Whether you’re a developer planning a construction project or the main contractor responsible for completing it on time and within budget, effective cost management is crucial for project success.
Of course, even simpler construction projects present challenges in ensuring time and money are utilized wisely.
In this article, we’ll explore six key aspects—and provide actionable tips—that can empower you to master the complexities of cost management from project initiation to completion.
Let’s dive in.
In this article...
Less Manual Processes
Relying on manual methods when planning and executing construction projects can cause a variety of issues that make cost management even more complex than it is.
When we say “manual”, this typically involves using traditional spreadsheets, paper-based documentation, and manual calculations.
For project owners/developers, this can lead to, for instance:
- inaccurate cost estimates caused by data entry errors, miscalculations, and typos,
- slower and less effective collaboration between project stakeholders due to difficulties in sharing and updating physical documents and files,
- delays in the decision-making process because of the time-consuming nature of manual data entry and calculations.
As the project progresses, these consequences can translate to the principal contractor, potentially causing some of the biggest hurdles for the project’s overall success, which we listed below.
Of course, these are just the main potential problems stemming from manual construction cost planning and management processes.
For example, manual methods can also contribute to:
- suboptimal allocation of resources (labor, materials, and equipment),
- regulatory compliance issues (from accounting to safety standards),
- lack of establishing proper budget contingencies,
- no real-time visibility into project progress.
Furthermore, the absence of automated data tracking may result in difficulties in managing change orders, more administrative mistakes, and even contractual disputes.
All these just add up, resulting in cost overruns and operational disruptions.
Despite these drawbacks, some surveys of construction professionals show that almost half (47%) of them still use manual methods to collect critical project data.
So, how can you minimize the number of manual processes involved in cost management?
The answer is automation through the use of advanced technologies, primarily various software tools, which is the topic of our next section.
Technology
While some construction activities, such as framing and bricklaying, may still be more or less unaffected by technological advancements, cost management is certainly not among them.
In fact, different types of digital software tools have permeated almost all aspects of the construction industry, enabling companies to streamline their operations and extract data-driven insights.
Recognizing the wide range of such construction management solutions, we’ll cover just a few examples relevant to achieving efficient cost management.
Let’s start with the main driver of digital transformation in the construction sector, Building Information Modeling (BIM) software.
Essentially, this software allows project owners (i.e., architects, engineers, and contractors they hired) to integrate all project details into a single 3D model.
The benefits of BIM span all aspects of project management, from design to post-construction maintenance.
In terms of cost management, BIM ensures:
- precise construction material takeoffs,
- improved cost estimates,
- easy detection of design errors and clashes,
- streamlined project change management,
- enhanced stakeholder collaboration.
Whether you’re using BIM or not, another software that contributes to improving cost management is takeoff and estimating software.
More precisely, such solutions allow project owners and—maybe more importantly—prospective contractors preparing their bids to automatically measure the required quantities of construction materials and count other elements needed for project completion.
Depending on their features, takeoff and estimating tools can improve cost management by enabling users to:
- eliminate or minimize quantity takeoff errors,
- use the obtained quantities for more accurate cost estimation, budgeting, and resource planning,
- leverage cost databases to align their estimates with current market rates.
Another example of software tools that can enhance construction cost management is equipment tracking software like our GoCodes.
When preparing bids and performing construction, you’ll be able to allocate, schedule, and track all the equipment and tools needed for a project.
As illustrated, GoCodes offers many features that allow contractors to better manage their assets, including construction materials.
This contributes to better construction cost management through, for example:
- more accurate cost estimation and budgeting and more efficient resource allocation enabled by improved asset visibility,
- minimized theft, loss, or misplacement of resources enabled by asset and material tracking,
- reduced equipment downtime enabled by preventive maintenance planning.
All the above examples show how different software solutions can be leveraged to enhance various aspects of construction cost management.
Likewise, all these solutions are typically cloud-based, meaning they can be used from any location, on any device, and at any time.
In turn, this supports real-time collaboration between stakeholders, which is next on our list of cost management-enhancing tips.
Strong Collaboration
We could say that strong collaboration lies at the heart of any successful construction project.
And that’s not surprising, considering all the elements that need to come together for a project to be realized on time, within budget, and with the desired quality.
Moreover, most projects that fail to meet the above key goals are characterized by inefficient collaboration, communication, and coordination.
For example, a survey of almost 600 construction professionals revealed that 52% of all rework on projects is caused by poor communication and lack of having the right project information.
Although technology is not an end-all-be-all solution for these issues, it does facilitate collaboration between project stakeholders in the following ways:
Given the above, it’s clear that leveraging digital solutions like project management software, messaging apps, and other tools we mentioned above is essential for ensuring that all the project stakeholders:
- have real-time access to key project documentation and any changes made during project planning and execution,
- can collaborate seamlessly across different phases of the project lifecycle, fostering efficient information sharing and problem-solving, and
- benefit from enhanced transparency, allowing for a clear understanding of their roles and responsibilities.
As for other non-technological collaboration drivers, here are a few pointers:
- hold regular construction team meetings,
- establish a clear chain of command, and
- practice active listening and open communication.
