Project management: Cost Analysis of Tianjin Cui Ping Lake Holiday Cottage Project

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i Executive summary

 

This assignment will provide a cost analysis based on the new situations changed with the progress of the original project regarding the Cui Ping Lake cottage program, we will focus on the cost changes and the current job performance as well as forecasting the new cost and providing solutions for better project management.

 

Please take note that all names and numbers appeared in this study in term of the name of the shareholders of the project as well as the name of the suppliers and builder are not real and are used to create a case that is more closed to actual scenario. But one thing that has always been true which I had not mentioned in the assignment I is the natural beauty and the Jixian District and inner peace that we can have staring at the Cui Ping Lake, pure and blue water tells no story and fill our heart with nothing (everyone needs to empty his or her heart from time to time).

 

If this project would become a real investment, I will be more than happy to invest, not only beauty of the natural environment and resources that customers from outside can enjoy but also the economic benefits that the local people could share with the investment in the long term basis.

ii Content page

i Executive summary……………………………………………………………………………………………. 1

ii Content page…………………………………………………………………………………………………… 2

iii List of charts, figures and tables………………………………………………………………………….. 4

Assignment II Tianjin Cui Ping Lake Holiday Cottage Project Management……………………….. 5

  1. Introduction………………………………………………………………………………………………… 5

1.1       Background of the project……………………………………………………………………… 5

1.2       Report objectives…………………………………………………………………………………. 6

1.2.1      To evaluate the performance of the current work performed………………….. 6

1.2.2      To analyze the actual cost against the budgeted cost in general and in the key activities    6

1.2.3      To anticipate the cost changes in the remaining project management………… 6

1.2.4      To provide creative solutions to the current challenges…………………………. 6

1.3       List of the assumptions………………………………………………………………………….. 6

  1. Findings…………………………………………………………………………………………………….. 9

2.1       A project cost estimate for the original project…………………………………………….. 9

2.2       A cost chart (total budgeted cost, cumulative budgeted cost and actual cost)………. 13

2.3       List of committed costs……………………………………………………………………….. 16

2.4       Configuration of original funding and current funding…………………………………. 16

  1. Analysis……………………………………………………………………………………………………. 17

3.1       Contrasting the actual cost to the budgeted cost………………………………………….. 18

3.2       A cost performance analysis (using the cost performance index and the cost variance) 21

3.3       Forecast the new expected cost at the completion of the project……………………… 24

3.3.1      Cost increase of timber………………………………………………………………. 24

3.3.2      Cost of subcontracting the wood cutting…………………………………………. 25

3.3.3      One week’s delay of current job……………………………………………………. 25

3.3.4      Forecast the new expected cost at the completion of the project…………….. 25

  1. Recommendations……………………………………………………………………………………….. 26

v Reference……………………………………………………………………………………………………… 27

iii List of charts, figures and tables

 

Table 1 Check list of resources required in the activities………………………………… 9

Table 2 A project cost estimate for the original project…………………………………. 11

Table 3 Total budgeted cost, cumulative budgeted cost and actual cost…………. 15

Table 4 Configuration of original funding………………………………………………….. 16

Table 5 Comparing the budgeted cost, cumulative budgeted cost and actual cost 19

Table 6 Cost performance index and the cost variance…………………………………. 23

 

 

 

Assignment II Tianjin Cui Ping Lake Holiday Cottage Project Management

 

 

1.        Introduction

 

1.1    Background of the project

 

After obtaining the authorization from the relevant government departments, we have finally getting real bricks into the selected field which is on the foot of the Cui Ping Mountain facing the vast Cui Ping Lake and it is also closed to the center of the district and the train station (the transportation hub that every tourist will pass through), also we have hired an office clerk to be in charge of the daily office work as well as making outbound calls to the possible business partners such as tourism agencies, and most importantly, we have outsource the design and construction of the cottage to a famous local construction team. And of course we had communicated in detail with them regarding our imagination and desired arrangements to them. At the beginning 10 months the implementation of the series of activities and planned actions seemed to very smooth but entering the 11th month of the one year plan, we have encountered several problems.

