Cost Control in Construction

In this blog post, we will explain what cost control in construction is, why it is important, and how to effectively implement best practices for cost control in your construction project.

What is Cost Control in Construction?

Cost control in construction involves managing and monitoring expenses like materials, labour, and overhead costs to keep projects within the initial budget. This practice ensures projects stay on track and enhances profitability by improving financial management.

The key to effective cost control lies in precise cost estimation, careful expense tracking at each construction stage, and proactive identification of areas for cost management improvement. This approach reduces project delays, shortages, waste, and enhances the overall quality of the final construction.

Why is Cost Control Important in Construction?

Cost control in construction is essential because without proper management, it is easy to exceed the budget, leading to the exhaustion of funds. Implementing cost control measures ensures adherence to the initial construction budget, enhances profitability, and ensures timely project delivery.

Effective cost control practices can mean the difference between depleting finances prematurely and generating profit from a construction project.

Furthermore, cost control can significantly impact a contractor’s reputation. A company known for precise project execution within deadlines and budgets is more likely to secure future construction projects. Therefore, dedicating time and effort to effective cost control practices can enhance the company’s reputation.

The primary roles of cost control include:

• More precise initial cost estimation
• Accurate tracking of project expenses
• Negotiating favourable pricing with subcontractors
• Optimization of resource allocation
• Detecting areas for better cost management
• Mitigating budget overruns

Examples of Cost Control in Construction

Here are some examples of cost control practices in construction:

• Initial budgeting – A project manager might use a software program to create a detailed budget for the project, which will later serve as a cost benchmark.
• Labour productivity monitoring – A project manager might use time tracking software to monitor labour productivity and identify areas where productivity can be improved.
• Inventory management – A project manager might use a just-in-time inventory system to ensure that materials are delivered to the site just when they are needed. This practice reduces waste and ensures materials are delivered as needed.
• Change order management – A project manager might require that change orders be approved by the client and the project team before they are implemented.
• Daily reports – With a quality project management software, it’s easy to track expenses throughout the project and generate reports that show how much money has been spent on each task.
• Renegotiation of contracts – Occasionally, approaching dependable subcontractors to renegotiate contracts for more favourable terms is an effective strategy for ensuring sound cost management.
• Getting competitive bids from different vendors – Obtain quotes from different subcontractors, so you can prequalify them before choosing who to work with.

How to Implement Cost Control Techniques in Construction?

Follow these techniques to develop a successful cost control plan:

• Start with thorough cost estimation – Careful expense planning forms the foundation for effective cost management. Strive for detailed estimates, gather evidence from similar past projects if available, and categorize main project expenses such as materials, labor, equipment, and overheads.
• Detailed cost categorization – Categorize and group costs sensibly, such as labor, materials, permits, subcontractors, and similar categories. This categorization helps in identifying cost bottlenecks and optimizing business processes by understanding which type of cost contributes the most to the total expenses.
• Invest in high quality project management software – Appropriate software can automate tasks, visualize costs through tables and charts, and generate real-time reports, facilitating effective cost analysis.
• Regularly monitor expenses – Regularly compare actual expenses to the initial estimates to identify deviations early in the project, helping in timely budget adjustments.
• Identify areas for cost management improvement – Analyse which expenses impact your project budget the most. Optimize aspects such as redefining outsourcing and subcontracting procedures, improving material and equipment management, reorganizing order processes, and enhancing communication with team members and subcontractors.
• Communicate timely with your team – Effective communication ensures accurate and timely work while simplifying processes by eliminating unnecessary activities and costs. Ensure everyone is aligned on project priorities and procedures for streamlined operations.
• Develop backup plans for risk and contingency management – Always make a contingency fund for unexpected expenses based on the assessed project risks.
• Manage change orders – Restrict change orders in your contract to adhere to the initial project plan and budget.
• Post-project review – Generate reports for stakeholders which include the final project costs and deviations from the initial budget. Provide recommendations for future cost-saving measures and address key challenges in cost management. This can also be done sequentially at various stages of project completion.

Frequently Asked Questions

What is the Difference between Cost Control and Cost Estimation?

While cost estimation focused on forecasting the costs of a project, cost control is focused on managing and monitoring the project costs to ensure that the project stays on budget.

What are the Different types of Construction Costs?

Construction costs primarily fall into three direct categories: labor, materials, and equipment. Additional expenses like fees, overheads, clean-ups, site preparation, and permits are classified as indirect costs. Unforeseen expenses such as change orders can also arise unexpectedly.

What Are the Most Common Causes of Cost overruns in Construction?

Cost overruns in construction are often caused by inaccurate project estimates, change orders, poor site management, subcontractor problems, and unforeseen events, as bad weather, strikes, and supply chain disruptions.

How Can I Develop a Budget for my Construction Project?

To create a construction project budget, first, define the scope of work, and specify all tasks. Then, estimate costs for materials, labour, equipment, and overheads, and take into consideration all indirect cost as well, such as fees, permits, and site preparation. Then, create a budget template with task details, and estimated and actual costs. Regularly review the budget to identify issues and make necessary corrections if needed during the project.

How Can We Help You With Managing Your Project Cost?

Property & Building Assessments assist in construction cost control by providing precise cost estimates, identifying savings opportunities, and negotiating favourable terms with suppliers. Our expertise ensures projects stay within budget constraints, preventing overruns and maintaining financial stability. Get in touch today!

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Angelo Antidormi

Managing Director at Property & Building Assessments Pty Ltd

Angelo Antidormi, Managing Director with over thirty years of experience in the building and construction industry, leads the team of experts at Property & Building Assessments Pty Ltd, providing professional construction advice and value-adding solutions to clients in areas of dispute, estimation, cost planning, and project management.

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