Remember, a majority of future problems on a project can be identified and addressed during project planning, i.e., before they turn into costly project delays, rework, and budget overruns.
Overall, strong collaboration enabled through these practices allows you to improve cost management throughout the project lifecycle and serves as the best predictor of project success.
Risk Assessments
Considering the intricate nature of construction projects, the ability to anticipate and manage risks is paramount for effective cost management.
More precisely, conducting comprehensive risk assessments during the preconstruction phase empowers both project owners and contractors to proactively address potential project challenges.
As for contractors, this allows them to minimize the impact of any risks that materialize on project timelines and budgets, thus enabling them to better manage costs throughout the construction phase.
Of course, not all risks can be predicted or avoided, but there are some common ones you should always consider, as illustrated.
So, early identification of potential risks is the first crucial step that allows you and your team to implement strategic measures to mitigate their effects.
Once identified, listing the risks in order of importance enables you to prioritize your risk management efforts.
This involves applying the right risk management techniques, such as implementing safety protocols, establishing contingency plans, getting insurance coverage, and ensuring contract safeguards.
For instance, you can ensure that your construction contract has appropriate clauses to protect you from carrying the cost of, for example:
- sudden changes in prices of materials and other resources, such as fuel,
- delayed deliveries due to material shortages or other supplier issues, and
- project delays due to bad weather or natural disasters.
Properly assessing a variety of project risks in the preconstruction phase helps you avoid many potentially costly pitfalls down the line, thus enabling better cost management.
Moreover, you shouldn’t ignore training your team members on risk mitigation strategies, which will help create a culture of awareness and preparedness.
To recap, performing rigorous risk assessments in the project’s early stages lays the foundation for more efficient cost management throughout the project lifecycle.
As mentioned, risks can also come from suppliers, which leads us to our next section.
Strategic Procurement
If you’re the project owner/developer, strategic procurement basically comes down to ensuring you select the best contractor for the job, whether through a competitive bidding process or by hiring them directly.
In the design-bid-build scenario, this would involve:
- evaluating bids,
- considering the bidders’ past performance, and
- ensuring their alignment with project goals.
After selecting your contractor, you should also establish clear expectations, emphasize transparent communication, and foster a collaborative relationship with them.
These actions should allow you to enhance the efficiency of both initial and subsequent cost management.
However, if you’re a prospective or already hired contractor, cost management from your perspective will be greatly influenced by the choices you make in terms of procuring the required services (subcontractors) and materials (suppliers).
So, without further ado, let’s first deal with how to choose the best subcontractors for the job.
When diligently followed, the below steps can help you better manage project costs.
For instance, conducting detailed pre-hiring evaluations helps you in selecting subcontractors with a proven track record, thus minimizing the risks of delays, errors, and additional costs.
Likewise, well-drafted subcontractor agreements will establish clear expectations and terms, reducing the chances of disputes and legal complications that could impact the budget.
Naturally, maintaining good relationships and practicing open communication with subcontractors will further aid you in keeping costs under control.
As for choosing the best suppliers that will help you manage costs during construction, here’s what you can do:
Following these tips should allow you to not only choose the most appropriate suppliers but also optimize your procurement strategy and enhance cost efficiency.
To recap, implementing strategic procurement practices enables both project owners and contractors to lay the groundwork for effective cost management, minimize risks, and optimize resource utilization.
Value Engineering
Last but not least, value engineering can help primarily project owners (working closely with architects, engineers, and contractors) to reduce costs without compromising quality.
In essence, value engineering (VE) is a systematic process focused on optimizing the functions of a project by analyzing its components and finding alternative solutions that offer the same or enhanced benefits at a lower cost.
This collaborative process involves evaluating design elements, materials, and construction methods to identify cost-saving opportunities while maintaining or improving performance.
The below image illustrates the key principles of value engineering, emphasizing the aim of achieving the optimal balance between cost and advantage.
By pinpointing areas with high costs and low advantages, project teams can strategically target improvements, aiming for the coveted low-cost, high-advantage quadrant.
This methodical approach ensures that each modification contributes to cost reduction without compromising the project’s overall value or functionality.
The value engineering methodology can be summed up in six steps that you can see below:
As you can see, the process starts with information gathering, which is followed by analyzing the project’s primary and secondary functions.
During the brainstorming and idea-generation phase, the project team generates alternative solutions and ideas for cost optimization.
Then comes evaluation or the cost-benefit analysis, where each proposed alternative is evaluated in terms of its impact on cost, functionality, and overall project goals.
This is followed by development, i.e., creating a comprehensive plan for implementing the selected value engineering changes, and then presenting these findings to other stakeholders and decision-makers.
Finally, we should note that implementing value engineering early in the project lifecycle empowers stakeholders to make informed decisions that positively impact the budget and ensure effective cost management throughout the project.
Conclusion
So, all that’s left is to underline that effective construction cost management is the linchpin for project success.
The practices we covered, from minimizing manual processes through the use of technology to strong collaboration, rigorous risk assessment, strategic procurement, and value engineering, can streamline various aspects of your cost management.
In doing so, embracing advanced software tools stands out as a necessity for construction companies that want to ensure better cost control and pave the way for streamlined processes, reduced errors, and ultimately, project triumph.
