Oops, you did it again. You were moving forward in a major construction project phase, but before you knew it, you went over budget. Cost overruns are far from an abnormal problem to have on a project. So common, in fact, that currently, 98% of projects experience some degree of budget overrun. Nonetheless, it’s never a good situation to be in where you have to explain to other project stakeholders why your project is millions or even billions over budget.
In each phase of a construction project, cutting costs can feel like a complicated balancing act. On the one hand, the goal is to produce a high-quality and performing project, where significant expenses are often needed. Alternatively, budgets are scrutinized more than ever, and construction costs are trending up for certain labor and materials.. Therefore, budget controllers need to be careful about where to and where not to spend–both of which can make a positive or negative impact on your project as a whole.
In fact, you can argue that a building’s true cost is in its lifecycle where more than 70% of a building’s cost is operational (e.g., maintenance and repairs) compared to approximately 20% that is design and construction. Similarly, when looking at construction project phases, generally it’s wise to invest in the front end (e.g., design, planning) and cut towards the tail end of the project.
Therefore, to be truly budget-conscious on a project is less about saving pennies and more about spending time and resources smarter. To learn how to save money in construction overall, below, we’ve highlighted how professionals can be smarter in each project phase for maximum cost-effectiveness.
Automation is one way to massively reduce administrative overhead costs. While automation certainly improves efficiency, allowing staff to accomplish more and faster, it also helps to reduce common human error that can add up. The reality is that no matter how good your staff is, automation can help them streamline those issues better with fewer mistakes.
Here are a few ways automation can reduce your administrative expenses and lower construction costs on a whole:
The construction industry is one with many documentation needs. As mentioned above, no doubt will digitizing your documents and blueprints reduce administrative costs. Furthermore, choosing an effective and collaborative document management system can help you improve efficiency. One major way that implementing a good system decreases your overall expenditures is by adding an extra level of transparency to all your efforts. With a cohesive document management system, you can create robust reports to show exactly where your most significant expenses are, to help you determine where to invest and where to cut costs.
Additionally, a robust document management system can improve your administrative efficiency through:
Construction is an industry where little things can add up fast. You can’t do much about the cost of regulations or materials. You only have so much cushion to provide a profit margin, so it’s important to keep an accurate accounting of the small expenses.
Moreover, to lower construction costs, technology can be effectively used to help with:
Improving productivity, workflows, communication, and more from the field where construction is being executed can save teams from rework and significant cost overruns. Even the smallest of changes can either make or break you from a financial perspective on a project. Here’s a look at some of the field factors that can impact construction profits the most:
According to Bill Klorman, President of Woodland Hills, CA-based Klorman Construction, even the most minor increase in field productivity can be significant for construction profits.
“Creating as little as 0.25% additional profit on a multimillion-dollar project by increasing productivity a little can become a substantial amount of money—maybe the only profit you will realize,” he says in the Concrete Construction article.
So how is it possible to ensure an efficient job site to stay meet or exceed profit goals? One of the easiest ways to do this is to ensure that construction workers are building and not pencil pushing. For instance, clearly delegate administrative work to others back in the office or appoint a go-to person on site to handle this. Better yet, the right technology platform can help keep all the plans, documents, and templates in one central place, so less time is spent looking for materials, and more time is spent building. Even just consolidating something like pulling a permit or plan from minutes to seconds can add up over a day, week, and month. In terms of managing the labor shortage, start hiring earlier so you can scoop up the experienced, more credible workers while they’re still on the market.
To keep communication streamlined on a project site, make sure everything is performed in one central system and updates can be made in real-time. When this occurs, teams can improve their efficiency, build better and, ultimately, improve construction profits. However, communicating via one central system isn’t always enough—there needs to be buy-in too for this to be a success.
Finally, the quality of communication is also essential, as it’s crucial to building camaraderie, trust, and transparency on a project.
So how do you ensure that workflows are optimized, so you’re making money on a project? Streamline them.
Invest in automated processes to streamline workflows across the board. Automation has made significant leaps in recent years for construction and its potential is enormous when it comes to traditional time-heavy processes, such as submittals and requests for information (RFIs).
The right software program should be able to streamline most, if not all, tedious workflows. It should also make it easy to track work throughout the construction lifecycle and provide a clear chain of command that incorporates all relevant details that are necessary on a project. Workflows should also be standardized to help teams move at a faster pace with greater ease.
So how do things change so that the information coming to a team is accurate? Remember, in the communication portion of this where we discussed the importance of a centralized station in a cloud-based system? It applies here too.
We’ll repeat it: For a successful construction project, the only single source of truth as it pertains to information is the cloud-based one that can show up-to-the-second changes.
How significant could this be to your operations? Consider this: Productivity can increase by as much as 50% by merely implementing a cloud-based platform to control and facilitate information in real time. While many might scoff at the upfront investment necessary to do this, you can’t argue with the productivity increase. When you combine this with accurate, streamlined information, you’re poised to be working on a successful project that builds faster.
