4 Tips for Controlling Construction Project Costs

A perennial challenge for construction companies is keeping costs under control. But there are additional challenges that increase construction project costs. Inflation, high materials prices, and an ongoing labor shortage have stretched construction budgets. It’s a fact, construction projects have become more complex since the start of the 21st century.

Most Construction Projects are Completed Over Budget

In a 2015 report, KPMG said that only about 31% of all construction projects come within 10% of their initial budgets. Those figures are direr for the largest and most complex projects. As many as 80% of large projects are over budget, according to a McKinsey study. What’s more, nearly every single megaproject is delayed or over budget.

How Can You Control Construction Project Costs?

While many construction obstacles such as weather, labor complexities, and materials and equipment costs fall outside of your control, project managers can control systems and workflows.

The best way to control construction costs is to use Construction Project Management Software to implement these controls on their projects and workflows.

What is Construction Project Cost Management?

It’s the project manager’s role to keep your jobs on budget. Effective cost management helps keep your spending at a level where you will still make a profit. The key is to implement cost management processes at every level of the job, from planning through specialty contractors, change orders, and project delivery.

Four Ways to Control Construction Project Costs

1. Improve communications between the construction project manager and your back office.

   Project Managers need to have the latest, most accurate budget figures so they can make decisions when it matters. Using Construction Project Management software or Construction ERP software to track key figures including costs for labor, materials, equipment, and supplies will help you to identify if wasted materials, equipment going unused, or less-than-ideal work schedules could be contributing to a higher than the estimated project budget.

2. Ensure change orders are processed and never forgotten.

   Some surveys suggest that as much as 20% of a building contract’s value comes from change orders, and if the change order is billed incorrectly, the project will eat the cost. You’ll want to make sure that you pass along any extra costs that you didn’t incur, like additional requirements following an inspection or owner’s visit, incomplete work, or damages caused by subcontractors.

   Tracking change orders with integrated made-for-construction software ensures they will turn into meaningful income and could be the difference between a profitable project and a money-losing project.

3. Implement construction document control.

   Construction produces a lot of paperwork, like contracts, plans, change orders, punch lists, RFIs, and more, which can be overwhelming, especially when working with outdated plans or missing change orders can mean a hit to your project budget. Digital documents are easier to search and mean that the information is available to everyone on the project who needs the information. Use document management software to handle version control and make search and document recovery faster and easier.

4. Rely on up-to-date project controls and tracking.

When there’s an issue on a project, you can measure the likely impact of the mistake by how quickly you’re able to react. In other words, the faster you can spot any issues and course correct them, the more likely you will be able to stay within or near your budget expectations. Make sure you have a reliable system for tracking and controlling suppliers and subcontractors. You’ll also want to ensure you have processes in place to identify if you’ve been overcharged or double invoiced.

How Can You Improve Construction Cost Controls?

Construction project management software can make all the difference when it comes to efficiently managing construction project costs. Here are the features that will help you manage project oversight and tighten cost controls.

Look for software with the ability to proactively manage, track, and process temporary labor time. Projects employ multiple types of labor including many temporary workers like specialty contractors. For some construction jobs, labor will account for as much as 50% of the project costs, so it’s critical to track these labor costs as they are incurred.

Because labor costs represent such a large portion of total project costs, you’ll want software that includes detailed reporting and calculations for project labor. Some contractors still use spreadsheets to track specific job costs like labor, but integrated software can show you incremental changes that could affect your budget. Your reporting should reveal how labor is adding to job costs each day so can adjust schedules and understand where budgeted and actual are different so can make corrections.

Key metrics you may want to track with the reporting include:

1. Completed labor hours on the job.
2. Actual/completed labor hours compared with budgeted hours to identify whether there is a difference and why.
3. Forecasting of total expected labor hours at the current labor hour rate.

Monitor Equipment Productivity

Equipment costs add to the project budget whether it’s in use or idle, so it’s important to monitor equipment productivity. Project managers need to know whether an asset is productive or not. High demand for certain types of equipment has meant that certain machinery is not readily available for rent or lease or purchase. And when it is available, equipment costs are rising rapidly. Tracking productive versus idle time can provide data that will help you plan for future projects. It’s also cost-effective to provide your team with alerts about equipment downtime.

Is your equipment idle or not operating? You’ll need to adjust work schedules to ensure that people are onsite when the equipment is available.
Similarly, contractors that frequently use rented or leased equipment should track and manage the productivity of rented equipment, to identify where the equipment is idle or otherwise nonproductive. Heavy highway and civil contractors are most likely to use equipment rentals or leases to complete projects.

Capture Data

Capture data from the field and distribute the information to other departments. When information like field labor time, crew time, and receipt of Purchase Orders is entered from the job site, it’s more likely to be complete and accurate. Your construction software should integrate information from remote sources and distribute the data to every department that needs it so that it can be used for executive reporting, dashboards, billing, payroll, and more.

Keep Your Team Safe

Keeping your team safe is a critical responsibility of any contractor. Your team is the foundation of your success, and due to the current labor shortages, potential employees can choose to work with a company that enacts and uses great safety processes. Risk management is part of construction, and with so many people laboring on various projects, it’s critical to make sure you’re a stickler for safety processes.

Your software should help you manage certifications, onboarding, training on safety processes, alerts for missing information, and alerts for missing or expired safety training so you can avoid any penalties for violations.

Manage Materials

After labor costs, materials costs are the biggest item on a project budget. Your software must help you track and manage your materials so you can limit delays from not having the correct materials on site. Choose software that can track material deliverability, item backlog, and keep you updated so that you’re able to adjust your schedule in advance when necessary.
Field-based construction software tools are ideal for tracking materials, especially if your project manager is also your procurement officer. Mobile tools enable your project manager to be on-site and purchase materials, handle billing and receiving, and assign project codes to manage cost departments.

Track Fuel Costs

With projects in many different locations, and amid rising fuel costs, construction project management software that tracks fuel costs and enables fuel card purchasing can help streamline costs and means approvals will be processed in a more timely manner.

Use Construction Scheduling Software

Does your software integrate with comprehensive construction scheduling software? Your project manager must stay on top of where contractors are working and where materials will be sent so you can line up work appropriately. It can be very costly to schedule a crew to a project site if the materials are not ready.

Summary

If you’re still using spreadsheets, it’s virtually impossible to track all the costs of a construction project. Using construction project management software can help you better control construction project costs. With integrated features that help you collect information and deliver the data to the departments that need it, you’ll be able to look at your data more critically and create processes and workflows that minimize waste and create efficiencies.