3 STEPS TO BETTER COST CONTROL IN CONSTRUCTION PROJECTS

By Sumit Oberoi, Industry Strategy Manager, Autodesk

Economic uncertainty was cited as the top challenge for Australian construction businesses, the latest research from Deloitte and Autodesk found. In fact, 61% of construction businesses reported that rising material and labour costs were having significant impact on their financial viability. KPMG research also shows just 31% of projects come within 10% of the original budget, indicating that budget control is more crucial than ever in this uncertain economic climate.

There are three vital steps construction professionals can take to contain and optimise costs in their projects.

STEP 1: TACKLE THE ROOT CAUSES FOR COST OVERRUNS IN CONSTRUCTION PROJECTS

To know how to address cost overruns, it’s important to understand the root of the problem. In most cases, a project’s overrun is a result of inaccurate analysis or planning before building even starts. In parallel with better planning, technology can help to reduce the common problems or elements that contribute to cost overruns, ensuring you can maximise efficiency and profits.

Below are some of the most common cost overruns to mitigate.

Inaccurate Project Estimates

While many of a project’s stakeholders are eager to get the project’s building started, if you begin with faulty schedules and budgets, your project is headed for an overrun from day one. Due to the competitive nature of the tendering process, estimates may suffer from wrongful expectations of the scope of work included in the project. In many cases, some projects will also be estimated on a one size fits all basis, with chances of exceeding that initial estimate high. Therefore it’s vital to your project’s success to do your due diligence in the preconstruction phase and be accurate and realistic about project deadlines and cost from architects and contractors.

Estimating the project accurately can get started in the RFP process. This is the opportunity where project stakeholders can express their concerns over budget and timelines. If any of the parties appear to be unrealistic about timing or budget, this should be an immediate red flag.

Serious Project Design Errors

Unfortunately, design deficiencies are too common. Sometimes these could be incomplete or incorrect plans resulting in substandard work. These issues can be mitigated with software that ensures everyone is on the same page, reducing the risk of errors or incomplete designs. During construction, if the project experiences an unexpected change in its scope, for example, it is much easier to plug those design changes into a dynamic digital model than to redraw them on paper.

Alternatively, to enable contractors and subcontractors to build according to the design specifications, owners and contractors should agree on the specific Scope of Work and performance duties in the contract phase. This documentation should include clear references to:

• All project specifications on design documents

• Warranties of the exact work to be completed by contractors

• A risk allocation chart or definition

• A process for unforeseen issues

• A dispute resolution and/or mediation process

NOT PLANNING FOR CHANGE ORDERS

Change order requests added after the budget has been set often result in cost overruns. The additional time, labour and materials required to complete the change may also be classified as a cost overrun if it affects other aspects of the project. Consequently, changes can usually be best addressed in the contract phase, when a Change Order Provision can be added to specify procedures and budget needed should a change occur. If it isn’t addressed ahead of time, contractors might increase their total cost of a contract up front in anticipation of changes.

POOR SITE MANAGEMENT

Stakeholders on construction sites have different interests, which can add to instability when any site changes occur. Site changes need to be communicated effectively and quickly, especially across large sites.

With software, calculations and designs can be referred to digitally for accurate reading, and different scenarios can be tested to see which will result in the better outcome. Because digital calculations are assured to be precise (accurate inputs are needed) and software designs can be trusted to accurately depict on-site descriptions, decisions can be made quickly based on solid information, not differing interests. Online access to designs and scenarios allows for greater communication from remote locations. Decisions can be made while project leaders are on site, looking at an issue directly. Faster communication also leads to better decisions, as real-time insight can address a situation before it snowballs into a bigger issue which impacts the budget.

NOT WORKING WITH THE RIGHT TEAMS

Overruns can be the result of subpar work. Less experienced subcontractors can cause costly mistakes, delays and errors, even with the most impeccable designs and plans. Subcontractors are often chosen on cost, rather than proper qualification. Using the wrong teams exposes contractors to risk. Contractors who go through the extra steps to ensure subcontractor qualification will reduce the probability of experiencing significant cost overruns on construction projects.

STEP 2: REDUCE PROJECT RISKS WITH THE RIGHT TECHNOLOGY

Construction firms often face financial risks from client disputes. The global average value of construction disputes was $52.6 million, according to Arcadis’ 2022 Global Construction Disputes Report. Disputes can cause disruptions during construction projects, resulting in project delays, broken contracts and even litigation.

Here are some risks that can be reduced using construction software:

DEFECTS

Technology lowers the risk of defects from failure to perform a repair or remodel properly. By arming contractors with better data and access to key information, construction teams can avoid mistakes that lead to injuries and claims.

CLAIMS DISCOVERY DELAY

Contractors have often found it difficult to defend or clarify their actions when a problem occurs. Software that improves documentation and provides all information accurately could help the contractor avoid litigation.

PROPERTY DAMAGE

If property damage is not the contractor’s fault, centrally stored data or activity logs can help prove this to key stakeholders and authorities.

CONTRACT COMPLIANCE

Software can help address contract compliance by ensuring accuracy and fostering clarity of scope throughout the entire project lifecycle, avoiding potential disputes downstream. Using software to create a collaborative environment and enabling information sharing between all project stakeholders, rework and coordination issues are much less likely to arise.

SAFETY RISKS

Safety issues and incidents can raise your insurance costs. With a welldocumented safety record, your firm will pay less in premiums. A strong safety culture and qualified subcontractors are foundational for reducing overall safety risks and issues. Technology can further solidify the success of safety programs and new innovations can even proactively reduce risk.

STEP 3: CHOOSE THE RIGHT CLOUD SOFTWARE TO OPTIMISE COST WORKFLOWS

The best way to gain control over your construction finances is to have a central cost management system that provides flexibility and customisation to meet changing and unique project needs. Here are the key attributes of a solid construction cost management system that keeps your projects running on time and within budget.

• Connected and centralised cost management. It is critical that the system that you’re using to record, calculate, and forecast costs is connected to any other related applications being used. Doing so keeps multiple moving parts in sync, eliminates the need for double-entry, and helps teams be more efficient.

When you centralise the management of all cost activities, you ensure that your construction data is connected and auto-updates across the platform to offer an accurate view of the project’s financial health. A centralised system also provides a single source of truth, so stakeholders can have one reliable hub for data. Finally, a tightly connected cost management system can offer a real-time view of your project’s financial health, so you can make better decisions and forecast costs more accurately.

• Customisable structures and terminology. You want a construction cost management solution that adjusts to your unique processes, so equip your team with a solution that lets you customise structures and terminology.

A robust cost management tool will allow you to rename tabs, set up custom budget structures that work with any accounting system, and create custom calculated budget columns.

• Automated workflows. Ideally, you want a cost management solution that can help automate manual tasks like elevating an RFI to a potential change order, moving change orders through the approval process, and generating contracts and payment applications easily. It’s even better if the solution allows you to improve consistency and transparency of company-defined processes across projects by creating custom approval workflows. Utilising a decision-based workflow engine, teams can automate the routing of internal approvals for Owner Change Orders, Supplier Change Orders, and Contracts based on specific conditions.

The greater accuracy and consistency of your cost-related workflows, the more likely a project will be delivered on schedule and within budget – a win-win for all parties involved.

For more complimentary resources on how to improve the financial health of your projects, download the Autodesk Cost Management Toolkit (https:// getconstructioncloud.autodesk.com/ apac-cost-management-toolkit).

This article is an advertorial paid by our corporate partner, Autodesk Construction Cloud.