The ultimate guide to cost control in construction
Oct 01, 2018
With competition in the construction market increasingly fiercely, the profit margins for construction enterprises are being squashed and placed under threat. As this happens, cost control becomes an even more vital mechanism. Cost control in construction should be systematic, comprehensive and dynamic, in order to achieve a completed project within the total budget.
We know that the main problems faced by contractors are shortages of material, labour costing more than expected, a lack of accurate data, the volatility and variances that a construction site brings, sourcing qualified expertise, and the duration of a project exceeding estimations. We also know that these are just scratching the surface…
With that in mind, we’ve put together the Ultimate Guide to Cost Control in Construction.
Material cost control
- Working with a Builders Merchant means you are at mercy to their supplies and their delivery times. Work with a reliable partner such as strukta and you can minimise these risks. We’re proud of our 97% ‘in full and on time’ delivery rate.
- Inflation in the construction industry accounts for 3-4% of cost increases per year, so be sure that when you are doing your estimations that you are using current and accurate figures instead of relying on data from a previous project.
- Start an early dialogue with your material suppliers, as costs fluctuate massively for different materials depending on global, political, and economic conditions. For example, Tottenham Hotspur purchased 7 cranes for their stadium build, costing around £6m in total. As steel prices flew up, so did the value of the cranes, and Tottenham look set to make a £3m profit when they come to sell them. Other firms are not so lucky…
- The availability of workers in the region may vary, so be cautious that if you are constructing in a remote area, it may be more difficult to find local workers, and you will have to pay more to bring in people from other regions.
- Insurance costs will vary depending on the scale, risks and duration of a project, as well as many other factors. Be sure to shop around to find a great deal, but also work closely with the provider you choose to make sure that you and your workers are covered, and that there will be no nasty surprises later on.
- Specialist labourers may be required for certain jobs, so don’t forget to include them in the budget.
- Productivity and performance can be a huge time and money saving factor in your construction projects. If labourers are driven to work harder and perform their tasks well, your project can move along quicker and you can reduce costs. Find ways to improve morale and work ethic to maintain a well spirited and well oiled machine.
- There is no such thing as one size fits all in labour costing, as you have tradesmen, specialists, sub-contractors, and more. Your costing should account for the various trades, and not attempt to put a single per hour number on all employed workers.
Downtime & duration issues
- Weather in the UK is often cold and wet, and this can cause some time delays, especially when areas need to be dried and certain tasks cannot be performed in the rain. When there is snow or extreme winds, expect the site to come to a complete stop.
- Christmas and other holidays have a knack for creating downtime. With the bank holidays surrounding Christmas, the usual cold weather, and people with holiday to use up, expect December to be a slow month, and reflect it as such in your projections.
- People stop showing up for a number of reasons, and whilst you may not be able to prevent or predict it, you should account for it. If it becomes a noticeable problem, you may need to replace some workers who aren’t committed.
- In rare cases, the local community may be so opposed to your construction that they will do things to try and impede it. Ideally these issues will have been resolved before the build begins, but there are times when objectors remain.
- Payment issues between the client and the contractor, or the contractor and all of the various services, people and builders’ merchants that need to be paid can cause a big slowdown in deliveries, productivity, and meeting timescales. Make sure that payments are made efficiently and on time in order to avoid the huge expense of downtime.
- Leakages and similar damages are dreaded by everyone on a construction site, because it often means downing your tools and waiting until the leakage is resolved and cleaned up.
- There may be other unexpected reasons for downtime and duration issues, and these should be accounted for in your contingency costing.
- Hire a high-quality cost estimator, because when millions of pounds are potentially at stake, getting an accurate estimate from a professional is vital. It is unlikely that the estimator’s initial projections will match the final costs, pound for pound, however, the estimate will assist the project’s budget and financing, and will help to determine whether a project may be financially viable or profitable. An estimate report will be necessary to secure financing and to get your project started, and it must include things such as equipment, material, labour, subcontractors, and schedules. (Link here to the other cost control article)
- There are more tools now than ever, so get some great software and hire someone who knows how to use it. This is going to provide more data and insight than in the past.
- Be sure to calculate and update your cost metrics at the end of each reporting period. Measuring how much money the project has spent of the total budget, in comparison to how much money you had expected it to spend at this point in time, is a great guideline. Include your cost metrics into your project reports and steering committee presentations to keep your teams updated.
The structure for an effective cost control in estimation is:
- Preliminary cost estimation
- Detailed estimates once plans are submitted
- Construction cost roadmaps
- Forecasting for cost control
Volatility and variances
- Environmental discoveries happen more frequently than the construction industry would like, and we are talking about things such as toxic waste and asbestos. If they aren’t spotted early on, they can be a costly disturbance, so it’s vital to have a good contingency fund in these instances.
- Failure to adapt and to be agile is a basic mistake in cost control in construction, mainly because being absolutely rigid with your estimations and budgets will cause some impassable hurdles. Give leeway when possible and be prepared for volatility and variances.
- Communication breakdown could effectively disrupt the entire construction process, whereas effective communication improves team morale, welcomes ideas, and encourages feedback sharing.
- Project managers play a key role in collaborating with the various trade contractor foremen, who in turn play an equally important role in communicating with their respective individual trade members. Keep this dialogue active and clear to avoid miscommunication mistakes that could prove costly.
- Insufficient or poor communication can leave workers with incomplete instructions regarding a task. When lacking vital information, site workers may not recognize an existing or potential hazard and become vulnerable to danger or injury.
- It’s worth researching the difference between waterfall project management and agile project management.
- Completely agreeing on thorough designs with the client is essential to cost control in construction, as it alleviates drastic changes and alterations.
- Changes to design do occur, however, and you should be prepared for them, and the ways in which they will affect your costing.
- Throwing good money at bad ideas is something that the construction industry is constantly trying to eradicate, as it is perhaps the number one way that money gets wasted. To avoid this, you should seek second opinions, collaborators, and multiple experienced personnel.
Sourcing qualified expertise
- Finding the right person for the job isn’t always easy, but there are solutions. You should have a quality network of experienced people and experts, so don’t be afraid to ask people you trust for recommendations.
- Not asking for help in the areas you need it most is a crucial mistake. Don’t be afraid to make the call, as by fleshing out your costings, you are less likely to make errors and lose money in the long run.
Having a contingency fund as part of your costing can protect you from some unexpected events, but for the others, simply try to run as safe and efficient a site as possible. Plan ahead, be precautious, and try to consider every eventuality in your cost control. You may be forced to deal with:
- Safety law changes
- Legal claims
- Codes, permits and applications
There you have it, the Ultimate Guide to Cost Control in Construction. We’ve compiled this resource to help you keep your costs well managed, and to prepare for anything that may disrupt your budget. If you think there are things that we have missed, we’d love to hear your thoughts so that we can update this guide. In that case, please email email@example.com.