Construction Cost Management 101

guide to construction cost management

Your ultimate guide to construction cost management, and how to improve it.

Tracking costs and monitoring risk while keeping a job on budget can be one of the biggest hurdles to any building project. Finding ways to do all of these things efficiently makes a huge difference when it comes to delivering a project on time and on budget.

One of the most important efficiencies you can create to best position yourself for good project outcomes is fine-tuning your cost management process. This can affect everything from the bidding process to change order management, your team’s efficiency, and ultimately, your bottom line. Here’s a look at all things construction cost management, including what it is, why it matters, how to improve it, and how having the right processes in place can set you up for success.

Key Takeaways

  • Tracking costs and monitoring risk while maintaining a budget is one of the most significant hurdles on a building project.
  • A cost management plan helps keep a job on budget.
  • Effective cost management sets the standard for all project costs and affects all phases of a project including planning, design, estimation, change orders, and specialty contractors.
  • In 2015, KPMG estimated only 31% of construction projects came within 10% of their budgets.
  • Using analog methods of tracking in Excel creates silos and a disconnect between cost management practices, the project’s information, and change order workflow. Silos increase the risk of errors.
  • Using a cost management platform and construction management software brings all workflows into a single platform to reduce risk and show real-time information about the financial health of a project.
  • Setting accurate cost estimates and tracking budgets in real-time help with accurate forecasting and cost control.
  • Integrating project contracts into a centralized location makes them easier to manage and view. When these are associated with cost items, cost data also stays organized and accessible.
  • Streamlining the change order process with the right tools improves visibility, communication, and collaboration.
  • Performing a risk management assessment with business intelligence tools helps with project optimization.

What is Construction Cost Management?

The basic function of construction cost management is to keep your job on budget and avoid the project eating into your bottom line. In other words, effective cost management sets a standard for all project costs, and makes sure your spending throughout the course of the job is staying on track.

Cost management affects all phases of a project, including planning and design, estimation, on-site speciality contractors, change orders, and of course, the finished product. It can also play a critical role in ensuring your team has a reputation for being proactive, efficient, and accurate when it comes to estimating and executing on a proposed project budget.

At its core, effective cost management means having the systems in place to ensure a construction project will be completed on budget and within scope.

The Pitfalls of Poor Cost Management in Construction

Consulting giant KPMG estimates that just 31% of all construction projects came within 10% of their initial budgets in 2015. In construction, as well as many other industries, one of the most common ways to track project budgets is by using analog methods powered by Excel. The problem with these processes is that they are siloed, creating a disconnect between cost management practices and change order workflows, and the rest of a project’s information.

Working with siloed cost management systems increases the risk for error resulting from a number factors. These missteps can include the duplication of effort, the passing of data to and from accounting systems, and the inability of team members to see data in real time. All of this adds up to a fragmented cost management process that can lead to wasted time and money.

How to Improve Construction Cost Management: 6 Steps

There are a number of tools available to improve cost management in construction, including new technologies and platforms, and solutions for every step of the project lifecycle. Read on for six ways you can improve your approach to cost management.

You can also download The Construction Cost Control Toolkit: Take control and improve profitability across all your projects.


1. Use a construction management platform

Construction management software can help bring cost control workflows like budget and contract management, payment applications, and change orders into one platform, thus reducing risk and providing a real-time look at the financial health of a project. Using connected construction project management solutions (i.e. solutions that connect construction data and processes across a project’s lifecycle, from design through operations) ensures teams always have the most relevant and accurate information regarding costs, no matter if they’re onsite or at the office.

The right construction management solution can play a major role in keeping you on top of project costs in a number of ways. First, it can provide a single source of truth, centralizing all cost data in one place that is easily accessible. What’s more, these platforms often have solutions that allow for flexibility in customizing budget codes, hierarchical build ups, and segment options.

Another benefit of construction management platforms is increased visibility. Cloud-based project management systems offer real-time access to information on the financial health of a project, allowing team members to view a summary of all budget items and contracts providing a clear picture of revenue, costs, forecast and variance related to each item.

Finally, construction management platforms provide security, allowing teams to set user permissions, ensuring only the right professionals have access to necessary project information.

2. Set accurate cost estimates from the start

Estimation is integral to a project’s success, as inaccurate estimates can cause you to lose competitive bids, eat into profit margins, and even damage your reputation. There are a number of challenges to creating accurate estimates, including having multiple sources of materials, and the massive amount of time it can take to account for every last project detail.

Still, there are many ways to improve estimates through model-based estimation platforms. These platforms allow for an estimation process based on a 3D environment, while offering the flexibility to make changes to project details in real time. This translates to increased efficiency and accuracy in the estimation process, setting you up for successful cost management and starting a project off right.

3. Track budget items in real time

Having real-time insight into the construction budget is key to staying on track financially over the course of a project. A number of connected construction tools can help you visualize cost-related risk by monitoring and tracking budget items and factors affecting cost as they come up, providing a clear picture of the financial health of a project. This will help with both accurate forecasting and cost control throughout the entire job process.

4. Integrate project contracts

Staying organized and on top of multiple spreadsheets, folders, and documents to manage all trade contractors and suppliers can be both stressful and time-consuming, not to mention extremely inefficient. The right cost management tools can help you more efficiently create, edit, and view contracts in a centralized location. This also means that, because all contracts are automatically associated with cost items, teams can easily view a history of cost items by supplier, keeping both contract and cost data organized and accessible.

5. Streamline the change order process

The nature of change orders is to shift the course of a project in often unforeseen ways. This inevitably leads to cost adjustments that can sometimes be difficult to manage. In order to best position yourself for optimal cost management, the change order process must itself be optimized to ensure your project is staying on track, even when changes come your way.

Streamlining the change order process starts with choosing the right tools to manage upstream and downstream workflows to create clear accountability and ensure nothing slips through the cracks. Cloud-based platforms can help improve communication, visibility, and collaboration throughout the change order process, and ensure that teams have all of the data they need to make cost-effective decisions as a project takes a new course.

Leveraging a connected construction platform keeps your team organized and ready to respond to change orders at any phase of a project. This will help project teams control costs and confirm all changes are accounted for and effectively managed, allowing you to maintain a positive cash flow, reduce risk, and maximize profits.

6. Conduct a risk management assessment

Understanding and preparing for budget risks is vital to proactively managing costs throughout the course of a construction project. The implementation of business intelligence tools is on the rise to serve this very purpose, allowing project managers to identify cost and budget risks before they become major issues.

Business intelligence tools work by putting data at the center of a project, and transforming this information into intelligent solutions for project optimization. For example, tools like Construction IQ include built-in machine learning and AI functionality that permeates across a construction management platform, BIM 360, to identify high-risk issues that affect costs, schedules, quality, and safety.

Get the Complete Construction Costs Guide

Cost management affects nearly every aspect of a construction project, so getting it right is vital to achieving the best outcomes for a job. Innovative technologies, like platforms that help improve general project management, accurate estimation, budget tracking, contract integration, change order optimization, and risk assessment, provide vital construction cost management solutions that can set you up for success time and again.

Looking for a guide to help you improve cost management in construction? Download The Construction Cost Control Toolkit: Take control and improve profitability across all your projects. It’s completely free. It’s a great collection of actionable guidance, neatly packaged to help you improve your cost management workflows.


Grace Ellis

As Manager of Content Marketing Strategy at Autodesk and Editor in Chief of the Digital Builder Blog, Grace has nearly 15 years of experience creating world-class content for technology firms. She has been working within the construction technology space for the last 6+ years and is passionate about empowering industry professionals with cutting-edge tools and leading strategies that improve the quality of their jobs and lives.