution with an object of total project costreductions.

17, Write the types of time based studies.1. Cash flow forecastin g2. Investment appraisal.

18. What is meant by cash flow forecasting?Cash flow is the movement of money into or out of a company.The purpose of cash flow forecasting can be explained as follows:(i) It ensures that sulficient cash is available to meet the demand.(ii) It provides a reliable indicator to lending institutions that advances made can berepaid according to an agreed programmed

19. Write the classification about time based economic appraisal.1. New construction2, Replacement and modernization3. Economic choice4. Financing problems

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20. What are the factors involving in investment appraisal?1. Pay back2. Return on capital employed3. Discount cash flow method.

21. Mention the components of a flnancial accountilg system. (Nov/Dcc 2011)1. The account payable journal2. Accounts receivable journal3. Job cost ledgers4. Inventory records

22. How. to HerrBine the cash ftow in proiect?1. Payment (Cash outflow)2, Receipts (Cash inflow)3. Timing of payment.

23. Explain the order-of cash flow status report? (Mayllun 2609)r' Costsr' Billings/ Payables/ Receivablesr' Cash position

24. Defi.ne th term schdule control. (APrlMay 2ou)In addition to cost control, project managers must also glve attention to monitoringschedule. Construction typically involves a deadline for work completion, so contractualagreement will force attention to schedules.

Delays in construction represent additional costs due to late facility occupancy or other' factors.

25. Define fixed cost and variable cost. (MaylJune 2oo7)r' Fixed costs are costs that are independent of output. These remain constant

throughout the relevant range and are usually considered sunk for the relevantrange (not relevant to output decisions).

r' Flxed costs often include rent, buildings, machinery, etc.r' Variable costs are costs that vary with output. Generally variable costs increase

at a constant rate relative to labor and capital, Variable costs may include wages,utilities, materials used in production, etc.

26. Define the term proiect budget' (Nov/Dec 2oO7,2oLl)' / A prediction of the costs associated with a particular company project' These

. costs include labour, materials, and other related expenses',/ Every project needs a.budget against which to measure costs that are expended.

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r' The overall project budget requires buy-in from management and fromowners of the Business Plan.

r' Breaking this overall budget into WBs-related parts permits the project managerand each task leader to control their own performance.

27. How do we produce proiect budget?1. To control resou rces2. To communicate plans to various responsibility center managers.3. To motivate managers to strive to achleve budget goals.4. To evaluate the performance of managers5. To provide visitrility anto the company's performance

28. What is a projert cash flow? (Nov/Dec 2OO7)cash flow is the npvernent of money into or out of a business, project, or fihancialproduct. rt is ,'qrary nnasured during a specified, finite period of time. Measurement ofcasft fu G n be used for calculating other parameters that give informatlon on aor f aryls n*r and sih.Etion.

II h IL sirc costs invotved in a project. (AprlMay 2OOa)fbG

-c EE types of costs in a typical project:. Fi=do rU*iableo Diede Indrecte Sunk

3G Dfrerentiate cost committed and cost exposure. (Nov/Dec 2OO8, Aprl&ay 2Dtt)/ Cornmitted costs are costs that have been committed by management./ Th6e costs are similar to sunk costs in that they exist as a result of previousdecisions although the'charge'has yet to be incurred or the cash released.

r' Examples are like renovation of factory premises, capital expenditures being incurredas company's purchase orders have been issued or work done is partially completelyand payment to suppliers still outstanding.

r' The cost of exposure technique allows the project management team to makeeconomic decisions about testing.

31. Define tlre tet'tlr sunk cost.A cosL that has already been Incurred and cannot be recovered lrrespectlve of thedecision to accept or reject the project is called sunk cost.

32. What do you understand about'account receivable journats,? (Nov/Dec 2oo8)Accounts receivable represents money owed by entities to the firm on the sale ofproducts or services on credit. In most business entities, accounts receivable is typicallyexecuted by generating an invoice and either mailing or electronically delivering it to the

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customer, who, in turn, must pay it within an established timeframe, called credit terrnsor payment terms,

33. What are the uses of account receivable iournals?The accounts receivable departments use the sales ledger, this is because a sales ledgernormally records i- The sales a business has made,- The amount of money received for goods or services.- The amountof moRey owed at the end of each month varies (debtors)

34. What do you understand about'accounts payable journal'? (Nov/Dec 20O8)Accounts payable are amounts a company owes because it purchased goods or serviceson crdit from a supplier or vendor.

