3 keys to successful construction cost management | ICSC

Managing construction costs isn't just about having the funding and spending it on the right things. It's also about having the proper cash ... 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Managingconstructioncostsisn’tjustabouthavingthefundingandspendingitontherightthings.It’salsoabouthavingthepropercashflowtomeetexpenseswhentheyarise.Therearemanyplaceswheremoneyisspentandmanyopportunitiesforcoststogetoutofcontrol. Manualprocessesthatcontributetocostspirals Theslow-startfactor.It’snotunusualforaprojecttobeconceptualizedandfundedatonepointintime,thensignedoffonmuchlater―withoutanyadjustmentstothebudget. Invoicingdelays.Manualinvoice-approvalprocessescanaddasmanyas90daystotheaccountingcycle,makingaccountingrecordsquicklyoutofdate. Complianceissues.Accountingisgovernedbystrictrulesthathaveseriousconsequences.Violationsandspiralingfinescanresultfrominconsistenttrackingmethodsorfromaspreadsheetorpaper-basedsystem’sinabilitytotracktherequiredinformationaccurately.Busyprojectmanagerscanbetakenofftheirprojectsforweekseveryyeartohelptrackdowndocumentsrequiredbyauditors. Administrativeburden.Transactionsareoftenhandledthroughemail,wheretheycanlanguishfordaysorbecompletelyoverlooked.Costscancreepeasilybecauseofthisinefficientadministrativestyle. Apaper-basedmentality.Manyorganizationsstillrelyonspreadsheetsandpaper-baseddocumentationtomanagetheircapitalimprovementprojects,evenmultibillion-dollarones.Plus,whennewcommitmentsandchangeordersarise,thecopiesofdocumentsincrease,quicklymakingmostpreviouscopiesoutofdate. Litigation.Constructionisaverylitigiousindustry.Profitmarginsforcontractorsarelow,typicallyaround3percent.Ifanadditionalunplannedcostarises,acontractorwillfighthardtonotcarrytheburden. Inaddition,manyconstructionprojectownersoverseemultipleprojects.Stayingwithinbudgetissocrucialthatsomebuildsignificantover-budgetcontingenciesintotheircapitalprojectplanning.Stickingtothatprojectionthenisconsideredawin. Managingcostsisaboutvisibilityintocostsandthencontrollingthem.Shavingeven1percentor2percentoffaconstructionbudgetcanyieldsignificantsavings.Formanyprojectowners,that’sabigchallengebutonetheycanaddresseffectivelythroughathree-prongedapproach:Beginwithstrongleadership;beproactive,notreactive;andalignpeople,processesandtechnology. 1.Beginwithstrongleadership Asaprojectprogresses,hundredsofvendors,dozensofspreadsheets,disparatetrackingsystemsandthousandsofdecisionscomeintoplay.Costmanagementcangetoutofcontrolquickly.Projectshavebeenknowntoexceedtheoriginalbudgetbyanywherefrom100percentto300percent.Fewprivatebusinessescouldsurvivemanysuchcostoverruns,andofficialswhoanswertotaxpayerscouldfindthemselvesoutofajob. Aprimaryfactorinthesuccessofanyprojectisleadership.Constructionprojectownersmustbeinvestedinaproject’ssuccessandtakefullresponsibilityforit.Contractors,designersandbuildingmaterialmanufacturersaretheretoprovideservices,butthebuckstopsattheprojectowner’sdesk.Whenmanagingconstructioncosts,projectownershaveseveralresponsibilities,including: Integratingcostsummariesfromprojectconceptiontopost-constructionfacilityoccupancy Ensuringthatfundsareallottedforeverystageoftheproject,fromrealestateacquisitiontoarchitectureanddesign,permitting,engineeringand,ofcourse,construction Makingcostdecisionsthatimprovethetotalcostofownershipfortheprojectovertime,beyondjusttheimmediatecostofconstruction Creatingtransparencyaroundhow,whenandwheremoneyisbeingspenttoensureregulatorycomplianceandproperoversight Planningforcontingenciesthatcouldimpactprojectedandactualcosts Forecastingfinalcostatcompletionatanytimeduringtheprojectdelivery Byswitchingfromamanual,paper-basedprocesstoadigitalsolution,aleadercanhelpinsulatetheirprojectsfromthesetypesofriskandmore. 