 

First, the builder doesn’t seem to be progressing as quickly as we had expected, and, to make matters worse, a week of heavy rain is forecasted.

 

Second, the builder has informed us that, because of a recent government regulation the cost of timber have jumped by 20% and he has only enough timber to finish 25% of the house.

 

Third, we have inquired about having several trees removed from the shore so that a better view of the lake can be obtained from the property, but the builder has informed us that he would have to subcontract the task out to another company because certain regulations have to be followed. And based on these new situations as well as other information and data we have managed to collect, we make this report to further facilitate the project management.

 

1.2    Report objectives

 

1.2.1            To evaluate the performance of the current work performed

1.2.2            To analyze the actual cost against the budgeted cost in general and in the key activities

 

1.2.3            To anticipate the cost changes in the remaining project management

 

1.2.4            To provide creative solutions to the current challenges

 

1.3    List of the assumptions

 

Assume that we set up a company, namely, Cui Ping Tourism Development Co., Ltd and the headquarter office is located in a rented office in the business center of the Ji Xian District when we have set up the project team and start the design of the projecting events.

 

Assume that the marketing manager that we have hired request for a salary increase 6 months after he was enrolled into the project, after careful negotiation, for the sake of the smooth implementation of the marketing strategy, we had finally agreed to provide a 20% increase in term of the monthly paid salary as a kind of compensation for his hard work.

 

Assume that construction start according to the projecting events until recently, the builder informed us about the possible delay of the current activity. In another word, the below listed actual progress of the various events are working fine and we assume that the time table of each event is strictly adhered and no postpone or earlier finishing will exist and this is to facilitate the cost comparison between the actual cost and the cumulative budgeted cost of the work performed.

 

Assume that the decoration activity only starts when the building is closing to its end and it is the last stage of the construction.

 

Assume that after the first collection of the initial funding from the five of the team members, during the application of the bank loan, the project accidentally needed some additional expenditure on a major equipment which was beyond the original plan, but the equipment was critical to the smooth carrying out of the project, and one of the five team members, Zhang Shui Guang, had spend his personal money and the amount of which was about RMB 20,000. And later after the negotiation, all the team members agreed to accept the RMB 20,000 as an expansion of Zhang Shui Guang’s capital contribution to the project and his share of the project is expanded accordingly.

 

The expenditures to lobby the relevant government officials would not be discussed and taken into account in this continued project. And therefore this time the case would be somewhat different from the previous one because of the changes of some conditions.

 

Another assumption is the land property cost, we assumes the land cost RMB 30,000 as an one time pay to the government, but later during the project implementation, the relevant government inform us that we need to pay another one time charge of the 5% of the deal amount because the special purpose of the land as using for a cottage.

 

As mentioned in the previous assignment, we have planned the two major kind of source of the funding which is projected to be RMB 850000 (846400): collective fund from the members of the project team and bank loan. Assume that during the implementation of the project, a new friend of us heard about our project to build up such a lakeside cottage and he became interested in the project and promise can invest RMB 100,000 into the project just to get 5% of the ownership of the new cottage which some of us are willing to accept because the project only cost about RMB 850000 which is the projected total cost as calculated in the beginning, but the rest, or the majority of us were against the expansion of the shareholder team because the expansion of the equity by introducing new shareholders and investments will dilute the ownership enjoyed by each team member. The agreement reached through several meetings was that we will do a cost analysis and summary regarding the situation of the overall expenditure as well as the future needs of the fund before the project could be finished smoothly, if the answer is positive, then we will consider to accept the new investors’ application to expand the investment but still internal addition of the fund or increase of bank land will be prioritized if possible. And if the cost analysis of the ongoing project suggests that the actual total cost does not exceed too much over the budgeted cost and there is no large anticipated large accidental expenditure outside the project plan, we will not consider take in the request to expand the equity and dilute the ownership.

 

Assume that subcontracting the wood cutting job would cost RMB 3,000 and the timber from the trees would be suitable for the use as replacement of the timber needed and they according to the new market price would reach RMB 70,000.

 

Assume that when the workers are not working because of the uncontrollable reasons such as weather factors, the paid will still be given to the workers by the company but 50 per cent discount because they do not need to work.

