PSZ 19:16 (Pind.

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UNIVERSITI TEKNOLOGI MALAYSIA

DECLARATION OF THESIS AND COPYRIGHT Author's full name
Date of birth

ADITYA MUHAMMAD YUWONO

24th SEPTEMBER 1981

Title

COST CONTROL IN CONSTRUCTION PHASE IN JOINT

OPERATION CONTRACTORS (A CASE STUDY OF JOINT OPERATION CONTRACTORS IN SUMATERA INDONESIA) Academic Session

2010 /2011

I declare that this thesis is classified as:

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otgartrzation where research was done)*

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has the right to make copies of the is for academic exchange.

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Date: \4Zr/n
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the thesis is CONFIDENTIAL and RESTRICTED, please attach with the letter from the organization with period and reasons for confidentiality or restriction

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"I hereby declare that I have

read this thesis and in my

opinion this thesis is suflicient in terms of scope and quality for the award
the degree of Master of Construction Contract Management

Signature Name of Supervisor Date

1

Signature Name of Supervisor 2 Date

l1l

declare that this thesis entitled "Cost Control

In

Construction Phase

In Joint

Operation Contractors (A Case Study of Joint Operation Contractors in Sumatera,

Indonesia)

" is the result of my own

research except as cited in the references. The

thesis has not been accepted for any degrees and is not concurrently submitted in
candidature ofany other degree.

Signature Name Date

ADITYA MUHAMMADYUWONO
JLILY 2011

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To my beloved father, mother, sister and whole family. And Fonica Corazona. Thank you for the never ending support, encouragement, love and spirit.

ACKNOWLEDGEMENT

First, I would say thank you to Allah SWT for His blessings to me with healthy, patience, perseverance and high spirit. This project report was completed with the contribution of many people whom I would like to express my sincere gratitude. They have contributed towards my understanding and thought. I would like to convey my sincere thanks and gratitude to my thesis supervisor, Associate Professor Dr. Razali Abdul Hamid for his time, guidance, comments, patience and friendship throughout the supervision of entire research. I am also give high appreciation to Ministry of Public Works Indonesia for funding my master studies and my company PT Adhi Karya (Persero) Tbk for allowing me to continue my studies and the assistance given for the relevant information towards making this research a success. My fellow postgraduate students and classmates should also be recognised for their support. My sincere appreciation also extends to all my colleagues, project colleagues in Sumatera Division and others who have provided assistance at various occasions. Finally, thank you to my beloved parents, sister, my beloved one and whole family who always have strong faith in me and provide me with countless support in terms of time and morale.

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ABSTRACT

Cost control is very fundamental activity in a construction phase of a project. It become one of an important activity in controlling budget in contractor and commonly applied by contractor in Indonesia. Nowadays, construction industries have variety design and purpose resulting the products that required a matching method of construction technology. Because of above trend and situations, sometimes two idea or concept required to become one to comply. It become the reasons of two or more contractors joining their idea, technology, conceptual basis, method of construction, equipments, human resources, policy and the most important thing is joining their capital budget. That is the base of a joint operation contractor. However, a joint operation contractor may apply a cost control management differently with common single system of a company. A specific method of cost control must be taken to improve their ability in controlling the budget because the differences of origin, nature, culture, policy and concept of each company. This cost controlling lead to control their budget within the cost limit, lock or increase the profit and avoiding losses whos leading to the instability of joint operation financial. A brief interview with joint operation contractors found out that they lack the knowledge of cost control system. A study is carried out to study the cost control method in joint operation contractors to identify the method frequently used and the problem faced by joint operation contractors. The study is carried out in the working area of construction company PT Adhi Karya (Persero) Tbk, Sumatera Division, Indonesia. A total of 30 questionnaires were sent to the member of joint operation contractors with Adhi Karya and the data analyzed using average index and frequency analysis. From the study, the main problem of joint operation contractors in Sumatera are changed condition and contractual matters during construction that potentially disrupt the planned joint profit, non qualified personnel, duration of the project and additional costs to apply cost control system in the JOs.

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TABLE OF CONTENTS

CHAPTER

TITLE ACKNOWLEDGEMENT ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF APPENDIXES

PAGE v vi vii x xi xiii

INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6 Background of Study Problem Statement Previous Study Objectives of The Research Scope of The Research Importance of The Research

1 1 2 3 3 3 5

LITERATURE REVIEW 2.1 Introduction 2.2.1 Definition 2.2.2 Statement of Fact in Cost Control 2.2 The Use of Cost Control 2.2.1 Unit Costs 2.3 Control of Material and Equipments 2.3.1 Control of Materials 2.3.2 Standard Cost and Variance 2.3.3 Labor Variance 2.3.4 Overhead and Profit Variance

6 6 8 9 10 11 14 14 14 16 16

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2.3.5 Control of Mechanical plant Costs 2.3.6 Other Factor Influencing Cost 2.4 2.5 Cost Control Method Time as the Important Variable in Cost Control System 2.5.1 Time, Cost Control Influence Curve 2.6 Time-Cost Optimization with Network Analysis 2.6.1 Cost on A Network 2.7 2.8 The Budget Cost Control Master Codes in Joint Operation Project 2.8.1 Cost Control Coding System for Work Item 2.8.2 The Allocation of Cost 2.9 3 Summary

17 20 21 22 23 24 26 28 31 32 35 36

RESEARCH METHODOLOGY 3.1 3.2 Introduction Interview 3.2.1 Questionnaires 3.2.2 Data Analysis and Documentation 3.2.2.1 Example of Calculating Frequency Analysis 3.2.2.2 Example of Calculating Relative Index (RI)

37 37 37 38 39 39 40

DATA ANALYSIS AND RESULT 4.1 4.2 4.3 Introduction Analysis of the Data Understanding of a Person to Cost Control Management in a Joint Operation Contractor 4.4 The Most Area Cost Control Reporting Method System used by Joint Operation Contractors 4.5 The Time Rate of Joint Operation Contractors reporting the Cost Management 4.6 Cost Control Methods that Frequently Used by Joint Operation Contractors

42 42 42

44

45

46

47

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4.7

Problems of Cost Control management that Frequently Arised in Joint Operation Contractors 51

CONCLUSION 5.1 5.2 5.3 5.4 Introduction Conclusion Limitation of Research Suggestion for the Next Research

55 55 56 57 58

REFERENCES APPENDIX A

59 61

LIST OF TABLES

TABLE NO. Table 2.1 Table 2.2 Table 2.3 Table 2.4

TITLE Definitions Terms Used in cost Control Procedures Weekly Cost Record Example of the Subdivision of the Code

PAGE 8 12 33

Example of Integrating the Item Code into One Work Item Code Number or Work Breakdown Structures 34

Table 4.1

Breakdown of Respondent surveyed in Joint Operation Contractors in partering with PT Adhi Karya Tbk, Construction Division III Sumatera (ADHI) 43

Table 4.2

Relative Index And Ranking of Main Problems in Controlling the Cost on Joint Operation Contractors 53

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LIST OF FIGURES

FIGURE NO Figure 2.1 Figure 2.2

TITLE Graphical Presentation of the Information

PAGE 13

The Relationship Between the Percentage of Opportunity to Influence Cost as Function of Job Time and Job Phases 23 25 25 28 29

Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 2.7

Time-Cost Relationship Total Project Cost S-Curve Envelope Example of Graphical Form of Financial Budget The Individual Curves and Cumulative Curves for Different Items

30 31 41 42

Figure 2.8 Figure 3.1 Figure 3.2 Figure 4.1

S-Curve Through Control of Work Ordinal Scale Degree of Agreement Research Methodology FlowChart The Understanding of a Person to Cost Control Management System in a Joint Operation Contractor

44

Figure 4.2

The Most Area Cost Control Reporting Method System Used by Joint Operation Contractors 45

Figure 4.3

The Time Rate of Joint Operation Contractors Reporting the Cost Management 46 47

Figure 4.4 Figure 4.5

Example of Cost Control Method (Overall Profit or Loss) Cost Control Method that Frequently Used by Joint Operation Contractors (Overall Profit or Loss)

48

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Figure 4.6 Figure 4.7

Example of Cost Control Method (Unit Rates) Cost Control Method that Frequently Used by Joint Operation Contractors (Unit Rates)

49

49

Figure 4.8

Example of Cost Control Method (Profit or Loss based Physical Progress) 50

Figure 4.9

Cost Control Method that Frequently Used by Joint Operation Contractors (Profit or Loss based Physical Progress) 51

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LIST OF APPENDIXES

APPENDIX A B Questionnaire

TITLE

PAGE 64 69

Questionnaire (Bahasa Indonesia)

