The Importance of Cost Control with Technological Solutions in Construction Projects

The lexical meaning of cost is the sum of the values that spent until a good or service is produced. In line with this expression, we can define the sum of expenses from the planning stage to the operation stage of the project (include design, construction processes, etc) as construction cost.,

For all industries, it’s important to keep costs under control and make a profit. But, planning, coordination, and control are more important in construction projects because different disciplines and different stakeholders work together. In the manufacturing sector, it is a popular and realist method to predict the costs of the future, especially using realized data. In the construction sector, the existence of many factors that increase the risk such as environmental conditions, uncertainties, working with subcontractors, project-specific one-time cost items shows that this method alone will not be sufficient.

According to McKinsey’s research (Imagining construction’s digital future), the construction industry,  however, has yet to adopt an integrated platform that spans project planning, design, construction, operation, and maintenance. Employers and contractors often use different platforms that are out of sync with each other. As a result, there is no mention of a single resource that provides an integrated, real-time view for project design, cost, and timing.

Nowadays, considering the engineering and construction industry is among the industries with the least adaptation to digital transformation in the world, it would not be wrong to say that traditional methods are preferred instead of digital solutions in cost control applications.

You can browse relevant articles for digitalization in the construction industry;

 

“Digitalizing Your Enterprise with Digital Business Solutions on Construction Industry”

 

It is difficult to find the answers to the following questions in construction projects that use traditional cost control methods:

  • Can you get consolidated reports both on project/consortium and company basis and on cost codes basis?
  • Can you keep budget follow-up under control while the project is continuing, integrated with procurement management?
  • How do you monitor multiple currencies, multiple companies, and multiple projects?
  • Can you follow up revenue and expense of the project? Can you compare them based on the project?
  • How do you manage materials, equipment, etc. cost, which was newly supplied for the project but not consumed throughout the project and will be used again in other projects.
  • How do you distribute expenses of the head office employees who spend effort on the project to your projects?

The purpose of cost control is to help deliver the project on time, within the scope and the budget. We can say that the cost control process in construction projects generally consists of 5 steps:

  • Defining the cost code hierarchy
  • Creating the planned budget based on cost codes
  • Realization of project costs (material purchases, service purchases, personnel costs, machinery & equipment costs, etc.)
  • Updating the planned budget regularly
  • Monitoring and reporting of the cost control process in real-time

Many employees from site engineers to project managers, procurement personnel to accounting and finance personnel have to take an active role in managing this process effectively.  At this point, benefiting from technological solutions allows different people of different roles to adopt their responsibilities, to follow up the work digitally, and to monitor the results in real-time.

So, what should be the features of the technological solution to set a useful cost management system?

Web-Based Cost Control Systems

Construction projects are usually executing from different locations that require site and head office coordination. It is also necessary to access the system for different stakeholders such as contractors, employers, project management, and design firms concurrently. You can create an active communication environment between the employees involved in the project with web-based software systems that can be accessed even on mobile devices.

Integration Feature with Procurement Management Systems

In traditional cost control methods, the data flow is coming from a project accounting system. This method’s disadvantage is not tracking actual costs instantly. Usually, purchase orders and invoices are not closed at the same time. The accounting record is entered later by the accounting supervisor. For this reason, it is impossible to think of the cost control and the procurement process independently. The first step to establish a successful cost management system is to progress integrated with procurement management. With procurement integrated cost control systems that provide real-time budget control, budget exceeding within the tolerances or defining revises budget should be possible. So, you can right from the start find answers to the questions do you have a budget for this item or do you over budget if you make a purchase.

You can browse relevant articles for more information;

 

“3 Indicative Factors That a Procurement Management System is Successful”

 

Multiple Currency, Multiple Company, and Multiple Project Tracking

Global companies that follow multiple projects need to get both consolidated reports and separately reports based on companies/projects. For this requirement, cost control software must be flexible and adaptable to new developments depending on different countries, legal and contractual issues. Systems supporting multi-currency, multi-company, and multi-project structure will become prominent in this regard. Thus, you can easily consolidate between your projects and companies.

Advanced Reporting Capability

Cost control reports show us planned budget amounts, actual cost amounts, and deviations. As a result of the reports, experts can analyze the causes of deviations and specify precautions. Thus, you will be able to transfer know-how to similar projects and help your company to increase its profit margins by keeping the costs under control. It’s possible to track planned, revised, committed, realized, and paid amounts based on cost code in real-time with cost control systems.

 

EGFS – Global Finance Management System, developed with the ENKA Insaat’s over 60 years of knowledge and experience in the site, allows you to manage your accounting, finance, and cost control processes on a single system with single data entry. You can visit our website for more information. (https://www.enkasystems.com/solutions/egfs-global-finance-system/)