 

2.        Findings

 

2.1    A project cost estimate for the original project.

 

First of all, let us review the major resources needed that are involved in our original project.

Resources Relevant activities How it is found
Tourism development professionals A Seek assistance from our friends and families
Transportation tool B

I

Rent a car
Sample design of successful cottages with the similar purposes C Online resources and books and magazine
Professionals in the tourism facilities purchasing E Seek assistance from our friends and families
Money H

I

J

K

M

Collected fund from the members of the team (in the beginning stage); bank loan or risk investment
Hiring employees

A staff to make outbound call

A marketing manager

Monitoring staffs

J

M

Local labor market, head hunter, invite talents from our friends, old classmates and families

Table 1 Check list of resources required in the activities

 

And based on our original plan to get these resources, we had estimated a project cost table regarding the major relevant costs involved.

 

    Type Description Price per month Number of months Cost
Fixed cost Land property Land (Committed cost) One time charge RMB 300,000     RMB 300,000
  Advertising for cottage Marketing During the construction stage     RMB 20000
  Advertising for the opening Marketing In the final stage     RMB 10000
  Material Material timber     RMB 120000
  Material Material cement     RMB 30000
  Material Material China     RMB 15000
  Decoration Material       RMB 50000
  Legal professional fee Labor       RMB 7000
  Office furniture Equipment (Committed cost)       RMB 15000
  Signage Office expense       RMB 100
  Tools and supplies Office expense       RMB 600
  Contracting team charge Labor       RMB 70000
Variable cost            
  Rental Rental For vehicle no.1 RMB 1000 12 RMB 12000
  Rental Rental For vehicle no.2 RMB 1000 6 RMB 6000
  Rental Rental For a truck RMB 3000 2 RMB 6000
  Rental Rental For office RMB 2500 12 RMB 30000
  Rental Rental For other construction equipments RMB 4000 2 RMB 8000
  Salary Labor Construction workers no.1 RMB 2000 3 RMB 6000
  Salary Labor Construction workers no.2 RMB 2000 3 RMB 6000
  Salary Labor Construction workers no.3 RMB 2000 3 RMB 6000
  Salary Labor Construction workers no.4 RMB 2000 2 RMB 4000
  Salary Labor Construction workers no.5 RMB 2000 2 RMB 4000
  Salary Labor Construction workers no.6 RMB 2000 2 RMB 4000
  Salary Labor Office staff RMB 3000 10 RMB 30000
  Salary Labor Marketing assistant RMB 4000 7.5 RMB 30000
  Salary Labor Marketing manager RMB 7000 7.5 RMB 52500
  Electricity Office expense   RMB 300 12 RMB 3600
  Water Office expense   RMB 50 12 RMB 600
Total           RMB 846400

Table 2 A project cost estimate for the original project

 

Our original project cost had been made based on the various activities we had identified and the length of some variable cost was determined according to the latest starting time and also based on the assumption that each activity would be finished in the previously set duration. But all these cost were made before the starting of the project and now entering into the 11th month of the project, we have implemented project smoothly in general but still with some uncertainties and contingencies that bring changes to the cost that we had set. Below we will list out a cost chart that states the total budgeted cost, cumulative budgeted cost and actual cost in detail for better understanding how the cost is changing with the proceeding of the implementation.

 

2.2    A cost chart (total budgeted cost, cumulative budgeted cost and actual cost)

 

Before we state the cost chart, let us define some of the key terms. In term of project cost, each project task will have a cost, whether it is the cost of the labor hours of a computer programmer or the purchase price of a cubic yard of concrete. In preparing the project budget, each of these costs is estimated and then totaled. Some of these estimates will be more accurate than others (Reh 2010). And another concept is the cumulative budget cost (CBC), the cumulative budgeted cost (CBC) is the amount that was budgeted to accomplish the work that was scheduled to be performed up to that point in time (Gido & Clements 2009). The actual cost of a project represents the true total and final costs accrued during the process of completing all work during the pre-determined period of time allocated for all schedule activities as well as for all work breakdowns structured components. Actual costs are primarily made up of a number of specific items including, but not limited to, cost in direct labor hours, direct costs alone, and also all costs including indirect costs. The term actual cost can also be referred to as actual costs of work performed (AWCP) (knowledge.com 2011). When the estimated cost of an item is uncertain, the project budget often includes a design allowance. This is money that is set aside in the budget “just in case” the actual cost of the item is wildly different than the estimate. Below will be state the project’s total budgeted cost, cumulative budgeted cost and actual cost.

