3 Steps to Better Cost Control in Construction Projects

The latest research from Deloitte and Autodesk found that economic uncertainty was cited as the top challenge for Australian construction businesses. 61% of construction businesses reported that rising material and labour costs significantly impacted their financial viability. KPMG research also shows just 31% of projects come within 10% of the original budget, indicating that budget control is more crucial than ever in this uncertain economic climate.

Construction professionals can take three vital steps to contain and optimise costs in their projects.

Step 1: Tackle the root causes for cost overruns in construction projects

In most cases, a project’s overrun results from inaccurate analysis or planning before the building even starts. In parallel with better planning, technology can help to reduce the common problems or elements that contribute to cost overruns, ensuring you can maximise efficiency and profits.

Below are some of the most common cost overruns to mitigate.

Inaccurate project estimates

While many of a project’s stakeholders are eager to get the project’s building started, if you begin with faulty schedules and budgets, your project is headed for an overrun from day one. Due to the

competitive nature of the tendering process, estimates may suffer from wrongful expectations of the scope of work included in the project. In many cases, some projects will also be estimated on a one size fits all basis, with chances of exceeding that initial estimate high. Therefore, it’s vital to your project’s success to do your diligence in the preconstruction phase and be accurate and realistic about project deadlines and costs from architects and contractors.

Estimating the project accurately can get started in the construction RFP process. This is the opportunity where project stakeholders can express their concerns over budget and timelines. If any parties appear unrealistic about timing or budget, this should be an immediate red flag.

Serious project design errors

Unfortunately, design deficiencies are too common. Sometimes these could be incomplete or incorrect plans resulting in substandard work. These issues can be mitigated with software that ensures everyone is on the same page, reducing the risk of errors or incomplete designs. For example, during construction, if the project experiences an unexpected change in its scope, it is much easier to plug those design changes into a dynamic digital model than to redraw them on paper.

Alternatively, owners and contractors should agree on the specific Scope of Work and performance duties in the contract phase to enable contractors and subcontractors to build according to the design specifications. This documentation should include clear references to:

  • All project specifications on design documents
  • Warranties of the exact work to be completed by contractors
  • A risk allocation chart or definition
  • A process for unforeseen issues
  • A dispute resolution and/ or mediation process
  • Not planning for change orders

Change order requests added after the budget has been set often result in cost overruns. The additional time, labour and materials required to complete the change may also be classified as a cost overrun if it affects other aspects of the project. Consequently, changes can usually be best addressed in the contract phase, when a Change Order Provision can be added to specify procedures and budget needed should a change occur. If it isn’t addressed ahead of time, contractors might increase their total cost of a contract up front in anticipation of changes.

Poor site management

Stakeholders on construction sites have different interests, which can add to instability when site changes occur. Site changes must be communicated effectively and quickly, especially across large sites.

With software, calculations and designs can be referred to digitally for accurate reading, and different scenarios can be tested to see which will result in a better outcome. Because digital calculations are assured to be precise (accurate inputs are needed), and software designs can be trusted to accurately depict on-site descriptions, decisions can be made quickly based on solid information, not differing interests.

Online access to designs and scenarios allows for greater communication from remote locations. Decisions can be made while project leaders are on-site, looking at an issue directly. Faster communication also leads to better decisions, as real-time insight can address a situation before it snowballs into a bigger issue that impacts the budget.

Not working with the right teams

Overruns can be the result of subpar work. Less experienced subcontractors can cause costly mistakes, delays and errors, even with the most impeccable designs and plans. Subcontractors are often chosen on cost rather than proper qualification. Using the wrong teams exposes contractors to risk. Contractors who go through the extra steps to ensure subcontractor qualification will reduce the probability of experiencing significant cost overruns on construction projects.

Step 2: Reduce project risks with the right technology

Construction firms often face financial risks from client disputes. The global average value of construction disputes was $52.6 million, according to Arcadis’ 2022 Global Construction Disputes Report. Disputes can cause disruptions during construction projects, resulting in project delays, broken contracts and even litigation.

Here are some risks that can be reduced using construction software.

Defects

Technology lowers the risk of defects from failure to repair or remodel properly. By arming contractors with better data and access to crucial information, construction teams can avoid mistakes that lead to injuries and claims.

Claims discovery delay

Contractors have often found it difficult to defend or clarify their actions when a problem occurs. Software that improves documentation and provides all information accurately could help the contractor avoid litigation.

Property damage

If property damage is not the contractor’s fault, centrally stored data or activity logs can help prove this to key stakeholders and authorities.

