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Tips for Cost Control in Construction Sector

Tips for Cost Control in Construction Sector

Construction companies’ profit margins are shrinking as the construction market becomes more competitive, and cost control of construction projects is becoming increasingly critical. Controlling the cost of a construction project has emerged as a critical component of project management.

By establishing recommendations for estimates and projections of labor, material, and overhead costs, construction cost control aids project managers in avoiding cost overruns. A cost control plan’s goal is to ensure that the project is completed on time, on budget, and within the scope. Future cash flows, estimated final costs, and present project costs are often used to calculate cost reporting. Cost estimates are the major source of defining a project’s financial intent before developing concrete plans. Inaccurate cost estimates can have a significant impact on the project’s success, potentially causing profit margins to vanish entirely.

The goal of cost control is to keep the project on track while staying within the agreed budget. Regular expense reporting will ensure that you always have the most accurate estimate of:

  • Established project cost to date.
  • The project’s estimated final cost.
  • Cash flow in the future.

Important tips for Project Cost Management

1. Project Resource Planning

The process of identifying the resources needed to carry out and complete a project is referred to as resource planning. Personnel (workers and contractors) and equipment are two examples of resources (such as infrastructure, large construction vehicles and other specialized equipment in limited supply).

The work-breakdown structure (WBS) must first be prepared by project managers. They must examine each subtask in the WBS and determine how many people, with what abilities, are required to complete the task, as well as what equipment or materials are required to complete the task. Project managers may create an accurate and full inventory of all resources by using this task-level technique, which can then be used as an input into the following step of cost estimation.

  1. Cost Estimation

The process of calculating the expenses associated with all of the resources required to complete the project is known as cost estimation. We’ll need the following information to calculate costs:

  • Resources required (output from the previous step)
  • Each resource’s price (e.g., staffing cost per hour, vendor hiring costs, server procurement costs, material rates per unit, etc.)
  • Timeframe for which each resource is needed
  • Assumption’s list
  • Risks that may exist
  • Previous project expenses and, if applicable, industry benchmarks
  • Insight into the company’s financial health and reporting structures

Estimation is perhaps the most difficult of the cost-management procedures since precision is crucial. Project managers must also take into account fixed and variable expenses, overheads, inflation, and the time value of money, among other things.

  1. Cost Budgeting

Cost budgeting can be thought of as a subset of estimating or as a distinct process. Budgeting is the process of allocating expenditures to a specified portion of a project, such as individual tasks or modules, for a set period of time. Contingency funds are set aside in budgets to deal with unforeseen expenses.

Budgeting establishes a cost baseline against which the project’s cost performance can be measured and evaluated. The whole expected cost would remain an abstract figure if it weren’t for the budget, and it would be difficult to measure in the middle. The ability to determine how much budget needs to be released for future phases of the project is provided by evaluating project performance.

  1. Cost Control

Cost control is the process of determining cost variations from a baseline and taking necessary action to close the gap, such as raising budget allocation or reducing scope of work. Throughout the project lifespan, cost control is a continual effort. The emphasis here is on timely and unambiguous reporting as much as it is on measuring.

The cost management strategy, in addition to the cost baseline, is an important input for cost control. This plan includes information such as how project performance will be monitored, what the deviation threshold will be, what actions will be taken if the threshold is exceeded, and a list of persons and positions with executive authority to make decisions. One of the most prevalent techniques to assessing cost performance is Earned Value Management (EVM).


The ability of an organization to thrive in current and future projects is inextricably linked to cost management. Cost management software that is trustworthy can save you a lot of money. Cost management should not be treated as a separate function, but rather as an important component of project and portfolio performance, with data correlated across projects.

The cost plan’s objective is to assign the budget to the project’s primary aspects in order to establish a foundation for cost control. The terms budget and cost plan are sometimes used interchangeably. The distinction is that a budget is a set of spending limits for a project, but a cost plan is a description of what the money will be spent on and when it will be spent. As a result, the cost plan should include the best available estimate of the project’s cash flow as well as projections for future operating expenses. The cost plan should encompass all stages of the project and serve as the primary reference point for managing project expenses.

At different stages of the project, the process for determining the budget will differ, but the level of confidence should rise as project parts become more defined. The budget should be determined by the client’s business case, and it should only be changed if the business case changes. The goal of cost control is to develop the best building possible while staying under budget.

The cost plan serves as the foundation for a cash flow plan, allocating expenses and income to each quarter of the client’s fiscal year. The expenditures should be mentioned at a declared base-date level as well as at out-turn levels based on a stated inflation projection.

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