CHAPTER I INTRODUCTION

1.1

Background of Study

The cost control is a process that should be continued through the construction period to ensure that the cost of the project is kept within the agreed cost limits and profit. The cost control can divide into two major areas; the control of cost during design stages and the control of cost by the contractors once the construction of project has started (Koh Wee Liang, 2005). For further studies and specific use, cost control have three different role, cost control during the bidding and procurement phase, cost control in construction phase and cost control in the liability period-phase. According to Nunnally (1998), cost control of a project involves the measuring and collecting the cost record of a project as the work progress. It also involves the comparison of actual progress with the planning. The main objective of cost control of a project is to gain the maximum profit within the designated period and satisfactory quality of work. Nowadays, construction industries have various design and purpose of use. They become unique processes and resulting the products that required a matching method of construction or technology. Then a variety of cost spread from the smaller to the bigger scale. Because of above trend and situations, sometimes one resources of a contractor is incapable to do that alone. To comply with above situation, sometimes requiring two idea or concept to become one. Then, it become the reasons of two or

more contractors joining their idea, technology, conceptual basis, method of construction, equipments, human resources, policy and the most important thing is joining their capital budget. That is the base of a joint operation construction project. A specific method of cost controling must be taken to improve their ability in controlling the budget because the differences of origin, nature, culture, policy and concept of each company. This cost controlling lead to one purpose, to control their join operation budget within the cost limit, lock (or increase) the profit that will be divided into two or more adjoining companies and to avoiding the losses whos leading to the instability of finance between the leading and member of the joint operation corporation.

1.2

Problem Statement

A brief interview with a joint operation contractors in Sumatera, Indonesia found out that they faced problem in carrying out the cost control system rather than in a single contractor projects. Beside of the lack of knowledge and training of the basic cost control method itself, there is main problem that joining two or more contractors in one project (joint operation) required each company policies, idea, technology, conceptual basis, method of construction, equipments, human resources, policy and capital budget to be compromised into one policy of controlling management. That above situation can lead the management into the high risk of losses or undefended profit. Thus, a study is carried out to know: How is the real situation and problem of cost control management in a joint operation contractor at the phase of project construction and frequently method to solve the cost control problem inside two or more company

management in order to reach the final goal in defend (or increase) the profit for each company member and avoiding losses in a joint operation contractor?

1.3

Previous Study

Previously study has carried out in studying cost control in a single management company. A brief interview with a class F contractor in Malaysia found out that they faced problem in carrying out the cost control system. Lack of knowledge and training is main problem faced. Thus, a previous study is carried out by Koh Wee Liang (2005) to know the how is the situation of cost control system in class F contractor in construction project of the site and trying to solve the problem. The previous study are widen to the stakeholder of the project like project managements, consultants and contractors in Malaysia. This study is specialized to the contractor especially joint operation contractor in partnering with contractor PT Adhi Karya Tbk in the project area of Sumatera Region, Indonesia.

1.4

Objective of the research

The objectives for this research are: a). To identify the cost control method usually used by joint operation contractors during the construction stage. b). To identify the main problem faced by the joint operation contractors in controlling the costs on the site to solving the best way.

1.5

Scope of the research

The study is carried out in joint operation contractors in partnering with PT Adhi Karya (Persero) Tbk, Construction Division III Sumatera, in the district of Sumatera Utara, Indonesia and involves 9 (nine) joint operation contractors as follow:

1.

ADHI-WASKITA JO (Joint Operation) in a joint venture construction project of Sei Ular Irrigation Project, North Sumatera

2. ADHI-PP-WIKA, KSO (Kerja Sama Operasi) in a joint venture construction project of Main Stadium University of Riau Project, Pekanbaru 3. ADHI-SACNA JO (Joint Operation) in a joint venture construction project of Malahayati Sea Port Project 4. ADHI-DUTA KSO (Kerja Sama Operasi) in a joint venture construction project of Pavement and Taxiway of Kualanamu Airport, Medan 5. ADHI-WIRA JO (Joint Operation) in a joint venture construction project of Tutut-Meulaboh Road, Banda Aceh 6. ADHI-WASKITA JO (Joint Operation) in a joint venture construction project of Kota Pinang Riau Border Road, North Sumatera 7. ADHI-WASKITA JO (Joint Operation) in a joint venture construction project of Aek Nabara, North Sumatera 8. ADHI-PP JO (Joint Operation) in a joint venture construction project of PLTU Padang, West Sumatera 9. ADHI-MITRA JO (Joint Operation) in a joint venture construction project of Masjid Agung Siak, Riau

PT ADHI KARYA (Persero) Tbk (ADHI) is a state owned enterprise of General Contractor. The partner are PT Wiratako (WIRA) is a roadway local material specialist, PT Pembangunan Perumahan (Persero) (PP) is a a state owned enterprise of general contractor, PT Wijaya Karya (Persero) Tbk (WIKA) is a state owned enterprise of general contractor, PT Waskita Karya (Persero) (WASKITA) is a state owned enterprise of general contractor, PT Sac Nusantara (SACNA) is a private company specialized in marine construction, PT Duta Graha Indah (DUTA) is a private enterprise of general contractor. The study only covers during the construction phase, not in the bidding & design and maintenance phase.

1.6. Importance of the research

The importance of the research is:

a). A guidance in determining the cost control problem in a joint operation contractors in a joint venture project and its solution for the next Joint Operation project managements cost control. b). A guidance to defend (or increase) the profit for each member and avoiding the losses especially in joint operation contractors.

CHAPTER II

LITERATURE REVIEW

2.1 Introduction

Nowadays, construction industry have variety design. They become unique processes and resulting the products that required a matching method of construction or technology. Then a variety of cost spread from the smaller to the bigger scale. Because of above trend and situations, sometimes one resources of a contractor is incapable to do that alone. To comply with above situation, sometimes it required two idea or concept to become one. Then, it become the reasons of two or more contractors joining their idea, technology, conceptual basis, method of construction, equipments, human resources, policy and the most important thing is joining their capital budget. That is the base of a joint operation construction project. The cost control is a process that should be continued through the construction period to ensure that the cost of the project is kept within the agreed cost limits and profit. The cost control can divide into two major areas; the control of cost during design stages and the control of cost by the contractors once the construction of project has

started (Koh Wee Liang, 2005). For further studies and specific use, cost control have three different role; cost control the bidding and procurement phase, cost control in construction phase and cost control in the liability period-phase. A cost controls specific handling in a joint operation project must be taken to improve their ability in controlling the budget because the differences of origin, nature, culture, policy, and concept of each company. This cost controlling lead to one purpose, to control their joint operation budget within the cost limit, lock (or increase) the profit that will be divided into two or more adjoining companies and to avoiding the losses whos leading to the instability of finance between the leading and member of the joint operation corporation The main aims of the cost control are (Koh Wee Liang, 2005): a) To give the building client good value for money- a building which is soundly constructed, of satisfactory appearance and well suited to perform the functions for which it is required, combined with economical construction and layout.

b) To achieved a balanced and logical distribution of the available funds between the various parts of the building. Thus, the sums allocated to

c) To keep total expenditure within the amount agreed by the client, frequently based on an approximate estimate of cost prepared by the quantity surveyor in the early stages of the design process. There is a need for strict cost discipline throughout all stages of stages of design and execution to ensure that the initial estimate, tender figure and final account sum are all closely related. This entails a satisfactory frame of cost reference (estimate and cost plan), ample cost checks and the means of applying remedial action where necessary (cost reconciliation).

2.1.1 Definitions We refer in detail in definitions of the terms used in control procedures since it is widely used and have a different meaning. The following are the definitions of terms related with cost control (Koh Wee Liang, 2005), a joint venture (The American Institute of Certified Public Accountants, 2011) and cost control procedures in joint operation contractor (Adhi-Sacna JO Cost Control Procedures, 2008):

Table 2.1: Definitions terms used in cost control procedures Terms Budget Cost Cost analysis Definitions An estimated fund for future compared with measured actual results Value for a purchaser to pay for goods or a service. Subdivision of cost under different elements of the contract or construction. Costing Analysis of the expenses so it can be allocated to different contracts, processes, or services, with the aims of ascertaining cost Cost control Analysis of the expenses so it can be allocated to different contracts, processes, or services, with the aims of ascertaining cost Joint Venture The contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control Shared Budget An integrated budget in two or more companies in a cooperation format Shared Profit A joined profit that came from a saving in particular project that shared between the member of a cooperation Standard costs Costs of standard outputs for plant or labor under particular conditions of environment. Unit costing Estimating the cost per unit, whether this is a square meter of formwork, a cubic meter of concrete or a cubic meter of excavation.

2.1.2 Statement of facts in cost control According to Nunnally (1998) and Adhi Cost Control Procedure Training (2008), cost control of a project involves the measuring and collecting the cost record of a project and the work progress. It also involves the comparison of actual progress with the planning. The main objective of cost control of a project is to gain the maximum profit within the designated period and satisfactory quality of work. A systematic procedure of cost control will give a good result in collecting important cost data in estimating and controlling of the costs of the coming projects in future.

