Get in Front of Your Project with Accurate Cost Forecasting
It is common practice for many construction companies and owners to try to ensure a capital project meets an agreed on budget by simply padding the bid. However, simply setting aside extra funds to meet unexpected costs is a risky and imprecise way to ensure you hit your target goals. The best way to hit your budget is to accurately forecast costs in the first place, which leads to the heart of the forecasting and cost management challenge.
Generally construction companies and owners use spreadsheets to manage project costs—a technique that can create more problems than support. Excel or other spreadsheets can create data chaos because there’s no easy way to track versions. While it’s true that you can save and rename an Excel file, on a large project renaming conventions could result in 100 or more spreadsheets.
It can take days or longer to recreate a detailed history of the changes made, when they were made and the reasons for the change. Now consider that no two individuals use spreadsheet software, the same way, thus creating inconsistency that can skew the numbers and the high probability of corrupt formulas and/or errors. There’s just too much flexibility to control the data entry and management process with conventional spreadsheets.
Further, consolidating spreadsheet data from different systems and different project team members is difficult and time consuming. It’s almost impossible to get a clear picture of project costs quickly.
Creating reports for multiple projects is even more difficult. Imagine an owner or general contractor that has five or 10 projects occurring simultaneously. Rolling all of this information into a single report could mean contacting 20 or more people and pulling together information from dozens of different spreadsheets before that organization is able to make a decision.
There are more effective ways to develop project and program costs forecasts—namely with construction management technology.
According to industry experts such as Navigant Consulting, a global consulting firm that specializes in construction, one of the critical elements to effective project cost forecasting is a software program specifically designed for this function.
Some benefits of project cost forecasting include:
- A construction management software with cost forecasting capabilities makes creating and updating cost forecasts easier by simplifying input and providing a single database from which to pull information.
- Additionally, a good project cost management program enables a consistent data entry process for multiple users. An owner can quickly review cost data on multiple projects without worry that project managers are using the software differently.
- It is also capable of running reports on one (or many) projects, consolidating data quickly with only a few keystrokes. As expenses are paid, cost forecasts are automatically updated. Links to related construction documents can be embedded for easy reference. PDF files of change orders and contracts can be viewed by simply clicking on a link.
An accurate, detailed and up-to-date capital project cost forecast will lead to measurable cost reductions and minimize the chance of cost overruns. It enables project managers to quickly take corrective action when changes escalate project costs, provide data for informed decision making, helps project executives quantify, justify and communicate where money is spent and why and dramatically reduce the likelihood that projects will exceed the budget.
A cost forecast model is a tool that can launch a dialogue about the impact of change orders or where costs can be cut to accommodate new requests. Likewise, the cost forecast can help individuals tasked with equipment, furniture or IT purchases see the big picture and understand the repercussions of overspending.
Because 20 to 40 percent of a project’s budget is often controlled by non-construction professionals, it’s important that project managers be able to demonstrate how these purchases impact the overall budget. An effective cost forecast saves money by allowing project executives to make adjustments to spending if costs escalate and redeploy money as needed.