35. What are the difference betwen percentage completion method andcompleted contract method and completed contract method? (May/Jun 2OO9)'Percentage of completion (PoC) is an accounting method of work-in-progressevaluation, for recording lOng-term contracts. GAAP allows another method of revenuerecognition for long-term construction contracts, the completed-contract method. Anaccounting method in which the revenues and expenses of long-term contfacts arerecognized yearly as a percentage ofthe work completed during that year.

This is the opposite of the completed contract method, which allows taxpayers to deferthe reporting of any income and expenses until a long-term project iscompleted. The percentage of cornpletion method of accounting is cornmonly used inconstruction projects.The. Completed-contract method is an accounting method of work-in-progressevaluation, for recording long-term contracts. GAAP allows another method of revenuerecognition for long-term construction contracts, the percentage-of-completion method.With this method, revenue is recognized when the contract is fulfilled.

36. Define job status report. (AprlMay 2010)A listing of open production orders that shows current location, units in progress,projected completion dates, and sometimes material.

This report shows the status oi all active tasks for the organization for which it isgenerated. The report lists the workflow stages currently being completed by the tasksin the job and for each stage shows how many tasks are at that stage.. Only active tasks are included in the report. An active task is one which has not been

terminated and has not yet completed the final stage of the workflow used tomanage the task.

. You cannot run this report for archived jobs.

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37. What are the advantages of accounting system? (l't aylJun 2Ot2)r' Speedr' Automatic document productionr'. Accuracyr' Up-to-date informationr' Availability of informationr' Managementinformationr' LegibiliV/ Efficiency/ Cost savingsr' Reduce frustrationr' The ability to deal in multiple currencies easily

38. How witt you estimate the progress of a proiect? (Nov/Dec 2012)

The more accurate your estimate of project cost is, the better able you will be to manageyour project's budget. Therefore, estlmating a project's costs is important for severalreasons:

. It-enables you to weigh anticipated benefits against antlcipated costs to see whetherthe project makes sense.

. It ailows you to see whether the necessary funds are avallable to support theproiect.

. it slrves as a guldeline to help ensure that you have sufficient funds to complete theproject.

39. What is s-curve?"A display of cumulative costs, labor hours or other quantities plotted agalnst time. Thename derives from the s-like shape of the curve, flatter at the beginning and end andsteeper in the middle, whlch is typical of most projects. The beginning represents aslow, deliberate but accelerating start, while the end represents a deceleration as thework runs out."

40. What are the types of S-curve?

There are a variety of S-curves that are applicable to project management applications,including:

. Man Hours versus Time S-curve

. Costs versus Time S-curve

. Baseline S-curve

. Actual S-curve

. Target S-curve

. Value and Percentage S-curves

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41. Write the uses of S-Curve,

It is used to forecast the cash requirements of a project. The cumulativeexpenditure for a project normally takes the shape of letter's'. By plotting thecumulative expenditure against cumulative project duration, it is possible to

r' The s-curve shape arises during early contract stage, because of lesser numberof activities and hence, the expenditurb curve is relatively flat.

42. How is an S-Curve generated?

To generate a Baseline S-curve, a Baseline Schedule is required. The Baseline Schedulesshould contain the following information for each task:

. Baseline Start Date, Finish Dateo Baseline Man Hours and/or CostsTo generate Actual and Target S-curves, a Production Schedule. is required.The Production Schedules should contain the following information for each task:

o Actual start Date, Finish Dateo Actual Man Hours qndlor Costs. Actual Percentage Complete

43, Define cost versus time s-curve.

