Project Management And Accounting: Perceptions And Costs
Perceptions of Project Expenses
1. What are the differences in the ways project managers, accountants, and financial comptrollers perceive the expenses of a project?
2. How are indirect costs involved in the preparation of the budget for a project?
3. Using the typical profit and loss statement included in the Directed Reading, does it surprise you that a $1,000,000 project will generate only the Net profit shown on the bottom line of that statement? Why or why not?
4. You are going to be the project manager for the construction of a large warehouse for a major international company. Of course, there are many elements involved in constructing such a large facility, but this assignment will consider only one, the laying of the facility’s foundation (which is obviously preceded by site preparation and followed by the actual construction of the building).
In preparation for completing of this element of the project—laying the facility foundation—complete the following:
5. Locate a source of data for the hourly wages that will need to be paid to those who will pour and finish the concrete foundation (the Bureau of Labor Statistics of the United States government is a good source for such information). Be sure to document the source of your hourly wage data for such concrete workers.
Locate a source of data for the cost of a cubic yard of reinforced concrete. Be sure to document the source of your reinforced concrete cost data.
Assuming that eight workers will be needed for the completion of the project, that they will work five days per week for 10 hours per day, and that it will take them three full weeks to complete the pouring of the foundation, what is your estimate (based on the hourly wage data that you located) of the labor expense of pouring the foundation?
6. Assuming that the foundation will require 400 cubic yards of concrete, what is your estimate (based on the hourly wage data that you located) of the cost of the materials needed for pouring the foundation?
7. How would “Overhead charges” (review the Budgeting chapter if you do not remember learning about this term) impact the two estimates that you have calculated?
8. How would an increase in the cost of steel (one of the components of reinforced concrete) impact the budget that you had developed?
9. If the construction site was impacted by a hurricane during the preparation of the foundation (meaning that work had to be temporarily stopped), how would the overall schedule of the construction project be impacted?
Indirect Costs and Project Budgeting
1. The different way in which project managers perceive cost is they see it as a commitment that the project has to be completed in a specific cost, while accountants see it as an expense that they would have to charge against the Profit and Loss Account and it would bring down the level of profit of the entity. Against them both, the financial comptrollers whose work is merely concentrating on the cash flows, sight the cost as a cash outflow that would reduce their company’s cash inflows. These different perceptions of the trios are basically because of the different work they are engaged in.
2. Indirect costs are involved in the preparation of budget for a project as specified costs whose values do not change in proportion to the change in the level of activity of a project. Therefore they are initially checked out for any prospect of cost reduction present in them, and once they are analyzed generally the product manager stresses on the proportional costs or the direct costs that vary proportionally to the level of output produced in the project.
3. It doesn’t surprise us to see that a $ 1 million project will generate only the net profit of $20,000, in the typical profit and loss statement. It is so because we know well that in a manufacturing industry the direct cost incurred by the entity, that is proportional to its level of activity is usually high and therefore the company is left with a low rate of gross profit. And further the entity cannot move a step if there are no indirect expenses supporting the direct production, and when the entity demands support from them, there cost too has to be born. Therefore after the company has also paid for indirect expenses that have supported direct production, it is obvious that the net profit would be low.
4. The Bureau of Labor Statistics, United States department of labor is the source through which the hourly wages that we will need to be paid to those who will pour and finish the concrete foundation can be identified. The mean hourly wage rate applicable for the cement masons and concrete finishers comes to $19.70, while the mean annual wage rate for the employees is $40,970. Though the site presents information about hourly wage rate for the masons and finishers in every different state in the United States, it would be in the interest of the project that we choose a mean rate.
Estimating Labor and Material Expenses for Warehouse Foundation
5. The concrete network is an appropriate source for determining the cost of a cubic yard reinforced concrete. A reinforced concrete cubic yard would require ready mix concrete that is $93 per cubic yard, concrete forms and finishing that would average between $1.50 to $2.00 per square foot and finally reinforcement that would cost $0.15 to $0.30 per square foot. This all costs bring down the total cost of reinforced concrete cubic yard to around $3.25 and $5.25 square foot. This network is updated with the ruling price on real time basis; therefore it is an appropriate source for the same.
6. The average hourly wage rate that we have identified is $19.70 per hour. And if there are eight workers, working five days per week for 10 hours per day, and that they would require at the least three full weeks to perform the task,
The total hours consumed = no. of workers x no. of weeks x no. of days per week x no. of hours per day
= 8 x 3 x 5 x 10
= 1200 hours
Total labor expense of pouring the foundation = hours x hour rate
= 1200 x $19.70
= $23,640
7. The cost of cubic yard of reinforced cement would be from $ 3.25 to $5.25 per square feet and average of them comes to $ 4.25 per square feet. And there is 9 square foot in a single cubic yard.
Therefore the cost per cubic yard = 9 x cost per square foot
= 9 x $ 4.25 per square feet
= $38.25 per cubic yard
And the Cost of 400 cubic yards would be proportional
Cost of 400 cubic yards of concrete = 400 x cost of one cubic yard
= 400 x $38.25 per cubic yard
= $15,300
8. The overhead charges have the intensity to increase these meager costs to the heights. The Labor cost may be $ 23,640 but there would be overhead expense of the supervisor’s salary who would supervise and manage these labors. There are chances that while we pay eight workers this amount, we might have to pay the same to a single supervisor.
Similarly the cost of 400 cubic yards of reinforced concrete is $15,300. And this would also require the expense of an engineer who would ensure its correct management. Therefore the overhead expenses can increase these simple costs to extremes.
9. Steel is one of the components of reinforced concrete. And when the cost of raw material that is the base of concrete and without which the concrete can’t stand still, would increase, the total cost of the concrete reinforcement is bound to increase too. Therefore if the cost of steel would increase, the cost of reinforcement of concrete would increase and when the reinforcement cost along with labor cost and overheads would make up the total cost, the total cost would also increase. Therefore the change in cost of steel would be proportional to the total cost change.
References:
United States Department of Labor, Occupational Employment and Wages, May 2014, [Assessed on 3 June 2015] <https://www.bls.gov/oes/current/oes472051.htm>
Concrete network, Concrete Price Considerations-cost of concrete, [Assessed on 3 June 2015] <https://www.concretenetwork.com/concrete-prices.html>