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Level: Intermediate
TCM Section(s):
6.4. Forensic Performance Assessment
7.3. Cost Estimating and Budgeting
Venue: 2021 AACE International Conference & Expo
Abstract: Indirect costs on large, multiyear, heavy civil projects and process power projects are a significant part of project cost which can often exceed 20% of total project costs. Understanding the cost drivers for the different categories of indirect cost and appropriately allocating them is important for understanding how these costs can change; determining the cause of the change when appropriate; and recovering the costs when they are caused by additional or changed work for which the Owner or others are responsible. Indirect costs include the costs for such items as staff; quality assurance and quality control efforts; craft support; personal protective equipment; small tools; and expendables. These types of costs are often assumed to be time-related without any analysis. When the costs are analyzed, the costs are frequently driven by direct labor hours or direct labor costs. The more appropriate method is often to allocate these costs on a cost-per-direct labor hour basis. This paper will review the methods of using such a cost allocation method and substantiating that direct labor hours or direct labor costs are the cost driver.
Level: Intermediate
TCM Section(s):
6.4. Forensic Performance Assessment
7.3. Cost Estimating and Budgeting
Venue: 2021 AACE International Conference & Expo
Abstract: Indirect costs on large, multiyear, heavy civil projects and process power projects are a significant part of project cost which can often exceed 20% of total project costs. Understanding the cost drivers for the different categories of indirect cost and appropriately allocating them is important for understanding how these costs can change; determining the cause of the change when appropriate; and recovering the costs when they are caused by additional or changed work for which the Owner or others are responsible. Indirect costs include the costs for such items as staff; quality assurance and quality control efforts; craft support; personal protective equipment; small tools; and expendables. These types of costs are often assumed to be time-related without any analysis. When the costs are analyzed, the costs are frequently driven by direct labor hours or direct labor costs. The more appropriate method is often to allocate these costs on a cost-per-direct labor hour basis. This paper will review the methods of using such a cost allocation method and substantiating that direct labor hours or direct labor costs are the cost driver.