Project cost management is a key responsibility of a project manager and one of the biggest roadblocks construction firms face. Cost management includes cost estimation, which is the process of estimating, budgeting and controlling all of the costs throughout a project’s lifecycle. It’s a critical task as the ability to carry out accurate front-end costing, cost monitoring and cost review directly impacts the profitability of a project. And let’s face it, protecting your bottom line can ultimately make or break your business.
6 Best Practices for Project Cost Management
When it comes to project cost management, there are many tips, hints and best practices. But, as they relate to the construction industry, here are our best practices:
1. Use Construction Management Software
If you haven’t already, replace paper tracking with construction management software that’s designed to improve efficiency and accuracy. Construction management software with data management capabilities lets you update everyone on the job site when there are changes to the scope of the project, which can happen often. It also allows for improved communication by connecting back-office staff with on-site workers. And as we mentioned in a recent post, Control Costs Throughout Your Next Construction Project, frequent, clear communication is one step in controlling costs.
2. Estimate the Costs Accurately
Cost estimation is an important step in project cost management. Project cost estimation establishes the baseline of the project cost at different stages during the project’s lifecycle. And the smaller the margin of error, the better you can set the expectations. Using project cost estimation software helps you streamline the estimating process by making it easy to create estimates, update pricing information and compare resources.
3. Plan for the Unexpected
You’ve done your due diligence in estimating your costs. But, it’s important to remember that no matter how well you plan, unexpected costs can occur like legal issues, penalties, unexpected labour costs, and even inflation or a natural disaster. Plan your budget for the unexpected. Identify risks, estimate the cost for these risks and create a contingency reserve.
4. Report Frequently
Part of good communication — which also improves productivity — includes frequently providing cost reports. This keeps your clients informed as well as streamlines communication between owners, general contractors and subcontractors. Frequent reporting also lets you check the reports against your cost control plan and estimates to check the financial health of your project. Using real-time dashboards and project management software, you can keep stakeholders informed of the progress of a construction project and identify any delays or cost overruns earlier rather than later.
5. Regularly Update the Cost Plan
As with reporting frequently, it’s important to analyse and re-evaluate your cost plans regularly. This lets you determine if you need to make any changes to your plan. You can easily do this by using a Cost Value Reconciliation (CVR) tool that lets you measure costs against budgets for construction projects and report on the profitability of your project throughout its lifecycle.
6. Identify and Manage Change
It’s normal to have some change in the scope of any construction project. However, changes can negatively impact your project’s bottom line when they get out of control. A seemingly small change in scope can have a major impact down the road. It’s important to design a process to manage changes and limit the number of changes to the scope of your project.
Benefits of Project Cost Software for Construction Projects
Project costing and maintaining control of that plan may seem like a daunting task. However, when you use cost management tools in project management, you are more likely to develop a better project cost plan and stick to it.
Redsky’s project cost management software was developed specifically for the construction industry with in-depth knowledge of the needs of construction organisations. From providing risk management to improving workflow and cost estimation, our products can improve your performance, translating to measurable success, and helping you stay ahead and better your bottom line.