Cost control in construction is the process of managing labor, material, and overhead costs to avoid going over budget or deadline and to increase profit. Cost control relies on accurate estimates, constant monitoring, and effective decision-making throughout the project. Cost control also involves subcontractor management and cost coding.
Cost control is essential for any construction project because it determines the success or failure of the project. Without cost control, a project can quickly burn through its budget and leave the construction firm with very little profit or even a loss. A recent study found that only 25% of projects came within 10% of the budget in the preceding three years. That means that three out of four projects will not only exceed the budget but do so by double digits in terms of percentage.
To avoid this scenario, construction managers need to implement effective cost-control methods throughout the project lifecycle. Here are some of the best practices for cost control in construction:
- Thorough estimates: The first step of cost control is to prepare realistic and detailed estimates of all the costs involved in the project. This includes labor, material, equipment, overhead, permits, and any other costs that are likely to occur. The estimates should be based on past data, market research, and expert opinions. The estimates should also account for contingencies and risks that may affect the project.
- Constant monitoring: The second step of cost control is to track and measure the actual costs against the estimated costs throughout the project. This requires a regular and accurate reporting system that collects and analyzes data from various sources, such as invoices, receipts, timesheets, progress reports, and change orders. The reporting system should also provide timely feedback and alerts to the project team and stakeholders about any deviations or issues that may impact the budget.
- Effective decision-making: The third step of cost control is to take corrective actions when necessary to keep the project on track and within budget. This involves evaluating the causes and consequences of any variances or changes in the project scope, schedule, quality, or resources. It also involves negotiating with suppliers, subcontractors, clients, and other parties to resolve any disputes or claims that may affect the project costs. Finally, it involves implementing best practices and lessons learned from previous projects to improve cost performance.
- Subcontractor management: A key aspect of cost control is to manage the subcontractors who perform a significant part of the work on the project. This involves selecting qualified and reliable subcontractors who can deliver quality work at competitive prices. It also involves establishing clear and fair contracts that define the scope, schedule, payment terms, quality standards, and risk allocation for each subcontractor. Moreover, it involves monitoring and evaluating the subcontractors’ performance and ensuring compliance with the contract terms and conditions.
- Cost coding: Another important aspect of cost control is to use a consistent and standardized system of cost coding that assigns codes to each cost element in the project. This allows for easy identification, classification, allocation, and reporting of costs across different levels of detail, such as activities, tasks, phases, or contracts. Cost coding also facilitates the comparison and benchmarking of costs against similar projects or industry standards.
Cost control in construction is a challenging but vital skill that every construction manager should master. By following these best practices, construction managers can ensure that their projects are completed on time and within budget while maximizing their profit margins. Technology can also play a critical role in facilitating cost control by providing tools and platforms that automate and streamline data collection, analysis, communication, and collaboration among all the project participants