D2: Cost Control

Of vital importance to our success

is the monitoring of progress and control of expenditure. Reporting is not a separate task, done to satisfy an outsider and so put on one side until we have time. Rather it is integral to our means of control, demonstrating how we account for what we have done and spent, indicating when action is necessary. Reporting thus becomes a tool that we use in running the job and is of crucial concern to us all.

We must now

estimate progress, analyse expenditure, report, and watch over what cash is to hand.

Reporting as a means of control

To succeed, reporting must be seen to be effective and of use, otherwise it is likely to be laid on one side and forgotten. To avoid this, it has to be an integral part of how we monitor our work and reinforce the need to take effective action. This has to apply to progress as well as expenditure, for one without the other is incomplete. All this has for too long been left to chance in community building, with the result that many projects are unfinished, and their potential for training and gaining a wealth of experience, lost to the people in the community. Whatever means we employ to build our project, whether with a contractor or by doing the job ourselves, the techniques advocated here are essential to our success.
Constructive reporting does more than simply state whether the work is ahead or behind, under or over the budget. It is a tool that we use in making decisions concerning the completion of our project, within the resources available to us. To achieve this we must monitor our progress and control expenditure, thus reinforcing the need for site programming, up-to-date bookkeeping and comparison with the budget. The methods we use should be such that by photocopying the relevant sections, these form the reports which we need for the Building Committee, Executive and funding organization, without need to fill in special forms that are time consuming and laborious. In this way people learn how to see what is actually being done, what are the dangers, and what is possible. A foundation is thus being laid, providing management experience that will stand the project in good stead for a long time to come, after the building is complete.
Funding organizations have a key role to play in initiating this process of control. They can ensure that the architect/community builder are involved in reporting progress (not the administrator), that the surveyor/financial controller report on the accounts, and that this reinforces the control of the project rather than being something that is separate. The tasks of reporting on progress and expenditure should be done by separate people and not left to one person, not only to ensure impartiality but also because the architect builder is likely to become so busy that he may not have adequate time. The conclusions are, of course, a team effort, for which the real place to decide on action is the Building Committee. They alone have the detailed understanding of the job which is essential.

Our Story - They plan how to use their money

Ralihaha continues, "the savings account provides us with cash but not cheques, so we need a further account. We must identify just where we shall be spending the money and how it is paid. If we look through our self-build budget we have there an outline of the headings that concern us here.
Materials are mostly bought from suppliers in town, and a few special items have to be imported. All of them we collect. Extra bits and pieces that we need as we go along, we can buy at the village store. Although they cost a bit more, it keeps the job moving. If we pay cash at all these places, even by cheque, we can expect a discount, whereas if we open an account we generally pay the full price. Cash payment also ensures that our cash book reflects the situation right up-to date, simplifying the budget reporting. So whoever does the shopping needs petty cash in their pocket as well as a cheque book they can sign.
As for labour," he continues, "if we employ a contractor there are very few payments to make, but if we employ the men ourselves it means counting out the money every week or two. Quite an undertaking unless it can be delegated! This is most readily controlled if we cash a single cheque and reconcile this with the wages."
Ralihaha goes on with more items: "The provisional sums are spent like materials," he says, "by cash and cheque. The Mission has to be reimbursed for the use of its facilities, such as the truck. Again, if that is done by cheque, then the cash book records the expenditure. Supervision and fees are paid by cheque in the same way."
"As I see it," says Dr John, "we need petty cash for whoever goes shopping, and on site for bits and pieces. We may need more than one signature for the cheques, for the person who does the shopping may not be available to sign for the wages. In any case, it is good to have a second means of issuing cheques, just in case of need."
"Right," says Ralihaha, "then it begins to look like this :"

FIGURE

"Impress," he explains "is an account that has the advantage of requiring only one signature on all cheques, but with the safeguard that it has limited funds - a ceiling that you can fix. When it is topped up the two signatories of the Savings account must check that the bookkeeping is up-to-date and the money properly used. There is thus a limit as to how far the money can be misused." "OK," says Fr Pierre, "I suggest that as I will be doing the shopping, I am one of the signatories of the cheque account, and I propose Nurse Lerato as the other. She is easily available in case of need. Perhaps Dr John would take my place as one of the signatories of the Savings account?"

