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What is Construction Cost Management and Steps Involved in it?

Last Updated on July 23, 2021 by Admin

Construction costs can be organized better by planning expenditures in advance. completion of a project on time and within budget is a fundamental goal of all projects. We have discussed here the construction cost management and the processes involved in it.

Construction Cost management refers to the activities concerning planning and controlling a project’s budget. Effective project cost management ensures that a project is completed on budget and according to its planned scope. Since you assess the success of a project at least in part by its cost performance, cost management is a prime determinant of the project outcome.

Cost management activities are conducted throughout the project life cycle, from planning and budget allocation to controlling costs during project execution and assessing a project’s cost performance upon completion.

Although cost management includes a whole ensemble of activities, it is sometimes referred to in terms of more specific functions, such as spend management, cost accounting, and cost transparency. Cost managers sometimes use these terms as loose synonyms for the broad cost management function.

Cost management is the process of planning and controlling the budget of a project. Implementing a cost management structure for projects can help to keep their overall budget under control. Effective cost management involves four steps that are

  • Resource Planning,
  • Cost Estimation,
  • Cost Budgeting and
  • Cost  Controlling

Cost management will help to:

  • Identify each of the costs of the project,
  • Ensure the expenses are approved before Purchasing,
  • Keep a central record of all cost incurred, and
  • Control the overall cost of the project.

The objective of cost management is to provide a methodology for :

  • Deriving the project baseline budget and associated tracking tool,
  • Defining how cost reporting will take place,
  • Describing how cost variance will be managed in the project, and
  • Providing information for decision making.

Construction Cost Management Steps (Processes)

construction Cost Management steps

  • Resource Planning

Resource planning is the initiation step in the project cost management process, it uses a work breakdown structure a hierarchical representation of all project deliverables, and the work required to complete them to calculate the full cost of resources needed to complete a project successfully.

Construction managers typically determine the required resources for each work breakdown structure component and then add them to create a total resource cost estimate for all project deliverables.

  • Cost Estimating

Cost estimation is a quantitative assessment of the likely costs for all the resources required to complete the activity/project. It is a methodology for forecasting and predicting the cost and expenditures of a project and to produce a budget.

This includes, but not limited to labor, subcontracts, materials (including consumables), plant and construction equipment, services and facilities, etc, as well as inflation allowance and contingency costs. cost estimation is a continuous process.

  • Cost Budgeting

Cost budgeting is a process of aggregating the estimated cost of individual activities or work packages to establish a project budget or cost baseline for monitoring and measuring performance add up cost estimate to make project budget and then time phase project budget with the help of a construction schedule and schedule of quantity, and develop cost baseline. keep provision for ‘management reserve’ for un-identified risk and ‘cost reserve(cost contingency)’ for identified risks.

  • Cost Control

Cost control is a process to hold expenditure within the approved budget by monitoring and appraisal the cost performance. It is the process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.

Under the process, we are to endure that cost expenditure does not exceed the budgetary ceiling, cost performance is to be monitored to understand variances from the approved cost baseline if any.

The output of the cost control include the following deliverables, which will be updated throughout the project lifecycle:

  1. Budget updates
  2. corrective actions
  3. Revised cost estimate

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