Dear Travis, Glen et al,
Here’s how construction uses ABC.
Step 1: We either purchase or create a cost estimation database that is DELIVERABLE, or SYSTEM-based. In the following example, I have used Cubic Yards of Concrete (Unit Pricing), from RS Means Facilities cost book. But I could also have used an assemblies estimation method. Another option is to develop a similar house cost estimation system. However, it would look very similar.
Figure 1- RS Means Estimating Database
As you can see, you can either use commercial databases or create your own. RS Means currently uses Uniformat (Unit In Place) and CSI’s Masterformat, (Assemblies), but these seem to be moving over to Omniclass. As we move towards Building Integrated Modeling, (BIM),
STEP 2? STEP 2? We know that we have 200 cubic yard of concrete beam to form and pour.
Figure 2: Basic Activity-Based Costing Model by Gary Cokins
Now we have the Activities (in this case, “Form and Pour 25′ of 5Kip Beams”), and can identify the resources required and the cost of each one.
Figure 3- RS Means Standard Crew Composition
Now we have the activity and the resources required to execute it. Knowing the costs, we can also project the cost of the activity, both “bare” or “fully loaded”, including overheads and contractor profits.
We now have the information we need to calculate the duration and cost of the activity.
We know that the daily output of our database is 18.55 CY per hour. This allows us to calculate the duration. We know from our database that there are 200 CY. Divide 200/18.55 = 10.78 to get 11 days.
Figure 4: Activity Based Costing merged with RS Means Data
We can see that, if you do the work yourself (either an owner or contractor), your COSTS should equal 200 CY X $635.50 = $127,000. If you are a contractor, your “Schedule Of Values” for this activity is $179,000.
As a contractor, I would need an in-house accounting system that allows me to charge the costs of direct labor (i.e. Concrete, equipment, labor, but also my INDIRECT (overhead), costs to this activity.
Let me conclude by saying that what I have to share with you isn’t new. This method has been used by me since I was a building contractor in the 1960’s. It was already in use well before that. The problem is how to get IT, Telecommunications and the Banking? International Development Sectors to use the same tools and techniques as construction for well over 60 years.
If you have any questions, or if you would like us to conduct an integrated Activity Based/Earned Val Management course for 2 days, “have computer”- there is no place we won’t travel. (Even Iran, Iraq, and other far-flung places that end in “stan” are all possible.
BR,Dr. PDG, Jakarta