The Costs versus Time S-curve is appropriate for projects that contain labor and non-labor(e'9. material supply / hire / subcontract) tasks. It shows cumulative costs expeRded overtime for the duration of the project, and may be used to assist in the calculation of theproject's cash flow, and cost to complete,

44. Define baseline s-curve.

Prior to project commencement, a schedule is prepared outlining the proposed allocationof resources and the timing of tasks necessary to complete the project within a set timeframe and budget. This schedule is referred to as the Baseline Schedule. From thisschedule, a Baseline s-curve is generated. This s-curve reflects the planned progress ofthe project. If the project requirements change prior to commencement (e.g. change ofscope, delayed start), the Baseline Schedule may require revision to reflect the changedrequirements,

45. Define target s-curve.Following project commencement, modification of the Baseline Schedule ii usuallyrequired. Changes are continually made to the Production Schedule (which is originally

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the same as the Baseline Schedule). The proifrr schedule reflects the actualprogress of the project to date, and any revisinns r* tD bd(s yet to commence or notyet completed. From this schedule, a Target 9orre rrsy be geneEted.

46.Define actual s-curve,The production schedule is updated on a regrk bG throughout the duration of theproject. These updates include the revisftrn d pelertage complete for each task todate. Uslng this information, an Actual S-orrye nray be generated. This S-curve reflectsthe actual progress of the project to date, ard rnay be compared with the Baseline andTarget S-curves to determine how the proi:ct b progressing. During the project, theActual S-curve will terminate at the Cut Otr DaE-

47.Define value and percentage s-curye.S-curves may be graphed as absolute values (a-e. I'lan Hours or Costs) versus Time, oras percentage values versus Time. Value 9orrvEs are useful for determining Man Hoursor Costs expended to date, and Man Flours o. Co6ts to complete, Percentage S-curvesare useful for calculating the projds actJal prcentage complete against target andbaseline percentage complete, and fior cahrlating the project's percentage growth (orcontraction).

48. Write the two categories of darct cost.

Overhead costs: Costs for pioducts and services for your project that are dilficult tosubdlvide and allocate direc0y. EEmples include employee benefits, office space rent,general supplies, and the costs of fumiture, fixtures, and eguipment.

General and administrative costs: Expenditures that keep your organizationoperational (if your organiatbn doesn't exist, you can't perform your project).Examples include salaries of yo.rr contracts department, finance department, and topmanagement as well as fees for general accounting and legal services.

49. Write the some categories of indirect cost.

Employee benefits: Bnefits (such as annual, sick, and holiday leave; health andlife insurance; and retirement plan contributions) in addition to salary while you andthe other team members are working on the brochureRent: The cost of the office space you use when you're developing the copy for thebrochureEquipment: The computer you use to compose the copy for the brochureManagement and adminlstrative salaries: A portion of the salaries of uppermanagers and staff who perform the administrative duties necessary to keep your'organization functioning.

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16 marks1' What are the obicctives of co,st controt? Exptain. (8 Marks) (l,raylJune 2(,(,7,2012)

> To locate Areas of fnefficient Functioning'

During the course of coflstruction, if there is in-efficient functioning at any stage orthe work is carried out in ah unecondmical mdnn"r, ttr"n in" ..Itlnt "t data isused so that the remedial action can be taken well in time.

' Cost control data gives the day to day costs incurred on the various items of workand thus provides a.n immediate warning to the site engineeri whether theconstruction cost is going higher than the estimated one.o If the methods of cost control are not used, then any loss in the construction of theproject will be known only at the end and then it *orra o".Lrn" loo tate to doanything except to accept the losses.

> As a Basis for preparing Estimates'

The estirnates for,any cofibtruction project are prepared by taking the costs, of thematerials as we, as the performanle of men and machine! doing diffrentoperations. cost contror acts as a basis of estimation "na

$rr., -provides thefeedback to the estimator for updating. ttre knowledge of ttre-oulpui JltJ or men anamachines.'

The unit rates of.the cost for various items of work can be charked out after thecomple-tion of a job and these would help in preparing realistic estimates for similarworks for which the contractor may like to tendei his did.'