A joint operation or joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares (Wikipedia Free Encyclopedia, 2010).

According to The American Institute of Certified Public Accountants (2011), joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

According to Austen and Neale (1984), cost controlling in a construction project should be active controlling of final costs for owner, not just to record and registering the payment.

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2.2 The use of cost control The interval time of cost control reports must be acknowledged and the detailed or general contents must be selected in order with the level of management for which they prepared. A project manager is necessary to receive the cost report on weekly basis because he can set the policy and can continued the information to the higher level of management (joint comitee). It is important to foresee the costs into future and to remeasuring the detailed cost of the work yet to be accomplished after preparing the reports based on the cost data collected. A new update of information data must be inputted into process since the execution has been started. To check the efficiency of the cost control reporting system, the first thing is checking on the profitability of the work with can be achieved with comparing the value of the work that will be returned with the cost of the work that was carried out. With no detailed cost control needed, this method is a direct logical comparison between the valuation figure and the total expenditure to check on profit or loss. Secondly is by checking on efficiency against the standard of the output rates that were used by the estimating team in his first estimation in tendering stage. The top management like joint comitee director and production director will usually paid attention to the execution of their joint operation project that show minimum or negative profit. It can be a reason to them to investigate the costs in more detail to locate the particular process through inefficiency or under the tender price, internal or external issues of the project that are the root of the problem of managing the cost in joint operation contractors.

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2.2.1 Unit costs

One of the best alternative way in cost information data is using unit costs method. An unit cost for any work item is a direct cost for one unit of measurement for that work item itself. To make this data reliable, we must accurately measured in the actual volume of work that executed directly and the quantity volume in the bill of quantity. When the process of measuring is carried out, the unit rates must be under consideration. Sometimes a reason to identify whether unit costs should be stored in term of money or volume of works (man-hours etc) will become a specific problem. This two term has its limitation like terms of money is always a risky and approximate business. In terms of man-hours will be remain constant with the same conditions over the time. The joint operation management who involved in cost controlling, money has more impact than man-hours in measuring the efficiency of an operation in progress when all of the data are collected from every division. For in the field usually using the terms of money instead of the term of the manhours that will be a historical data and feedback for use in future estimating work for the next project and the next tender. In reality, it will rarely necessary for details of every process management in a project execution to be fed back to the division of estimating department in the head office.

Every work item code have significant of their quantity, cost and unit cost, and that is the primary raw data for a week. This primary data required to be inputted to the weekly cost control system; the total volume of works carried out in previous week and this weeks, the total volume of work carried out to date, and the total estimation volume of work that must be finished out in order to complete the work item/project.

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Table 2.2: Weekly cost record

ADHI-SACNA Joint Operations

Malahayati Seaport Project, Banda Aceh
Weekly Cost Record Sheet 1 of 1 Week ending 23/12 Malahayati Seaport Project Contract No P-4, Ministry of Public Transportation ( Week program 5) Work No. Unit Volume Cost (Rp) Item Until This Until Total Until This Until Total Prev. Week This Prev. Week This Code
Week Week Week Week

Unit Cost (Rp)

Until Prev. Week This Week Until This Week Total

Only the amount of major volume of materials and significant cost (cash out) in the weekly cost record because it involves a huge manouver of time and cost. Checking costs in less than one week would be inefficient and expensive activity unless the money and volume can be measured accurately and the operation on the site is executed in quicker rate.

The information provided in the weekly cost record should be understood by the reader and accurate. Too much detailed unecessary information only will be ignored by the engineering staff. The information and the record should make a quick intepretation and impression that would take to the significant features of the condition of the cashflow and profitable of the joint operation project.

The information in Figure 2.1 and the variations can be illustrated in graph forms. It describe the indication of trends with comparison of previous and present unit costs and describe a process by the project management in the effectiveness result in controlling costs/budget. The graph can tell us which one is the specific action taken and try to link it to the progress made in the trial of reduction of costs on the project.

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Figure 2.1. Graphical Presentation of the Information (Koh Wee Liang, 2005)

The broken line in the upper graph indicated the trend of the unit cost per week, that is the average cost over the period to date. Cumulative total indicates the amount of work in the operation carried out at either in uniform rate or some variation. The averageweekly output can be plotted in the same or different scale from the cumulative total output. The graph is used to compare with the one in the planning stage to see whether the number of operatives used on the contract is roughly the same as the originally thought.

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2.3 Control of Materials and Equipments 2.3.1 Control of materials One of the fundamental component of cost control is to control material in its value of money, volume/quantities and the cost caused of the method used to transfer them to the location of the site. It role is highly considered in creating cost control systems. Materials also have the significant role compared labor and equipment that are the component that have more variations exist, and most probably profit acquire or losses over the original estimated costs. An effective way in controlling materials is drawing a graph of the volume of various materials that planned should have been used, which is measured from present measurement of the volume of work that executed, but to avoiding crowded data, this graph would be drawn for major items only. For each individual materials that have been delivered to the site can be draw in a second graph, indicates the volume of executed material. All of the information data of the volume can get from the manifest or the delivery order and all of the money/cost data can be obtained from the invoice received. The intercept on vertical ordinate between two graphs should be equal in quantity of the materials on site. The material stock remaining data can be obtained by asking the division of procurement to provide recapitulation data to make the comparison effective.

2.3.2 Standard Cost and Variance

There must be a standard to provide useful analysis of cost data that has been collected. Estimating possible outcome from historic performance and experience that

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sets the standards of work item construction. From estimated costs the initial budget can be ascertain and the variances between actual and estimated is calculated. The variance is negative or unwanted if the actual cost is higher than the standard and same as in reverse situation. This situation can lead into variance: a) actual cost spended is higher or lower than previously estimated. b) actual volume used is higher or lower than previously estimated.

Inefficiencies are important in terms of cost, and attention can be paid on limited areas where these inefficiencies exist when using the variance analysis. It also differentiates between variance that occur because of price differences and quantity differences. Actual cost (AC) = actual volume (AV) x actual price (AP) Estimated cost (EC) = estimated volume (EQ) x estimated price (EP) Total cost variance = estimated cost (EC) actual cost (AC) In every project, the procurement division will be hold to this variance analysis before and after purchasing materials. Thus the efficiency of using one kind or one source of material can be estimated by the difference between the standard and actual prices for the volume of materials used whereas the material usage variance will be the difference between the estimated and actual volume of materials used. Material price variance = AV(EP- AP) Material usage variance = EP(EV-AV) Material cost variance = EC- AC

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2.3.3 Labor Variances According Koh Wee Liang (2005), there are two variances of labor costs, a labor rate and a labor efficiency variances. The labor rate variance occurs from the difference between the standard wage rate and the actual wage rate paid. Labor rate variance = actual time worked (standard-actual rate) = AH(SR-AR) The labor efficiency variance occurs from the difference between the actual time and the standard time to do a job, which is measured at the standard rate. Efficiency variance = standard rate (standard time actual time) = SR(SH-AH) Therefore, Labor cost variance = standard cost- actual cost = SC-AC = labor rate variance + labor efficiency variance = AH(SR-AR) + SR(SH-AH) = (standard hours x standard rate) ( actual hours x actual rate)

2.3.4 Overhead and Profit Variance One of the main purpose of cost control is to maintain and/or increase the profit and lock the overhead not higher than estimated before, or minimize that (in order to get more increased profit). But usually in every execution of a project, there are some

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variance. Overhead variance obtained from the amount difference between the actual overhead obtained on an execution of the project and estimated overhead set for that execution related to the production funds to be accomplish. The units can vary from the funds based to establish standards. They can be units of production or of time and the time can be in hours, days, weeks, months, year and sometime multiyears. Units that are selected to value overhead should be suitable to the kind of work item. The units chosen are usually for convenience and economy of calculation and data collection. Within overhead there are fixed and variable costs need to be recognized. In fixed costs, there is no affect in changed levels of execution, but it might alter after a certain level of production has reached.