Contract compliance

Software can help address contract compliance by ensuring accuracy and fostering clarity of scope throughout the entire project lifecycle, avoiding potential disputes downstream. Using software to create a collaborative environment and enabling information sharing between all project stakeholders, rework and coordination issues are much less likely to arise.

Safety risks

Safety issues and incidents can raise your insurance costs. With a well-documented safety record, your

firm will pay less in premiums. Strong safety culture and qualified subcontractors are foundational for reducing safety risks and issues. Technology can further solidify the success of safety programs and new innovations can even proactively reduce risk.

Step 3: Choose the right cloud software to optimise cost workflows

The best way to gain control over your construction finances is to have a central cost management system that provides flexibility and customisation to meet changing and unique project needs. Here are the key attributes of a solid construction cost management system that keeps your projects running on time and within budget.

Connected and centralised cost management. It is critical that the system that you’re using to record, calculate, and forecast costs is connected to any other related applications being used. Doing so keeps multiple moving parts in sync, eliminates the need for double-entry, and helps teams be more efficient.

When you centralise the management of all cost activities, you ensure that your construction data is connected and auto-updates across the platform to offer an accurate view of the project’s financial health. A centralised system also provides a single source of truth, so stakeholders can have one reliable hub for data. Finally, a tightly connected cost management system can offer a real-time view of your project’s financial health, so you can make better decisions and forecast costs more accurately.

Customisable structures and terminology. You want a construction cost management solution that adjusts to your unique processes, so equip your team with a solution that lets you customise structures and terminology.

A robust cost management tool will allow you to rename tabs, set up custom budget structures that work with any accounting system, and create custom-calculated budget columns.

Automated workflows. Ideally, you want a cost management solution that can help automate manual tasks like elevating an RFI to a potential change order, moving change orders through the approval process, generating contracts, and payment applications easily. It’s even better if the solution allows you to improve consistency and transparency of company-defined processes across projects by creating custom approval workflows. Utilising a decision-based workflow engine, teams can automate the routing of internal approvals for Owner Change Orders, Supplier Change Orders, and Contracts based on specific conditions.

The greater accuracy and consistency of your cost-related workflows, the more likely a project will be delivered on schedule and within budget — a win-win for all parties involved.

Benefits of Cost Control

There's no way around it—construction budgets can get out of hand, fast. Utilizing cost control principles can help you stay within budgetary limits throughout the course of your project.

Some of the ways that implementing cost control principles can help you stay within your construction budget include:

  • Prevents Budget Overruns: Effective cost control helps identify potential overspending early in the course of your project, allowing for timely adjustments and ensuring the project remains within budget.
  • Improves Project Profitability: By managing costs, you can enhance profitability without sacrificing quality, creating a competitive advantage in the industry.
  • Enhances Project Efficiency and Timelines: Effectively monitoring costs can help with project scheduling, ensuring milestones are met on time.
  • Strengthens Client Relationships Through Transparency: Clients value transparency, and sharing clear, accurate cost information fosters trust and ensures satisfaction.

Key Principles of Cost Control in Construction

We covered why cost control is so important—now, let's take a look at the principles of cost control that we recommend implementing into your project:

  • Accurate Cost Estimation: Begin with a detailed project plan that includes all anticipated expenses. Use historical and reliable cost data, modern tools, and input from experts to create reliable estimates.
  • Budgeting and Forecasting: Establish realistic budgets and offer project owners and other key team members regular updates based on project progress and external factors (like material price changes).
  • Continuous Monitoring: Implement real-time tracking tools to monitor expenditures, identify variances, and correct problems before issues escalate.
  • Risk Management: Mitigate financial risks by identifying potential issues, such as price volatility or unexpected delays. Allocate contingency funds for emergencies.

Strategies for Effective Cost Control

Use these strategies to help keep costs low over the course of your construction project:

  • Technology Integration: Leverage construction management software for real-time tracking, cost forecasting, and collaboration among stakeholders. AI and predictive analytics can help you anticipate cost risks before they occur.
  • Vendor and Subcontractor Management: Strong vendor relationships and well-negotiated contracts can lead to cost savings. Regularly evaluate subcontractor performance to avoid delays and cost escalations.
  • Material Management: Bulk purchasing and maintaining good supplier relationships can reduce material costs. Implement measures to minimize wastage, such as accurate ordering and efficient on-site storage.
  • Labor Cost Optimization: Assign tasks efficiently to avoid downtime, and invest in workforce training to reduce mistakes that may lead to rework or delays.

