Cost Management - the missing key to successful construction projects

Cost Management - the missing key to successful construction projects

It has long been reported that large-scale construction projects often come in up to 80 percent over budget and take 20 percent longer to complete than initially scheduled. What hasn’t been highlighted is the basic solution of Cost Management strategies built on trust and industry expertise, which can combat these deep-rooted issues in the construction industry. 

The role of construction consultancies

The key to delivering projects on time and on budget begins with the function of a construction consultancy company. Construction consultancies are independent advisors that guide clients through the entire project life cycle, whether that is during the pre-design phase, the procurement process or the actual construction stage. Services can cover everything from project execution plan (PEP) development and site selection to design and risk management. Construction consultancy companies offer specialized expertise in working with associated professionals in the industry, as well as valuable knowledge of each stage of a project to provide full support for their clients. 

The second aspect to ensuring projects come in on time and on budget is the implementation of a Cost Management strategy. This type of plan is often developed by a construction consultancy firm to help owners mitigate loss and maximize return on investment. It can include estimating and schedule reviews, payment verification and invoicing, as well as regular reviews of an owner’s costs. With independent and experienced project governance, Cost Management strategies and construction consultancy firms become the main drivers behind the successful delivery of any construction project. 

How cost construction consultancies have evolved

Unfortunately, implementing Cost Management programs and ensuring independent project oversight are still unrecognized solutions to the budgetary issues and delays that mark the construction industry. These solutions stem from the creation of construction consultancy services as a response to companies’ inability to manage costs based on the current practices.  

The idea of Project Management in construction as a separate discipline was introduced in the 1950s. Historically, construction management principles were conceptualized in the UK, where the European construction management certification system was first established and is still used globally as validation in the construction industry.  

Though Cost Management and construction consultancy companies have been in the US for many years, the American financial crisis in 2008, combined with recent rebuilding of infrastructure, created an increasing need for businesses to place greater control over finances. Specialists like quantity surveyors (QS), or cost managers (CM), were then called on to help control project budgets, which were growing in scale and required more cost certainty. 

Exacerbating these circumstances are the issues of low productivity in the construction industry, particularly in North America. In 2017, the North American construction productivity gap resulted in a global economic value loss $0.58, compared to the loss of $0.46 and $0.44 trillion in Europe and the Asia Pacific region respectively. Poor Project Management and execution has also been cited as one of the main contributing factors to low construction productivity. When considering its ranking as the region that has cost the global economy the most losses, the North American construction market is in urgent need of improved programs that include Cost Management strategies that can help solve the pressing productivity issues in the construction industry. 

Leveraging Cost Management strategies

Cost Management strategies are essential to successful construction projects because they establish, monitor and control budgets. By developing a specific plan and evaluation process, these programs can help manage cost expectations from the initial stages of a project. Accurate estimating and strategic planning of costs are two important aspects of a well-defined Cost Management plan. 

Achieving cost certainty and predictability are the main objectives to any Cost Management strategy. This can be accomplished through monthly reports that analyze cash flow and outline costs by building or owner, which offer valuable information on how closely the budget is being followed. A continuous review and estimating process can provide in-depth insight for owners into the cost and schedule of the entire project. 

Cost Management strategies also reduce risk. Based on the risk register developed by the risk management team or project manager, the cost manager can estimate the cost of risk during the project. The CM can then advise on the cost based on project plans and past experiences. This collection of existing and predictive data creates a 360-degree overview of current and potential problems that could affect the budget. 

The essential role of trust

Cost managers manage many details on a project that could directly impact its success. As the demands of larger-scale projects evolve and the adoption of technology presents new challenges, CMs must combine traditional skills with knowledge in new technological advancements. This ability to juggle many skills at once forms a foundation for trust. When a client can rely on a cost manager’s ability to provide accurate estimates and projections, that established trust creates a solid basis for successful Cost Management programs. 

Industry experience and reputation further strengthen the client-CM relationship, while communication and transparency promote trust even more. With consistent tracking and reporting on budgetary progress, cost managers can keep all stakeholders updated on current costs and schedule, and ensure architects, engineers and construction management remain accountable.  

Presenting data in real time on the project is also an essential component of a detailed Cost Management strategy. This data informs decision-making on important project components like asset acquisition and procurement of building supplies and services. When owners are offered strategic advice based on industry knowledge and previous project experience that is supported by benchmarking data, trust can be established and maintained with cost consultancy partners. 

Moving into 2020

The strong, guiding principles of proven Project Management and governance are important to follow in a time when nearly all industries are grappling with technological transformation. Client relationships based on trust and decision-making driven by industry experience and real-time data are essential elements to bringing projects in on budget. In order to create more realistic project budgets and schedules, the construction industry must evolve past its current practices and understand the important role of independent advisors in uniting today’s fragmented processes. 

A version of this article also appeared on ForConstructionPros.com.

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