The Principles of Effective Project Cost Control and Management
Friday July 17, 2020,
5 min Read
Effective cost control and management is the mainstay of success of a construction project because it is eventually the money that keeps the operations running. If the costs go above expectations, the budget can topple and hamper a profitable project completion. Every business seeks to avoid such circumstances because it impacts their functioning, reputation and credibility, which is where project cost control finds its place. Cost control and management encompass the implementation of an effective strategy along with ensuring discipline to drive the highest level of quality, productivity and reliability for the project at an optimal cost. Rather than aiming at cost-cutting, cost management is about optimizing performance. Here are effective construction project cost control principles that project managers should follow to ensure completion of projects within timelines, budget and quality expectations.
Set Clear and Consistent Performance Objectives
The first, and perhaps the most significant aspect of effective cost control, is setting clear expectations in the form of consistent performance objectives. While managers often consider factors like staff reductions, cutting capital budgets and facilities rationalization as cost control elements, the real results come with everyday process discipline. It is all about dealing with the flaws in the underlying systems that elevate the costs of the project. Additionally, keeping performance expectations and objectives well-aligned is critical as managers wouldn’t want to offset the accomplishment in one area by increasing costs in another. The right way to achieve cost control is by attaining a balance in the entire process.
Provide the Requisite Tools and Knowledge
Typically, construction projects involve huge teams, right from the labour in the field, people in administrative roles, those looking after technical aspects and more. It wouldn’t be possible to complete the project successfully within the cost and time parameters unless these teams are empowered with the right tools and knowledge. For example, having construction project cost control software is something that can help the project manager keep an eye on the costs at all stages and ensure that they are under check apart from taking corrective measures if there is a need. Imparting tools and knowledge to the workforce not only enhances their productivity and drives cost control but also makes them motivated. This translates into better performance, which can have a positive impact on project costs.
Have an Understanding of True Costs
A clear understanding of the true costs of the project is the next principle that project managers should rely on. The standard cost comes up as the primary component, which is vital for decision-making, from strategy formulation to budget preparation, variance reporting and performance-based incentive plans. Apart from the standard cost, many more expenses may come into play as the project progresses. For example, the expenses related to change orders can inflate the project cost to a significant extent. Similarly, you may experience a sudden increase because of the inflationary trends, which usually happens in construction projects because most of them span over the years. Being aware of these true costs can help you manage and control them better in the long run.
Cut Down Organisational Complexity
The key to managing costs lies in cutting down your operational complexities, which is best done by sticking to the basic and essential activities only. A project manager who wants to drive efficiency in cost management goes ahead to assess the relevance and value of every smallest activity that is the part of the project. Consider the additional costs that every new activity will bring for the project. Evaluate whether a specific investment will provide value in some way or be a burden for the project. For example, eliminating a sophisticated maintenance management system if it is not proving worthwhile.
Commit to Broad-Level Involvement
As a project manager, the level of your involvement can have a far-reaching impact on cost management and control. Involvement makes you a better leader who commands respect from the team. Together, commitment and leadership serve as the keys to cost-effective excellence for any project. There is much that project managers have to handle as a part of their job and cost control is just a small element of the entire project management job. Automating the function with a smart construction project cost control software solution can help you stay loyal to this responsibility without being overwhelmed by the numbers and figures.
Make Excellence your Performance Target
Cost control is not just about minimizing costs but improving performance as well. As a result, you must follow excellence as your performance target. Rather than comparing the past performance with the current one to assess improvement, focus on perfection because that is what clients expect today. They would want you to go above and beyond in every aspect, from delivery before deadlines to zero injury safety, regular technical up-skilling and year-over-year cost reduction. Sound technical knowledge of systems coupled with well-aligned performance systems and reliable data integrity are emerging as the mainstays of a performance-oriented and effective cost management behaviour ethos.
Understanding these key principles of effective cost management and control, it becomes evident that very project management needs to go the extra mile to ensure that cost control is accompanied by performance enhancement. And of course, employee engagement remains as a central factor because people are the ones who drive projects, not the other way around!