However, the costs also depend upon the local conditions as well as the labour ratesprev.iring in that particula. area. ihus, the unit rates of costs inourJ'not arways beao-plied to simirar types of.works and appropriate adjustments srrouiJ ue maoe to getefficient output of the work.> Estimation of profit or Loss

' In order to determine whether the estimated profit is being made or not, we go forcost control techniques.

o The contractor can. find his profit or ross by comparing the actual expenditdreincurred on the work as-indicaied by the costiontrol data and the measurements oFthe completed portion of the worf< fiteiy to Le paid to him.2' Briefty di6cu6s relationship bctween estimattng and cost contror. (MaylJune2OO7)'

There is a crose relationship between cost control and estimation because; theexpenditure is regulated on the basis of the estimates of works.o In the abstract estirnate of the cost of a construction project, there is an indicationof the quantities of work invorved in tne virious items of work, their rates and theestimated cost. cost contror is affected on thtbasis of the estimated costs of eachitem of work as provided in the estimates.'

However, an abstract of the cost indicates the item wise costs and does not give thedetails of the costs of each operation. trere Liv ,.t t" *'Ir-"iriiiiiii or"a"tuir, orcosts for labour, machinery etc. separately.. Thus, the cost estimates are not much suitable as a basis of cost keeping.

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3. Write briefly about proiect cash flows. (Nov/Dec 2ooz)1. gQsTsr' This is a summary of charges as reflected by the job cost accounts, including

expenditures and estimateJ 6sts. rhis row provides an aggregate summary of thedelailed activity cost information described in the previous section'

t fir this example, the total costs as of luly 2 (7 /O2) were $ s'754'516' and theoriginal cost esHmate wis g65,853,O92, sd the approximate percentage complete wasA,7 54,5t6 | 65,a63,092 or t3.292o/o.

/ However, the project manager now projects a cost of $66'545 '263 for the project'representing an increase of $6A2,L71over the original estimate'

/ This new estimate would reflect the actual percentage of work completed as well asother elfects such as changes in unlt prices for labor or materials'

r'Needlesstosay,thisincreaseinexpectedcostsisnotawelcomechangetotheproject manager.

2. BILLINGSr'ThisrowsummarizesthestateofcashflowswithresPecttotheownerofthefacility;

this row would not be included for reports to owners'r' The contract amount was $67,511,602, and a total of $9,276'62l.or !.3'7.4lo/o of the

contract has been Unfea. He a'mount oi altowaUte billing is speciffed under the terms ofthe contract between an owner and an engineering, architect, or constructor'

/ In this case, total billings have exceeded the estimated project completion proportion'/ The final column includes the currently projected net earnings of $966'339'/ This figure iS calculated as the contract amount less projected- costs: 67,511,602 -

66,545,263 = $966,339. lrlt" nut this profit figure does not reflect the time value ofmoney or discounting'

3. ruElesr' The Payables row summarizes the amount owed by the contractor to material suppliers,

labor or sub-contractors'/ At the time of this report, i6,71g,:I}3 had been paid to subcontractors/ material

suppliers,.and ottrers. liv-oiJeJ oi si,:oo,oe9 have accumulated but have not yet beenpaid.

r'Retentionof$3gl,6Tlhasbeenimposedonsubcontractors,and$343,653indirectlabor expenses has been occurred,

/ The total of payables is equal to the total project expenses shown in the first row ofcosts.

4. RECETVABLESr'Thisrowsummarizesthecashflowofreceiptsfromtheowner.Notethattheactual

ieicipts from the o*n"r .uy differ from the amounts billed due to delayed payments orretainage on the part of the owner.Thenet-billedequalsthegrossbilledlessretentjonbytheowner.In-thiscase,grossbiled is $g,276,62L tu, .nz*n-in lne uittings row), the net billed is $8,767'673 and theretention is $514,948.

