The latest research from Deloitte and Autodesk found that economic uncertainty was cited as the top challenge for Australian construction businesses. 61% of construction businesses reported that rising material and labour costs significantly impacted their financial viability. KPMG research also shows just 31% of projects come within 10% of the original budget, indicating that budget control is more crucial than ever in this uncertain economic climate.
Construction professionals can take three vital steps to contain and optimise costs in their projects.
In most cases, a project’s overrun results from inaccurate analysis or planning before the building even starts. In parallel with better planning, technology can help to reduce the common problems or elements that contribute to cost overruns, ensuring you can maximise efficiency and profits.
Below are some of the most common cost overruns to mitigate.
While many of a project’s stakeholders are eager to get the project’s building started, if you begin with faulty schedules and budgets, your project is headed for an overrun from day one. Due to the
competitive nature of the tendering process, estimates may suffer from wrongful expectations of the scope of work included in the project. In many cases, some projects will also be estimated on a one size fits all basis, with chances of exceeding that initial estimate high. Therefore, it’s vital to your project’s success to do your diligence in the preconstruction phase and be accurate and realistic about project deadlines and costs from architects and contractors.
Estimating the project accurately can get started in the construction RFP process. This is the opportunity where project stakeholders can express their concerns over budget and timelines. If any parties appear unrealistic about timing or budget, this should be an immediate red flag.
Unfortunately, design deficiencies are too common. Sometimes these could be incomplete or incorrect plans resulting in substandard work. These issues can be mitigated with software that ensures everyone is on the same page, reducing the risk of errors or incomplete designs. For example, during construction, if the project experiences an unexpected change in its scope, it is much easier to plug those design changes into a dynamic digital model than to redraw them on paper.
Alternatively, owners and contractors should agree on the specific Scope of Work and performance duties in the contract phase to enable contractors and subcontractors to build according to the design specifications. This documentation should include clear references to:
Change order requests added after the budget has been set often result in cost overruns. The additional time, labour and materials required to complete the change may also be classified as a cost overrun if it affects other aspects of the project. Consequently, changes can usually be best addressed in the contract phase, when a Change Order Provision can be added to specify procedures and budget needed should a change occur. If it isn’t addressed ahead of time, contractors might increase their total cost of a contract up front in anticipation of changes.
Stakeholders on construction sites have different interests, which can add to instability when site changes occur. Site changes must be communicated effectively and quickly, especially across large sites.
With software, calculations and designs can be referred to digitally for accurate reading, and different scenarios can be tested to see which will result in a better outcome. Because digital calculations are assured to be precise (accurate inputs are needed), and software designs can be trusted to accurately depict on-site descriptions, decisions can be made quickly based on solid information, not differing interests.
Online access to designs and scenarios allows for greater communication from remote locations. Decisions can be made while project leaders are on-site, looking at an issue directly. Faster communication also leads to better decisions, as real-time insight can address a situation before it snowballs into a bigger issue that impacts the budget.
Overruns can be the result of subpar work. Less experienced subcontractors can cause costly mistakes, delays and errors, even with the most impeccable designs and plans. Subcontractors are often chosen on cost rather than proper qualification. Using the wrong teams exposes contractors to risk. Contractors who go through the extra steps to ensure subcontractor qualification will reduce the probability of experiencing significant cost overruns on construction projects.
Construction firms often face financial risks from client disputes. The global average value of construction disputes was $52.6 million, according to Arcadis’ 2022 Global Construction Disputes Report. Disputes can cause disruptions during construction projects, resulting in project delays, broken contracts and even litigation.
Here are some risks that can be reduced using construction software.
Technology lowers the risk of defects from failure to repair or remodel properly. By arming contractors with better data and access to crucial information, construction teams can avoid mistakes that lead to injuries and claims.
Contractors have often found it difficult to defend or clarify their actions when a problem occurs. Software that improves documentation and provides all information accurately could help the contractor avoid litigation.
If property damage is not the contractor’s fault, centrally stored data or activity logs can help prove this to key stakeholders and authorities.
Software can help address contract compliance by ensuring accuracy and fostering clarity of scope throughout the entire project lifecycle, avoiding potential disputes downstream. Using software to create a collaborative environment and enabling information sharing between all project stakeholders, rework and coordination issues are much less likely to arise.
Safety issues and incidents can raise your insurance costs. With a well-documented safety record, your
firm will pay less in premiums. Strong safety culture and qualified subcontractors are foundational for reducing safety risks and issues. Technology can further solidify the success of safety programs and new innovations can even proactively reduce risk.
The best way to gain control over your construction finances is to have a central cost management system that provides flexibility and customisation to meet changing and unique project needs. Here are the key attributes of a solid construction cost management system that keeps your projects running on time and within budget.
Connected and centralised cost management. It is critical that the system that you’re using to record, calculate, and forecast costs is connected to any other related applications being used. Doing so keeps multiple moving parts in sync, eliminates the need for double-entry, and helps teams be more efficient.
When you centralise the management of all cost activities, you ensure that your construction data is connected and auto-updates across the platform to offer an accurate view of the project’s financial health. A centralised system also provides a single source of truth, so stakeholders can have one reliable hub for data. Finally, a tightly connected cost management system can offer a real-time view of your project’s financial health, so you can make better decisions and forecast costs more accurately.
Customisable structures and terminology. You want a construction cost management solution that adjusts to your unique processes, so equip your team with a solution that lets you customise structures and terminology.
A robust cost management tool will allow you to rename tabs, set up custom budget structures that work with any accounting system, and create custom-calculated budget columns.
Automated workflows. Ideally, you want a cost management solution that can help automate manual tasks like elevating an RFI to a potential change order, moving change orders through the approval process, generating contracts, and payment applications easily. It’s even better if the solution allows you to improve consistency and transparency of company-defined processes across projects by creating custom approval workflows. Utilising a decision-based workflow engine, teams can automate the routing of internal approvals for Owner Change Orders, Supplier Change Orders, and Contracts based on specific conditions.
The greater accuracy and consistency of your cost-related workflows, the more likely a project will be delivered on schedule and within budget — a win-win for all parties involved.
There's no way around it—construction budgets can get out of hand, fast. Utilizing cost control principles can help you stay within budgetary limits throughout the course of your project.
Some of the ways that implementing cost control principles can help you stay within your construction budget include:
We covered why cost control is so important—now, let's take a look at the principles of cost control that we recommend implementing into your project:
Use these strategies to help keep costs low over the course of your construction project:
Unfortunately, cost control in construction comes with its fair share of challenges due to the complexity of projects and teams. Some of the issues you may run into when implementing cost control principles and tactics into your project plan include:
Accurate cost estimation, ongoing monitoring, risk management, and effective communication are key components.
Small companies can start by using cost-effective tools, creating detailed budgets, and focusing on vendor relationships to save costs.
Poor cost management can lead to budget overruns, project delays, strained client relationships, and reduced profitability.
For more complimentary resources on how to improve the financial health of your projects, download the Autodesk Cost Management Toolkit.
