Cost management remains the primary concern of all project managers. Once you know the magic tricks of cost management, success will kiss your feet. Cost management is an area where most project managers lag and hence incur losses in construction sectors. In this article, we will check out some of the major issues in cost management, which you need to overcome to succeed in your construction projects
Before digging deeper into the nitty-gritty, let’s clarify our basic understandings:
What is cost management?
Cost management is a process by which the project managers aim to minimize the costs of maximizing profits. This technique utilizes technology to measure costs and productivity. Cost management is a vast cycle that involves many steps, and the miss of any step can lead to a blunder. Wrong cost management can lead to reworks and multiple visions at the end moment. As when you realize that the youth project is going out of budget, you try to change a few things to meet up with the final budget. These changes can impact your entire project and design. Due to improper cost management, you may miss the deadline for project submission, and when the deadlines are missed, your clients can be dissatisfied. Improper cost management can affect your projects’ transparency and can impact your credibility to a significant extent. If, due to improper cost management, your costs increase in the future, it may make your client think that your costs are not transparent, and this way, they can develop a wrong perception about you.
Now that you know what cost management is and why it is important, you must identify the roadblocks go good cost management Lets check the issues related to cost management as described below:
Issues in cost management:
Forecasting is the method of determining the probable cost that can be associated with the projects. This process aids in the decision-making process of the future. It is the base on which the project’s complete success can be dependent; hence, it is crucial to do this properly. Forecasting is dependent on facts; hence you must get your facts right before you commence your forecasting process. To do accurate forecasting, you must be aware of the cost involved in the project.
Let’s have a look at the common costs involved in the project.
Capital cost:This is the part of the cost involved inbuilt asset. This may refer to land or property acquisition, commissions, material cost, fixture cost, fittings cost, etc.
Operational cost: The costs involved in the day to day operations are called as the cost of the operation. This may refer to wages, utilities, maintenance costs, rent, sales, administrative expenses, etc.
Whole life cost: The costs associated with the building’s whole life are called whole life costs. Whole life cost will cover all costs from inception to construction.
Life cycle cost: the cost associated with operation and end of life costs are called as the life cycle costs
Hard cost and Soft cost: Hard costs refer to the costs that can be easily calculated like labor costs, materials cost, etc. Soft cost are the ones which is difficult to calculate, like advertising cost, taxation, etc.
Many times wrong forecasting has led to major disasters.
Whether you follow w the parametric estimation, bottom-up approach, or the three-point estimation in cost management, you can never succeed unless you do the forecasting right.
Failure to identify improvement poor unities: when you are handling a project, you must remember that everything is subjected to changes. Many times you will come across circumstances where you can get to lower the costs. For instance, you may get an instant discount while purchasing the product. You may find lower labour costs etc. you must always identify such pop [rotundities to reduce costs.
Failure of Value consideration from the beginning: value consideration is important for cost management, and you must do this from the beginning. Failure of value consideration can result in major disasters and can result in the projects’ cost to spike up.
Lack of motivation: When your employees are not aware of the cost plan, and they are not motivated enough, there can be an untimely surge in costs. Hence it would help if you kept your employees motivated. Display your cost plan in the dashboards to increase visibility to the employees. Once they are aware of the target, they will be motivated to reach their goal.
Incorrect decisions: Incorrect decisions can be a problem in cost management. As a result of pair decisions, the value of your projects can spike up. It would help if you made your decisions correctly. Make sure that you do intensive research and study the facts and figures before decreasing something.
Failure to follow the current trends and technologies: As a project manager, you must always be aware of the current trends and technologies to have the edge over your competitors. If you are not up to date, then you may lose out on some important clients. Technologies will make your work easy and will help you to do more in less time.
Failure to have correct facts and figures: the absence of correct facts and figures makes it difficult for you to do cost management. You must gather the progress report from various subcontractors. You must also collate these reports, attend analysis, and check the facts and figures to do efficient cost management. Accuracy of reports is also important for efficient cost management. You must double-check everything related to the facts and figures to ensure that everything is correct.
Failure of proper customer relationship management: Remember, the customer is always the king. If you sent play your cards right and fail to build a good relationship with your clients, you might fail to do cost management if your projects. Often the reports portrayed to the customer are used for cost management by the project managers. However, this is not the right approach of doing this and will no produce fruitful results.For an accurate forecast, you cannot depend on the report that you send to your clients.
Change control: If you cannot control change management, you will fail to do cost management properly. Construction projects will be full of changes, and some of them will be untimely, and hence you need to manage the changes efficiently if you want to do cost management effectively.
Remember, as a project manager, your duties will not be limited to ceiling the facts and figures, but what is more important is that you must study the reports well and analyze to bring our meaningful solution for reducing costs.
Cost overruns are a major challenge to the people involved in construction pro0jects. This increases the costs of the complexes and can also frustrate your buyers.
In some cases, the cost management profession is not understood well. Once the project manager’s roles and responsibilities are clearly understood, it would help in effective cost management.
Reasons why cost management is so important in construction projects:
• With effective cost management, you can do timely delivery of the projects to impress your clients and the other stakeholders. Thus, effective cost control increases your chances of winning new projects. When your client is happy with your5 work, they will give more projects to you in the future. Thus this way, effective cost management helps in enhancing your brand value.
• With cost control, you can get a good ROI on your projects. An economical construction will attract the buyers like warm of best, and a good cost management plan will ensure that you will get better retunes in the future.
• With effective cost management, you can lower your project’s cost, and hence, you will have more budgets for the other things. Investment in other Ares will enhance the quality of the projects to a considerable extent. Say you save one lakh rupees by doing effective cost management, now say you decide you want to increase your marketing fund as you could save money in the construction, you can easily do so.
• To doing cost control effectively, you can utilize the tools for cost control. Most of the time, the cost management software is integrated with the accounting program, which will help you do budgeting effectively.
• Additionally, you must always motivate your employees so that they do not deviate from the cost plans. It would help if you observed the things closely to avoid any misses. You can also take the help of automated reporting tools to avoid any mistakes.
• It would help if you made sincere efforts to assemble your team of professional individuals to achieve a common objective. Past planning creates the documentation properly and also gets it approved by the project owner.
Cost control is an important way of increasing your profits. It will help if you do the cost control effectively to get good value for investments. Hence do your cost management now in the construction projects and earn maximum profits. Your efforts and strategies will help you do cost management like a pro. You can take help of some good agency like Suvarna Consultancy to help you with the cost management of your project. They also have a software known as CCIS or Construction Cost Information system that will help you in streamlining the process of Cost Management for your construction project.