BTEC Higher National Certificate in Civil

Engineering
Unit 3: Applied Mathematics for Construction and the Built
environment

Assignment One – Analytical Methods to Solve Construction

Problems

Student name: Daniel Cryer

Tutor Name: Roger Kendall

1
Contents

Introduction Page 3

Brief Page 4-5

Contract 1 Page 6-8

Contract 2 Page 9-10

Contact 3 Page 11-13

Appendix Page 14

Bibliography Page15

2
Introduction

As a trainee project manager for Chandos Civil

Engineering LTD, I have been given the task of producing a
costing report based on profit loss calculations together with
estimated labour costs for a small construction contract.
In this report I will show various cost analysing methods to
determine different possible outcomes for the projects at hand
and certain scenarios that would be advantageous to
implement in this mixture of projects.

3
Brief

Contract 1

A construction project has a value of £510,000 and

duration of 10 months. The critical path analysis has shown key
costs to be as follows:

Fig1.1

It is my task to determine the break point for this

contract, with it commencing in January. For this 10 month
contract it will be essential to be in profit for the end of the
financial year.

Contract 2

A contract with duration of 23 months has had the

cost monitored over the initial 11 month period these are shown
below:
Fig 1.2

4
 It will be essential to determine the best fit line for
this data in order to extrapolate the costs for the entire contract.
The contract has a value of £1.4 million so it is important to
establish the profit or loss at the end of the contract and to
determine the break point of the contract.

Contract 3

A manager working for a reputable building

company, responsible for the works in the north of England has
organised a study on the bricklaying works that have been
carried out on the last 10 contracts. These are shown below:

A line of best fit will need calculating, in order to

estimate the labour and plant costs per square meter for a
contract being tendered for 1600 m².

5
Contract 1

The break point for contract one is governed by the

amount billed to the client each month against the total
expenditure for that given month. This can greatly affect the
outcome of a contract even though the profit at the end would
be the same. Certain factors need taking into account when it
comes to the billing of the client. These will be shown and
discussed in this report.

The following tables show how possibly loading the

profit into different months of the contract can seriously affect
the amount made and cash flow during the contract it’s self.

The total value of the contract Is £510,000 with the

fixed costs being £12,000 per month giving a overall fixed cost
over 10 months at £120,000 and the total cumulative cost at
£330,000. This means that:
£330,000 + 120,000= £450,000

If the total value of this contract is £550,000 then the profit

produced is:
£550,000-£450,000=£60,000

£60,000 / 10 months= £6,000

This means that for each month of this contract

there should be a projected £6,000 profit margin in order to
achieve this £60,000 profit.

The fixed costs on the contract could be things such

as: on hire cabins, and site staff.

Variable cost can vary greatly each month

depending on what part of the project is being carried out,
these could be: Materials, plant hire plant/ site operatives and
subcontractors.

6
 In the following example the profit for each month
has been kept at £6,000. Although this may give the projected
£60,000 profit at the end of the contract certain things need
taking into account. These include interest rates that would be
charged by the bank when going into the overdraft, and also
interest earned when in profit. There is also the fact that even
though the bill is sent to the client for month one the money for
this will not be received for at least 30 days, so the balance will
always be in arrears for the first month.

This is shown in Fig 2.1

From this table and graph we can see that the break
point for this contract would be in October with the balance
showing a loss for nearly the entire duration. This could make
cash flow a problem meaning that any unforeseen problems
that could arise would be difficult to deal with. Also the
company would be making a loss of -£8,258.33 in April at the
end of the financial year; due to interest charges the company
will only make £59,500 meaning that £500 is lost due to these
charges.

If instead of keeping the profit for each month at a

constant £6,000 it would be possible to load most of the profit
at the start of the contract.

This is shown in Fig 2.2

As you can see using this model most of the

£60,000 profit is loaded into the fist few months. This will give
two break points; one in the third month and the second in
month ten. The company will make a profit of £24,050 at the
end of the financial year; and overall profit of £60,208.33, so
just by reducing the amount dept incurred over the contract
means that the interest made and charged over the 10 months
gives £208.33 compared to the £500 loss in the previous
model. Unfortunately in this model dept will still occur from
week 7 to 10 due to the greater cost in these months.

