The Profit is in project controls-The Benefits of Effective Cost Controls on a Contractor’s Profits
Very rarely do researchers and consultants examine control processes when something goes wrong in a construction contract. Instead, the focus has been on baseline cost and schedule, scope creep, the project environment, lack of adequate risk management, and a whole lot of factors. While these factors may be partially responsible for bad project performances, one cannot overlook the impact of good cost control processes, methodologies, and management on the overall success of a program. For many in the owner’s camp, project control is a procedural process of managing the cost of what is happening, and not necessarily controlling that cost.
For a contractor or a contracting organization, cost control is the pivot of the organization’s success, and the amount of profits and benefits to be realized from a project project directly correlates to how a contractor approaches cost control. It dictates the profit and loss on a project and companywide button line.
Cost control starts with estimating the cost and schedule of the contract work. Upon successfully winning the project, the contractor must initiate the buyout process and finalize the estimate for input into the company’s accounting software. Cost activities must be cost coded to allow effective tracking of cost once construction begins. The estimate and schedule become the baseline against which progress is measured. Cost coding activities allow you to effectively track the cost of labor, material, and equipment, at the activity level.
Benefits of Cost Control
For a contractor, there is more to cost control than establishing Cost Value Analysis or EVMS on the project. Effective cost control also involves many activities that happen on the construction site including.
Tracking and reporting direct labor hours
Tracking and reporting equipment usage
Tracking and managing material usage
Managing subcontractor accounts
Preparing and applying for periodic payments
pricing, reconciling, and managing construction changes.
The efficiency of your cost control process or systems depends on the project management team, and how well they have bought into the company’s cost control philosophy. It also depends on the organization’s overall approach to cost control, correctly setting up the processes and procedures, and cost control system.
Done right, cost control can help contractors manage their projects effectively, reduce waste and cost, monitor material usage on site and give them data for their future projects. It helps you separate bad project types from profitable ones so you can make strategic decisions.
It is always recommended contractors establish effective cost control processes, and systems if they are to be successful in the contracting business. Have you established your cost control processes and systems? How effective is your current cost control system and process? Sign up for
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How Danquah Group Can Help
We work with contractors to drive efficiency, reduce, and manage costs on their projects. Our construction consulting services help contractors and owners leverage project and construction management practices, and modern technology to improve their profits on their project and improve on their business line.
Sign up for
construction consulting services to receive consulting, training, and digital strategy to transform your construction practice. We work with contractors to establish or improve existing control processes to manage different cost control elements on their project such as Cost Value Analysis or EVMS, change order processes and management, material tracking and management, equipment tracking, and more.