Chapter 28 Exercises — Cost Control

Do these with a calculator and a blank table. Cost control is not a reading skill. Almost every mistake in this chapter is a mistake somebody made because they looked at a number instead of computing one.

Difficulty legend: ⭐ basic · ⭐⭐ applied · ⭐⭐⭐ advanced judgment · ⭐⭐⭐⭐ research and extension

Selected answers live in Appendix J; numeric answers for the Part C calculations are in <details> blocks here so you can check yourself line by line.

Part A — Conceptual Understanding ⭐

A1. State the difference between accounting and cost control in terms of direction, standard, output, and who owns the number. Then say why the two functions being performed by two people six feet apart is a feature rather than a problem.

A2. Name the five numbers that appear on every cost report on earth. For each, say whether it is fact, contract, judgment, or arithmetic — and name the one that decides whether the report is useful.

A3. A Kestrel cost code has three parts. Name them, say what each carries, and explain what question the cost type character (L, M, E, S, O) lets you answer that a code without it cannot.

A4. State the five-place rule from §28.2 in one sentence. Then name what breaks, specifically, if the field time cards use a different code structure from the estimate.

A5. Define the four versions of the budget number: original budget, bought budget, approved changes, and current budget. Which one is every variance measured against, and when does it stop changing?

A6. What is the one-question test for whether a budget transfer is bookkeeping or concealment? Give one example of a legitimate transfer and one of concealment, using the same two cost codes.

A7. Distinguish a Type 1 (timing) accrual from a Type 2 (unrecorded-commitment) accrual by their effect on cost to date and on forecast at completion. Then explain why a Type 1 accrual on a self-perform code matters even though it does not move the forecast directly.

A8. Name the four legitimate methods for forecasting cost to complete, the kind of scope each is for, and the characteristic failure of each.

A9. State the two conditions that must both be met before you believe a unit-rate trend, and give the reason behind each number.

A10. Why is labor the only cost on a construction project that can be corrected while it is being incurred? Name the four other cost categories and say when each one's cost-control decision actually happened.

Part B — Applied Analysis ⭐⭐

B1. At the Northgate month-nine data date, current budget was $41,200,000 and committed was $37,708,000. Of the $3,492,000 difference, $1,662,000 is self-perform work that will never be committed to anybody. Explain why the remaining $1,620,000 is a fundamentally different kind of number from the $1,662,000, and what each one does to your confidence in the forecast.

B2. A code that is physically 100 percent complete is forecast at its budget rather than at its cost to date, which produces a negative cost to complete. Explain in plain language what a negative cost to complete asserts about the physical world, and why cost systems display it anyway.

B3. Northgate's contingency at month nine was 54 percent drawn against 37 percent of the work complete — a 17-point gap. Ray called it "defensible but not comfortable." Write the three-sentence paragraph that makes it defensible, using the actual contingency transfers from §28.3, and then write the version of that paragraph that would tell you the gap is not defensible.

B4. Your monthly cost report shows every one of 42 lines forecast exactly at budget, and the variance column is a column of zeroes. Your controller says the report "looks clean." Explain, in the language of §28.9, what the report is actually telling you, and what you ask for before the meeting starts.

B5. A subcontractor's pay applications have been running 8 to 10 points ahead of the percent of work your superintendent can see in the field, for three consecutive months. Name the four possible causes, say which one is most dangerous to you, and describe what you would do this month that does not require you to know yet which of the four it is.

B6. Your 01-xxxx general requirements code is forecast by judgment because it has no denominator worth trusting. Write the forecast: name the three or four largest components of the remaining work, state the assumption behind each, and say what would have to happen for the number to move. Then explain why "I forecast general requirements at $680,000" is not a forecast until that paragraph exists.

Part C — Calculations & Deliverables ⭐⭐–⭐⭐⭐

C1 — Compute an actual unit rate, then decompose it ⭐⭐

Your Willow Street self-perform carpentry code, at the month-6 data date:

Compute: (a) the budgeted and actual unit rates and the percentage over; (b) the actual burdened labor rate achieved; (c) earned man-hours and the productivity factor; (d) the productivity variance and the rate variance, separately, and check them against earned value; (e) the cost to complete, forecast at completion, and variance by the unit-rate method. Then say in one sentence whether this is a wage problem or a production problem, and where it gets fixed.

C2 — Forecast one code by all four methods ⭐⭐⭐

Willow Street masonry, 04-2200-S, at month 6:

Forecast the cost to complete, the forecast at completion, and the variance by each of the four methods. Report the spread. Then state which number you carry, and write the one-sentence note that goes with it.

C3 — Is the trend believable yet? ⭐⭐

Four self-perform codes at the same data date:

For codes A, B, and C, state whether you forecast the trend or flag it, and why. Then work code D completely, given: budget $376,300 at $26.50/CY for 14,200 CY; cost to date $307,000; and a re-measure that puts the final quantity at 16,900 CY because of over-excavation of unsuitable material. Compute the forecast at completion and the variance, then split the variance into a quantity effect and a rate effect and say what each one implies you should do.

