Construction projects have a notorious reputation for surpassing their budgets, with recent studies indicating that only 25% of projects have stayed within 10% of the budget in the preceding three years. This means that the remaining 75% of projects not only exceed their budgets but do so by double digits, which can be discouraging for facility owners and managers looking to manage their costs efficiently.
However, managing your budget is not an impossible task for facility owners & managers, and with a few changes to your cost control processes, you can ensure that your projects are within the 25% that stay on track.
Cost control is a crucial aspect of construction management that can make or break your projects. Therefore, it’s essential to get it right.
Overview: What is cost control in construction?
Effective cost control in construction involves the management of labor, material, and overhead expenses to ensure that a project is completed within the allocated budget. It relies on accurate estimates and ongoing monitoring throughout the project’s duration. Without proper cost control measures in place, a construction project can easily exceed its budget, resulting in cost overruns. Therefore, implementing effective cost-control processes is crucial for the success of any construction project.
8 methods for construction cost control
Cost control can be a challenging skill to master, especially in the construction industry. However, there are several proven cost control techniques that can be applied to your next project to help you achieve better results. So, even if you haven’t fully mastered cost control, there’s no need to worry. By implementing these eight effective methods, you can make a significant impact on your project’s costs.
1. Thorough estimates
Effective cost control in construction starts with thorough project planning. Rushing through this phase can lead to costly mistakes and overruns down the line, regardless of the cost control techniques you employ.
To avoid this, take the time to carefully estimate costs based on past projects, including labor, materials, equipment, overhead, permits, and other expected expenses. Be realistic in your estimates and avoid being overly optimistic. It’s always better to have unexpected savings than to struggle with an overrun budget.
Quick tip: When making cost estimates for your construction project, it’s important to get input from your team members. Don’t make estimates in isolation; ask each person involved in the project to review the estimate and provide feedback. Their insights and expertise may help you identify potential issues or areas where you can cut costs. By taking advantage of your team’s collective knowledge and experience, you can improve the accuracy of your estimates and set your project up for success.
2. Strong communication
Effective communication is key to staying on budget in construction projects. When you and your team have a clear understanding of project requirements, timelines, and available resources, it becomes easier to avoid overspending.
Moreover, open communication ensures that everyone can work together to find solutions to problems that arise. To facilitate communication, consider using a common mobile app that allows everyone to stay connected and informed. This can help ensure that everyone is on the same page and working towards the same goals.
Quick tip: Assign specific communication responsibilities to your crew to ensure effective coordination. For instance, you can establish a rule that your workers report their daily progress to the foreman at a specific time every day. By implementing a system for regular communication on crucial tasks, you can stay informed of any cost-related information that you need to know.
3. Daily reports and continuous updates
To complement the previous point, it’s essential to have your team submit daily reports that update you on the project’s status and any changes that occur. By doing so, you can identify any cost overruns or potential disruptions to the project schedule, allowing you to take prompt corrective action.
By monitoring the project regularly, you can reduce the likelihood of unpleasant surprises when reviewing the budget at the project’s end.
Quick tip: Make sure that the daily reports are comprehensive enough. Often, daily reports only offer a general overview of the day’s activities. To get the most out of them, they should contain specific information such as the tasks that were performed, the equipment that was used, the amount of materials that were consumed, the man-hours that were spent, and other relevant details. This level of detail will allow you to better track your expenses and identify areas where cost control can be improved.
4. Backup plans
If an unforeseen event occurs during the project, like a critical piece of equipment breaking down or a subcontractor quitting, it’s crucial to have a contingency plan in place.
As you plan your project, identify potential risks, like those mentioned above, and develop a plan detailing exactly what actions you will take to prevent any further cost increases.
For instance, you might keep a spare piece of equipment on standby or identify a backup electrician in case the current one is unavailable when you need them. Having a contingency plan in place will allow you to respond quickly and avoid costly disruptions to the project.
Quick tip: It’s important to involve your team in identifying potential risks and developing a backup plan. They have first-hand experience working on the project and can identify risks that you may not have considered. By consulting with them, you can develop a more comprehensive backup plan that takes into account all possible scenarios. This will give you a better chance of staying on budget, even when unexpected challenges arise.
5. Trusted subcontractors
As previously mentioned, subcontractors are not considered your employees and can often cause delays and increased costs. It is possible that they may not be available when needed, fail to meet your quality standards, or face communication problems.
To avoid these issues, it is advisable to establish a reliable group of subcontractors that you can rely on instead of continuously searching for new ones during a project’s crucial moments.
Quick tip: Evaluate the performance of subcontractors after every project and maintain a record of their results. By maintaining a database of these subcontractors, you will have a reference to consult when planning for future projects.
6. Limited change orders
Change orders are a major contributor to increased costs in construction projects. General contractors are often required to make expensive modifications to the project based on the client’s demands.
Restricting change orders in your contract to emergency situations or your own errors can help reduce the impact on your overall expenses. This approach may result in substantial cost savings for future projects.
Quick tip: A well-prepared and precise scope of work can reduce or eliminate the need for numerous change orders. It is essential to work closely with the client at the beginning of the project to establish clear expectations and minimize the potential for change orders.
7. Post-project evaluation
Upon completing a project, it is important to conduct a post-project evaluation to assess cost control measures, regardless of whether the project remained within budget or not.
Meet with important stakeholders to review the original budget in comparison to the final expenses. Analyze the successes and shortcomings of the project, and discuss the changes required for future projects.
Examine the project data in-depth by generating numerous reports from various perspectives. Analyze statistics related to change orders, equipment usage, and labor to gain a more comprehensive understanding of the project.
By investigating every aspect of the project, you will gain more detailed and nuanced insights that will be valuable for future projects.
8. Construction management software
Unless you are handling a small project, managing costs with simple spreadsheets is almost impossible in construction. For effective cost control, it is necessary to use construction management software.
In addition to managing finances, this software can generate daily construction reports, assist with construction planning and scheduling, streamline workflow, organize bidding, and perform other essential tasks that construction managers require.
Quick tip: Before committing to a specific software platform, it is advisable to test out several options. Even if a particular platform receives rave reviews, it may not be the best fit for your company.
It’s time to overhaul your cost control process
Managing construction projects can be challenging, especially when project costs begin to spiral out of control. If you consistently find that project expenses far exceed initial estimates, it may be time to revamp your approach to construction cost management.
Collect and analyze data, meet with your team, and collaborate to identify why construction costs continue to increase and how they can be better managed.
Consider whether a more detailed construction timeline or implementing in-progress accounting could help. Determine if there are costs that are consistently overlooked during the planning phase or if there are recurring incidents on the job site that could be minimized to reduce costs.
We are committed to delivering the highest level of accuracy, reliability, and professionalism in all of our electrical construction cost control services. Contact us today to learn more about how we can help you achieve your construction goals.
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