 

    Type Description Price per month Number of months Budget Cost Cumulative budgeted cost and Actual cost Over
Fixed cost Land property Land (Committed cost) One time charge RMB 300,000 RMB 300,000   RMB 300,000 RMB 300,000 RMB 315,000 RMB 15000
  Advertising for cottage Marketing During the construction stage     RMB 20000 RMB 16000 RMB 15000 RMB -1000
  Advertising for the opening Marketing In the final stage     RMB 10000 RMB 2000 RMB 2200 RMB 200
  Material Material timber     RMB 120000 RMB 4000 RMB 4500 RMB 500
  Material Material cement     RMB 30000 RMB 10000 RMB 11000 RMB 1000
  Material Material China     RMB 15000 RMB 0 RMB 0 RMB 0
  Decoration Material       RMB 50000 RMB 40000 RMB 45000 RMB 5000
  Legal professional fee Labor       RMB 7000 RMB 7000 RMB 6500 RMB -500
  Office furniture Equipment       RMB 15000 RMB 14000 RMB 14200 RMB 200
  Signage Office expense       RMB 100 RMB 100 RMB 100 RMB 0
  Tools and supplies Office expense       RMB 600 RMB 400 RMB 450 RMB 50
  Contracting team charge Labor       RMB 70000 RMB 35000 RMB 35000 RMB 0
Variable cost                  
  Rental Rental For vehicle no.1 RMB 1000 12 RMB 12000 RMB 9000 RMB 9000 RMB 0
  Rental Rental For vehicle no.2 RMB 1000 6 RMB 6000 RMB 5000 RMB 5400 RMB 400
  Rental Rental For a truck RMB 3000 2 RMB 6000 RMB 4000 RMB 4000 RMB 0
  Rental Rental For office RMB 2500 12 RMB 30000 RMB 26000 RMB 26000 RMB 0
  Rental Rental For other construction equipments RMB 4000 2 RMB 8000 RMB 4000 RMB 4000 RMB 0
  Salary Labor Construction workers no.1 RMB 2000 3 RMB 6000 RMB 4000 RMB 4000 RMB 0
  Salary Labor Construction workers no.2 RMB 2000 3 RMB 6000 RMB 4000 RMB 4000 RMB 0
  Salary Labor Construction workers no.3 RMB 2000 3 RMB 6000 RMB 4000 RMB 4000 RMB 0
  Salary Labor Construction workers no.4 RMB 2000 2 RMB 4000 RMB 2000 RMB 2000 RMB 0
  Salary Labor Construction workers no.5 RMB 2000 2 RMB 4000 RMB 2000 RMB 2000 0
  Salary Labor Construction workers no.6 RMB 2000 2 RMB 4000 RMB 2000 RMB 2000 RMB 0
  Salary Labor Office staff RMB 3000 10 RMB 30000 RMB 26000 RMB 26000 RMB 0
  Salary Labor Marketing assistant RMB 4000 7.5 RMB 30000 RMB 24000 RMB 24000 RMB 0
  Salary Labor Marketing manager RMB 7000 7.5 RMB 52500 RMB 43000 RMB 45000 RMB 2000
  Electricity Office expense   RMB 300 12 RMB 3600 RMB 2500 RMB 2600 RMB 100
  Water Office expense   RMB 50 12 RMB 600 RMB 450 RMB 440 RMB -10
Total           RMB 846400 RMB 600450 RMB 623390 RMB 22940

Table 3 Total budgeted cost, cumulative budgeted cost and actual cost

 

2.3    List of committed costs

 

A committed cost is an investment that a business entity has already made and cannot recover by any means, as well as obligations already made that the business cannot get out of (Aloise 2008, p. 11). And we have become aware of some costs that are committed costs when we review the company expenditures. In the case of this project, the committed costs that would be long term in nature include the rental cost in the vehicles, office and also other cleaning equipment that would still be used even after the finishing of the project, and also another important committed cost is the land cost as well as the unexpected land tax which causes us additional RMB 15000. All these should be considered as the committed cost which can not be reduced significantly without impacting the project’s ability to operate in a normal business status.

