by Jeffrey C Kadlowec, Architect
Abstract
Construction projects should be completed on time, within budget and to high quality. Cost management focuses on the financial status of projects and implements control measures to mitigate variances and reduce risks. The decision to bid a project can significantly impact the profitability of a construction company. Proper management of those projects and strategic planning against uncertainty will ensure the long-term success of the organization. In a rapidly growing industry, the incorporation of information technology and optimized procedures will further increase competitiveness.
Keywords: construction budgeting, cost control measures, financial management
Construction Budget
The success of a construction project is measured by the completion of project objectives to a high standard, on time and within budget. Construction project management incorporates planning, scheduling, estimating, worker safety, financial risk, professional practice, contract administration, and cost control [Pawar 2022]. While finish quality and building performance are subjective, schedule requirements and projected costs remain finite.
Cost management monitors, analyzes and evaluates that information to forecast, control and report the financial status of a project or company. Project management begins with resource planning and cost estimation. Costs of labor, materials and equipment must be accurately calculated and validated to prevent overruns. Budget planning looks next at each stage of construction to allocate resources. Suppliers and sub-contractors then provide actual prices of goods and services. Project feasibility and potential for project success can be determined by identifying obstacles and forming strategies [Pawar 2022]. Bidding compares contract proposals to the project budget. Cost controls during construction review and mitigate projected costs and variances.
Financial management relies on the efficient utilization of company resources. Deciding to bid a project can significantly affect the financial situation of an organization. The funding of any project must be properly analyzed and be able to support the hiring of employees, purchase of materials and equipment, and cover project overhead [Sowmya 2023]. The main causes of failure of construction companies are improper accounting practices, inaccurate monitoring of job costs, poor management of cash flow, and inadequate profit margin from excess debt and overhead.
Effective cost control methods are the foundation of successful project management. This should include strategies and practices to minimize risks of cost overruns while maximizing profits and optimizing performance [Asfoor 2022]. The complex and dynamic nature of the industry requires proactive management of costs. Project delays, stressed business relations, and conflict disputes must be avoided due to negative legal and financial consequences. Focus on adhering to project budgets, proper management of changes, implementing value engineering, and continuous improvement to operations are ways to enhance competitiveness while mitigating risks. The delivery of high-quality work and timely delivery—that meet or exceed owner expectations—is the primary metric of any reputable construction company.
Market economy has a major impact on construction projects due to the long production schedules and fluctuation in the supply and demand of materials and labor. Understanding these uncertainties and properly managing those risks is essential to the survivability of construction organizations. The importance of cost management has been historically underestimated by many construction companies [Zhou 2023]. Relying on lowest bids to earn contracts while staying competitive in the industry is not the correct approach; instead strategic optimization of procedures and expenditures with focus on delivering quality projects will ensure long-term growth and sustainability.
Rapid growth in the global population and a high rate of urbanization are fueling the construction industry at an unprecedented rate. Information technology and digitalization provide new tools for engineers to manage project with less effort, shortening timelines and reduced costs [Khaleel 2022]. Building information modeling (BIM) is being implemented to track projects virtually with the inclusion of scheduling information and cost estimating data. This transition toward BIM provides greater accuracy in budget evaluation and more competitive cost estimates.
Research in project management and cost controls indicates a variety of problems unique to the construction industry. Construction technology is highly complex, the products extremely diverse, and production methods vary considerably with little opportunity for mechanization or automation [Wang 2022]. Unreasonable costs, insufficient budgets, inadequate processes, and limited details compound these factors. Careful selection of staff leaders, creation of friendly work environments, and conducting coordination meetings are ways managers can improve effectiveness. Preparation of a central master plan will further expedite the construction process through integration of all the elements of production [Chan 2023].
References
Asfoor, H M A; Al-Jandeel, A A T; Igorevich, K K & Ivanovna, L A. (2022). Control of Time, Cost and Quality of Construction Project Management. E3S Web of Conferences. 336. 10.1051/e3sconf/202233600072.
Chan, Lee. (2023). Cost Control Measures for Successful Construction Project Management. Department of Civil Engineering, University of Hong Kong.
Khaleel, Amjed & Naimi, Sepanta. (2022). Automation of Cost Control Process in Construction Project Building Information Modeling (BIM). Periodicals of Engineering and Natural Sciences. 10(6): 28-38. 10.21533/pen.v10i6.3354.g1214.
Pawar, Sujata; Kulkarni, Trupti & Pawar, Tushar. (2022). Budgeting and Cost Control in a Construction Project Management. International Journal of Scientific Research & Engineering Trends. 8(4).
Sowmya, D & Malisetty, Anitha. (2023). A Study on Need of Robust Financial Management and Accounting System with Reference to Construction Industry. ComFin Research. 11(4). 10.34293/commerce.v1114.6681.
Wang, Shoupei. (2022). Problems in the Whole Process of Management and Control of Construction Cost and Cost Management Strategies. Highlights in Science, Engineering and Technology. 28: 200-205. 10.54097/hset.v28i.4107.
Zhou, Ziqi. (2023). Cost Management and Risk Control of Construction Projects under the Market Economy. International Conference on Economic Management and Green Development. 10.54254/2754-1169/41/20232041.