Reporting as a tool in our work

In Budget D there are three basic tasks to our reporting:
1. Estimating progress: First we compare progress on the site with the Building Work Description to estimate approximately the percentage of work done stage by stage. This we relate to the overall site programme , illustrating with colour to show where we are ahead and behind. The critical items are the ones that will delay the completion of the job.
2. Analyse expenditure: Here we analyse the cash book expenditure to the budget headings. If we are employing a contractor this should be straightforward. On the other hand if we are buying the materials, paying the labour, and so on, this can become a major task. Materials must then be further apportioned to the work stages before comparison with the Material Budget is possible. We can see how this was done on the next page of our story.
How far we extend this analysis and how often we do it will depend on the skills and time that we can assign to the task. It should be done monthly to be really effective, but may, in practice, have to wait longer, depending also on the speed with which our project
is progressing.
3. Comparison: Now we assess the effect of these two exercises -on the completion date and the self-build budget/contract sum. This has to be initiated by the architect and the surveyor/accountant, who together examine the information and identify the trends. We have to know whether we are likely to complete on time, or need more men, how this affects our budget and whether or not we are within (or over) our budget/contract.
From this the Building Committee must decide, in conjunction with the architect and accountant, if action is necessary.

Reports should consist of

1. a statement on progress;
2. expenditure reported under budget headings;
3. a statement of the cash situation; and if necessary request further payment; and may be supported by
4. the overall site programme, with overlay for progress.
5. current detailed site programme (if relevant);
6. copy of cash book since last report and bank reconciliation.

FIGURE

Our Story - They decide how to use the cash book

"Next," says Ralihaha, "we must discuss how we will record our expenditure. For a start I advise that every cheque is covered by an order (see footnote). A duplicate book can be set aside for this purpose. The order records what the money is for and tells the bookkeeper, Malichelete, where to analyse it in the cash book. Like this.

FIGURE

Each cheque is entered in the cash book' and analysed over the budget headings. The analysis totals are reconciled with the total expenditure to make sure there are no mistakes. This provides us with the information for the budget reports, or Statement of Account as it is called, for it also shows our cash position . Materials are the most useful to us. We apportion this expenditure over the construction and compare it with the Material Budget . Overspending on materials is magnified, unless we are careful, by extra labour, supervision and overheads. As they are bought in advance of the work on the site, this then gives US a chance to do something about it, if we are always up-to-date! In this way we know whether we are within our self-build budget or not. It is work for Fr Pierre and Malichelete, but I can assist with the report."
Everyone is much impressed and there is silence when Ralihaha has finished. "Well," says Dr John, "that seems most comprehensive, how do you feel about this Fr Pierre? I know you're very busy." "Well," he responds, "it's something new and I shall enjoy the challenge."
Footnote: Where possible, particularly on bigger jobs, the person preparing the order should be different from the person signing cheques. The signature on the order thus becomes part of the control procedure.