2.3.5 Control of Mechanical Plant Costs The total costs of the owning and operating (or rented) heavy equipment and/or plant for a company must be have an high efficiency factors against the production of that heavy equipments. Evaluation of the work that will be carried out and if the plant is unoccupied, there must be an allowance. To obtain all these, a comprehensive hire rate per unit of time is required and that is applied whether the heavy equipment is used by internally or externally for the company. The factors influence the cost of owning and operating a heavy equipment and/or mechanical plant in the project are: a) Cost of capital b) Licenses and Tax c) The use of the component, sparepart, equipment and obsolescence d) Residual or resale value

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e) Industrial Fuel (commonly for diesel heavy equipments) g) Erection and dismantling (where it can be used) h) Allowance for the Operators i) Mobilization and demobilization from the site j) Insurance k) Environmental maintenance and overhead costs l) Consumable thing like grease and oil for lubrication m) Return on investment that is wanted n) Maintenance, repair and aftersales costs All cashflow for the hiring of the heavy equipment must be well supervised and recorded regularly. Then we must have the ability to estimate and foreseen its lifecycle and resale value of the equipment in order to get the return of investment from the heavy equipments. The assumed cost of capital influences the economic hire rate to be charged. It must be differentiate from the rate of return on capital used. Cost of capital is the interest rate payable on capital that can be made available to buy the plant. The rate of return the ratio of profit per capital used and calculated in many ways. When taking the cost of capital into account in establishing a hire rate, it is unrealistic to charge interest on full capital cost of the plant for each years if its life. The interest should be calculated on the outstanding capital balance, at each year-end. Many joint operation contractors are making greater use of plant with the continual rise in labour costs, both direct and indirect. The use of machinery rarely exceeds seventy percent of its working capacity. Thus, the contractor requires an intimate knowledge of all types of plan, when each can be used most profitably and of the

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fullest advantage utilization of plant. A contractor sometimes has to decide whether to hire or purchase heavy equiments, and the decision will be influenced by the likely future demand for the particular item of heavy equipments. Some advantage of owning the heavy equipment and plant : a) equipment can easily be transferred from the pool to the site and another b) equipment is ready everytimes c) equipment may be retained on a particular site if necessary Equipment hire offers a wide variety of heavy equipment types and the contractor is free from the liabilities attached to the purchase of plant, especially a contractor who have temporary requirement or shorttime related project or shortage of fund. Hiring

equipment often ensures maximum economy with full equipment efficiency and it is an aid to quicker processing. The factors that must be considered when deciding of buying or hiring heavy equipment plant: a) sufficiency of fund for purchase b) accessibility of personnel for controlling and operating heavy equipments c) forecasts of commitments to assess plant requirements d) the mobilization-demobilization cost to sites e) availability of aftersales service for servicing heavy equipments; and f) duration of the project which the heavy equipment will be required; it is better to hire than purchase if only required for a short period of time

Costs of owned heavy equipment are cost of capital, licenses, the use of the component, residual or resale value, industrial fuel (commonly for diesel heavy equipments), erection and dismantling, allowance for the operators, mobilization and demobilization from the site, insurance, environmental maintenance, consumable thing, return on investment, maintenance and aftersales costs

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. The total annual costs have to be spread over the period of effective use to give an inclusive hourly or daily cost. The principal methods of charging for plant (Koh Wee Liang, 2005): a) Hire charge is the most usual whereby the plant is charged to the site by the unit of time employed. The primary advantages are ease of control over economic use of plant, adequate information accessible for estimating purposes and for providing a check on plant operations. b) Percentage of the contract price, whereby total plant costs are allocated to each contract in proportion to the overall cost of the job. It is simple in calculation but it is lack of comparative information for preparing tenders c) and costing, lack of incentive to obtain maximum use of plant and lack of information to use as a check on plant operations as a whole. d) Direct cost to contract, where the size and nature of the job and expected use of the plant justifies charging an item of plant completely to the job. This method is also easy to apply but runs into difficulties if the plant is used on other contracts.

2.3.6 Other Factors Influencing Costs The contractor can influence and modify the cost of a job by his construction methods or technology and by managing these methods to increase efficiency of the resources used. The free options of construction method is influencing by the design of the building, the accessibility of the amount and types of resources required for the method and by the comparative cost of employing each one of these sets of resources. Quantity of materials wasted on building sites is also another important cost aspect. Cost of wastage of generally in excess of the allowances made by estimators and the total wastage could reduce to half by effective supervision (Abbott, 1970).

21

2.4 Cost Control Methods

From the first stage of construction phase (estimating and tendering) until the construction phase, it is needed to decide which the right cost control method is required and the deep of detail that will be in entered into the construction stage. According to Koh Wee Liang (2005), there are three types of cost control system; they are by
comparison with a cost standard, by subdivision by detail and by integration with other functions.

In comparison with a cost standard method, the standard set up by estimator is compared at the time of tender. There are also other standards efficiency can be judged include set up by the research and development of a company, previous outputs achieved within the company or within the experience of the companys staffs in the past, and standards that have been published in books primarily for use of estimator, giving data on recommended outputs for labor and plant. In the subdivision by detail method, it is usually practiced by small scale of contractors compares the amount of money received with the amount of money he has had to pay out to complete the contract at the end of the contract. It is not expensive but a risky operation, involves little or no control of costs. It is also inaccurate since estimator often omits some contentious items from a valuation, even though payment will result from them. In integration with other functions method, the cost control system will combine with some other necessary operation in the administration of a contract and not as a separate entity. For example, it may be combined with a labor utilization scheme, in which the control is kept on the optimal utilization of the labor employed.

22

2.5 Time as the Important Variable in Cost Control System One of essential affecting cashflow management in cost control is the duration of the project. Time is related closely to the general cost on the field. The parts of general costs are that influence the cost control are: management and staffs salary, temporary facilities, utilities (such electricity, telephone line and water supply), rented or owned field office and storage trailers, consultant office and similar items are included in time related general requirements items. We can take a example, if a project have duration of time 12 months, so each month will represent 0,0833 of the time related general requirements cost. If a project can reduce its schedule by one month, an 0,0833 of cost of these items can be reduced. Similarly, one-month delay would increase the cost of items by 0,833. So, time is essential to manage and an effective way for controlling the cost of time related items. Cost related to time also have high dependently to the heavy equipments rental, subcontracting and vendor/purchasing order. As the project moving through the planning and scheduling phase to the construction phase, the power to influence the cost that related to time now passed to the production process. For the project procurement division, he has opportunity in negotiating and awarding of the subcontracts and purchase orders to principal vendors with giving them with fair time of completion and target of material on site to vendor/supplier.

23

2.5.1 Time, Cost Control Influence Curve Figure 2.2 shows the graphically the relationships between percentage of opportunity to influence cost as a function of job phase and job time.

Figure 2.2 The relationships between the percentage of opportunity to influence cost as function of job time and job phases (Koh Wee Liang, 2005) We can say that it is clearly shown that the maximum opportunity to influence the cost/budget of the project is during the bidding phase, pre-construction and purchasing phase.. Then look to the secondary curve, it shows the influence of the items that are difficult to be controlled which the costs cannot be fixed such specialized material supplier, heavy equipment rental and daily labors.

24

2.6 Time-Cost Optimization with Network Analysis From the passage above it is important to reconsider that there are two major cost: direct cost and indirect cost. Include direct costs are the labors, materials, heavy equipments and the subcontractors. Include indirect costs that are influenced by direct proportion to the duration of projects time such as the utilities cost (electricity, water supply and telephone), the site rental for site office, the salary of the contractors staffs and management, the head offices expenses and the housing for the staffs.. When the acceleration of the project need to be increase, all resources who are normally working were doubled on an overtime basis and increasing the production of heavy equipment/plant. If the planning used critical path method, that will proved that such way of measurement can be very expensive in two considerations. First, we must paid the overtime and heavy equipments/plants production must be set to accomplish many jobs and production activity in the network are accelerated unnecessarily. Secondly, it is in the middle or second half program when the acceleration is clearly. In this case that all maximum resources (labor, heavy equipments/plants) are being used. The joint operation contractors usually have intention to minimize the direct costs for a project, mainly due to get the advance payment first at the first time he works.. Some optimalization to balancing in minimize wether the costs and duration must be done. Minimizing the duration of construction can affect with increases costs because of doubling all resources to accelerate the constructiom, whereas minimizing the costs also can affect of increased time and indirect costs because of the lack in backup resources.

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Figure 2.3 Time-cost relationship (Koh Wee Liang, 2005)

Figure 2.4 Total Project Cost (Koh Wee Liang, 2005)

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2.6.1 Costs on a Network

We can use network diagram as a reference for cost control. The management in construction project is able to do the following with the use of network diagram: a) Find the areas over-spending of the budget taking place b) Ensure all estimates of cost are related to the practical and accepted proposals for carrying out the work, with special regard to the resources that will be used. c) Find other methods of carrying out the work before any one method is used. d) Check resources that are planned and made available for work are in best use. e) Check the remainder of the contract program can be carried out for the estimated costs and the magnitude of any errors that result from the work. According Koh Wee Liang (2005), network plan and schedule must be set up, showed the logic of the activity sequences and the estimated durations of each activity before such a system can be used. Work packages are set up by breaking the network into single activities or into groups of activities, against which are placed the estimated of materials, employees, and plant that will be necessary to carry out the work. The cost concerning these resources necessity is estimated. The detail form of the graph will affect the sizes work packages divided in calendar time or cost that the smallest unit formed in the breakdown process. It represented in single operation in small field projects. But in large field projects, many operations may be formed into a group in one work item package. The activities can costing procedures and too much detail have lead to an unnecessary effort. The subdivisions of the end item subdivisions will be resulted as a work packages. The

27

number of work breakdown structures depends on the amount of the detail required in the field and subject to the policy of the joint operation management. The cost expenditure of a project can described in S-curve by representing at first start and horizontal portions of the activity, which for this work package described time periods of none cost incurred. The use of float can bring the linear curve and actual curve closer together caused by the first start situation and may be eliminated by the use of total float to move several the first activities later.