Actual unit rate   = $307,000 ÷ 11,360 CY = $27.0246/CY  (+2.0% vs. $26.50)
Quantity remaining = 16,900 − 11,360      = 5,540 CY
Cost to complete   = 5,540 × $27.0246     = $149,716
Forecast           = $307,000 + $149,716  = $456,716
Variance           = $376,300 − $456,716  = ($80,416)

Quantity effect = 2,700 CY × $26.50            = $71,550   (89.0% of the variance)
Rate effect     = 16,900 CY × ($27.0246 − $26.50) = $8,866  (11.0% of the variance)
Check: $71,550 + $8,866 = $80,416 ✓

C4 — Read a report you have never seen ⭐⭐⭐

You are taking over a $14,400,000 lump-sum recreation center at month 11 of a 16-month contract. Cost-of-work budget $12,850,000. Internal contingency $310,000, of which $248,000 has been drawn. Here is the report you were handed.

Two additional facts. 06-xxxx cost to date has been exactly $214,000 for three consecutive reports while a framing crew has been on site the whole time. And the outgoing project manager's variance narrative reads, in full:

"Job is tracking well, $60,000 favorable. Masonry billings are running a little ahead but we expect to recover $50,000 in the final phase. General requirements is tracking to budget. Specialties will be bought next month."

(a) Find every red-flag pattern from §28.9 that is present, name the code, and say what it usually means. (b) Re-forecast the two codes you can re-forecast with the data given, and state the revised total variance. (c) Name the three questions you ask before you touch anything.

Elapsed time = 11 ÷ 16 = 68.75%
Forecast     = $512,000 ÷ 0.6875 = $744,727  →  $745,000
Variance     = $620,000 − $745,000 = ($125,000)

Forecast = $703,000 ÷ 0.88 = $798,864  →  $799,000
Variance = $742,000 − $799,000 = ($57,000)

C5 — Build an accrual schedule, then watch it move the forecast ⭐⭐

Willow Street, month 6, cut-off June 30. Five items:

(a) Complete the amounts and total the schedule. (b) Classify each item Type 1 or Type 2 and subtotal each type. (c) Take item 3 and post it to the 06-1100-L code from C1. Recompute the actual unit rate, cost to complete, forecast at completion, and variance. (d) State the general relationship you just discovered between a missed cost and the forecast error it produces.

Corrected cost to date = $109,200 + $10,500 = $119,700
Actual unit rate       = $119,700 ÷ 13,440 SF = $8.90625/SF   (was $8.125/SF)
Cost to complete       = 18,560 SF × $8.90625 = $165,300
Forecast at completion = $119,700 + $165,300  = $285,000      (was $260,000)
Variance               = $224,000 − $285,000  = ($61,000)     (was ($36,000))

C6 — Budget reconciliation and contingency drawdown ⭐⭐

Your Willow Street budget log at month 6 shows: original control budget, cost of work, $5,412,000; approved owner change orders, cost-of-work portion, +$118,000; approved internal contingency transfers, +$104,000. Internal contingency carried at bid was $170,000. Cost to date is $2,143,000 and your cost to complete forecast is $3,566,000.

Produce the reconciliation to current control budget; compute the forecast at completion, the variance, and the percent complete cost-to-cost; and compute the contingency drawdown against percent complete. Then answer: this is a lump-sum contract, so the contingency is internal — money inside your own price. State in one sentence how that changes who benefits from an underrun compared with Northgate's 75/25 GMP split, and say what a 24-point drawdown gap tells you at 37 percent complete.

Original control budget                       $5,412,000
Approved owner change orders (cost of work)   +  118,000
Approved internal contingency transfers       +  104,000
Current control budget                        $5,634,000

Forecast at completion = $2,143,000 + $3,566,000 = $5,709,000
Variance = $5,634,000 − $5,709,000 = ($75,000)
Percent complete = $2,143,000 ÷ $5,709,000 = 37.5%

Contingency drawn = $104,000 ÷ $170,000 = 61.2%
Remaining         = $66,000
Gap               = 61.2% − 37.5% = 23.7 points

Part D — Judgment & Ethics ⭐⭐⭐

D1 — Optimistic forecasting. A code you own is forecasting $88,000 over. You are genuinely persuaded that a resequencing you have designed, but not yet implemented, will recover about half of it. Apply §28.10's test: can you write down, today, the specific mechanical change that produces the better number, with a date? Work through both branches — what you carry and what you write if the answer is yes, and what you carry and what you write if the answer is no. Then name the internal sentence that makes this the most common of the four manipulations, and why it feels so reasonable.

D2 — Job borrow. A peer project manager asks you to accept four dumpster and portable-toilet invoices totalling $18,400 onto your job, because his general-requirements code is over and yours has room. He will "move it back next month." Set out precisely what is wrong with this — on your job, on his job, on the company's work-in-progress schedule, and, if either contract is cost-reimbursable, on the owner's money. Then write the two sentences you say to him, and say whether you tell anyone else.