FIGURE

Controlling self-build expenditure

It is very much easier to build for profit than at cost. This is very much more difficult, and control over expenditure is therefore of vital importance if we are to succeed. Too many people building at cost leave this entirely to chance, perhaps because the techniques are unknown to them, or because they feel that, being practical people, paper work is not part of their job. Whatever the reason, the risk of not knowing we have overspent until it is too late, is too worrying to be left on one side.
The advice given here can do no more than point the way, for the variety and complexity of self-build projects is so great that it is beyond the scope of this section to deal with all the possible variations. In addition, small jobs that are finished within a month or so, are completed too quickly to allow correction if overspending occurs. It is only on relatively larger jobs that the opportunity for effective cost control exists and by which we may learn from experience.
The key to success lies in there being someone to whom we delegate the bookkeeping, who has an aptitude for and can apply himself to reconciling figures. If we have someone suitable and they have been receiving in-service training in preparation for the job, we can forthwith involve them in setting up the cashbook and handover procedures, such as paying the wages, as we establish them. This will then give us more time to run the job and be on the site, and from the start the job will be more successful. The self-build budget set up in section C3 is what we must now work to. It is a good idea at the start to agree all round, the intervals at which progress and financial reports will be made. This will depend on our capacity and ability to do this, as well as satisfying our own needs and the funding organization. We may, therefore, have to be selective in what we set out to do, balancing the cashbook every month but only making a report every two or three months. This will depend on the job we are doing. Further, there may be no need to check every item of the budget, but only those that are likely to prove critical. Here are the headings from our self-build budget.
Materials: This expenditure, unlike most other items, can be readily and accurately checked, stage by stage, as the job proceeds. It has the great advantage that, as materials are bought in advance of the work on site, it forms an early indicator of whether we are working within the budget or not. On a job where it is exceptionally difficult to measure the quantities, such as the renovation of old buildings, this check is important. Thus, if our capacity to make more extensive budget reports is limited, materials can provide the essential indicator we need.
Start by apportioning expenditure on materials recorded in the cash book, over the stages of the job and compare these with the Material Budget . Then we will know if we are overall within the budget or not, and we can trace where the variation occurs. Materials produce a multiplying effect, for additional items require extra labour, which in turn needs more supervision, so increasing the additional costs. The effect of this should never be underestimated.
Labour: for the budget we calculated the cost and secondly, the cost of a team employed for the duration of the job. The budget figure we now apportion over the job, bearing in mind that fewer men with less skills are needed at the start and more men with greater skills as the job progresses. We must also allow a contingency for employing extra men should the need arise. Thus we can estimate what we should have spent at each stage of the job and compare this with the expenditure in the cash book. In practice it is not quite so easy, but it will indicate whether we should be able to complete the work within the labour budget or not.
To calculate the wages there has to be a record of attendance. This can also be used to record what the men are doing, especially if they are spread over more than one job or are dispersed through a complex of buildings. On the opposite page is a format that has proved very practical in application and could be adapted for computer analysis. It has the great advantage of reinforcing the foreman's authority, for he is continually checking what each man is doing. It can also be used to provide the basis to illustrate how productivity relates to wages. A job may actually cost less when done by a man who is paid more, if he is that much faster than a man paid less, who is not as productive. It can also be used to provide a feed-back of information, showing the men how long a job took so that, in making a site programme, they have a basis for knowing what to allow. Most important of all, the record also provides a basis on which to settle any disputes.

FIGURE

Provisional sums: This is money budgeted for specific items, and is separately analysed in the cash book. As they may also require some labour and materials, we must make allowances for this if we wish to calculate the balance in hand. In the budget report this only need appear in the cashbook analysis, and only if we have the capacity, should we state the balance in hand.
Contingencies: This provides for overspending on materials, labour and provisional sums. Expenditure is recorded in the cashbook, hidden under these headings. By costing approximately the Site Instructions we know how much to allocate and, by deduction, what remains in hand. The fifth picture from now is the Financial Statement illustrating how the contingencies are apportioned.
Fees and supervision: This can be checked as we proceed by making sure that we are not paying more than was budgeted, or that the job is taking longer than we anticipated.
Administration: This is rather complex to analyse and may therefore be more trouble than it is worth for a single job. It should be sufficient, however, to check that expenditure will remain within the budget by anticipating what is to come.

Our Story - Labour records and material costs

FIGURE

A card is filled in each day and handed in to the bookkeeper. This is a safeguard that keeps them up to date. The day is divided into roughly equal parts, to record if a man moves from one part of the job to another. Working hours and breaks clearly shown act as a reminder for everyone.