Figure 2.5 S-curve envelope First-start and late-start curves can be a form of S-curve envelope, meanwhile a tiny horizontal space among two curves shows a project requires attention to its progress. In the same principal, the control unecessarily rigid if the horizontal spaces were further or narrow envelope. The actual amount of cost incurred in doing the operations is the actual field cost curve. The payment due for the work accomplised is the value of work completed curve.

. Figure 2.5 described that the curves are drawn for cost and more cost is used makes the project progress step ahead. More resources (labor, heavy equipments) were used to accelerate the project causing the increased in cost.

28

Figure 2.5 S-curve envelope (Koh Wee Liang, 2005)

2.7 The Budget

The budget that used in the joint operation project have the main purpose to provide the amount of liquid cash that will be required during construction activity and have a safe factor of a estimation against actual cost progress that can be measured in the field. The budget is a financial estimation and measurement of previously stage (estimating and tendering stage). The budget have vital role to the management of the project that he can now have the power to moving all resources, making decision on all trading and policy to get the better way to accomplish the construction project. But we must aware of the risk of overtrading that can be occurs when the current liabilities of the joint operation company exceed his current capital/assets, even though the level of profit show positive. This can be said that the company need more working capital. In the Figure 2.6 shows that the starting and completion date for the project, a curve plotted

29

of the estimated progress of the work in terms of fund. The estimated progress described a smooth curve and dependent upon the experience of the joint operation company handling the construction work. Figure 2.7 also describe the individual and cumulative curve for materials, labors and heavy equipments. The amount of fund that will be received by the contractor for completed work item expressed in a second line plotted against the estimated progress line.

Figure 2.6 Example of graphical form of financial budget (Koh Wee Liang, 2005)

30

Figure 2.7 The individual curves and cumulative curves for different items (Koh Wee Liang, 2005)

According Koh Wee Liang (2005), S-curve can be useful as a means through which control of work can be affected. The cumulative budgeted expenditure, that is the cost to be incurred by a contractor in construction is represented by the full-line of Scurve. However, the S-Curve may not represent better progress than that we expected. From the Figure 2.8, we can take the conclusion that over budget has been incurred than was budgeted at time now and the progress is behind the budget. The cost generated there is accelerated at a faster rate rather than budgeted and it can cause problems in the cash flow. Then all consideration needs to be paid to the efficiency of the component in field construction like work methods, rate of productivity, resources management and financing. From Figure 2.8, it will be seen that a measurement of expenditure to accomplished the job describing a final overrun but it will cause delay in accomplishing the work. In this way, the units of fund expressed in the vertical axis of the S-curve graph. but also can be expressed in other unit of work item like cubic meters of concrete slab, square meters of clearing site and grubbing, the tones of structural steel erected, or man hours of work content for a particular operation or a group of activities.

31

Figure 2.8 S-curve as a means through control of work (Koh Wee Liang, 2005)

2.8 Cost Control Master Codes in Joint Operation Project

The project manager and the cost controller in engineering will use the information from the cost control coding system as feedback for future. It is essential that a coding system should be simple enough for ready understanding by the partner of the joint operation contractor or those who will be allocating the hours of labor, plant and quantities of materials against the individual codes. However, it is unlikely even with the simplest and most straightforward system that errors will not arise in the allocation. A universal coding system should be designed to suit all the contracts under operation. The system must be clear and precise in its term and it is necessary that it should be flexible for both member of joint operation. It is due to the nature of construction work, that additional item and operations are likely to arise throughout the progress of the work. There will be also new sections of work given that were not

32

predicted in the starting of the work. The inaccuracy of the original assessment will also require the flexibility of the system in joint operation contractors. The cost control code must be allocated to all those employees of joint operation contractors who will be expected to use it during the course of their work. The cost code used must have a clear explanation why it was adopted and its purposes. The cooperation of the site supervisors is absolutely necessary for a cost control system to be success.

2.8.1 Cost Control Coding System for Work Item

It is use normally in joint operation contractors that managed by Adhi Karya and is primarily concern with direct costs and indirect cost. The following example system is based largely upon majority alphabetical notation, then followed by detailed list of the item in sequences. This system have its own pattern and sometimes need to hide unnecessary item (blank tendered volume) to shortlist the display. This system have patented to Adhi Karya for use with his partner in joint operation contractors and quickly becomes familiar to the cost controller allocating the work item because of its simple but effective coding system (Adhi-Sacna, 2008)

Alphabetical code A- Equipments (Alat) M- Materials

33

P- Labors (Pekerja) S- Sub Contractors Table 2.3: Example of the subdivision of the code (Adhi-Sacna, 2008):
Code EQUIPMENTS Concrete mixer Concrete Vibrator Water Pump Excavator Standart PC-200 Dump Truck Stamper Bulldozer D65-E Speed Boat Pelayanan (Penarik rakit) Alat Bantu Blender Potong Floating Crane (KS-2) for erection of beam Crawler Crane (u bongkar pipa) Crawler Crane Service (di stock pile area) Floating Crane (KS-2) for erection of slab Service Ponton 100 Feet Service Boat Concrete Pump Flat Bed Truck (Trado) MATERIALS Semen @ 50 Kg (Type-I ) Ready Mix Klas B (Fc' 30 Mpa ) with PC Type V Ready Mix Klas C (25 Mpa ) with PC Type I Mortar Ready Mix (Fc' 30Mpa) for Ridgid Concrete with PC Type-I Pasir Pasang Pasir Beton ( Lokal ) Batu Pecah Batu Kali ( batu mangga ) Batu Bata Paving Blok K-175 t= 8 cm Kansteen Multiplek 12 mm Multiplek 6 mm Kayu Bekisting Tiang Pancang Pipa Baja 711 mm t. 16 mm LABOR Mandor Description

a1 a11 a12 a15 a16 a17 a21 a26 a27 a28 a29,1 a29.2 a30 a31 a32 a33 a35 a36

Hour Hour Hour Hour Hour Hour Hour Day Ls Hour Hour Hour Hour Hour Hour Hour M3 Hour

m1.1 m1.4 m1.5 m1.6 m1.8 m2 m3 m4 m5 m5.1 m10 m10.1 m11.4 m11.5 m12 m13 p1

Zak M3 M3 M3 M3 M3 M3 M3 M3 Bh Bh Bh Lbr Lbr M3 Ton M2

34

p2 p3 p5 p5,1 p6 p6,1 p7 p8 p9

Tukang Batu Tukang Kayu Tukang Besi Tukang Las Labor Operator Upah Retribusi Pelabuhan (TKBM) Top Finishing SUBCONTRACTOR Pile coating including installation untill 1,00 m below sea bed PDA test including testing equipment and all necessary works Galvanized corner angle for expansion joint including steelangle, anchor bar, installation and painting Supply and installation of hot-dip galvanized corner (steel platet= 10 mm) corner protection for face of berth includingfixture and painting Mooring ring including material, anchor bar installation and galvanization Stopper including material, welding, anchor bar, installation and painting Cable pull pit including installation and galvanization Supply and installation of galvanized steel safety ladderincluding all fixtures Galvanized 2-inch steel pipe for handrail including supply, welding,anchor, installation and other necessary work Material mooring bouy include coating Dredging of wharf area including transportation of the dredgedmaterial to dumping site Excavation for removal of existing soft soil and unsuitablematerial approximately 50 cm thickness in average

M M M M M M M3 M M

s1a s1b s1c s1d s1e s1f s1g s1h s1i s1j s1k s1l

LS LS LS LS LS LS LS LS LS LS LS LS

Table 2.4: Example of integrating the item code into one work item code number or called work breakdown structures (Adhi-Sacna, 2008):

2.1.1.1.