D3 — Under-accruing. It is the 30th. You know that roughly $74,000 of work was performed this month that will not be invoiced until the 12th. Your job is $31,000 unfavorable and would be $105,000 unfavorable with the accrual. Nobody has asked you to do anything. Describe what "declining to write a true number" costs, mechanically, in the following month — and explain why under-accruing has a property the other three manipulations do not.

D4 — The forecast you do not believe. §28.10 says: a forecast is a professional judgment; you are entitled to be wrong, but you are not entitled to state a number you do not believe. Trace the specific chain of people who rely on your cost-to-complete figure, in order, and say what each one does differently if the number is wrong by $500,000 in the favorable direction. Then explain the distinction between an honest miss and a false statement in a way a first-year field engineer would understand.

D5 — Cost pressure as a hazard. You have just discovered a $190,000 productivity overrun. Write the two sentences you say to the superintendent. Then write the two sentences you must not say, and explain — using the week-34 scaffold near-miss from Chapter 24 — the mechanism by which the second version produces an incident rather than a recovery.

Part M — Mixed / Interleaved Practice ⭐⭐–⭐⭐⭐

M1 — Chapters 6 + 28. Take the eight Northgate contingency transfers in §28.3. For each, decide whether it is a risk event (a named risk from the register materialized) or an overrun wearing a risk costume. Then write the rule you would give a project engineer for deciding which is which, before they draft the transfer, and connect it to Chapter 6's definition of contingency.

M2 — Chapters 20 + 28. A self-perform code is budgeted at 4,860 MH for 27,000 SF at a burdened $61.50/MH, and is running at a productivity factor of 0.82. Forecast the man-hours at completion, the overrun in hours, and the dollar overrun. Then compute the budgeted and forecast unit rates in dollars per square foot, and show that their ratio is exactly 1 ÷ PF. Explain why the man-hour method from Chapter 20 and the unit-rate method from §28.6 must agree — and what it means on a real job when they do not.

M3 — Chapters 16 + 28. At Northgate month nine, $1,620,000 of subcontract and purchase scope was still unbought, the two largest pieces being specialties and equipment ($568,000 uncommitted) and communications, security, and nurse call ($460,000 uncommitted). Using Chapter 16, write the buyout plan that converts that exposure into committed cost: sequence, bidder coverage, scope-sheet risks, and the date each package must be awarded to protect the schedule. Then say what you carry in the forecast for each package until it is bought, and how you flag it.

M4 — Chapters 27 + 28. Your six-week look-ahead says the masonry crew is two weeks behind because of a constraint that has been open for eleven days. Your cost report says masonry is on budget and forecast at committed value. Explain how both can be true simultaneously, then explain the condition under which they cannot — and describe the one artifact that would let a project manager see the conflict in ten seconds. Connect it to Chapter 27's point that the schedule tells you what should happen and the constraint log tells you what can.

M5 — Chapters 26 + 31 + 28. The Cardinal Mechanical relocation — 340 LF of overhead medical-gas and hydronic mains, $34,000, directed verbally, no subcontract change — reached the cost report as a Type 2 accrual only because Ray happened to hear about it. Design the routine that would have caught it without luck: what the daily report captures (Chapter 26), what the pending-change log carries (Chapter 31), and what the accrual log carries. Show where the same $34,000 appears in all three, and who reconciles them monthly.

M6 — Chapters 28 + 34. A project manager forecasts a job $500,000 better than she believes, intending to recover it. Trace the number forward: into forecast at completion, into estimated gross profit, into the company's work-in-progress schedule, into recognized revenue and profit, into the financial statements, and into the surety's bonding decision (Chapter 34). At each step, name what the number is called and who reads it. Then state what happens on the day the $500,000 has to come back, and why the damage is larger than $500,000.

Part E — Research & Extension ⭐⭐⭐⭐

E1 — Your own company's chain. Get access to a completed job at your company or your school's partner contractor. Trace one self-perform cost code all the way through: the estimate line that produced its budget, the control budget entry, three weeks of field time cards, the accounts payable coding, and the schedule-of-values line it billed against. Write down every place the five structures diverged. Then compute the historical unit cost that job produced for that code, and ask the estimating department whether they have it. Report what you find — including the answer to "why not," if that is the answer.

E2 — The audit clause. Obtain a real cost-reimbursable or guaranteed-maximum-price agreement — the AIA A102 or A133 families, a ConsensusDocs equivalent, or an owner-drafted form your employer uses. Read the definition of the cost of the work, the list of costs not included, the fee article, and the owner audit rights article, together and in that order. Write a one-page memo answering: what exactly may the owner's auditor examine; what is expressly outside the cost of the work; what is the audit window; and what record-retention obligation comes with it. Note that these provisions differ substantially between document families and between owners, and that public owners frequently impose statutory access and retention requirements on top of the contract — so state which document you read and do not generalize from it.

E3 — Published data versus your data. Take one assembly you can price both ways: from a published cost database (RSMeans or an equivalent), and from a real completed job's actual unit cost for the same scope. Adjust the published figure for location and time as the publisher's own instructions direct. Compute the percentage difference. Then find a second completed job and do it again. Write two paragraphs on what the spread tells you about when published data is the right tool and when it is not — and what a contractor loses, in bidding terms, by not having the second number.