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5. CASH POSITION/ This row summarizesi!:

-.1.n position of thc proJect as if alr experrses and receipts forthe project were combined in a stngie ac;;ni.r' The actual expenditur:s have been g7,062,756 (carcurated as the totar costs of98,7s4,5L6 tess subcontractor rerentions oiisgr,oir ura-rnpuia uiiii oi Er,:oo,oagland g 7

'2o9 '344 has-bee' received r-r- tr,"i*n"r. As a resurt, a net cash barance of9146,5s8 exists whicli ."; d; ;r;; 'in '"n-'iri..".t earning bank account or to financedeficits on other projects.t'YXii,ilr)1r".:1fl;i costs invotved in a construction proiect? (Nov/Dec 2oo7,

The cost contror system depends upon the degree of rever of detair in which contror isrequired to be exercised for a particurar work. The cost of operating a cost controrsy=tern is directly proportional to the detail in which the costs oi tt "

,u-ri*, operations']! 'Erydd' Due to this, it may be desirable to use a simpler system of cost control. Agrd #em must be quick acting, besides being simple.Tbe dassi6661;on of cost control system is done in the following ways:

r' Ptoflt or Loss with reference to fult paymntThis system wir be usefur onry in very sma[ contracts of short duration. hfact, thissystem is hardry a method of contror, as it can be onry used to prevent simirar mistakesin the later contracts. After the compretion of work, the contractor .on.,p.r", the moneyhe has received for the work with the amount he has spent on it.

r' Profit or Loss with reference to partial paymentsAt regurar intervars, the contractor is paid for the portion of work compreted by him. Toknow the profit and ross position for that part of the work, the cost incurred by thecontractor is compared with the payments received.

r' Comparison with Standard CostsIn this method, the cost record consists of the detairs of the rate of cost for rabourmachinery and materials separately. These are then compared with the rates.of thoseitems known as "cost standards". Ii is then possibre to know at giance whether there isany inefficiency and how it can be improved.

'/ Unit CostingThe carcuration of the rate of cost of each item of work can be done by dividing theexpenditure on the item and the quantity of work Jone. thus, ttre eniciencvlf the workcan be assessed by comparing the rates in the cost estimates with the rate of cost ascalculated above. This method gives an indicationl0 the fierd starf to take care of thoseitems of work where the losses are to be reducJ.

5. Discuss step-by-step for budgetary cost control for a proiect. (Apr/May 2ooa). For control and monitoring purposes, the original detailed

converted into a project budget. The project budgetcost estimate is typicallyis the well co-ordinate

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\management approved financial plan of operations, indicating the amounts required forachieving assigned targets, and the expected receipts from sales or the value of workdone.

. A project budget reflects the.financial plan of the operations, divided into responsibilitycenters with specific goals clearly outlined along with the costs expected to beincurred.

. The Primary purpose of having a budget is to assign financial targets and resources toeach responsibility centers, to co-ordinate their activities, to form the basis forcontrolling programmed, and to make the participants cost conscious instead ofpurposeless routine working. The basis of the budget is the project plan and itsscheduleof work.

6. Explain the importance of forecasting the activity cost contro!. (Nov/Dec 2ooa)For the purpose of project management and control, it is not sufficient to consider only

the past records of costs and revenues incurred in a project, Good managers should focusupon future revenues, future cosls and technical problems.Cost analysis aims to predict future costs. These cost forecasts serve two main purposes:

1. To appraise the project management of the possible cost over-run or under-runfor taking timely corrective actions such as modirying cash flow and updatingfinancialforecasts and project profitability expectations.

2. To update key personnel on anticipated cost changes in their field of responsibility,so as to create cost consciousness for exploring means for minimizing wastage andreducing costs.

3. Jo'b status report, explicit estimates of ultimate cost in each category of expenseare prepared, which are used to identify the actual prog ress and status of anexpense category.

4. Estimates might be made from simple linear extrapolations of the productivity orcost of the work to date on each project item.

7. Explaan Proiect Budget. (MaylJune 2oo9)For control and monitoring purposes, the original detailed cost estimate is typically

converted into a project budget.Definition: The project budget is the well co-ordinate management approved financialplan of operations, indicating the amounts required for achieving assigned targets,and the expected receipts from sales or the value of work done.

. A project budget reflects the financial plan of the operations, divided into responsibi,ity

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centers with specific goars crearry outlined arong with the costs expected to beincurred,' The primary purpose of having a budget is to assign financial targets and resou.ces to

each responsibility centers, to co-ordlnate their activities, to form the basis forcontrolling programmed, and to make the participants cost conscious instead ofpurposeless routine working. The basis of the b.udg.et is the project plan an{ its scledule,or work.