Supply of steel pile pipe, 711 mm t = 16 mm p6 Labor m19.3 Tiang Pancang Pipa Baja 711 mm t. 16 mm a29.2 Crawler Crane (u bongkar pipa) a30 Crawler Crane Service (di stock pile area) p8 Retribusi Pelabuhan (TKBM) a36 Flat Bed Truck (Trado) a27 Alat Bantu

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2.8.2 The allocation of costs

In joint operation contractors inside engineering division, there are substructural job below the engineering manager. They are project planning (responsible for designing, planning, schedulling, engineering and some technical task), project control (manage the cashflow, cost control and technical administration) and procurement (managing the subcontractor, managing rental for heavy equipment, procurement and logistics). The fundamental allocation of cost is in the project control area in the cost control engineer. Before proceed to the processing area, he will make a master cost control codes before the project start. Then he will do the cost control process regularly at every asked interval time. He will collect the information data of cash (money) or volume (materials) that has been spended (cashout) and collect the payment progress data from the employer of the project (cash in). He collect this information from other division or cross division. Such information taken from the division of procurement like volume of materials come in/out, the remaining materials and total hour of heavy equipment. From the production manager, he take volume of human resources in hour, volume of work item and physical progress. From finance manager, he collect information of the cash spend in/out, credit and debt remaining and tax payment. He will entry the work item code then entry the cash spend out and/or volume of material progress for that work item code into a software/tools. Then from the tools he can find the remaining budget/volume for each work item code, total balance and total profit and loss. From that outputted result, he can foresee the future expectation of the budget and the remaining profit. This detailed information then passed to the management above of his level (engineering manager and project control) and then the general information will be reported to the top level management of the project (project manager) to receive the best solution/anticipation to recover the profit.

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2.9 Summary Construction industry have variety design and become unique processes

resulting the products and one resources of a contractor is incapable to do that alone. It become the reasons of two or more contractors joining their idea, technology, conceptual basis, method of construction, equipments, human resources, policy and the most important thing is joining their capital budget that is the base of a joint operation construction project. The cost control should be continued through the construction period to ensure that the cost of the project is kept within the agreed cost limits and profit, this lead to one purpose to control their joint operation budget within the cost limit and lock the profit. A cost controls specific handling in a joint operation project must be taken to improve their ability in controlling the budget because the differences of origin, nature, culture, policy, and concept of each company. The value of the work that will be returned is compare with the cost of the work that was carried out. This is a straightforward comparison between the valuation figure and the total expenditure to check on profit or loss if no detailed cost control is used. To provide useful analyses of cost data that has collected, there must be a standard available. Estimating possible outcome from historic performance and experience usually sets standards in construction, or in special cases from the use of work measurement techniques. There are three types of cost control system; they are by comparison with a cost standard, by subdivision by detail and by integration with other functions.

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CHAPTER III

RESEARCH METHODOLOGY

3.1 Introduction Primary information data were collected to achieve the objectives of the thesis. The first beings were questionnaires and secondly being a short interviews with representatives of the joint operation contractors and all personnel working in the construction industry to collect the information data. A questionnaire survey was conducted to obtain feedback from the joint operation contractorss personnel. Then the next step is the oral discussion with the management of the project. The entire information above were collected as the Primary Information for this analysis. Then we were obtained the literature review to gather information about research topic and problems faced by joint operation contractors in managing and controlling the cost. It is obtained from the public articles, internal articles inside the company, journals and papers, performance report and also some other published research works. 3.2 Interviews Data were collected through experienced personnel from the joint operation contractors (joint construction companies) in various infrastructure project like building, road, water resources, publict transport (airport) etc to collect the information and perspectives regarding the aspects in the objectives of the research.

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3.2.1 Questionnaire A questionnaire survey was carried out to obtain information from management, engineering or technical personnels in joint operation contractors who are involved. It is to get the opinion and understanding from the experienced respondents to identify the main problem faced in controlling the costs on. The questionnaire are all categorized as below: a) Detailed informations of the Respondents

b) An understanding and general information about the cost control in a joint operation contractor

c) Principle, philosophy and objectives of the cost control especially for joint operation contractors

d) The ineffective issues and weakness for applying cost control in joint operation project This questionnaire has each level of agreement from the surveyed respondents and have ordinal scale numbering from 1 to 5. The respondents need to choose from one of the ordinance scale according to the understanding and acceptance of the respondents. the questionnaire are based on Likerts scale of ordinal measures of agreement: Ordinal scale 5 to 1 in descending order: 5 4 3 2 1

Decreasing degree of agreement Each Scale representing the following rating:

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Ordinal Scale 5 4 3 2 1

Level of Agreement Very High Degree of Agreement / importance High Degree of Agreement / importance Neutral Degree of Agreement / importance Low Degree of Agreement / importance Very Low Degree of Agreement / importance

3.2.2 Data Analysis and Documentation Using frequency analysis and Relative Indiex (RI) method, the data collected from the questionaire survey were analysed. This RI method has been used by Holt et al. (1996) of his sampe principal application. The formula are:

3.2.2 1 Example of Calculating Frequency Analysis Note: Ordinance Scale, 5 Very important 4 Important 3 Moderate important

40

2 Less important 1 Least important

Frequency Analysis (F.A.)

Ordinance Scale (S) No. Of Respondents (N )

R

Total Respondents Percentage of agreement Level of agreement

1+3

7+9

16

20

64

Least important

Moderate important

Very important

From the Frequency Analysis of this example, there are 16 % of respondents consider less important, 20 % moderate important and 64 % very important. All the data collected from questionnaire will be divided into each category using Relative Index.

3.2.2 2 Examples of Calculating Relative Index (R.I.) Relative Index (R.I.)

where n = no. of respondents 1,2,3,4, and 5 are the ordinance scale of importance
x

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Ordinance Scale No. of Repondents

5 1

4 3

3 5

2 7

1 9

Therefore, R.I.= [5(1) + 4(3) + 3(5) + 2(7) + 1(9)]/ 25(5) = 55/125 = 0,44 (Less important)

Relative Index: 0 Least Important 0,25 Less Important 0,50 Important 0,75 1,0 Very Important

Figure 3.2 Research Methodology Flowchart

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CHAPTER IV

DATA ANALYSIS AND RESULT

4.1 Introduction

This chapter provide the data analysis and result of the research. The major topics in this chapter include the cost control management method carried out by joint operation contractors in every variation of infrastructure project during construction stage and identify the problem experienced by the joint operations contractors in controlling the costs during the construction progress. This analysis focused on joint operation contractors only, not taking to all project management stakeholder like the owner of the project, project detailed design consultant, supervision consultant or quantity surveyor consultant.

4.2 Analysis of the Data

Table 4.1 indicates the various joint operation contractors in various infrastructure project that respond for the questionnaires sent. A total of 30 questionnaires has been sent to the personnel of joint operation contractors and about 23 recipients have responded to the questionnaire. In this condition, it represents the participation of 76,67 percent respondents.

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Table 4.1: Breakdown of respondent surveyed in joint operation contractors in partnering with PT Adhi Karya (Persero) Tbk Construction Division III (ADHI)

No 1. 2. 3. 4. 5. 6. 7. 8. 9.

Joint Operation Contractor

Project

Number of Respondents 1 1 1 1 2 2 7 2 1 5

Percentage 4,35% 4,35% 4,35% 4,35% 8,70% 8,70% 30,43% 8,70% 4,35% 21,74%

PP-ADHI-WIKA KSO Main Stadium Universitas Riau Project ADHI-WASKITA JO ADHI-WASKITA JO ADHI-WASKITA JO ADHI-WIRA JO ADHI-SACNA JO ADHI-DUTA, KSO ADHI-PP, JO ADHI-MITRA JO Kota Pinang-Riau Border Road Project Sei Ular Irrigation Project Aek Nabara Road Project Tutut-Meulaboh Road Project Malahayati Seaport Project Medan Baru Kualanamu Airport Project PLTU Sumbar Project Masjid Agung Siak Project

10. PT ADHI KARYA Division Staff Officer TBK Construction Division III TOTAL

23

100%

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4.3 The understanding of a person to cost control management system in a joint operation contractor The understanding of a person to the cost control management system in a joint operation contractor can be divided into five categories for data analysis: They are very understand, understand, fair, not understand and not understand at all. There are 5 (five) personnels that stated very understand to the cost control management system in a joint operation contractor (represent 21,74% from total respondents). Then 10 (ten) persons understand to the cost control management system in a joint operation contractor (represent 43,48% from total respondents), 5 (five) persons fair understand to the cost control management system in a joint operation contractor (represent 21,74% from total respondents), 1 (one) person not understand to the cost control management system in a joint operation contractors (represent 4,35% from total respondents) and 2 (two) persons not understand at all to the cost control management system in a joint operation contractor (represent 8,70% from total respondents). Figure 4.1 shows the percentages of the understanding of person in cost control system in joint operation contractors in construction stage:

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

43.48% 21.74% Very Understand Understand 21.74% 4.35% Fair Not Understand 8.70% Not Understand at All

Figure 4.1: The understanding of a person to cost control management system in a joint operation contractor

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4.4 The most area cost control reporting method system used by joint operation contractors From three area of cost control frequently reporting method system use by joint operation contractors for data analysis; they are Project Engineering (design, control, technical administration), Project Production (field coordination and supervisory) and Project Procurement (sub contractor control and supplier), 23 respondents vote that the first area of controling the cost in a joint operation project is in engineering area (represent 100% of total respondents). None respondent choose production area and procurement area.. Figure 4.2 shows the percentages of the most area cost control reporting method system used by joint operation contractors.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Project Engineering 0.00% Project Production 0.00% Project Procurement 100.00%

