Construction Cost Management - Suvarna Consultancy | Cost Estimation and Control | Construction ERP- Suvarna Consultancy

Construction Cost Management

-Ashok Tundare
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Project Cost Management

Project cost management is the process of estimating, budgeting, and controlling costs throughout the project life cycle, with the objective of keeping expenditures within the approved budget.

Tip

Project cost management is one of the key pillars of project management. It helps to create a financial baseline against which project managers can benchmark the current status of their project costs and realign the direction

"For a project to be called successful, it’s necessary that"

it delivers on the requirements and scope

01

Point

#1

it’s completed within budget.

it’s completed within schedule

Project cost management is an organizations execution strategy

By implementing efficient cost management practices, project managers can: 

Control scope creep due to transparencies established with the all stakeholders

Track progress and respond with corrective action at a quick pace

Generate data to benchmark for future projects and track long-term cost trends

Maintain expected margin, increase ROI, and avoid losing money on the project

"But the problem is project success rates are poor…"

Definition of Success “On time, on budget, to specification”

Less than 40% of projects are successful.

Most of the value destruction occurs outside the boundaries of “the project” and is beyond the Project Managers’ control!

We see project failure as a “project problem” but it is a business problem.

Project managers can destroy investment return by allowing Costs to overrun.

But they cannot create value if it was never there in the first place.

No project manager – no matter how heroic it cannot save a project that is ill.

conceived, miss-conceived or just plain dumb!(which is most projects!)

Clearly define the Desired Outcomes so you can plan their delivery.
When your project doesn’t have clear intentions, cost & time overruns simply compound the value destruction.

Clearly define the Desired Outcomes so you can plan their delivery

‘Cheshire Puss, would you tell me, please, which way I ought to go from here?

‘If you don’t know where you are going … any road will take you there.’

"When your project doesn’t have clear intentions, cost & time overruns simply compound the value destruction."

When you plan to Outcomes, you can identify all the activities & deliver them.

All activities (including changes in the business) should be project managed!

Measure project success by the right measure (not the wrong one)

The Four Steps in Project Cost Management

Cost management is viewed as a continuous process, it helps to split the function into four steps: 

They are mostly sequential, but it’s possible that some resource changes happen midway through the project, forcing the budgets to be adjusted. Or, the variances observed during the control process can call for estimate revisions

 

Cost Estimation

If You Don’t Do estimate Not preparing Budget in this very Cost tight Market You Are Killing Your own Company

To the owner

It provides a reasonable, accurate idea of the costs.

To the Contractor

Provide the cost of materials and labor to install the project as well as make a profit.

Project managers

Track Scope and respond with corrective action at a quick pace

Investors

This will help decide whether the work can be undertaken as proposed, needs to be modified, or should be abandoned

The purpose of an estimate has a different meaning to different people involved in the process.

Cost Estimation is a Decision Enabler

It’s useful to remember that cost estimation is done at the planning stage and, therefore, everything is not yet set in stone.
In many cases, project teams come up with multiple solutions for a project, and cost estimation helps them decide which way to go.
There are many costing methodologies, such as activity-based costing, job costing, and lifecycle costing that help perform this comparative analysis.

Accurate estimation keeps all parties focused on delivering a project on time and under budget.

The value engineering phase of our Estimation process will take a critical look at materials and design choices in the estimate in order to present options to the client that increase value while reducing costs.

We explore every opportunity to reduce costs—but we never compromise quality, performance, and values.

Cost Budgeting

Budgeting is the process of allocating costs to a certain chunk of the project, such as individual tasks or modules, for a specific time period. Budgets include contingency reserves allocated to manage unexpected costs.

Budgeting creates a cost baseline against which we can continue to measure and evaluate the project cost performance.
If not for the budget, the total estimated cost would remain an abstract figure, and it would be difficult to measure midway.
Evaluation of project performance gives an opportunity to assess how much budget needs to be released for future phases of the project.

Another reason to firm up budgets is that organizations often rely on expected future cash flows for their funding.
During the initial phases, the project manager has a limited financial pool and has to set targets accordingly.
It’s similar to building the foundation and one floor of the house in the initial few months and later completing the rest of the project, as you have more.

A project’s budget has the potential to impact nearly every facet of the project, making it one of the most critical responsibilities of a project manager.
A poorly designed budget leads to improper asset allocation, unrealistic expectations, and potentially, a failed project. 

Cost control is the process of measuring cost variances from the baseline and taking appropriate action, such as increasing the budget allocated or reducing the scope of work, to correct that gap.

 

Cost control is a continuous process done throughout the project lifecycle. The emphasis here is as much on timely and clear reporting as measuring.

Along with the cost baseline, the cost management plan is an essential input for cost control.
This plan contains details such as how project performance will be measured, what is the threshold for deviations, what actions will be done if the threshold is breached, and the list of people and roles who have the executive authority to make decisions

Cost control is the procedure to identify and reduce business expenses to increase profits.
Cost control starts with the budgeting process.

In any business that follows a cost control procedure, it all comes to compare the company’s actual financial results with the budgeted expectations.
If actual costs are higher than planned, management has the information it needs to take action.

Our cost control system deliverable are produced in Excel, Access or the simplest software that can perform well in the Cost Management.
The process implemented to retrieve the cost data will be imported from the accounting system to the cost control system, and we will customize reports that will be generated in the cost control system.

Our cost control system provides detailed, accurate, transparent cost reports that match the accounting system ek ek paisa. Our system provides custom fields that will suit the data you want to track for project control’s analysis.
We are ready and have the experience to tackle any accounting and cost control problem.

Facing the cost challenges during the development of a project it is always difficult to determine the final balance between profit or loss.
The necessity to use cost control procedures not only as a tool but as a way of thinking on all aspects during the development of a project can be an advantage against the cost risks.

A well organized cost control department is the center of interest trying constantly to identify, determine, explain all the risk factors, prevent losses and maximize profit.

 At the same time the project must be delivered to a client just in time following contract rules.
The necessity of a reporting standard that is able to cover in depth all financial aspects of a project is a fact that can not be avoided no matter the size of the project.

From small size to big size projects the need for advanced cost control reporting is the number one key that can drive a project to profitable success.

A software that is focused on cost reporting using extended database capabilities can be the heart of the cost control department.Being at the center of interest, the software system needs to cover most of the reporting issues.In most cases, cost control departments are using tons of spreadsheets files.

Using a main software system for cost control does not mean that spreadsheets will stop being used, but they will not be the main data recording system.This role can easily go to the cost control software system. With a powerful database back end it will take over the hard work ensuring data integrity, online multi user-access, data integration with external data sources and flexible reporting capabilities

 

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