' In a construction project, the client and the contractor have separate budgets.' The client is construction budget is primarily a capital budget designed to formulate

tirne-phase funds requirement and the sources from which these funds are to beprovisioned' It also includes the expenditure on procurement of land, consultant fee,constructor's payment gtc.

' The contractor's budgeL is.. resources, cost and: sales income oriented budget. Itincludes income and expeadit,re statements, cash frow, barance sheet etcImporta nce of proiect Bqdgetl It is essentially a planning document. It outlines the financial plan of tfre project.2. It specifies the futur financial course of action for steering the project.3. It specifies a standard for'rnemuring effectivefiess and efficiency with which

activitiesare to be performed.

4' It is a financial comrnitment for-aotioF, an instrument for allocation of responsibility,a means of commuhicaticrrl, an aid rlor co-oidination, a tool for motivation, anauthority for imprementation- and a deviee for contro[ing performance. A projectwithout a budget is like a rnissle without guidance system or a ship withoutnavigational instruments.

a' vvhat are the components of ,fiRa.ncia+ aGounts? (May./June 2009, Nov/.Dec 20r.1)cost accounts provide onry o.e.of,-the-various components in a financiar accountingsystem. Accounting information- is generalry used for three distinct purposes: .

L lnternal reporting to project managers for day-to_day planning, monitoring andcontrol,

2. Internal reporting to managers for,aiding strategic planning.3' External reporting to owner's, government, regurators and other outside parties,'

External reports are constrained to particurar forms and procedures by contractualreporting requirements or by genera[y accepted accounting pracflces, preparation ofsuch external reports is called financial accounting.

' In contrast, cost or managerial accounting is intended to aid internal managersin their responsibilities of planning, monitoring and control.

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. Financial accounts of an organisation always contain proiect costs' In anorganisationall the expense transactions are recorded in a general ledger'

. The general ledger of accounts is the basis for management reports on particularproject as well as financial accounts for the entire organlsatlon. oLher components ofa financial accounting system includes:

4.Theaccountpayablejournal:Thisisintendedtoproviderecordsforbillsreceivedfrom vendors, material suppliers, subcontractors and other outside parties. Invoicesofcharges are recorded as checks issued in payment' Charges to individual costaccountsare posted to general ledger'

5.Accountsreceivablejournals:Toprovidetheoppositefunctiontothatofaccountspayable. In this Journal, billings to clients are recorded as well as receipts' Revenuesreceived are posted to general ledger.

6. lob cost ledgers: Summarizes the costs associated with partlcular project arrangedin the various cost accounts used for the project budget'

?. Inventory reqords: These are maintained to identiff the amount of materialsavailableat any time. In traditional book keeping system, day to day transactions are firstrecorded

transaction is recorded as both ain journals. With double entry book keeping, eachdebit and credit to the particular accounts in the ledger'

For example: Payment of a suppliers bi II represents a debit or increase to a projectcost account and a credit or reduction to company's cash account' Periodically, thetransaction information is transferred to ledger accounts. This irocess is called Postingand may be done instantaneously or daily in computerized systems'Inrecivingaccountinginformation,theconceptsofflowsandstocksshouldbekeptin mind. Daily transactions reflect flows of rupees entering or leaving the organisation.Similarly, use or receipt of particular materials represents flow from or to inventory'

. An account balance represents thefrom these daily flows. Information

resulting cumulative amount of funds resultingon both flows (cash lnflow and outflow) and

stocksarc nccded to give an accurate view of an organisation's state'

. In addition, forecasts of future changes are needed for effective management'Informatlon from the ledger is assembled for the organisation's financial reports;including balance sheets and income statements for each period'

. These reports are the basic products of the financial accounting process and areoften used to assess the performance of an organisation'

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9. Exptain the method of preparing iob status report with an example. (Eaylrr=2O09)Management wifl need certain data from you in order to see overal hearth,performance against milestones, and the threai that project issues present. For overaltproject health, these data points might include:

. The project's name'

The project identification number if your company uses a toor to store projects.'