7
 As an alternative to both these models it is possible
to calculate the percentage of profit for the contract and to
make sure that this percentage is billed into the profit for that
month.

£60,000/£450,000*100=13.33

If this 13.33% was built into the model then the

profit would vary each month but the balance would show an
even steady rise towards £60,000 profit.

This is shown in Fig 2.3

The break point in this model would be in the

second month and a profit of £13,144.44 at the end of the
financial year. Also by the end of the 10 months the company
will have made a profit of £61,247.78, because of the interest
over the contract £1247.78 extra is earned.

One final model that could be employed would be to

divide the total value of the contract by the duration:
£510,000/10=51000
This shows that if £51,000 is billed to the client each month
over the 10 months then the total profit is spread over the
contract equally.

This is shown in Fig 2.4

The break point for this model is also in the second

month with a profit of £55,350 at the end of the financial year.
This model also gives the greatest profit due to the interest
earned over the period being £1762.50 making a total profit of
£61,762.50 for the entire contract.
In conclusion, these four models show how
important it is to try and maximise the total profit for a contract,
by billing the right amounts for each month against the total
cost for that given month. Although each month does not
necessarily need to make a profit it is important to try and keep
the company balance in a profit.

8
 Contract 2

In this contract the costs have been given for the

first 11 months of a 23 month contract. The value of the
contract is fixed at £1.4 million, so it is important to try and
extrapolate a graph to give a best fit line so a profit / loss
estimation could be worked out.

From the information given it is possible to work out

the monthly cost for these 11 months and therefore it is
possible to see what fixed costs for this contract.

Fig3.1
Month 1 2 3 4 5 6 7 8 9 10 11
Cost
Cumulative 41000 87000 99000 112000 177000 277000 319000 412000 509000 612000 677000

Cost
Monthly 41000 46000 12000 13000 65000 100000 42000 93000 97000 103000 65000

From this table it is clear that the minimum monthly

cost occurs in the third month, this being £12,000. From this it
is possible to calculate the monthly fixed costs for the contract.

In my experience the variable cost are greater than

the fixed costs by a possible ratio of 6:4. So Total cost
£12,000= £7,000:£5,000. So the fixed monthly cost for this
contract would be £5000, from this it is possible to calculate the
monthly variable cost.

If a graph is plotted with the total cost on, then a line

of best fit can be extrapolated. Also from this it is possible to
see what the project value is and what the percentage of profit
or loss could.

Fig 3.2

The company has decided it would like to make

£100,000 profit on this contract giving a 7.14% profit. This will
only be achievable if expenditure does not go over 1.4million.

9
 It will be important to try and minimise the monthly
cost of the contract, it may be possible to do this by cutting the
labour force at the end of the contact, and cutting the plant
used on site.
The middle half of the contract is often the most
expensive, if costs during this period become too great it would
be very easy to loose out on profit or for the job even to make a
loss, it is important to try and keep these cost from escalating
too much.
The variable costs for this contract at 7.5 months
are possible to obtain from the graph, this being £365000, also
the cost for that month alone £22,000.

I have put the information given in the table and

extrapolated a line of best fit. It is possible to forecast the
further costs for this contract and therefore see whether the
project is going to be over or under budget. I have forecast
these cost and put them into the previous model in order to
calculate projected costs and balances for the contract, this can
be see in the table Fig 3.3
In this model the break point of the contract will be in month 13,
with the company going from -£29173 in the previous month to
£14173 in month 13, with a projected profit of £100000.

The validity of this exercise needs putting into

context. It is fine to use this method as a planning or
forecasting tool, but it can be dangerous to extrapolate values
too much in case the predicted values are wrong. It is very easy
to for cost on a project to escalate and for unforeseen
circumstances to eat into the profit margin.
Often project managers will check as built figures
against projected ones to see if the contract is within the margin
required to make the desired profit. This will also show up
whether certain months are above or below the projected costs
for that particular month, and will allow them to see if cost need
to be cut in order to bring the values back to the desired levels.

