Effective cost management starts before even a dime has been spent on construction. And it doesn’t end until the project is closed out. So, despite so much end-to-end oversight from the beginning, how do overruns still occur so frequently?
Given the wide range of variables to account for, it could be said that the process itself is as complex as the capital projects they’re tied to. While that may be, it also comes down to how those costs are being managed.
For decades, the industry has been relying on computer spreadsheet programs that, although ubiquitous, are also known for being error-prone and siloed. This is a well-known issue with capital projects across the country. In fact, so much so that project cost management ranked as the most essential software category among 57% of respondents to InEight’s Global Capital Projects Outlook survey in 2021. Yet, it’s a positive sign the industry is coming around to using purpose-built construction cost management software to store and process all the cost data that will be used for countless project decisions.
If your construction company is among them, the following are some must-have features you’ll want to have for your best outcomes.
Creating estimates based on historical data with construction cost management software
It all starts with an accurate estimate. And one of the most reliable ways to create it is to use data from a prior project that has details similar to the one at hand. Why? Because it’s based on real-world numbers of what it took to construct the project. Even if individual costs might be a bit off from today’s rates, construction cost management software allows you to tweak as necessary to mirror the going rates for local specialty craftspeople or current materials pricing, for example. The cost data in the resulting estimate are used as jumping off points for planning, risk mitigation and resource allocation throughout the rest of the project.
Managing changes
Changes in scope. Changes in labor and materials costs. Change orders. Though changes are a constant in construction, tracking them shouldn’t be. How and when they’re handled determines the impact of change-related costs on the project budget.
Take, for example, the estimating process. At the beginning, top-down may be the preferred approach to estimate creation for capital projects when scope isn’t as refined. Over time it often morphs into bottom-up as more project details emerge to feed into it and as updated data winds up changing initial project assumptions. Those changes need to be seamlessly reflected not only in the estimate, but also corresponding forecasts that are built off of it. Construction cost management software should track those changes so cost impact can be compared from one estimate version to another.
Just as essential to managing estimate project costs is managing change orders. An effective cost management software solution will streamline their workflow from creation to approval, while also showing the impact of each change order on the overall budget.
Forecasting the impact of the inevitable and the unexpected
After pinning down an estimate everyone’s confident in, cost management efforts shift toward monitoring how well the build is performing against it. As we all know, costs will fluctuate. Production can slow down. Unexpected scope changes may happen. These “what ifs” are what forecasting tools found in construction cost management software can help plan for. The data credibility of that estimate is what matters here — you have to know your starting point to know how to adjust course. By creating contingency plans that are ready to launch when necessary, there’s better control in heading off the potential for cost overruns.
Even with the best planning, we can’t overlook that construction is often at the mercy of the unexpected. Those same forecasting tools can help head off disaster when the “uh oh, this happened, now what” scenarios occur. Using the most recent data the software has been collecting, cost projections can be run on the potential impact of those scenarios — facilitating real-time strategic decisions on a best course of action to keep the project on track and within budget.
This continual adjustment for changing project variables also helps construction companies keep tabs on their projected bottom line, particularly on tight margin projects.
Providing a single source of truth with construction cost management software
Capital projects generate an unfathomable amount of cost data. Yet for far too long, those projects have been at the mercy of the limitations inherent in siloed spreadsheet and business software solutions — including inaccuracy, uncertainty of where needed information is stored, and lack of access. Without the right people having the right data at the right time, how can they be confident they’re making the right decisions to manage project costs and deliver the best possible outcomes?
It starts with centralizing all that data. Construction cost management software corrals it all in one virtual repository that is available to the appropriate project team members and other stakeholders during the build. It’s also the one place they can accept and trust that has the most current and correct data — including all the estimate and forecasting details — making it the single source of truth to rely on.
Offering a simple user interface and intuitive dashboards
User interface and dashboards might seem unlikely candidates for a list like this. Think of it this way, though: There’s all the cost data that has to be located and monitored, whether it’s forecasts, ongoing actual expenses, or cost performance index (CPI) or cost variance (CV) metrics. And then there are the dozens of project team members who have to rely on construction cost management software to make data-driven decisions. What there may not be is time for a detailed tutorial on how to navigate it, especially when information is needed now. It all boils down to time and efficiency. Having a clear layout with a consistent look and feel across the platform helps everyone find what they need without wasting valuable time. And simply organized dashboards — summarizing and serving up critical reporting data in easily digestible visually based formats such as charts and graphs — keep stakeholders in the know.
With a feature-rich construction cost management software solution like InEight Estimate, you know where your project stands financially at any given moment. Want to experience up to a 4% improvement in win rate and a 50% reduction in estimate and control budget gaps? Find out how by scheduling a demo.
