Managing Indirect Costs

RT-282 Topic Summary
RT 282

Overview

Indirect Construction Costs (IDCC) are project expenses incurred by the primary construction company for supportive functions and shared general resources that are typical for proper execution of field construction operations and are not accurately or feasibly identifiable with a single direct cost object and they do not become incorporated into a component of the final physical improvements delivered as the end product of a project. IDCC may represent 10-40% of total project costs.

Current market conditions such as intense global competition, low barriers of entry, and low-cost global exchange of digital information has required an optimization of indirect costs as a strategic focus for process improvement. RT-282 addressed the topic of industry best practices for estimating, controlling, and managing Indirect Construction Costs. RT-282 conducted rigorous investigation and found that owners and contractors agree on the most important four primary categories for Indirect Construction Costs:

  1. Construction Equipment
  2. Project Supervision
  3. Temporary Construction
  4. Temporary Facilities
This research effort presents leading industry practices for optimizing these Indirect Construction Costs (IDCC). Practices included in this research include estimating, controlling, and managing checklists, flowcharts, and tools for each of these 4 major IDCC areas.
 

Key Findings and Implementation Tools

1 : Construction Equipment

The most important item within this area is major construction equipment that incur significant construction costs and are typically either not readily available or require time for planning or sourcing. Of note is that major construction equipment is a direct construction cost when it can be identified with a particular construction operation. Projects should develop a checklist for major construction equipment. The 3 main sub-groups include: (IR282-2, p. 9)

  • Road & site vehicles
  • Small tools and consumables
  • Major construction equipment/material handling

For example, here is the estimating flowchart for major equipment. Other tools include a major equipment checklist, controlling process flowchart, and a managing process flowchart. 

Reference: (IR282-2)

2 : Project Supervision

This category includes project management, field supervision, project administration and construction/field services. Construction Management and Supervisory Personnel were identified as the most important. Projects should develop a position matrix and a checklist for Construction Management and Supervisory Personnel to indicate. (IR282-2, p. 31)

Practices tools include: Position Matrix, Checklist, and estimating, controlling, and managing Indirect Construction Costs.

Reference: (IR282-2)

3 : Scaffolding

Scaffolding indirect construction cost includes the cost of traditional pipe and board scaffolding systems and mobile staging equipment that are shared across multiple trade areas. Scaffolding was identified as the most challenging and the most wasteful of the indirect construction cost. Emphasis is placed on the process of estimating, controlling and managing scaffolding costs. (IR2282-2, p. 47)
Reference: (IR282-2)

4 : Temporary Provisions

This area includes subcategories such as field facilities, temporary roads and parking, temporary office and services, and temporary enclosures. All of these share the same practices for estimating, controlling, and managing.

(IR282-2, p. 63)

Below is a listing of common temporary provisions. 

 
Reference: (IR282-2)

5 : Implementation Tool #1

IR282-2, Playbook of Leading Industry Practices for Estimating, Controlling and Managing Indirect Construction Costs

The leading industry practices for optimizing these IDCC are presented in a consistent format of consideration checklists, detailed process flowcharts, and representative practical tools. Each chapter is organized into sections covering practices for estimating, controlling, and managing the costs in each category.

In addition the playbook dedicates a chapter to four innovative advance practices:

  • Real-time, online equipment management systems
  • Advance small tools inventory systems
  • Work-location delivered trade worker amenity services
  • Advanced laydown yard management system
Reference: (IR282-2)

Key Performance Indicators

Improved cost, Reduced/improved risk, Improved predictability

Research Publications

Playbook of Leading Industry Practices for Estimating, Controlling, and Managing Indirect Construction Costs, Version 1.2 - IR282-2

Publication Date: 12/2012 Type: Implementation Resource Pages: 85 Status: Tool

Leading Industry Practices for Estimating, Controlling, and Managing Indirect Construction Costs, Version 1.1 - RS282-1

Publication Date: 10/2012 Type: Research Summary Pages: 36 Status: Supporting Product

Improving Project Performance by Estimating, Controlling, and Managing Indirect Construction Costs - RR282-11

Publication Date: Type: Research Report Pages: Status:


Supporting Resources

Presentations (CII Annual Conference & Workshops)

Plenary Session - Leading Industry Practices for Estimating, Controlling, and Managing Indirect Construction Costs

Publication Date: 06/2012 Presenter: Number of Slides: 20 Event Code: AC12

Implementation Session - Leading Industry Practices for Estimating, Controlling, and Managing Indirect Construction Costs

Publication Date: 06/2012 Presenter: Number of Slides: 64 Event Code: AC12

Session - Managing Indirect Construction Costs

Publication Date: Presenter: Number of Slides: 37 Event Code: PIW1013


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