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What is Construction Cost Management and Steps Involved in it?

Last Updated on June 16, 2024 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.

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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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The Takeaway

The field of construction cost management is vital for the successful delivery of projects within budget. This complex aspect of construction is explored in detail in various construction cost management pdf documents. These resources offer comprehensive insights into cost estimation, budgeting, and financial planning specific to construction projects. For those looking to delve deeper into the subject, there are several construction cost management books authored by experts in the field, providing both theoretical knowledge and practical case studies.

Construction cost management courses are available for professionals looking to enhance their skills in this area. These courses cover a range of topics, including cost estimation, budgeting strategies, and financial analysis, tailored to the specific needs of the construction industry. The importance of cost management in construction cannot be overstated as it directly impacts the financial viability and overall success of a project. Effective cost management ensures that projects are completed within the allocated budget, maximizing profitability and resource efficiency.

In today’s digital age, construction cost management software plays a crucial role in streamlining cost control processes. These tools offer real-time budget tracking, cost forecasting, and detailed financial reporting, enhancing the accuracy and efficiency of cost management in construction projects.

For those interested in learning about specific strategies, 7 cost control techniques pdf documents provide valuable information on various methods used to keep construction costs under control. These techniques range from accurate initial estimates to continuous monitoring and adjustment of budgets throughout the project lifecycle.

Project cost control is an essential aspect of construction cost management, involving the use of various tools and techniques to keep the project within the planned budget. It includes tracking expenditures, forecasting future costs, and making necessary adjustments to ensure financial objectives are met.

Cost monitoring in construction is another crucial component, requiring ongoing assessment of expenditures against the budget. This process helps identify potential overruns early, allowing for timely interventions to keep the project on track financially.

For a comprehensive study, Construction cost management project pdf and Construction cost management notes pdf provide detailed guides and educational materials on managing construction costs effectively. These documents are valuable for students and professionals alike, offering insights into the practical application of cost management principles.

Similarly, Construction cost management notes are useful for quick reference and revision, summarizing key concepts and strategies in managing construction costs. Lastly, Construction cost management examples in real-life projects illustrate the application of cost management techniques, providing practical insights into how theory is translated into practice. These examples serve as case studies for understanding the complexities and challenges of managing costs in construction projects.

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What does cost management entail in construction?

Cost management in construction involves the process of planning, estimating, budgeting, and controlling costs throughout the lifecycle of a construction project. Its goal is to ensure that a project is completed within the approved budget. This process is crucial for the financial success of construction projects, ensuring efficient use of resources and minimizing cost overruns.

How are construction costs defined in construction management?

Construction costs in construction management refer to the total expenditure required to complete a project. This includes the cost of materials, labor, equipment, services, and any other expenses directly related to the construction process. Effective management of these costs is essential to maintain the financial viability of a project.

What methods are used for estimating construction costs?

Methods of construction cost estimation include unit cost estimating, where costs are assigned to individual elements of a project; square footage estimating, based on the project’s size; and parametric estimating, which uses statistical relationships between historical data and other variables. Each method varies in complexity and accuracy, depending on the project’s specifics.

Could you explain what a cost model is in construction management?

A cost model in construction management is a tool or a set of procedures used to predict the costs of a project. It takes into consideration various factors such as material prices, labor rates, project duration, and other relevant parameters to provide an estimated total cost of the project.

How important is cost control in construction projects?

Cost control in construction projects is critically important as it helps to ensure that the project stays within its budget. It involves monitoring expenditures and implementing measures to manage costs effectively throughout the project lifecycle.

Can software be used for construction cost management?

Yes, software can be used for construction cost management, providing tools for accurate cost estimation, real-time budget tracking, and financial reporting. These software solutions enhance the efficiency and accuracy of cost management in construction projects.

What role do quantity surveyors play in construction cost management?

Quantity surveyors play a key role in construction cost management by preparing cost estimates, managing contracts, and overseeing expenditures. They ensure that projects are completed within budget, providing financial advice and cost control measures.

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