Figure 4.2: The most area cost control reporting method system used by joint operation contractors

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4.5 The time rate of joint operation contractors reporting the cost management The joint operation contractors prepare their cost reports in five types of interval time; they are daily, weekly, monthly, quarterly and others for data analysis. There are no respondent prepare their cost reports daily. 6 (six) respondents preparing their reports weekly (represent 26,09% from total respondents), 7 (seven) respondents prepare their cost reports monthly (represent 30,43% of total respondents), none respondents prepare their cost reports quarterly and 10 (ten) respondents report their cost management in customized interval of time such every 2-weeks (represent 43,48% of total respondents). Figure 4.3 shows the percentages of the interval time of joint operation contractors prepare their cost reports.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0.00% Daily Weekly Monthly 0.00% Quarterly Customs (2weekly, etc) 26.09% 30.43% 43.48%

Figure 4.3: The time rate of joint operation contractors reporting the cost management

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4.6 Cost control methods that frequently used by joint operation contractors There are three categories of cost control methods that frequently used by joint operation contractors in order to manage their cashflow for data analysis; they are overall profit or loss (overall costs of project compared to the money received), unit rate (compare the actual unit rate to the estimate unit rate) and profit or loss base on progress payment. There frequently use of each method can be separates into five types; they are often uses, most use, fair, not frequently use and never use. Overall profit and loss method has commonly applied in joint operation contractor in this studies. In the field practice, it compare the cashflow between overall cash in and overall cash out. The cash in items include all the payment from the employer, the taxes restitution (cashback), the payment over change contract order and work addendum. The cash out items include manpower, material, equipment, subcontracting, overhead and taxes. This two overall cashflows then compared at the end of the project (final progress payment 100%) to evaluating the profit or loss condition. The result can be said profit plus if the result is same or above with the profit planning that agreed or approved in the joint operation comittees meeting. Otherwise, the result can be said profit minus or loss if the result is below the profit planning that agreed or approved in the joint operation comittees meeting at the beginning of the project start.

Figure 4.4. Example of overall of profit and loss method

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In overall profit or loss method, there are 6 (six) respondents often use this method (represent 26,09% of total respondents), 10 respondents frequently use it (43,48% of total respondents), 4 respondents fair use it (17,39% of total respondents), no respondents not frequently use it and 3 (three) respondents never use it (represent 13,04% of total respondent). Figure 4.5 shows the method frequently used by joint operation contractors in overall profit or loss method. Overall Pofit and Loss Method

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Often Frequently Fair Not frequently Never 0.2609 0.4348 0.1739 0.1304

Figure 4.5: Cost control methods that frequently used by joint operation contractors (overall profit or loss) Unit rates method has also applied in joint operation contractors in this studies. In the field practice, it compare the unit rates that have been estimated before by estimation and marketing team during tendering phase and the actual unit rates based on direct actual negotiation by project manager or site manager in the field. The estimated unit rates will include all items of materials, labor, equipments and working method. The actual unit rates items also include all of estimated unit rates, taxes and another cost depend on negotiation. Commonly, actual unit rates is a lumpsump price.

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Figure 4.6. Example of unit rates method In unit rates method, there are 4 (four) respondents often use (17,39% of total respondents), 3 (three) respondents frequently use it (13,04% of total respondents), 13 (thirteen) respondents fair use it (56,52% of total respondents), no respondents not frequently use it and 3 (three) respondents never use it (13,04% of total respondents). Figure 4.7 shows the method frequently used by joint operation contractors in unit rates method Unit Rates Method

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

56.52% 17.39% Often 13.04% Frequently Fair 13.04% Never

0.00% Not frequently

Figure 4.7: Cost control methods that frequently used by joint operation contractors (unit rates)

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Profit or loss based on physical progress method uncommonly applied in joint operation contractors but also applied in this studies. In the field practice, it compare the profit planning cashflow with the physical progress of the project. In practice, it compare the amount of money should be received with the current physical progress in order to meet with the profit planning that agreed or approved in the joint operation comittees meeting at the beginning of the project start until final physical progress achieved (100%)

Figure 4.8: Example of Profit and Loss based Physical Progress method In profit or loss based on physical progress method, there are 2 (two) respondents often use it (represent 8,70% of total respondents), 11 (eleven) respondents frequently use it (represent 47,83% of total respondents), 7 (seven) respondents fair use it (30,43% of total respondents), no respondents not frequently use it and 3 (three) respondents never use it (represent 13,04% of total respondents). Figure 4.9 shows the method frequently used by joint operation contractors in profit or loss base on progress payment method.

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Profit and Loss based Physical Progress

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Often Frequently Fair 8.70% 47.83% 30.43% 13.04% 0.00% Not frequently Never

Figure 4.9: Cost control methods that frequently used by joint operation contractors (profit or loss based on physical progress) 4.7 Problems of cost control management that frequently arised in joint operation contractors There are ten problems of cost control management that frequently arised in joint operation contractors for the purpose of data analysis; they are equipment or system to carried out the cost controlling activity (like software or computerized system), changed condition and contractual during construction work (e.g. weather, contract addendum, contract change order), duration of the execution of the project (difficulty in time changed situation like time addendum and late progress that affect the cost controlling activity), qualified expertise of personnel (from each side of joint operation contractor, between leader and member of the JOs), joint operations integrity (the qualified management of joint operations contractors), additional costs to carry out the cost control system, difficulty in collection of raw input data entry (e.g. if using help software

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or manual record that needs data inputs), shortages of materials, labors or heavy equipments (not essensial), no cost control manual guidance (normally arise in job description with cost control personnel between the joint operation member) and communication line with joint operation management (like job distribution and policy of each company). They are all given the equal importance in analysis. The analysis will use the relative index (RI) formula. The analysis of Relative Index using this formulae yield the value of RI ranging from 0.00 to 1.000, where 0.00 represent least problem and 1.000 the main problem. The summary of relative index of all the problems is shown in Table 4.2. The main problems from the RI are changed condition and contractual matters during construction work (e.g. weather, contract addendum, contract change order, JO Composition etc) with the RI of 0,782. The next relative important problems are qualified expertise (from each side of joint operation contractor, between leader and member of the JOs), followed by duration of the execution of the project (multiyears project, time addendum) with RI of 0.513. The next less important problem are no cost control manual guidance (normally arise in job description with cost control personnel between the joint operation member) with RI 0,478, additional costs to carry out the cost control system in the JOs, shortages of materials, labors or equipments with the RI of 0,460, equipment or system to carried out the cost controlling activity (like software or computerized system) and joint operations integrity (the qualified management of joint operations contractors). The last rank of problem are the communication line with joint operation management (like job distribution and policy of each company) with the RI of 0,356.

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Table 4.2: The Relative Index and ranking of main problems in controlling the costs on joint operation contractors. Problems of cost Number of Respondents in control management Ordinance Scale that frequently arised 5 4 3 2 1 in joint operation contractors Changed condition and 9 9 2 0 3 contractual matters during construction work (e.g. weather, contract addendum, contract change order, JOs Composition) Duration of the 0 3 10 7 3 execution of the project (multiyears project, time addendum) Qualified expertise 0 6 12 2 3 (from each side of joint operation contractor, between leader and member of the JOs) No cost control manual 2 2 5 8 6 guidance (normally arise in job description with cost control personnel between the joint operation member) Additional costs to 0 3 5 11 4 carry out the cost control system in the JOs Difficulty in collection 0 3 5 9 6 of raw input data entry (e.g. if using help software or manual record) Shortages of materials, 0 1 8 11 3 labors or equipments Relative Index (RI) Note Rank

0,782

Very Important

0,513

Important

0,582

Important

0,478

Less Important

0,460

Less Important

0,443

Less Important

0,460

Less Important

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Equipment or system to carried out the cost controlling activity (like software or computerized system) Joint operations integrity (the qualified management of joint operations contractors) Communication line with joint operation management (like job distribution and policy of each company)

0,391

Less Important

10

0,382

Less Important

12

0,356

Less Important

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CHAPTER V

CONCLUSION

5.1 Introduction Interview and questionnaire is the first source in order to achieve the objectives. Data analysis using relative index and frequency analysis is explained in Chapter IV. Overall, the objectives of the study were achieved. The following are the objectives that has been achieved: The objectives for this research are: a). To identify the cost control method usually used by joint operation contractors during the construction phase. b). To identify the main problem faced by the joint operation contractors in controlling the costs to solving the best solution. The cost control method frequently used by joint operation contractors during and after the construction stage and main problem faced by the joint operation contractors in controlling the costs on site especially in the working area of PT Adhi Karya (Persero) Tbk Construction Division III Sumatera, Indonesia was achieved using the questionnaires.