The overa[ project hearth (red ye[ow green - more on this in a futufe artiire;.o The go complete you expected to be at today (planned completion).o The o/o complete you are actually at.. The number of days behind or ahead agalnst the plan.' The number of brocking issues you face lmore about this rater in.this articre).o The number of ,,normal issues" you face,

These data elements shourd provide a sound overview of project hearth for the, ayerageexecutive who is not detairs mindecr and is not interested in getting rflore involved,in yourproJed.

There are three major components to reporung project status:overarr: we need to see the overafl project hearth. As managers, we want to be abreto detect a project in troubre. we arso want to herp make that determinationsometimes. You might not know everything we know despite our best efforts tocommunicate. your project might not be as healthy as you think it is.Milestones: your project has major accomprishments which rnust be cornpreted byspecific dates. we managers want to see which mirestones are comprete, which onesare in progress, and which ones are coming up next. This aflows us to'anatyse ttreschedule and decide to either feel comfortabie with it or challenge it.rssues: Your project arso probabry has one or more obstacres" to compretion whichhave been discovered' we'd rike to see brief a"tuiir uoort each issue so that we canmake a decision about whether or not to step in and help if necessary.

t''^H}';:: fSrtrow status report for project cash frow contror. (Ma.yltune 2o1o,Cash Ftow Status ReportWEEK ENDING:

CASH BALANCE!Checking AccountsSavings AccountsCash EquivalentsPRODUCTION:

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Last WeekLast MonthLast Year

Average weekly production past 52 weeksForecasted Production next week

ACCOUNTS RECEIVABLE AGING:Cu rrent31 - 60 Dat/s51

- 90 Days

91 -

ilIOIEF120 + DrrsTOTALAU.

AGO(x'ilXS PAYABI.E SUilllARY:Ortrnt31

- 610 Days

61 - 90 Days

91 - 12O Da)ts120 + DaysTotal All AP$

COLLECTIONS:Last WeekMTDYTD

COLLECiION RATTOS:Total AP vs. CollectionsTotal AR vs. Collectlons

costs: This ls a summary of charges as reflected by the job ost accounts, lncludingexpnditures and estimated costs.Bitlings: This row summarizes the state o,f cash flow with respect to the owner of thefacility; this row would not be included for the reports to owners. the amount of allowablebatlhg is specified under the terms of contract between an owner and an engineer'ardthct or @nstructor, In this case, total billings have exceeded the estimated proJectomCaion Foportion.Pryables: The payables now summarize the amount owed by the contractor to materialslmfetrs, labour, sub-contractors. The total payables are equal to the total projdctrc shovrn in the first row of costs.Hr.flGS Thb row summarizes the cash flow of receipts from the owner. Note that the

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actual receipts froth the ownerdelayed payments or retain age ongross billed less retention by the owner.

may differ from the amounts billed due tothe part of the owner. The net-billed equals thecash Position: This row summarizes the cash position of the project as if a[ expensesand receipts for the project were combined in a single account.

11' rflustrate a typicar accounting income statesrrer]t' afld acoou,ting barsheet. (Aprl,"y 20111 '""o'nting income statesaerlts and acoounting balancefncome statement

r' Income statement (arso referred to as profrt and ross statement. (p&L), revenuestatement, statement of .financiar performance, earniREs statenrent, operatingstatement or statement of operations) is a company's financiar statem:ent thatindicates how the .evenue (money received from the sale of products and servicesbefore e*pensei are taken out, arso known as th "top rine:,) is.transformed intothe net income (the result after all revenues and expenses have been accountedfor, also known as Net profit or the ,,bottom line").r' It disprays the revenues recognized for a specific periodr. and the cost andexpenses charged against these revenues, including *rit"_ofL i"r., '

O-"r".,u,,onand amortization of various assets) and taxes. The purpose of the income' statement is to show managers and investors whether the company maae or tost_

money dur;ng the period being reported.r' rhe important thing to remember about an income statement is that it representsa period of time. This contrasts with the barance-sheet, which .represents:a singremoment in time.

