It’s safe to say that tracking costs in construction projects is one of the most demanding tasks that contractors and project managers face in their work.
With so many different sources of expense information, and so many people involved in cost monitoring and reporting, establishing an efficient cost-tracking system can seem overwhelming.
However, it doesn’t have to be.
Here are five things you can do to ensure that project costs are tracked and analyzed, and insights are used to control the budget and schedule, thus keeping the client happy and your productivity, profit, and reputation intact.
In this article...
Set a Budget
To understand which expenses will need to be tracked, the first step is to establish the project budget, preferably based on accurate cost estimates rooted in past experiences with other projects.
In whatever way project budgets are created, they ultimately account for all the costs that will be spent on a project from initiation to closeout, including construction labor, materials, equipment, energy/fuel, legal and regulatory fees, etc.
Moreover, budgets also include provisions for unforeseen events, i.e., contingencies, which are determined by assessing project-specific risks, limitations, and dependencies.
All these costs should be estimated based on the project plan, design, and specifications coupled with the construction team’s expertise, experience, and analysis of previous projects’ expenses.
Nowadays, a whole range of construction budgeting software can help you estimate costs, set an initial budget, and track expenses in real time, like Planyard.
This and similar construction management tools can help contractors get a clear overview of all necessary expense categories and distribute the funds to appropriate budget items.
More importantly, the resulting budget will highlight what key costs should be tracked and provide the baseline against which they can be measured.
As a result, the project manager, client, and other stakeholders will be able to track the financial side of the project’s progress and, supported by cost forecasting, assess its status against actual and anticipated expenses, like in this example.
This job status report lists the main budget lines (labor, material, subcontracts, etc.) and shows their budgeted cost, expected total cost to completion, actual cost-to-date, and the over-under amount.
Similarly, cost reports, whether prepared monthly, quarterly, or on request, are also used to monitor expenses and keep the client and other parties informed.
To sum up, basing the budget on as precise as possible cost estimates enables contractors not only to determine what expenses need to be tracked but also gives them a baseline against which they can compare the actual costs, and keep the project budget under control.
Assign Someone to Handle Cost Monitoring
In some construction companies, the task of cost monitoring is entrusted to specialized staff members with titles like cost manager, quantity surveyor, or cost controller.
In other, usually small-to-medium construction businesses, this task can be assigned to a trusted staff member such as the project manager (or their assistant), accountant, or administrative coordinator.
Either way, they make sure that, if possible, a single qualified person dedicates some or all of their time to tracking project costs.
When that’s so, cost tracking becomes more reliable and reporting becomes more consistent since that single source will have a complete overview of all expenses.
When we consider the steps in the cost control cycle shown below, we can see that persons assigned to monitor costs can have a range of duties needed to achieve effective cost control.
We’ve already covered how setting the budget establishes benchmarks against which costs can be tracked.
This should be followed by preparing forms for cost reports, daily reports, inspection checklists, and all other data points that will capture ongoing construction tasks and specify the labor, materials, and equipment used to perform specific on-site activities.
These will, in addition to different invoices for services rendered (suppliers, subcontractors, consultants, etc.), form the basis for efficient cost monitoring.
Now the person responsible for tracking costs can collect all those progress updates along with invoices, compile and analyze the data, and produce reports highlighting any issues that may affect project costs, thus allowing the project team to take appropriate actions.
Naturally, whether this individual is the cost manager, project manager (or, more likely, their assistant), bookkeeper, or administrator will depend on many factors, such as the company size and project requirements.
The important thing is to have one person dedicate their time to tracking project costs, as that will ensure more reliable tracking and consistent reporting because that single source will have a complete overview of all expenses.
Gather Expense Information
Considering the complexity of most construction projects, information on the current project expenses is collected from various sources like paper and digital invoices, receipts, spreadsheets, timesheets, and different reports.
On top of that, expense information is also gathered from software tools typically used by contractors, such as various construction project management, accounting, and reporting solutions, or all-in-one platforms like Procore.
Of course, with so many costs to be tracked and entered into different software systems, almost any project team member or company employee, including team leaders, assistants, secretaries, IT personnel, and the purchasing team, can be involved in gathering expense information.
However, that’s also what makes collecting info on ongoing construction project costs challenging for many contractors, which is supported by different statistics like the one that almost 70% of construction projects exceed their budget by more than 10%.