10
Contract 3

A contract being tendered for 1600m² of brickwork

and the bricklayer’s rate being £17.50/ hour which includes half
a labourer. The plant costs will be £31.00/day for a 1 tonne
dumper and a forklift.
From the information given it is possible to calculate
a line of best fit and therefore estimate the costs per square
meter for the contract being tendered.

Fig 4.1

From the graph it is possible to determine that 1600m² will take

approximately 1570 hours. From this we can see that:

1600 = 1570

1570 * 17.50 = £27475

Based on an 8 hour working day this equals: 1570 / 8 = 196.25

days.

The plant casts can therefore be calculated at:

196.25 * £31.00 = £6083.75

So we can see that the total cost for the contract will be:

£27475 + 6083.75 = £33558.75

Taking this figure and dividing it by the amount of hours will

give the total cost per square meter for this contract:

£33558.75 / 1600 = £20.97/m²

For this tender under these conditions it will cost nearly £21/m²
to complete the work. It is the project manager’s job to try and
work out the best ways to try and minimise these costs and to
maximise profits for each individual contract.

11
 In this contract there are a number ways to try and
minimise the costs for the work tendered. Instead of having one
bricklayer and half a labourer to pay for; having another
bricklayer and still only one labourer would cut the costs, as
shown below:
Taking that the labourer earns £6.00 /hour means
that the cost for a second bricklayer will be £11.50 /hour. Plus
this team will also be able to share the plant for the job.

So: £17.50 + 11.50 = £29.00/hour

The work should be done in half the amount of time as there

are now two bricklayers:

1570 / 2 = 785 hours

785 * £29.00 = £22765

The amount of time the plant is used will therefore be shorter

785 hours * 8 hour day= 98 days
98 days * £31.0 per day= 3041.8
So £22765 + 3041.8 = £25806.8
£25806.8 / 1600 = £16.13/m²

So by doubling the labour force on this contract it is possible to

make a saving of £4.84/ m² which will give a saving of £7752
for the length of the job. This method will give a saving on both
plant cost and labour cost.

Another way of cutting costs would be to increase the amount

of hours worked by labour force. If instead of working 8 hour
days we were to work 12 hour days we can see from the
calculation below that considerable saving are achievable:

1570 / 12 = 131 days

131 days * £31 = £4061
£274755 + £4061 = £31536
£31536 / 1600 = £19.71/m²

12
So by increasing the amount of hours worked daily it is possible
to make a saving of £1.26/m², which over the duration of the job
would equate to a saving of £2022. It is important to mention
that the only saving in this is with the hire of the plant and not
with the overall labour cost, as the bricklayers charge per
meter.
In reality it is not possible to just keep on increasing
the labour force indefinitely to cut the amount of time taken to
complete it as the is limited by the amount of space available,
as the bricklayers and labourers would be tripping over one
another and the amount of plant required to service these
operatives would increase too much with more than two gangs.
Also increasing the hours is not always possible depending on
the time of year and therefore amount of light available and the
weather.

In conclusion we can see that it is important to

properly cost a contact in order maximise profits and minimise
certain expenditures. It is also important; as we can see from
the first contract that billing the client the right amounts at the
right times during the contract is extremely important and has a
huge effect on the bank balance and cash flow available to the
company. A project manager would have to look at many
factors and take them all into account in order to achieve the
desired profit levels. These would include billing amounts and
times cutting down on plant, labour and other costs to cut
expenditures as well as times when these might need
increasing when the speed of the job at hand needs increasing.
There are many factors that need taking into
account; unfortunately the best possible preparations do not
always go to plan, and many unforeseen problems can often
eat into the profit margins and time frames of a contract.

13
Appendix

Please refer to stated Fig from above document

14
Bibliography
Virdi, 2006. Construction Mathematics. Butterworth-
Heinemann.

Greer, 1989. BTEC National Nil I - Mathematics for

Technicians. 2nd ed. Nelson Thornes.

Taylor, 2004. BTEC National Mathematics for

Technicians. 3rd ed. Third Edition Nelson Thornes

Greer, 1982. BTEC First - Mathematics for Technicians.

2nd ed. Nelson Thornes.

Tourret, 1997. Applying Maths in Construction.

Butterworth-Heinemann.

15