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Estimating Purchasing and Cost Control - Essay Example

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Estimating Purchasing and Cost Control

Cost management is an integral part of financial control and management in any for profit and non-profit organisation, notwithstanding the industry or sector. The same applies particularly to the engineering and construction sector in which the huge amounts of financial and other resources pumped must be accounted for to stakeholders such as the government, project funders and the public/customers.Unfortunately, for various reasons, many countries’ construction sectors lag behind in the use of cost control techniques such as the Cost Value Reconciliation (CVR) and Earned Value (EV), two rather common methods of cost control. Many a stakeholder cites the technical skills and the huge resources required as the reasons many constructions firms and financial managers do not apply CVR in their cost control practices. Most affected by the cost and skill requirements of CVR and other cost control techniques such as CVR and Earned Value (EV) are the small and medium-sized construction and engineering firms that lack the wherewithal to design and implement these techniques of cost control. The other reason for the little use of cost control techniques such as CVR and EV is the apparent lack of literary coverage and information on these methods, implying that stakeholders are not quite conversant with the metho.Nonetheless, these methods are generally used in the construction and engineering industry to measure and monitor project progress, profitability and performance for their strengths. One advantage of EV is that it is capable of combining the assessment of work cost, schedule and scope in a single integrated process or system. What is more, Earned Value gives accurate information and forecasts on project problems, which are important contributory factors in project management. EV has been shown to affect project planning and control aspects more even as it improves project scope and the analysis of project performance. EV is thus a positive predictor of project success. The popularity of EV is evident in the many government contracts that are assessed using this method, more so in its application to assist substantiate contract disputes. This paper explores the use of cost control methods such as the Coat Value Reconciliation (CVR) and the Earned Value (EV) with regards to their effectiveness in providing information on costs, in the monitoring work progress, their benefits, ease of use, advantages and disadvantages. Practicing CVR and EV The importance of using these cost control methods in the construction and engineering sector is the uniqueness and the uncertainties that characterise each project. In fact, every project in the industry has its own set of challenges and hardships that affect not only their successful completion but also their effective use of the available resources. The uncertainties inherent in construction projects result in losses and ultimate project collapse even for big, long-established, sophisticated and financially endowed constructors (Potts, 2008). With more sophisticated structures being ordered by clients every other day with the budgets getting tighter by the day, construction firms must embrace cost control and sound finance management to achieve their objectives. Just like any other cost control measures, CVR has several core elements or principles by which it is successfully applied to give the required data. Important in CVR are the totals for cost and value, which are crucial in establishing a firm’s profitability (Sidwell, 2005). In this regard, CVR’s major objective is to achieve accuracy while displaying a firm’s accounts. CVR’s display of financial accounts and position is thus among the most accurate compared to other methods. It is thus quite apparent that CVR seeks to portray a firm’s statutory accounts as a legal obligation (Sidwell, 2005). Additionally vital is CVR’ ...Show more


Cost management is an integral part of financial control and management in any for profit and non-profit organisation.The same applies particularly to the engineering and construction sector in which the huge amounts of financial and other resources pumped must be accounted for stakeholders …
Author : louie95
Estimating Purchasing and Cost Control
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