 

2.4    Configuration of original funding and current funding

 

As mentioned in the previous assignment, we have planned the two major kind of source of the funding which is projected to be RMB 850000 (RMB 846400 to be exact): collective fund from the members of the project team and bank loan. And with the times passes, and as mentioned above, during the application of the bank loan, the project accidentally needed some additional expenditure on a major equipment which was beyond the original plan, but the equipment was critical to the smooth carrying out of the project, and one of the five team members, Zhang Shui Guang, had spend his personal money and the amount of which was about RMB 20,000. And later after the negotiation, all the team members agreed to accept the RMB 20,000 as an expansion of Zhang Shui Guang’s capital contribution to the project and his share of the project is expanded accordingly. Therefore, with the only change happening to Zhang Shui Guang’s share of capital, the total actual funding amount by now is RMB 870,000 compared to the original projecting amount of RMB 850,000. There are no major uncertainties in this RMB 870,000 because all the money has already collected and saved in the business account in the Commercial Bank of China under the company name, Cui Ping Tourism Development Co., Ltd.

Source of funding Original funding amount Actual funding amount Over
Bank loan RMB 500,000 RMB 500,000 RMB 0
Liu Tian Yi RMB 150,000 RMB 150,000 RMB 0
Zhang Shui Guang RMB 80,000 RMB 100,000 RMB 20,000
Yan Yu Bin RMB 30,000 RMB 30,000 RMB 0
Yan Ru Yu RMB 40,000 RMB 40,000 RMB 0
Li Da Sheng RMB 50,000 RMB 50,000 RMB 0
Total RMB 850,000 RMB 870,000 RMB 20,000

Table 4 Configuration of original funding

 

 

 

 

3.        Analysis

 

3.1    Contrasting the actual cost to the budgeted cost

 

Let us review the results of the cost comparison before we can talk about the changes happening in the actual cost compared to the budgeted cost:

    Budget Cost Cumulative budgeted cost Actual cost Over Increase against the budget cost
Fixed cost Land property RMB 300,000 RMB 300,000 RMB 315,000 RMB 15000 5.00%
  Advertising for cottage RMB 20000 RMB 16000 RMB 15000 RMB -1000 -6.25%
  Advertising for the opening RMB 10000 RMB 2000 RMB 2200 RMB 200 10.00%
  Material RMB 120000 RMB 4000 RMB 4500 RMB 500 12.50%
  Material RMB 30000 RMB 10000 RMB 11000 RMB 1000 10.00%
  Material RMB 15000 RMB 0 RMB 0 RMB 0  
  Decoration RMB 50000 RMB 40000 RMB 45000 RMB 5000 12.50%
  Legal professional fee RMB 7000 RMB 7000 RMB 6500 RMB -500 -7.14%
  Office furniture RMB 15000 RMB 14000 RMB 14200 RMB 200 1.43%
  Signage RMB 100 RMB 100 RMB 100 RMB 0 0.00%
  Tools and supplies RMB 600 RMB 400 RMB 450 RMB 50 12.50%
  Contracting team charge RMB 70000 RMB 35000 RMB 35000 RMB 0 0.00%
Variable cost            
  Rental RMB 12000 RMB 9000 RMB 9000 RMB 0 0.00%
  Rental RMB 6000 RMB 5000 RMB 5400 RMB 400 8.00%
  Rental RMB 6000 RMB 4000 RMB 4000 RMB 0 0.00%
  Rental RMB 30000 RMB 26000 RMB 26000 RMB 0 0.00%
  Rental RMB 8000 RMB 4000 RMB 4000 RMB 0 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 RMB 0 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 RMB 0 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 RMB 0 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 RMB 0 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 0 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 RMB 0 0.00%
  Salary RMB 30000 RMB 26000 RMB 26000 RMB 0 0.00%
  Salary RMB 30000 RMB 24000 RMB 24000 RMB 0 0.00%
  Salary RMB 52500 RMB 43000 RMB 45000 RMB 2000 4.65%
  Electricity RMB 3600 RMB 2500 RMB 2600 RMB 100 4.00%
  Water RMB 600 RMB 450 RMB 440 RMB -10 -2.22%
Total   RMB 846400 RMB 600450 RMB 623390 RMB 22940 3.82%