Common Challenges in Cost Control

Unfortunately, cost control in construction comes with its fair share of challenges due to the complexity of projects and teams. Some of the issues you may run into when implementing cost control principles and tactics into your project plan include:

  • Unexpected Project Delays: Delays often result in increased labor and material costs, disrupting project budgets.
  • Scope Creep: Changes in project requirements or design can lead to unplanned expenses. Proper change order management is crucial to avoid this.
  • Price Fluctuations in Materials: Global supply chain issues and market volatility can affect material costs, making costs harder to accurately plan. 
  • Communication Gaps Among Stakeholders: Poor communication between contractors, owners, designers, and subcontractors can lead to misunderstandings, errors, and additional costs.

FAQs

What are the main components of construction cost control?

Accurate cost estimation, ongoing monitoring, risk management, and effective communication are key components.

How can small construction companies implement cost control?

Small companies can start by using cost-effective tools, creating detailed budgets, and focusing on vendor relationships to save costs.

What are the consequences of poor cost management?

Poor cost management can lead to budget overruns, project delays, strained client relationships, and reduced profitability.

 

For more complimentary resources on how to improve the financial health of your projects, download the Autodesk Cost Management Toolkit.

Autodesk

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NMPI Display
We use NMPI Display to deploy digital advertising on sites supported by NMPI Display. Ads are based on both NMPI Display data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that NMPI Display has collected from you. We use the data that we provide to NMPI Display to better customize your digital advertising experience and present you with more relevant ads. NMPI Display Privacy Policy
VK
We use VK to deploy digital advertising on sites supported by VK. Ads are based on both VK data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that VK has collected from you. We use the data that we provide to VK to better customize your digital advertising experience and present you with more relevant ads. VK Privacy Policy
Adobe Target
We use Adobe Target to test new features on our sites and customize your experience of these features. To do this, we collect behavioral data while you’re on our sites. This data may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, your IP address or device ID, your Autodesk ID, and others. You may experience a different version of our sites based on feature testing, or view personalized content based on your visitor attributes. Adobe Target Privacy Policy
Google Analytics (Advertising)
We use Google Analytics (Advertising) to deploy digital advertising on sites supported by Google Analytics (Advertising). Ads are based on both Google Analytics (Advertising) data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Google Analytics (Advertising) has collected from you. We use the data that we provide to Google Analytics (Advertising) to better customize your digital advertising experience and present you with more relevant ads. Google Analytics (Advertising) Privacy Policy
Trendkite
We use Trendkite to deploy digital advertising on sites supported by Trendkite. Ads are based on both Trendkite data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Trendkite has collected from you. We use the data that we provide to Trendkite to better customize your digital advertising experience and present you with more relevant ads. Trendkite Privacy Policy
Hotjar
We use Hotjar to deploy digital advertising on sites supported by Hotjar. Ads are based on both Hotjar data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Hotjar has collected from you. We use the data that we provide to Hotjar to better customize your digital advertising experience and present you with more relevant ads. Hotjar Privacy Policy
6 Sense
We use 6 Sense to deploy digital advertising on sites supported by 6 Sense. Ads are based on both 6 Sense data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that 6 Sense has collected from you. We use the data that we provide to 6 Sense to better customize your digital advertising experience and present you with more relevant ads. 6 Sense Privacy Policy
Terminus
We use Terminus to deploy digital advertising on sites supported by Terminus. Ads are based on both Terminus data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Terminus has collected from you. We use the data that we provide to Terminus to better customize your digital advertising experience and present you with more relevant ads. Terminus Privacy Policy
StackAdapt
We use StackAdapt to deploy digital advertising on sites supported by StackAdapt. Ads are based on both StackAdapt data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that StackAdapt has collected from you. We use the data that we provide to StackAdapt to better customize your digital advertising experience and present you with more relevant ads. StackAdapt Privacy Policy
The Trade Desk
We use The Trade Desk to deploy digital advertising on sites supported by The Trade Desk. Ads are based on both The Trade Desk data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that The Trade Desk has collected from you. We use the data that we provide to The Trade Desk to better customize your digital advertising experience and present you with more relevant ads. The Trade Desk Privacy Policy
RollWorks
We use RollWorks to deploy digital advertising on sites supported by RollWorks. Ads are based on both RollWorks data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that RollWorks has collected from you. We use the data that we provide to RollWorks to better customize your digital advertising experience and present you with more relevant ads. RollWorks Privacy Policy

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