CIVE 422: Construction Methods and Safety
Management
Chapter 5: Managing
Costs & Profits
Hiam Khoury
Construction Engineering and Management
Civil and Environmental Engineering
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Example
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Income Chart
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Income Chart (cont’d)
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Breakeven Chart (cont’d)
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Indirect Costs & Construction
• Indirect costs are not directly related to quantity of construction performed BUT
different quantities require diff. levels of support
 Size of support organization+ G&A depend on amount of construction realized
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Markup & Market
• Obvious relationship between markup and competitive position in the
market
• If M increases, competitive position may decrease  limits the
construction volume and impacts income
•May even be impossible to find a markup that can generate a construction
volume that will allow a contractor to breakeven or make an attractive profit
•You may want to adjust the financial mix by changing prices, reducing
construction costs or reducing general overhead
•Use competitor’s historical markups to aid in setting your profit and
overhead markup
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Earned Value
• Measures performance at a certain data
date with regards to
– Schedule
– Cost
• Ignores items which do not have a cost
– For example, submittals
• BAC, BCWS, BCWP, ACWP, SV, CV, SPI, CPI,
EAC, etc.
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Budgeted Cost at Completion
(BAC)
• The total budget of the project
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Budgeted Cost of Work Scheduled
(BCWS)
• The expected cost of the work that is
scheduled to be performed during a
specific period of time
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Budgeted Cost of Work Performed
(BCWP)
• The expected cost of the work that is
actually performed during a specific period
of time
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Actual Cost of Work Performed
(ACWP)
• The actual cost of the work that is
performed during a specific period of time
• Hard to calculate in a timely matter
because of lag in receiving and processing
invoices
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Other Earned Value Metrics
 SV: Schedule Variance, BCWP–BCWS (SV >0: ahead of schedule,
SV<0:behind schedule)
 CV: Cost Variance, BCWP–ACWP (CV>0:under budget, CV<0:over
budget)
 %SV: % Schedule Variance, 100*SV/BCWS
 %CV: % Cost Variance, 100*CV/BCWP
 SPI: Schedule Performance Index, BCWP/BCWS (SPI > ahead of
schedule, SPI <1: behind of schedule)
 CPI: Cost Performance Index, BCWP/ACWP (CPI >1:under budget, CPI
<1:over budget)
EAC = ACWP+(BAC-BCWP)
OR EAC=BAC/CPI
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SPI/CPI Target levels
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Earned Value & S-Curves
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Earned Value & S-Curves (cont’d)
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Earned Value & S-Curves (cont’d)
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Earned Value- Example
 A project has been defined that consists of 12 activities (each
requires one month to complete) for which the estimated costs
and durations have been defined
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Earned Value- Example (cont’d)
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Earned Value Concept (cont’d)
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QUESTIONS?
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