Table 5 Comparing the budgeted cost, cumulative budgeted cost and actual cost[1]

 

As witnessed in the table above, only 10 out of the 28 categories of the costs exhibit over expenditure in term of actual cost compared to the cumulative budgeted cost. There are not significant increases of the actual costs; the largest increases are all 12.5%, found in the three categories of Tools and supplies, Decoration and Material costs. Compared to the similar projects found in other cottages building, such increases are acceptable and in addition, there are also categories where the actual costs are less than the amounts that had been projected, for example, in the 7.14% of the Legal professional fee was saved because the professional that we hired is one of our closed friend and therefore we managed to obtained some discount. Similar case could also be found in cost items such as Advertising costs for cottage because one of the team members actually run an advertisement company. And in total, because the project is entering the last two month out of the one year plan and the Cumulative budgeted cost which is 600450 accounting for 70.94 per cent of the total budgeted cost, and also the actual costs only exceed the original cumulative budgeted cost by 3.82 per cent, we could say that the actual cost is very closed to what we had planned. Therefore, if eventual actual cost of the whole project maintains such trend by exceeding the total budget cost by 3.82 per cent, the actual total cost would be RMB 878,732.48 which is only a little bit (1.00 per cent) more than the current total capital of the project which is RMB 870,000 and such exceeding is considered as totally acceptable according to our initial plan. But there are some new situations that we had mentioned in beginning that we need to carefully examine in term of their impacts on the cost of the remaining project events which we will elaborate later. Below let us first look at the evaluation of the work performed and only based on which we will be able to better understand the future cost of the remaining project.

 

3.2    A cost performance analysis (using the cost performance index and the cost variance)

 

The cost performance index could be calculated using the following formula:

 

Cost performance index (CPI) = budgeted cost of work performed (BCWP) / actual cost of work performed

 

    Budget Cost Budgeted cost of work performed (BCWP) Actual cost of work performed Cost performance index (CPI) Increase of cost against the budget cost
Fixed cost Land property RMB 300,000 RMB 300,000 RMB 315,000 95.24% 5.00%
  Advertising for cottage RMB 20000 RMB 16000 RMB 15000 106.67% -6.25%
  Advertising for the opening RMB 10000 RMB 2000 RMB 2200 90.91% 10.00%
  Material RMB 120000 RMB 4000 RMB 4500 88.89% 12.50%
  Material RMB 30000 RMB 10000 RMB 11000 90.91% 10.00%
  Material RMB 15000 RMB 0 RMB 0    
  Decoration RMB 50000 RMB 40000 RMB 45000 88.89% 12.50%
  Legal professional fee RMB 7000 RMB 7000 RMB 6500 107.69% -7.14%
  Office furniture RMB 15000 RMB 14000 RMB 14200 98.59% 1.43%
  Signage RMB 100 RMB 100 RMB 100 100.00% 0.00%
  Tools and supplies RMB 600 RMB 400 RMB 450 88.89% 12.50%
  Contracting team charge RMB 70000 RMB 35000 RMB 35000 100.00% 0.00%
Variable cost            
  Rental RMB 12000 RMB 9000 RMB 9000 100.00% 0.00%
  Rental RMB 6000 RMB 5000 RMB 5400 92.59% 8.00%
  Rental RMB 6000 RMB 4000 RMB 4000 100.00% 0.00%
  Rental RMB 30000 RMB 26000 RMB 26000 100.00% 0.00%
  Rental RMB 8000 RMB 4000 RMB 4000 100.00% 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 100.00% 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 100.00% 0.00%
  Salary RMB 6000 RMB 4000 RMB 4000 100.00% 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 100.00% 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 100.00% 0.00%
  Salary RMB 4000 RMB 2000 RMB 2000 100.00% 0.00%
  Salary RMB 30000 RMB 26000 RMB 26000 100.00% 0.00%
  Salary RMB 30000 RMB 24000 RMB 24000 100.00% 0.00%
  Salary RMB 52500 RMB 43000 RMB 45000 95.56% 4.65%
  Electricity RMB 3600 RMB 2500 RMB 2600 96.15% 4.00%
  Water RMB 600 RMB 450 RMB 440 102.27% -2.22%
Total   RMB 846400 RMB 600450 RMB 623390 96.32% 3.82%

