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Cost Monitoring Preface

Whether or not a job is going to be productive is determined by whether or not:

  • The production manager has supplied the job with the information, material, tools, and men, in the right place, and at the right time.
  • The job manager is using those four essentials to get the job done right, and on time.
  • The men are installing the material within the estimated man hours.

When each part of the production team is doing what they are paid to do, then the actual costs will equal estimated costs and the contractor will earn the profit in the estimate. But if any part of that team is not doing what they are paid to do then actual costs will exceed estimated costs.

How much this will affect profit is determined by how early the contractor knows an over-run exists. If a 10% labor over-run is established when 5% of the contract has been completed, that's only 1/2 of 1% of total labor. With 95% of the job still to do, it is highly likely that the company could offset that small percentage of over-run and still earn the profit in the estimate.

On the other hand, if a 10% labor over-run is not uncovered until the contract is 80% complete, the over-run is 8% of total labor. With only 20% of the job left, it is highly unlikely the company could offset that over-run so profit would shrink substantially.

Therefore, once a job is in progress, the contractor must know how actual costs for work done to date are comparing to the costs in the estimate for work done to date. The earlier he knows an over-run exists, the less the over-run will affect labor.

The primary purpose of cost monitoring is to tell the contractor how actual costs are comparing to estimated costs before he has completed 5% of his contract.

The secondary purpose of the system is to give the contractor the information that will help him quickly find the proper cause of an over-run so he can concentrate his skills on eliminating that cause.

In other words, Cost Monitoring is to production, what the Master Estimate Check is to estimating. It tells the contractor if the production team is doing what they are paid to do. And it tells him early enough to do something about it if they aren't.

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Louis J. Pokrywka, Owner
Master Estimating Service

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