International Conference on Civil, Materials and Environmental Sciences (CMES 2015)

Research on Cost Management of Construction Project based on Activity-based

Costing

Jianqiang Tang, Maoping Zhang, Hua Tang, Yuan Chen

Department of Management science and Engineering, Sichuan Agricultural University, Chengdu,610000, China

Abstract—This paper, based on the principle of activity-

based costing, mainly introduced the specific process of II. THE PROCESSES OF DYNAMIC COST MANAGEMENT
applying the method in cost accounting and cost forecasting OF CONSTRUCTION PROJECT
during the Project Construction being constructed. Through Activity-based costing is a kind of cost accounting
using the activity-based costing to calculate the actual cost method[6]whose core concept is "products consume
and the budget cost in the process of project construction, activities, activities consume resources"[1][7][8].
which to be compared to analysis the cost deviation, while
Activity-based costing is detailed by Robin Cooper. It is a
predicting the material supply-demand relationship of next
issue. Furthermore, in the light of the deviation, reengineer
new method of cost management which is activity
the process of project construction and adjust resource oriented and calculates the cost of products by confirming
supply level, thereby effectively refine and control costs, the activities in the process of construction project and
improve management and competitiveness of project measuring the cost of activities.
contractor. Compared with traditional cost accounting methods,
activity-based costing has changed the situation in the past
Keywords-activity-based costing management, the process that only rely on a single operation measuring index, such
of project construction, Cost, Control. as working hours, the number of equipment and so on, but
using a multi-dimensional distribution pattern, which
I. INTRODUCTION reduce the deviation between the accounting costs and the
Facing with the current state of regulating the real actual cost and is seen as an effective management
estate market, the slowdown of the economic growth, the method, to enable enterprises to be more competitive by
rising of rigid cost, inflationary pressure, and deflation of achieving the purpose of the enterprise value-add from the
credit policy, etc. the competitiveness in the construction perspectives of the process and the value chain.
industry mainly shown at price competition, competition Costing analysis in the process of project construction
has become increasingly fierce. Therefore, a kind of good based on activity-based costing is the application of the
cost management in the fierce competition in the industry basic principles of activity-based costing. By analyzing
is particularly important. every activity that occurred in the course of the project
Activity-based costing as a method which plays an construction, establishing activity database and according
important role in manufacturing industry, has been to the consumption of resources that activities has taken,
relatively widely used and researched since the early trace the resources back to the activities, and then, in
1990s[1]. By reading a lot of relevant literatures, found accordance with the consumption of the product for the
that scholars like Rui Zhang[2], whose studies mostly activity, calculate the cost of products, besides, on the
focused on the application of activity-based costing in basis of scientific computing product cost, this method
manufacturing industry. Liang-Hai Lei[3]analyzed the has taken the other costs of the project which previous
necessity and applicability of the activity-based costing in studies have ignored into account. Therefore, the actual
the valuation and mortgage company of real estate, based cost of the constructed project can be reasonably
on the characteristics of the valuation and mortgage calculated, and then making the appropriate adjustments
company of real estate company built application model based on the deviation between the actual cost and the
of activity-based costing in the valuation and mortgage budget cost, which is aiming to improve project
company of real estate company, Gui-Wen Liu[4] management level.
proposed three notes in the process of applying activity- This is a dynamic loop cost management process.
based costing in real estate development , Yi-Jian When labor and resource are put into the process of
Sun[5]focused on the problem in the process of real project construction, cost accounting can be carried out
estate development, on the basis of activity-based costing, according to the activity-based costing. At the same time,
built a dynamic cost management model of real estate, under the premise of reasonable analyzing the yield of
after analyzing the shortcomings of traditional cost construction products of buildings in the next issue,
management methods, but did not do more in-depth applying inverse operation of the activity-based costing to
research and analysis. This paper under the project predict the resource consumption of the next cost control
contractor perspective, proposed construction cost interval, and then to predict the actual cost of the entire
management research project based on activity-based project for the future, in order to achieve the appropriate
costing. project cost management objectives and financial
indicators, thus to analyze the production capacity and

© 2015. The authors - Published by Atlantis Press 51

non-value-added activities of the project, and putting The technical route shown as figure 1.
forward corresponding management recommendations.

Figure.1:The technical route

III. SPECIFIC IMPLEMENTATION STEPS OF DYNAMIC determine all the activities and confirm activities by
COST MANAGEMENT OF CONSTRUCTION PROJECTS integrating and decomposing the activities eventually of
various stages, and then analyze and determine the cost
Before cost accounting, the project managers have to
accounting system on the basis of amount of recent data.
divide the project into different stages of cost
There are six summarized steps to together constitute a
management, and fully analyze all the activities during
recyclable cost management of the construction project
each stage of construction project, on the basis of the
historical experience, effectively and completely

