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A Complete Guide to Construction Cost Management

Construction project tracking is all about costs and schedule. Owners want to know that the project will be complete on time and on budget. Construction cost management is how contractors know if they will meet the owner’s request.

What is construction cost management?

Construction cost management involves establishing, monitoring, and controlling a project’s budget. The approved project budget or cost baseline is an educated estimate of how much the project will cost to complete. It includes both hard costs, like material and labor, and soft costs, like insurance and permits. Although the budget is set at the beginning of a project, it can be adjusted throughout the project timeline as changes to the work occur.
The budget is established based on contractor estimates for how long the work will take and the cost of the materials, labor, and equipment needed to perform it. The general contractor uses general contractor software and is responsible for estimating any work they will be self-performing, as well as many of the soft costs that go into a project. Trade subcontractors provide the estimated costs for their scope of work.
As work begins and costs start to come in from suppliers and subcontractors, those costs are matched with the appropriate budget line item. The costs incurred to date are subtracted from the original budget for each line item to determine the budget remaining to be spent. The general contractor monitors budget line items and looks for any potential cost overrun.
If the general contractor finds a potential cost overrun, it is his or her job to find out why the project is over budget and either raise the budget for that line item or lower costs associated with it. Monies can be moved from one line item to another without affecting the overall budget amount. Or the overall budget can be increased to accommodate the cost overrun. The general contractor continues to monitor and control the budget throughout the life of the project.

Pitfalls in construction cost management

These are some of the most common causes of problems when it comes to project cost management: delays, changes, lack of real-time data, and relying on paper.

1. Delays

Schedule delays can have an effect on a project budget, no matter when they happen. Recent price volatility and material shortages have greatly affected the cost of projects. For example, lumber increases alone have raised the price of homes by $36,000.

2. Changes to the work

Whether they come from owner requests or pre-existing site conditions, changes to the work are inevitable. A study found that just 25% of projects came within 10% of the budget in the preceding three years. Some owners include a line in it their budget for just such contingencies, while others do not and to absorb the costs or find additional funding.

3. Lack of real-time data

Many contractors rely on monthly reports generated by the office to track and manage their costs. These reports take time to generate – data entry, invoice processing, payment processing. This means the information is almost obsolete by the time the contractor reads it.

4. Relying on paper

Many contractors are still using spreadsheets and paper documents to run their jobs. Spreadsheets are prone to data entry errors as information is transferred from accounting to the spreadsheet. Paper documents are easily misplaced or thrown away, leading to hours of searching.

How to improve construction cost management

1. Thorough, accurate estimates

A good project budget starts with thorough, accurate cost estimation. You can ensure you have an accurate estimate by verifying your takeoffs. Double check quantities and square footage, even from your subcontractors. Get multiple bids for each trade so you can be sure you have the most competitive pricing. PlanHub can help you reach out to new, qualified subcontractors who are looking for work. Finally, compare your budget to the costs of past projects of similar scope. By doing this, you learn from your experience and will quickly notice if a cost estimate is out of line.

2. Communication

Leadership in construction involves constant communication to all parties involved. Lack of communication on a project can quickly lead to additional costs and delays. To avoid this, make sure that everyone is using the same platform for communication. The platform should be accessible from the office, the field, and on the road when traveling. When everyone is using the same tool, it’s easier to work together to solve problems and keep everyone up to date on upcoming issues before they cause a delay or added costs.

3. Monitor progress

To keep costs and schedules under control, you must monitor the progress of the work on a regular basis. Daily reports should detail the quantity of work completed; not just how many workers were on site each day. Comparing work progress to the schedule will allow you to see when progress is slow and needs to be made up. Continually monitoring the progress of the work helps you see delays when they are small and can still be handled proactively.

4. Quality subcontractors

The key to construction quality management is having quality subcontractors who provide excellent workmanship and quality performance on the job. This could mean they are easy to work with, comply quickly to documentation requests, are communicative, and don’t submit frivolous change orders. It can be difficult to break in new subcontractors, so many avoid it. But often, uncooperative subs cost you more in the long run.

5. Clear scope of work

It is important to define a clear scope of work, both at the project level and with subcontractors. When the work is clearly defined there are less disagreements, fewer change orders, and fewer delays caused by arguing about who does what. A clear scope not only defines what work is to be performed. It also spells out what work is to be provided by others.

6. One stop resource for project data

When project data and documents are spread out in different software applications and in different locations, it can be difficult to find the information you need. Storing all project data – including communications, documents, cost data, reports, budgets, and change orders – in one central location cuts down wasted time looking for information and allows project team members to quickly and easily find what they need and get back to work. An all-inclusive construction project management and accounting solution saves teams time and money and makes communication faster and easier.


Construction cost management involves establishing, monitoring, and controlling the construction budget. Pitfalls like delays, changes to the work, not having real-time data, and relying on paper can make managing costs more difficult. Contractors can improve their construction cost management by putting together thorough, accurate estimates and having open communication among all project team members. This also includes the cost manager or quantity surveyor.  Monitoring the progress of the work, hiring quality subcontractors, providing a clear scope of work, and using a one-stop resource for project data can also help in construction management.
The construction bidding website PlanHub, can help you find quality subcontractors at competitive prices so you can keep your budget in line. Contact us for a demo today.


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