So, since better cost control is clearly needed, let’s look at what contractors can do to ensure that accurate expense information is gathered and project costs are efficiently tracked:
This will ensure that material quantities, work hours, equipment usage, and other expenses are not seriously underestimated and that the gathered expense information will be benchmarked against realistically planned costs.
As for cost reports, relevant expense information is best gathered if daily reports incorporate a quantitative analysis of the construction resources spent on-site, both in total and for specific tasks.
This will enable those tasked with preparing cost reports to easily collect relevant expense information, especially when reports are already digital or when paper reports are scanned, processed, and digitized.
Thus, the challenging process of gathering information on ongoing project costs can be tackled with good planning and organization aided by various software tools, allowing contractors to track expenses efficiently, identify potential issues, and take timely action.
Centralize the Gathered Information
Regardless of which sources relevant cost data is gathered from, it’s best to keep all the expenses together in one centralized place, be it a spreadsheet or financial/cost management software.
For instance, small contractors who use little or no digital tools to track their costs can benefit from establishing a project cost tracking spreadsheet.
It can be modeled after the budget and include the planned expenses for project milestones or any other specific construction stages or time periods (weekly or monthly).
This spreadsheet should also include an empty column for actual costs collected from different sources in the same periods.
So, when actual costs are entered, this enables all project stakeholders to quickly review the project’s financial status on a single spreadsheet like this one.
To create such a spreadsheet for a specific construction project, you can use one of many free templates on the web.
Nevertheless, as we’ve mentioned earlier, centralizing the gathered cost information is best done by utilizing one or more software tools where all the relevant parties input their costs by following standardized procedures.
It’s even better when all the cost data entered by employees into different software solutions are integrated into one easily accessible place, usually as part of cloud-based construction project management software.
Thus, centralizing data costs can be as simple as the project manager learning to use the cost tracking and analytics features available on their construction management app.
For others, it can mean utilizing specialized software that integrates all aspects of cost management, like Danaos.
Whatever type of construction management software is used for cost tracking, the centralized source of cost data should be cloud-based so that relevant team members and stakeholders can review project progress against the budget and schedule at any time, from any place or device.
Overall, centralizing the expense information gathered from different sources in one place that all project stakeholders can easily access will enhance overall transparency and accountability and enable efficient analysis of tracked costs.
Analyze Tracked Expenses
Project costs should be analyzed to provide timely insights that can prevent cost overruns and save the budget.
In other words, to ensure that spending doesn’t exceed the budget, actual expenses should be compared to the budget estimates throughout the project lifecycle.
In this way, the project team can detect out-of-control costs and make necessary adjustments to keep the budget (and schedule) in check.
Naturally, there are many instances when costs will go up for reasons out of the contractor’s control, such as project changes made by the client.
Actually, let’s look at other common causes of cost overruns and consider how analysis of tracked expenses can help address them.
For instance, if some part of the project needs to be changed because of a design error, that will create a cascade of other costs that will throw off the budget and schedule.
However, when the additional costs caused by the resulting change order are properly estimated, tracked, analyzed, and ultimately included in the budget, the contractor and client can find more cost-efficient ways to keep the budget (or the client’s expectations) under control.
As said, tracked expenses can be analyzed and compared to estimates by using anything from a simple Excel spreadsheet to an enterprise resource planning (ERP) system.
Furthermore, when specific expenses are too high and reasons unclear, analytic functions of other software can be used to pinpoint the root cause, thus helping address the ensuing budget overrun.
For example, asset tracking software like GoCodes, which enables contractors to track tools and equipment across different jobsites, can also be used to track maintenance costs, while its analysis and reporting features can provide insights into the causes of some cost overruns.
This and other software solutions used for tracking different aspects of construction operations can often be used to complement the analysis of tracked costs and help identify reasons why some costs are ballooning.
Overall, analyzing tracked expenses is the key factor that enables continuous comparisons between planned and actual costs, thus allowing the contractor, client, and other stakeholders to timely address issues before they snowball into expensive cost overruns.
Although efficient tracking and analysis of ongoing costs throughout the project require good planning, organization, and reporting, it’s evident that there are various methods and software tools contractors can utilize to streamline the entire process and reap the resulting benefits.
Thus, taking these tips, adjusting them to your specific needs, and implementing them will allow you to effectively control the project budget and schedule, thus keeping the client happy and your productivity, profit, and reputation intact.