Benjamin Franklin said: “If you fail to plan, you are planning to fail.” And when it comes to the construction industry, that old adage couldn’t be more true, especially when it comes to cost control.
Managing your construction costs isn’t just about having the right amount of money and spending it on just the right things. It’s about cash flow and planning ahead to minimise the risk of costs getting out of control. Cost management is one of the biggest obstacles construction firms face. That’s why construction cost management is crucial during any construction project — big or small.
Importance of Construction Cost Management
A recent study found that just 25% of projects came within 10% of the budget in the preceding three years. In other words, three out of four projects exceeded their budget. Cost management is a key component in construction management. While it can be challenging to stick to the original budget, it’s not entirely impossible.
Construction cost management means keeping expenses under control. This is achieved by managing labour, material, equipment and overhead costs. Cost management requires sound estimates and constant monitoring throughout the entire construction project. Why is it so important to manage costs? Because going over budget can cause a dip in your profit or even a loss – and that’s something no construction firm wants or needs.
4 Tips for Cost Management
Cost-cutting in construction may sound impossible. With variations adding up or inaccurate estimates coming in, your bottom line can suffer. To help you stay on track with your construction budget, we’ve got some tips for construction cost management.
Accurate, upfront cost estimates
Start your project off on the right foot with accurate, upfront cost estimates. You can better-set expectations when you estimate costs within a small margin of error. It’s a good way to establish cost baselines and calculate average costs that you will use throughout the project’s lifecycle. We’ve developed a cost estimating tool — Summit 5000 — that will help save time with the cost estimating process.
Develop scope and budget
Define the scope of the project early on and lock it down by limiting change orders to prevent scope creep, which leads to extra work that leads to additional costs. When you have the scope of the project accurately mapped out, you can develop your budget more reliably… and with fewer surprises. Budgeting and estimating costs can be daunting, but it’s a vital step in controlling costs. By looking at total spending for past projects you can come up with more realistic estimates on labour, materials, equipment, overheads — and any other costs you may incur — and plan accordingly.
Control costs throughout the project
Cost Value Reconciliation (CVR) measures costs against budgets for construction projects. RedSky’s CVR tool allows you to report on the profitability of your construction contract throughout its lifecycle. This helps prevent unnecessary loss and its impact on your profitability. Controlling costs helps to ensure that you:
- Minimise overspending
- Control ongoing costs
- Increase the accuracy of future project pricing
- Improve your cash management
- Maintain the profitability of your project.
Communicate and report frequently
Communicating and reporting frequently is another avenue for controlling costs during your construction projects. With the right project management tools, including real-time dashboards, project managers can report on budgets and costs during regular meetings, keeping the entire team up to date on where the project stands in terms of costs — over, under or right on track.
The Cost-Cutting Bottom Line
It’s no surprise that even the best-laid plans are subject to change. But being proactive and using these tips will help you better control construction costs throughout the lifecycle of your project. During your construction project, you should have procedures in place for cost control and record-keeping, to improve the bottom line. Pairing construction know-how with the technology of construction project management tools helps improve cost optimisation, which in turn benefits you and your clients.
To find out more about how RedSky’s construction project management tools can help you control costs during projects, Request a demo or get in touch via the contact form or by phone (+44 020 3002 8600).