How Cost Control in Construction and Technology Keep Projects Profitable

Table of contents

• Understanding the Importance of Cost Control in Construction Projects
• Key Strategies for Effective Budget Management
• The Role of Technology in Enhancing Cost Control
• Common Cost Overruns and How to Avoid Them
• Let Outbuild Help Control Your Schedule-Related Costs

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In construction, profitability is everything. Cost control in construction projects is key to ensuring that projects stay profitable. Between the amount of money that the customer is willing to spend and the cost to actually build the structure lies the profit margin, and it’s vital that cost control tactics are in place to ensure that the profit margin stays intact. 

This guide on budget and cost control in construction will explain everything you need to know about cost control, including what it is, why it’s important, and how software can improve your overall process. 

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The first steps in improving your cost control processes are to understand what cost controls are and why they’re important. This should serve as the lens through which you view all of your budgeting processes because cost control can make or break a project. 

What is Cost Control in Construction?

Cost control is the process of managing and regulating the expenses involved in a construction project to ensure that the work is completed according to plan and within the approved budget.  Essentially, it’s the set of checks and balances that construction companies utilize to ensure to optimize resources while staying under the budgeted amount.

Cost control involves many processes. Its parts include risk management, procurement, cost cutting, resource allocation, and constant overview. 

Why is Cost Control in Construction Industry Important?

Cost control plays a critical role in the feasibility and profitability of a construction project. It ensures that the project stays on track, that the contractor delivers the work they agreed to, and that there is money to be made for everyone involved. 

So, what does the process of controlling costs primarily involve? Cost control provides:

• Financial stability to prevent cash flow issues and overspending.
• Profitability to assure that the contractor and subcontractors make money and the project owner’s investment has a positive return.
• Client satisfaction to help customers feel like their contractor was honest and worked hard to make their vision happen without taking advantage of them.
• Risk management to serve as the lookout point by which to identify potential issues and evaluate their impacts.
• Resource optimization, reducing waste without compromising the quality of the project.

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The importance of budget management shouldn’t be a surprise, but it might not be completely obvious as to how to control cost in a construction project. The following are some of the most basic but critical strategies for managing a construction budget. 

Comprehensive Pre-Construction Planning

Start your project off on the right foot by performing comprehensive pre-construction planning. This includes thoroughly digging through all of the expenses involved in a project, including materials, labor, equipment, permits, subcontractors, and any necessary contingencies. Make sure to use the latest data but also identify historical fluctuations and current market conditions to make the best possible decisions. 

Identify the Scope of Work

Having a clearly defined scope of work removes variables and provides the jumping-off point for the rest of the project. Knowing exactly what the project involves improves timeline accuracy, reduces unforeseen expenses, and nips expensive scope creep in the bud before it can become a serious problem. 

Constant Cost Monitoring and Reporting

PM teams need to keep a finger on the pulse of a construction project at all times. This involves tracking expenses against the budget in real time and generating accurate reports to ensure that any potential issues are caught before they cause bigger problems. 

It’s also important for teams to review their financials regularly. This involves setting scheduled review meetings with key stakeholders. These meetings should involve comparing the actual costs to the budgeted costs, finding the sources of discrepancies, and making the necessary decisions to keep the project on track. 

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Risk Identification and Mitigation

Risk management is an integral part of construction cost control. Teams that work together to identify potential risks, determine what their impact would be, and develop a plan to mitigate the damages they can cause will have fewer unforeseen costs to manage down the road. 

But risk management isn’t just for the planning phases of the project. New risks evolve all the time, so regular check-ins to identify and plan for new risks throughout the life of the project are a necessity. 

Outbuild’s real-time reporting and features like roadblocks also plays a key role in risk management. As new risks emerge, teams can make immediate adjustments to schedules, materials, and resources within the platform, ensuring that potential issues are addressed before they become costly problems.

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Smart Procurement

A project management team can only control their in-house outcomes. Beyond that, they need to rely on trusted third parties to ensure the project stays on schedule and under budget. Subcontractors that they can trust to meet their contractual obligations are key, as are materials suppliers that will honor contracts and have the reach to obtain the materials the project requires. This requires relationship building and negotiation, but it’s vital to controlling costs. 

Prioritize Optimized Resource Management

Resource management is also important. Knowing where to allocate resources such as labor, materials, and equipment to the right place and right time takes experience. However, certain techniques can time-collapse the experience requirement. For example, just-in-time delivery can provide the framework necessary to run a project to its maximum efficiency while reducing time and material waste.

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Cost control, in one form or another, has been around for as long as property owners have been paying tradesmen to build structures. But, as in most things, technology has certainly simplified the cost control process, allowing contractors to bid more accurately and maintain their margins more consistently.

For the purpose of this article, we’ll discuss technology from the perspective of software. Advancements in power equipment, tools, and materials typically improve cost controls almost immediately, allowing contractors to perform more work in less time with less staff. 

Outbuild is at the forefront of construction technology, providing a cloud-based solution that enhances collaboration, reporting, and scheduling. With real-time updates, automatic reporting, and predictive scheduling tools, Outbuild ensures that projects stay on budget and on time.

Improved Bid Accuracy

Bidding as accurately as possible is one of the best ways to improve cost controls. Construction management software allows estimators to develop detailed bids using hard data compiled from previous projects, current trends, and real-time data. And, the more a contractor uses estimating software, the better the accuracy gets, preventing cost underestimation and future overruns. 