FIGURE

To check the material budget, the total expenditure of the materials in cash book has to be appointed over the work stages. It is important to reconcile this by adding it up two ways.

Our Story -Mr Pitso is paid

As the time for the first payment to the contractor approaches, Ralihaha meets Mr Pitso to check progress on the overall site programme they made together. They look at the Building Work Description and discuss how the work is getting on. The major items, of walls, door and window frames, and drainage are complete a little ahead of the programme. But the roof is not finished, and the hanging of doors and fixing of fittings has not started. The plumber is due next week, and so will have to wait a few days before he can start. The roof is obviously holding up the job and delaying the work inside. Mr Pitso points out that the rain delayed his start on the roof. He is obviously troubled because he knows he will not be paid until it is done.
"You really need more carpenters," comments Ralihaha, "to give a bit of a push." "Yes," responds Mr Pitso "but it is hard to find good men. I can transfer some from another job until we catch up." In a few days they arrive, but they do not stay long. Ralihaha can see the real problem is that Mr Pitso is spreading himself over too many small jobs. One job, given all the builder's attention goes well, but when his energies are spread over a number of jobs there is too little time given to each, and they fall behind.
"Look," says Ralihaha, "you have to complete the roof, hang the doors and start on the fixtures before the next payment. Seems to me that this is three weeks late on the programme. My concern is that the clinic has to be finished before the builder's Christmas holiday. I'll produce a financial statement showing what you are due to be paid, but first we have to agree the cost of the Site Instructions." Mr Pitso says he'll check his labour records and see, but Ralihaha knows that will not be adequate. "Let's do it now while it's fresh in our minds," he says. "How long did number one take?" "I'll go and check right now," says Mr Pitso. He returns saying, "A day and a half for a carpenter and a labourer." "And they are paid?" "M.12 and M.4 per day," he replies. "OK, that's M.24 plus profit. Would you agree M.30?" "Yes," says Mr Pitso, glad to get it settled so easily.
Here is how Ralihaha sets out the statement:

contract sum	2,500-00
less contingencies
and prov. sums	250-00
	2,250-00
One third due on first payment	750-00
add Site Instruction no. 1	30-00
	780-00
less previous payments	nil
less 5% retention	39 -00
due for payment	M 741-00

Working with the small contractor

In community building we may find ourselves working with small local builders, rather than large conventional contractors. There are good reasons for this. How we relate, therefore, may require a change of approach on our part if we are to succeed in working together.
The strength of the small builder lies in his close relationship with his men, for he is often to be found alongside them working on the job. Rarely does he have 'an office' as such, rather he may attend to his administration in the evening, which is perhaps when we can catch him. His records are certain to be most elementary, he is unlikely to know what profit (or loss) he is making on each individual job, and his cash book may not be balanced until the year end. In costing variations, therefore, he is unlikely to have information on which to base figures He usually has too much or too little work, but rarely just the right amount, reflecting in the progress of our job. Likewise he probably lacks working capital, with consequent cash-flow problems that further exacerbate delay on our job. If only there was more in-service training available specifically to assist the small local builder!
It is, however, precisely because his overheads are low and he is often willing to work in out of the way places, that we find ourselves now working together. How we can better understand and assist one another is of the greatest importance. Here are some suggestions.
Programming: At the first site meeting the architect must strive to involve the builder in making an overall site programme. He may well feel this is nonsensical, but by relating progress to the points at which he is paid, he is more likely to take an active interest.
How to involve the men in the detailed site programming will be more difficult as the architect is not directly responsible for the men. It is, however, through follow-up that the discussion can be kept going and appropriate action taken.