Before you’re expecting a line-by-line list of where to cut in each phase of construction, let’s back up a bit. Reducing overall construction costs isn’t solely about cutting costs whenever needed. It involves a more strategic approach to see the full picture of costs in a construction project. Just consider a few of the top reasons for cost overruns:
As you can see, most of the major reasons projects go over budget have to do with ineffective communication and management. Although minimizing expenses in certain construction project phases is certainly effective, you’ll see the most ROI if you take the time and resources to manage and control at the front end.
A well-structured budget is the cornerstone of cost-effective construction. Without clear planning, it’s easy to overspend or encounter unexpected expenses. Let's take a look at some of the factors you'll want to consider as you move through the process of planning your construction budget:
Use Accurate Cost Estimation Tools: Leverage software to estimate costs precisely and account for variables like labor, materials, and permits.
Include Contingency Funds: Allocate 5-10% of your budget for unforeseen circumstances to avoid project delays caused by funding shortages.
Engage Experts Early: Collaborate with architects and contractors during the preconstruction phase to align design expectations and financial realities.
The decisions made during the design stage significantly impact overall costs. Take these steps to help reduce costs as you and your team move through the design and preconstruction process:
Value Engineering: The value engineering process works to evaluate project requirements in search of cost-saving alternatives in materials, methods, or designs without compromising function.
Implement BIM (Building Information Modeling): BIM software reduces errors while preventing costly rework by creating a 3D model of your project before construction begins.
Early Contractor Involvement (ECI): Engage contractors as soon as possible during the design phase to ensure feasibility and uncover potential cost-saving measures.
Material costs often account for a large portion of the construction budget. Taking steps to control material costs in the early stages of your project can lower your overall expenditures without reducing quality.
Buy in Bulk: Purchasing materials in larger quantities can lead to discounts and reduced delivery fees. Your contractor can help you decide when it makes sense to buy in bulk.
Explore Alternative Materials: Use recycled, locally sourced, or eco-friendly materials to cut costs while supporting sustainability. Explore tax rebates in your area for eco-friendly material use.
Plan Purchases Strategically: Monitor market trends and buy when prices are low, or negotiate long-term contracts with suppliers you'll return to time and again.
Labor is another major contributor to construction costs. Managing construction labor costs effectively can result in significant savings.
Try these tips to lower labor costs:
Schedule Efficiently: Use project management tools to ensure labor resources are allocated properly, allowing you to avoid overtime expenses.
Invest in Training: Well-trained workers are more efficient and less likely to make costly mistakes.
Balance In-House and Outsourced Work: Consider the cost and expertise of outsourcing specialized tasks versus using in-house staff.
Innovative construction technologies are transforming the construction industry, offering myriad ways to improve efficiency and reduce costs.
Consider using these tech advances to lower costs and stay on schedule:
Drones for Site Monitoring: Drones can survey large construction sites quickly and accurately, reducing the need for manual inspections.
Robotics for Repetitive Tasks: Robotic machinery can perform tasks like bricklaying or concrete pouring faster and with fewer errors than manual labor.
Project Management Software: Project and schedule management tools can help track timelines, budgets, and resources, ensuring no detail is overlooked. Using software to track progress can help you find places you can make changes to speed up your project and/or save money.
Material waste and rework are among the two of the biggest contributors to unnecessary expenses. Take these steps to reduce material waste and rework over the course of your project:
Adopt Lean Construction Principles: Focus on efficient workflows to eliminate waste and improve productivity. Work with a consultant to learn more about reducing waste and boosting productivity, if necessary.
Set Up On-Site Recycling Systems: Reuse scrap materials whenever possible to lower disposal costs.
Invest in Quality Control: Regular inspections can catch errors early, preventing costly rework. Working with well-trained inspectors can increase the likelihood of catching small problems before they come major issues.
Construction contract management plays a critical role in cost control. While it can take some time to negotiate contracts, it’s critical to achieve the best possible outcomes..
Consider the following when negotiating contracts before and during your construction project:
Choose the Right Contract Type: Fixed-price contracts provide cost certainty, while cost-plus contracts offer flexibility. Evaluate which option suits your project.
Define Clear Terms: Outline deliverables, timelines, and payment schedules to avoid misunderstandings and disputes.
Manage Change Orders Effectively: Limit scope changes by conducting thorough initial planning, and negotiate change order costs upfront.
Even with careful planning, ongoing cost monitoring is essential to stay on budget.
Use KPIs to Track Performance: Measure metrics like cost per square foot, labor hours per task, and material usage. Regularly revisit KPIs to make adjustments where necessary.
Conduct Regular Audits: Periodic financial reviews help identify discrepancies and prevent cost overruns.
Be Mindful of Scope Creep: Clearly define the project scope at the start and resist adding features or changes mid-project unless necessary.
How does your construction workflow stack up? Take our free assessment and find out.
It’s easy to say “cut here” or “cut there,” when attempting to lower construction costs. Nevertheless, to make a real impact in reducing administrative costs, it needs to be part of a larger process. By evaluating systems and processes and identifying inefficiencies and ways to automate and optimize, you’ll find it exponentially easier to melt down expenses, line item by line item.
May we collect and use your data?
Learn more about the Third Party Services we use and our Privacy Statement.May we collect and use your data to tailor your experience?
Explore the benefits of a customized experience by managing your privacy settings for this site or visit our Privacy Statement to learn more about your options.