Beyond the actual management software, estimators can also use design technology such as Building Information Management (BIM) software or AI-powered plan scanners. They’ll then be able to create detailed take-offs that the team knows are accurate, thorough, and reliable. 

Real-Time Reporting

One of the biggest improvements that technology brings to the world of project cost control is real-time reporting. It’s hard to control costs when you’re dealing with unknown variables, after all.

Real-time reporting allows management teams to see where the project stands at any given moment. The data is up-to-date and clearly represents the current state of the project. This allows the team to track costs and make the decisions necessary to keep the project on track. Automatic updates are also critical. Any new information, budget changes, approvals, or change orders will typically update throughout the entire program instantly (depending on the program). This provides the most accurate information possible at any given time, allowing stakeholders to generate to-the-minute reports instantly before a meeting, when a decision needs to be made, or when an issue arises. 

"By leveraging real-time scheduling insights, we empowered the owners to make informed decisions on costly adjustments. We presented a clear picture of the schedule impact, helping them evaluate whether the investment would actually save time and money. This kind of collaborative approach —where accurate data guides key decisions— is exactly what helps minimize delays and maximize efficiency in construction projects." – Craig Loschen, Vice President / Project Executive at Wells and Wells Construction

Improved Communication and Collaboration

Technology has improved communication on almost every front in construction, but specifically with cost control. Programs with cloud-based access allow users to log in from anywhere in the world, instantly seeing the same data as the staff on-site, the staff in the back office, and other stakeholders, wherever they may be. They can review the same information and communicate using the platform, removing any tripwires in the communication process.

Also, document management systems have become increasingly critical to real-time cost control. Being able to access documents from anywhere, leave notes, and share these documents with other parties involved in the project inherently reduces waste, and therefore costs. The value this level of collaboration and transparency brings can’t be overstated.

Efficient Planning and Resource Management

One of the biggest areas at risk for mistakes and eventual cost overruns is scheduling. This is a process that requires a keen eye, lots of experience, and constant management. That is until software came along to simplify the process. Programs like Outbuild allow contractors to schedule more efficiently both in terms of the amount of time it takes to schedule and how they plan their construction phases. Any inefficiencies are red flags, and any potential issues that require adjustments can be handled in moments. 

Scheduling software can also make the most of resource management. Software that helps facilitate just-in-time scheduling ensures that the right materials and the corresponding contractors are on-site at the right time, reducing downtime to control waste and helping keep the project on track, further improving cost control. 

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Even though each project is unique, the process of project cost control typically faces the same challenges. Understanding them and their potential solutions is certainly a shortcut to learning how to control cost overrun in construction projects. Here are the most common culprits causing cost overruns:

Poor Estimation

Inaccurate estimates are the most common causes of cost overruns. Underestimating the cost of materials, labor, equipment, or other resources means the project won’t have the solid foundation required to stay on budget.

Solve this issue by using construction management software to develop accurate estimates. In-depth planning using historical data and current trends ensures that any fluctuations are accounted for. Just be sure to keep your cost data updated as the more information you have, the better your estimates will be. 

Scope Creep

A scope of work that isn’t clearly defined will invariably result in scope creep, with contractors performing work they didn’t budget for. Additional materials, labor hours, and the need to divert attention from the task at hand will always cut into the budget.

The solution to scope creep is working closely with stakeholders to develop a clearly defined scope of work. This ensures that everyone knows what is expected and helps maintain budgets. Construction projects are often fluid despite our best efforts, a scope of work sets the parameters for when change orders are necessary. While change orders almost always impact the timeline, they can at least preserve the profit margin.

Unknown Site Conditions

Site conditions can be one of the biggest variables on a construction site. Issues such as contaminated soil, existing underground utilities, unstable ground, or even a nest for an endangered species could create headaches that are hard to plan for. The plans then need to change, the timeline is broken, and subcontractors and property owners are unhappy, and these things are largely out of anyone’s control.

There are a couple of resolutions to these issues, though. For one, perform thorough site inspections during the pre-construction planning phase to ensure there are no regulatory issues, environmental challenges, or other concerns. Also, building in a slight buffer in terms of time and budget will help absorb these issues’ impacts. Finally, attempt to impart the importance of remaining flexible during the site prep stage with the project owner, as the design might have to change due to conditions no one can see until the shovel hits the dirt. 

Scheduling Issues and Timeline Delays

Scheduling is always a challenge, and so are the delays that result from poor scheduling. As progress on one phase of the project slows, it impacts the rest of the subcontractors and materials suppliers lining up next. This results in additional hours, days, weeks, and months, incurring more financing interest, additional equipment and storage rental fees, and much more. All of these factors can play a significant role in making the profit margin shrink.

The best solution for tackling these issues is to use construction scheduling software to dial the schedule in. Outbuild allows users to come up with a realistic schedule that is also flexible and efficient, putting the critical path in front of the team, but allowing them to bob and weave with variables that arrive. This can help avoid or at least minimize delays in the construction process in the most intelligent and efficient ways possible.  

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Cost control is one of the most important management functions in the construction industry. If you’re ready to shore up your scheduling cost control, Outbuild is your solution. Our software offers simplified, automated scheduling that allows users to adapt to changes or challenges while still minimizing waste and taking the critical path toward the finish line.

Ready to take control of your construction costs and schedules? Book your demo today or sign up for a free trial to see how Outbuild can transform your project management processes.