FIGURE

Site instructions: These should be costed as soon as the work is done, or at least agree on the labour that was involved. Materials may have to wait until the builder receives the invoice. The architect can assist the builder by helping to build up the cost, ensuring that everything is included.
Interim payment: Never pay in advance; nor until the' architect has certified the invoice. The architect can assist the builder by setting out a statement of account, calculating what he is due to be paid and giving the builder a copy. There is a sample in our story opposite.
Final account: Before the end of the maintenance period the architect must prepare a statement of final account and agree this with the builder. It has to deduct the contingencies, show the cost of each variation from the contract, and expenditure on the provisional sums, and so arrive at the actual cost of the job. By deducting what has previously been paid, the remaining monies due for payment are calculated.

Our Story - Mission Clinic cashbook

FIGURE the left-hand page

FIGURE the right-hand page

Controlling the cash flow

How we organize the cash-flow can, if overlooked, disrupt the work. Of vital importance is that the people who spend and record the money are fully accountable to the Executive through the Building Committee and thence to the funding organization. For this to succeed, there has to be built in a means of budget reporting that is based on the cash book. This process will be improved if the person controlling the accounts is co-opted onto the Building Committee so that questions may be dealt with at first hand.
The accounting procedures are very much more straightforward when employing a conventional contractor than if we are buying the materials, paying the wages, and so on. Whilst the first can be accounted for through an extra analysis column in the project cash book, the second is rather more complex to control and requires its own entirely separate system.

The savings account: Set up specially for the job to gain interest and into which alimonies received are paid. Joint signatures, perhaps Chairperson and a member of the Building Committee, but not the architect, builder or person running the accounts, as they sign the cheques. Signatories' first-hand knowledge of the job used to check how the money is being used. A separate page of the cash book records this account.

The cash-flow working with a contractor can be managed like this:

FIGURE

If, however, we are organizing the job ourselves, the accounts must be more readily open to scrutiny and thorough and careful checking with the budget. The cash-flow then looks like this:

FIGURE

FIGURE

The 'imprest' account: A ceiling is fixed and the account topped up from the savings account. Single signatures on cheques to facilitate shopping at cash discount prices and simplify the accounting. Cash book is then always up to date, simplifying budget control.
Cash book: Double entry as shown p. 168. Analysis page itemized to the budget headings. Column totals reconcile to the total expenditure. Every cheque is covered by an order stating what it is for and where it is to be analyzed.
Petty cash: is paid by topping up, so that the person spending it always has money available. They account for the top-up by producing the receipts. Petty cash top-up is paid by cheque and so apportioned over the analysis in the cash book.
Banking: The balance must be reconciled at the same time as the cash book and the cheque book. The three provide an essential means of cross checking. Some banks provide a form for this purpose, if not ask the manager for advice.
Presentation of the accounts: At regular intervals, perhaps monthly, there should be a financial report to the Building Committee, supported by the cash book, savings account, bank reconciliation, etc.

FIGURE Mr. Pitso checking his account.

Check box

What provision is there to provide the Building Committee with financial reports? Do you understand the reports? How carefully was the method discussed? Has the funding organization accepted? How will you know:
-if the budget is being overspent?
-if the materials are costing too much?
-if more labour can be employed? Has payment been agreed with the contractor and to what it relates? How do you know there are adequate funds in hand?

Quotation

"In the course of the new community resident's participation in the design, managment and construction of their new houses, rapid and significant changes of attitude were noticed. The newly emerged community leaders themselves started going to sub-district and district administrations to press for the provision of an approach road and some degree of community autonomy. Ultimately the community contributed labour towards the building of a small approach road. The Harijans (caste) became articulate and, for probably the first time in their village's history, they began to assert themselves in the affairs of the village. The Weavers too became more assertive in their negotiations with the Handicraft Corporation demanding and obtaining a better deal in terms of remuneration and regular and sustained purchases of their products. The group which actually worked in housing construction, organised itself into a cooperative for buying milk cattle and dairying."
The Ahmedabad Rural Housing and Development Programme, India. From The Practice of People's Participation: Seven Asian Experiences in Housing the Poor:
(See Further Reading 23).