Table 6 Cost performance index and the cost variance

 

In term of the cost performance index, which as said is calculated through the formula that “Cost performance index (CPI) = budgeted cost of work performed (BCWP) / actual cost of work performed” is an usual methods for project performance measurement (Conchúir 2011, p. 91), the overall performance is 96.32 per cent indicating that the project team obtain the value of RMB 0.9632 by spending RMB 1 yuan, this is not a good new because the project team obtain less value than we should at least earn. But in another perspective, we are achieving closed results that we should obtain and the actual costs do not exceed too much to such a degree that we can not afford. In another dimension, the cost variance, the overall cost currently has been larger than the Budgeted cost of work performed (BCWP) by 3.82 per cent. Therefore similar conclusion could be found in this dimension as well suggesting the healthy cost control by far in the progressing of the project.

 

3.3    Forecast the new expected cost at the completion of the project

 

3.3.1            Cost increase of timber

 

One major cost increase comes from the increase of the timer price which reaches 20%, and as we seen from the facts above, the budget cost of the total timber is RMB 120,000, and because the builder suggests that they only have enough of stock of the timber to finish 25 per cent of the total work using the timber. Hence, the cost increase of timber would be (if other factors will not be changed and all timber needs to be purchased):

 

Cost increase of timber = 120,000 * (0.75) * (0.2) = 18,000

 

3.3.2            Cost of subcontracting the wood cutting

 

As mentioned above, subcontracting the wood cutting job would cost RMB 3,000, therefore the cost of subcontracting the wood cutting as new unexpected cost that is done to provide a better view to the cottage will increase the total cost by RMB 3,000. And because the timber from the trees would be suitable for the use as replacement of the timber needed and they according to the new market price would reach RMB 70,000. Therefore we will actually benefit from the wood cutting by offsetting RMB 70,000 cost to be spent in the timber.

 

3.3.3            One week’s delay of current job

 

We expect that the delay of the current job will cost another RMB 10,000 because of some variable cost that could still not been avoided such as the labor cost of the workers.

 

3.3.4            Forecast the new expected cost at the completion of the project

 

As a result, based on the above analysis, the new expected cost at the finish of the project will be:

 

846400*(1+3.82%)+18000+3000-70000+10000=RMB 839,732.48

 

This is lower than the current capital RMB 870,000.

 

4.        Recommendations

 

As mentioned above, when the workers are not working because of the uncontrollable reasons such as weather factors, the paid will still be given to the workers by the company but 50 per cent discount because they do not need to work, therefore, we recommend that the company could talk to the builder and advise that the company could pay full daily paid to the worker, but the worker need to work individually for the company in the tree cutting job and this will hopefully help save the subcontracting expenses.

 

 

 

v Reference

 

Aloise, G. 2008, Department of Energy: Office of Science Has Kept Majority of Projects Within budget and on schedule, but funding and other challenges may grow. p. 11

 

Conchúir, D. O. 2011, Overview of the PMBOK Guide: Short Cuts for PMP Certification. New York: Springer. p. 91

 

Gido, J. & Clements, J. P. 2009. Successful Project Management. Natrop Boulevard Masons, OH: South Western Cengage Learning

 

knowledge.com 2011. ACTUAL COST. viewed on 18 Mar 2012. Link: http://project-management-knowledge.com/definitions/a/actual-cost/

 

Reh, F. J. 2010. Project Management 101 Part 4: Managing Costs, Money, and Profits. viewed on 18 Mar 2012. Link: http://management.about.com/cs/projectmanagement/a/PM101d.htm

 

[1] The shadowed fields represent that the actual costs exceed the budget costs