Balance Sheet

r' In financiar accounting, a barance sheet or statement of financiar position rs asummary of the financiar barances of a sore proprietorship, a .business partnership,a corporation or other business organization, iuch as an LLC or un t-t-p, nrr"tr,liabilities and ownership equlty are ristea as or a specific date, such as the end ofits financiar year' A barance sheet is often described as a ,,snapshot of acompany's financiar condition". of the four basic financial statemeRts, the barancesheet is the onry statement which appries to a singre point in time of a business,calendar year,r' A standard company barance sheet has three parts: assets, riabirities andownershrp equity' The main categories of assets are usuary risted first andtypically in order of liquidity. Asseti are fo[owea oy the liabilities. The. diffefence-between the assets and the liabirities ir r,no*n *

"quity or the net assets or thenet worth or capitar of the company and according to the accounting equation, networth must egual assets minus liabilitiesr' Another way to rook at the same equation is that assets equal riabirities prus.

owner's equity. Looking at the equation in this way shows how assets were18

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financed: either by borrowing money (liability) or by using the owner's money(owner's equity). Balance sheets are usually presented with assets in one sectionand liabilities and net worth in the other section with the two sections "balancing."

r' A business operating entirely in cash can rrcasure its profits by withdrawing theenure bank balance at the end of the period, plus any cash in hand, However,

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many businesses are not paid immediatdy; they build up inventories of goods andthy acquire buildings and equipment.

12. E)elain the adya.ntages of budget update process in cqst control. (MaylJunezoaz)

Scheduling and project planning is an activity that continues throughout thelifeume of a project, As changes or discrepancies behl/een the plan and therealization occur, the project schedule and cost estimates should be modified andnew schedules devised.Too often, the schedule is devised once by a planner ln the central office, andthen revisions or modifications are done incompletely.or only sporadically. Theresult is the lack of,effective project monitoring and the possibility of eventualclnos on the project site.on 'fast track' projects, initial construction activities are begun even before thefacility design is finalized. In this case, special attention must be placed on thecoordinated scheduling of design and construction activities.Even in projects for which the design is finalized before construction begins,drange orders representing changes in the "final" design are often issued toincorporate changes desired by the owner,7 Beyond the direct updating of activity durations and cost estimates, projectrnirnagers should have mechanisms available for evaluating any type of scheduleclrange.Updating activity duration estimations, changing scheduled start times, modifyingthe estimates of resources required for each activity, and even changing theproject network logic (by inserting new activities or other changes) should all beeasily accomplished.In effect, scheduling aids should be directly available to project managers.Fortunately, local computers are commonly available on site for this purpose.

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7The proportion of work completed is computed as the ratio of costs incurred to date andthe total estimated cost of the project.

14. Describe the retationship between cost and schedute information. (Nov/Dec20t2)o Actual project involves a complex inter-relationship between time and cost.

Additional resources applied to a project actiiity might resurt in a shorterduration but higher costs.

o The. project manager can easily recognise the relation between time and cost inprojects.o But it is difficult to find effective project control systems which inelude both

elemehts.Project costs and schedures are recorded and reported in separate appticationprograms,Project manager must then perform the tedious task of rerating the two sets ofinformation.

The primary difficulty in integrating schedule and cost information is the level ofdetails required for the effective integration. A singre project activity invorvesnumerous cost account categories.Example: An activity for the preparation of a foundation wourd invorve cement,workers, concrete forms-reinforcement, transportation of materials and otherresources. Even a more disaggregated activity such as erection of foundationforms would involve numerous resources such as forms, nails, carpenters, labourand material transportation.

' Different cost accounts wourd norma[y be used to record these various

Percentage of completion Method: The actual costs are reported on the incomestatement plus a proportion of all project revenues equal to the proportion of workcompleted during the period.

resoufces.similarly, numerous activities might involve expenses associated with particularcost accounts.

Example: A particular material such as standard piping might be used innumerous schedule activities. To lntegrate cost and schedule information, thecharges for specific activities and speciflc cost accounts must be the basis ofanalysis.A method of relating time and cost information is to define individual workelements representing the resources in a particular project activity. Workelements represent an element in a two-dimensional matrix of activities and costaccounts.

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