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5.2 Conclusion From the study that was done, the conclusion of each objective was achieved. The conclusions from the study that can be made are: Objective 1 (Cost control method usually used by joint operation contractors) From the study, three types of cost control methods frequently used by joint operation contractors are: a) Overall profit or loss (overall costs of project compared to the money received) b) Unit rates (compare the actual unit rate to the estimate unit rate) and c) Profit or loss (based on physical progress payment) Objective 2 (Problems of cost control management faced in joint operation contractors) From the study, six main problems faced by joint operation contractors in controlling the costs on site in area of PT Adhi Karya (Persero) Tbk Construction Division III Sumatera, Indonesia was achieved using the questionnaires by ranking are: i) Changed condition and contractual matters during construction work (e.g. weather condition, contract addendum, contract change order, JO administration Composition etc since it will potentially disrupt the planned joint profit) ii) Non Qualified expertise (from each side of joint operation contractor, between leader and member of the JOs) iii) Duration of the project (multiyears or time addendum project causes exhausted cashflow for joint operation contractors since they have

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own cashflow management and separated with their main mothercompany) iv) No cost control manual guidance (normally arise in job description with cost control personnel between the joint operation member) v) Additional costs to carry out the cost control system in the JOs (since the cost control in each company have different system, the new expertise must be trained well to understand the integrated system) vi) vii) Shortages of materials, labors or equipments Difficulty in collection of raw input data entry (e.g. if using help software or manual record sometimes it required inputting data before processing and collecting the data from different culture of each member of joint operation contractor must be socialized) viii) Equipment or system to carried out the cost controlling activity (like software or computerized system) ix) Joint operations integrity (the qualified management of joint operations contractors) x) Communication line with joint operation management (like job distribution and policy of each company) 5.3 Limitations of research This study is limited to the following area only: a) The study is carried out in joint operation contractors in partnering with PT Adhi Karya (Persero) Tbk, Construction Division III Sumatera b) Focusing in the district of Northern Sumatera, Indonesia c) Focusing only in joint operation contractors d) The study only covers during the construction phase, not in the bidding & design and maintenance phase.

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5.4 Suggestions for the further research Due to limited time and location, this research only managed to come out with joint operation contractors in partnering with PT Adhi Karya (Persero) Tbk in Construction Division Sumatera only. It is suggested that in the future, a detail of the study can be achieved across another joint operation contractors with partnering by another companies that have their specialized own culture of cost controlling. It is not limited to the local joint operations only, but also widen to the foreign joint operation contractors that collaborate with local companies. It is also recommended to widen the area of the study and the problems of cost control to give more comparizon and further study to another method of cost control all over Indonesia, not Sumatera only. This information is useful for carrying out another method of joint operation contractors that studied above. An implementation another method that different from the three method of cost control above also can be recommended since there are more efficient, flexible, target oriented and low cost application for cost controlling in joint operation contractors across the country.

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REFERENCES

Adhi Karya (2008). Cost Control Training. Project Cost Control Training Team: Cost Control Training and Program Application Note. Adhi Karya (2010). Cost Control Training. Project Cost Control Training Team: Cost Control Training and Program Application Note. Austin, A.D. (1992), Managing Construction Project, John Wiley & Sons, Inc., United States. Barrie, Donald. (1984). Professional Construction Management McGraw-hall Inc. BSN (2008). Tata Cara Perhitungan Harga Satuan Pekerjaan Tanah Untuk Konstruksi Bangunan Gedung dan Perumahan. SNI 2835: 2008. BSN (2008). Tata Cara Perhitungan Harga Satuan Pekerjaan Pondasi Untuk Konstruksi Bangunan Gedung dan Perumahan. SNI 2836: 2008. Chakraborti, M., (1984). Estimating, Costing and Specification In Civil Engineering. Published by Author, Calcuta: Shree Hari Press. Collier, Keith. (1974). Fundamental of Construction Estimating and Cost Accounting Prentice-Hall Inc., Englewood Cliffs, N.J. Ferry, Douglas, J., Peter S. Brandon, and Jonathan D. Ferry (1999). Cost Planning of Building (7th ed.). Oxford: Blackwell Science Ltd.

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Kharbanda, O.P., Stallworthy, E.A. & Williams L.F. (1987). Project Cost Control in Action Gower Technical Press Ltd., England. Kwakye, A.A. (1997). Construction Project Administration In Practice, Addison Wesley Longman Limited, p 186 Liang, Koh Wee (2005) Cost Control In Construction Project Of The Site, Universiti Teknologi Malaysia Lucey, T. (1996) Costing, Continuum, London and New York. Mueller, Frederick Wm. (1986). Integrated Cost & Schedule Control for Construction Projects. Van Nostrand Reinhold Company, New York. Nunnally, S.W. (1998). Construction Methods and Managements, PrenticeHall, Inc., New Jersey, p 501 Oxley R. & Poskitt J. (1996). Management Techniques Applied to the Construction Industry Balckwell Science Ltd. Project Management Institute (2008). A Guide to the Project Management Body of Knowledge (PMBOK Guide). Fourth Edition. Newton Square, USA: Project Management Institute. Parker, H.W. (1988). Method Improvement For Construction Project, Litton Educational Publishing Inc., United States. 57 Quades, E.S. (1971). A history of cost-effectiveness, Rand Corporation Report, P-4457 Ritz, George J. (1994). Total Construction Project Management Mc GrawHill, USA, pp 242-243

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APPENDIX A
Questionnaire

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QUESTIONAIRE (KUISIONER) Cost Control in Construction Phase in Joint Operation Contractors

Dear Sir/Madam, I am a final year student undergoing Master of Construction Contract Management (Quantity Surveyor) course in Universiti Teknologi Malaysia, Skudai. Currently, I am doing a thesis with the title Cost Control in Construction Phase in Joint Operation Contractors. The main objectives of this survey are: a). To identify the cost control method usually used by joint operation contractor during the construction stage. b). To identify the main problem faced by the joint operation contractor in controlling the costs on the site and solving the best way.
Your co-operation in answering this questionnaire is highly appreciated. Thank you.

ADITYA MUHAMMAD YUWONO Universiti Teknologi Malaysia Fakulti of Built Environment, Construction Contract Management UTM Skudai, Johor Bahru, Johor, Malaysia (Phone: +60137563148) Matric / IC No. : MB101109 / T505949

Please provide the personal details for the academic purposes. All the details are private and confidential.

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Company Name Address Telephone No Respondent Name Position

: _____________________________________________ : _____________________________________________ : _____________________________________________ : _____________________________________________ : _____________________________________________

1. What was your former position inside join operation contractors ? Project Engineering (Design, Control, Technical Administration) Project Production (Field Coordinator, Field Supervisory) Project Procurement (Subcontractor Control, Supplier Control) Project Manager (Project Management, Supervisory)

2. Do you understand the cost management system (cash flow) in a joint operation contractor? (5) Very Understand (4) Understand (3) Fair (2) Not Understand (1) Not Understand At All

3 Did you the personnel in charge to carry out the cost control in your joint operation company? Yes No

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If yes, please specify the methods that used in your way to carry out the cost control system: ______________________________________________________ ______________________________________________________ ______________________________________________________ 4. Where is the most area cost control system used in Joint Operation contractors? Project Engineering (Design, Control, Technical Administration) Project Production (Field Coordinator, Field Supervisory) Project Procurement (Subcontractor Control, Supplier Control) 5. How often do you prepare the cost reports? Daily Monthly Weekly Quarterly Customs

Customs,please specify: ____________________________________________ 6. What is the cost control methods frequently used? (i) Overall profit
or loss(overall costs of project compared to the money received)
5 4 3 2 1
Often Most Fair Not Frequently Never

(ii) Unit rates (compare the actual unit rate to the estimated unit rate)

Often

Most

Fair

Not Frequently

Never

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5 4 3 2 1

(iii) Profit or loss based progress payment (based physical progress of the project)

Often

Most

Fair

Not Frequently

Never

Please specify the reasons for using the most frequent method in your company: ________________________________________________________________ ________________________________________________________________ 7. Listed below are the problems faced by the joint operation contractor in controlling the costs in execution phase. Please rank the according problem using 1 to 5 scales:
5 4 3 2 1

Changed conditions of contract in construction work

Often 5

Most 4

Fair 3

Not Frequently 2

Never 1

Duration project

of

the
Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

A Competent Personnel
Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

Additional costs to carry out the cost control system

Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

Difficulty in collection of raw data.

Often Most Fair Not Frequently Never

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Shortage of materials, labors or equipments

Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

No cost control manual guidance

Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

Equipment or system to carried out the cost controlling activity

Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

Joint operation integrity

Often 5 Most 4 Fair 3 Not Frequently 2 Never 1

Communication line with joint operation management

Often

Most

Fair

Not Frequently

Never

b. Please give your suggestion to solve the problems: ________________________________________________________________ _________________________________________________________________