2.Beproactive,notreactive Eventhebest-laidplansaresubjecttochange,andthat’scertainlytrueintheconstructionindustry.Constructionprojectbudgetsareparticularlyvulnerabletochangeorders,mostofwhichareattributabletoerrorsandomissionsinplansorspecifications,unforeseensiteconditions,codechanges,constructionprojectowner-drivenchangesandtechnologyadvancements. Changeordersaredisruptivetobothtimeandresourcesandcantakeupasizableportionofprojectcosts,butitdoesn’thavetobethatway.Whilesomechangeordersareunavoidable,othersareunnecessary.Collaboration,transparencyandtherightconstructioncostmanagementapproachcanminimizechangeordersonbothcurrentandfutureprojects. Strong,accurateforecastingbasedonreal-timedataenablesconstructionprojectmanagerstoanticipateandplanforchangesbeforetheyhappenorinsomecasestoavoidthemaltogether.Aproactivemindsetrequiresthedemandoftransparencyfromcontractors,implementationofformalapprovals,andauditingofthedecisionscontractorsmake.Anautomated,data-drivencostmanagementsystemhelpsanticipatecostrisksreadily,mitigateandeliminatethoserisksandleveragepastprojectperformanceinpresentandfuturedecision-making.Successfulprojectownersdon'ttellthemselves,"That’sthecontractor'sresponsibility."Rather,theyunderstandthatanymistakesoroversightsonthecontractor'spartultimatelywillbepaidbythemselves,eitherindirectcostorviascheduledelays.Topprojectownershavea"trustbutverify"philosophy. 3.Alignpeople,processesandtechnology Ifaprojectowner’steamhasaccesstothedataitneedswhenitneedsit,itsmemberwilldotheirbestwork.Processesandtechnologyshouldintegratesoeachpersonhasaccesstotheinformationtheyneedfortheirrole.Astrongcostmanagementsystemandawillingnesstoinvestinthepeoplethatwillrunitcreatesasolidfoundationforsuccess.Whenaconstructionprojectownerpossessessimplified,unifiedcontroloverfundsbasedonaccurate,data-drivenforecasting,theycansavemillionsofdollarswhilekeepingallstakeholdershappy. Lookforaflexible,malleable,yetdetailedsystemcapableofrollingupdataacrosstheprojectonaday-to-daybasis,aswellasacrossprojectstotheprogramlevel.Asystemthatforcesconsistencywillhelpensuretheprojectdoesn’tgooverbudget.Itshouldbeeasytouse,meetstakeholderneedsandprovidetransparencyandvisibilityineveryareaofprojectexecution.Aconstructioncostmanagementsolutionshouldfitthebusiness.Startbyestablishingspecificgoals,andthenbeiterativeandfocusoncontinuousprocessexpansion. Asolutionthatfitsthebusinessandtheindustry Constructioncostsdon’thavetospiraloutofcontrol.Aconstructionprojectmanagercanreinincosts,improvevisibilityandstayontopofeveryaspectoftheprojectfrombeginningtoend. Withe-BuilderEnterprise,constructionprojectmanagerscanmonitorevents,monitorcash-flowburnrate,monitorhowbudgetisbeingspentandminethedatafrompreviousprojectstoestimatefuturecostsaccurately.Theplatformcanintegratewithaprojectowner’saccountingsystemtopullactualcostsindirectlyfromaccountingsolutionssuchasSAP,Oracle,Lawsonandotherenterpriseresourceplanningsystems,givingprojectmanagerseverythingtheyneedtocontrolcostsanddeliveron-budgetprojectswithoutspreadsheets. E-BuilderEnterpriseperformscomprehensivecostmanagementfromfundingandbudgettochangeordermanagementtoinvoicing.Itcoversallphasesoftheprojectlifecycle,includingcapitalplanning,design,procurementandbidding,construction,andfacilityoperations.Becauseitintegratescostcapabilitieswithreal-timeworkflow,everyoneinvolvedinaprojectcanseeconsistentlywhatfundingiscomingthroughonabudgetorcontract.Andexpertconsultancyservicescanhelpdesigntherightconstructioncostmanagementprocessthatcansavemoneyandmakeprojectsmoreefficient. Constructionprojectownersneedprogrammanagementthat’sbuiltfortheirbusinesses,notforcontractorsorvendors.Itshouldoffer: Aflexiblebusinessprocessmanagementenginebuiltaroundthewaytheydobusiness Datacollectionwithintelligentformsthataworkflowmanagercanrouteautomaticallythroughadrag-and-drop AnintegrationAPIthatconnectstoaccountingandotherenterprisesystems Arobustdocumentmanagementsystemwithautomatedversioncontrolandaudittrail Thee-BuilderEnterpriseplatformprovidesallthisandmoretomanageend-to-endprojectcostsfromcapitalplanningthroughestimatethroughconstructionbaselineandchangesandtokeepconstructionprojectmanagersontopofcostmanagementforthelifeofeachproject. Tolearnhowe-Buildercantransformyourconstructioncostmanagement,clickhere. LoginwithyourICSCMembershipforunlimitedCommerce+CommunitiesTodaycontent. Memberlogin NotanICSCmember? 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