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A. Dividing cost management stages of construction with experience, the method given in this article to get the
project and establishing cost accounting system amount of cost drivers through establishing activities lists
Project construction can be roughly divided into in the process of construction project, makes the amount
several construction stages, such as the earthworks, of the cost drivers more detailed and accurate, and can
foundation, masonry structural engineering, concrete reflect the resource and cost consumption better.
structure project and so on. After dividing cost Accounting the current project costs based on the
management stages of construction project in terms of the basic idea of "activities consume resources, products
different construction stages, develop appropriate project consume activities". Determine and measure the total
cost plans according to different stages of management amount of the resource driver of different resources that
objects, and then make clear goals of project cost all goods consumed according to the established activity
management at different stages, separate the budget in list. And then directly gain the current costs of each
accordance with project plans into each stage of dynamic activity through the currently established resource base.
cost management. At last, establish cost accounting The equation is as follow:
n
system in terms of the principle of construction enterprise
accounting. ACi = ∑ RCk × RDN ik (1)
k =1
B. Collecting historical resource costs and determining In this equation, ACki represents the costs of the
activity drivers
Through analyzing and summarizing the financial data number i activity, RCk represents the number k resource
of construction projects, integrate and decompose the that the number i activity consumed, RDN ik represents
historical data of finance on the basis of empirical method
to determine the process and activities in the process of the amount of the resource drivers of the number k
construction, to identify the key activities and the activity resource that the number i activity consumed.
chain, and to establish activity centre. For example, According to the calculations above and the idea of
concrete engineering are generally divided into "products consume activities", the cost of each activity is
reinforcement engineering, form work engineering and distributed into different construction products like girders
concrete engineering, the activities and activity chains of and column, according to the established cost database of
these three projects go as follows: Concrete engineering: activities and determined activity divers. The activity
aggregate crushing→ sieving→ washing→ driver is the standard of
proportioning→ mixing→ pouring→ maintenance; cost allocation, and the way to allocate costs of
Reinforcement engineering: checking the type of activities in this article is based on the result of selecting
reinforcement→ making construction plans→ installing cost drivers under the empirical method. The allocation
reinforcement; Formwork engineering: making equation is as follow:
formwork→ positioning→ formwork erection→ n n
ACi
separating formwork→ repairing formwork. UPCk = ∑ ACki = ∑ m
×ADki (2)
The activity driver includes the cost driver and the
resource driver. Cost driver, that is selecting criteria of
k =1 k =1
∑ AD
i =1
ki
allocating costs of each activity center, is more difficult to
be determined between cost driver and resource driver, In this equation, UPCk represents costs of the number
and every activities cost database should select a cost
driver that reflects the consumption of activities during k unit project, ACki represents the assigned costs of the
the project construction and have a high degree of number i activity in the number k unit project, ACi
correlation. Do not use the cost drivers that inaccurately
or wrongly reflect the consumption of activities. For represents the costs of the number i activity, ADki
example, setting formwork engineering as a cost database, represents the amount of the consumed cost drivers of the
the cost driver is the area that construction project number i activity in the number k unit project, m is the
requires during the formwork.
amount of the unit projects.
C. Establishing activity lists, determining the amount of
D. Project resource requirements and cost prediction
cost drivers and accounting the cost
According to the engineering drawings and the
The amount of cost drivers is the basis of allocating changes of engineering quantities, manage to predict the
the total cost expense. Whether the amount of cost drivers demand for different building products in the next stage of
is accurate determined or not, directly affect accounting cost management, and calculate the total demand for
and predicting the total cost expense. The amount of cost different building products in the life cycle of construction
drivers in project management specifically refers to the through BIM software. And in accordance with the
amount of the cost drivers that the construction products calculated product demand, based on the idea of activity-
consumed. Compared with the traditional method to gain based costing "products consume activities and activities
the amount of the cost drivers according to collecting and consume resources", forecast the demand for the material
classifying the relevant original records and analyzing

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resources. At the same time, predict the cost of each costing, realizes the accurate calculation of the cost of
activity cost base in the next stage of cost management construction projects, and it is more scientific when
and the total cost of the entire project in the future, based comparing the actual cost with cost targets during
on the predicted cost of the resource. different phases of the construction project. While the cost
be refined, which can help to find out the exact cause of
E. Pursuing “the zero inventory” in the material deviations and make timely adjustments in accordance
management with activities when analyzing the deviations of cost.
The material supply of next phase is determined by Forecasting the cost of construction projects and demand
comparing the forecasted demand for the material of materials, based on activity-based costing, achieves
resources with the present supply of the resources, and the beforehand control of the construction project cost and the
plan of material supply is adjusted according to the lean management of kinds of materials. Meanwhile, cost
deviation, so here the supply chain is established which is management based on the activity-based costing supports
motivated by the rear of supply chain, that is to say, the to realize the organizational strategy, which gains value
supply chain is motivated by the demand of kinds of creation by eliminating non-value-added activities.
materials, thus the zero inventory under the theory of lean Activity-based costing as an effective tool of cost
management in materials management of the construction management, it is worthwhile to be learned and applied by
project is realized. engineering contractors during the construction project,
and with the development of information technology
F. Cost containment and construction project adjustment
projects, activity-based costing will be more widely used
According to the calculated cost of the project, in process of various construction projects.
analyzing the implementation of cost of the construction
project in order to find out the cause of deviations timely
based on the statistical analysis methods, and adjusting REFERENCES
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Distributing the cost of used resources into each product
of construction projects on the basis of activity-based

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