KPIs for Effective Construction Cost Control

The global economy has been destabilized by pandemic-triggered inflation and market changes, while supply chain issues are exacerbated by fluctuating material and shipping costs.

Today’s world poses many changes and challenges to the construction environment.

The global economy has been destabilized by pandemic-triggered inflation and market changes, while supply chain issues are exacerbated by fluctuating material and shipping costs. The retirement of an aging workforce is quickly reducing the number of skilled workers, contributing to labor shortages and vendor scarcity. Climate change emphasizes the worldwide need to build with an eye for the future - adding sustainability and green building constraints to the ever-increasing complexity of construction.

On top of all this, stakeholder expectations are higher than ever.

With so many factors affecting cost planning and control in construction, solid project margins are harder than ever to achieve. Still, the worldwide demand for large-scale construction of housing and infrastructure is rapidly increasing, while the number of available contractors and builders stagnates.

Shifting expectations for project profitability and success are also at play, as stakeholders are no longer willing to settle for the “Golden Triangle” - a reference to acceptable quality, cost, and time to completion - let alone the ‘pick two’ approach which was touted as standard, in times past.

Construction Cost Control : Redefining Project Success

Historically, project success was largely determined by profitability. Even late delivery could often be excused by the bottom line; after all, if the project maintained profitability, it could still be deemed a success - hence, the enduring emphasis on the advantages of cost control in construction.

Though project financials are definitely a leading indicator of project performance, high-level metrics may not always equate to project health - or the overall performance and resilience of a construction team. There are many alternative factors affecting project success, and examining them can reveal more comprehensive and accurate insight into project performance - as well as ongoing opportunities for improvement.

Performance is key to cost control efforts.
To put it into perspective, using traditional budget and time-to-completion as your defining metrics for project performance is like assessing the quality of a map based on whether or not a traveler arrived. Traveling from Point A to Point B is essential - but surviving the trip doesn’t necessarily equate to success. Did the map take the best route? Did it avoid unnecessary roadblocks or risks? Were time or resources wasted along the way?

What are Key Performance Indicators, exactly?
Key Performance Indicators (KPIs) are like checkpoints on a map. Applied correctly, they support the advantages of cost control in construction, by providing actionable insights that help optimize and improve cost control measures - as well as the overall performance and profitability of the entire construction team.

Tracking KPIs can also help contractors assess their business performance, and build company health long-term, by providing benchmarks for success that are tracked while completing project-specific goals. While not all metrics are created equal, considering the bigger picture can help your company hone in on areas of opportunity.

To maximize impact, KPIs for construction cost control should be carefully defined to meet your project or organization’s specific goals. Ongoing tracking and assessment is a responsibility critical to your success.

Who is Responsible for Cost Control in Construction?

Most large-scale construction projects involve a Project Controls Manager (PCM) - also referred to occasionally as a Cost Control Manager (CCM) - who works as part of the Project Control Team. The PCM works closely with the Construction Project Manager and the Project Management Team, focusing on the construction project cost breakdown and other financial aspects which may impact overall cost and profitability.

The role of the PCM.
A successful PCM proactively identifies any financial issues or challenges that may impede successful project delivery, recommends short and long term solutions, and ensures that communication occurs in a timely manner.

The PCM’s role is critical to effective cost planning and control in construction, and oversees project expenditures, cost and cash-flow forecasting, cost trends, and change order compliance - as well as providing reports on financial status throughout the project lifecycle. The PCM works in conjunction with the Construction Project Manager to gain understanding of the project contract, scope of work, approved budget, and all expenses assigned to the project.

The project control team and PCM assume most of the responsibility for construction cost control - and their responsibility continues to increase as factors affecting cost in today’s construction environment grow more complex. The development of accurate and effective KPIs can help PCMs and their teams maximize the advantages of cost control in construction, while increasing project performance.

"Construction projects frequently deviate from their projected costs - which makes the use of effective KPIs critical to project success."

How to Use KPIs for Construction Cost Planning and Control

Cost control is more complex than accounting for time and cost only. In fact, effective cost control for construction projects requires ongoing assessment of project progression, with frequent updates that compare and contrast project projections against actual performance.

Well-defined KPIs are the first step towards effective cost control in construction. Beyond standard construction time and budget conformance, today’s PCM should be tracking these KPIs for construction cost planning and control.

    • Actual costs versus forecasts or estimates. Estimated costs (for example, the number of cubic feet of concrete poured per hour) may vary significantly, due to project specifics (for instance, an increase or decrease in feet poured per hour, due to shifting weather conditions). Periodic assessment of construction progression allows the PCM to proactively communicate areas in which actual costs veer from budgeted estimates.

    • Schedule accuracy. As onsite conditions shift, so does the accuracy of the original project timeline - and slippage can quickly spiral into snowballing costs. Consistent assessment and realignment of the project schedule is critical to cost control in large-scale construction.

    • Labor productivity. The productivity of labor can be affected by work conditions (site accessibility, job size and complexity, availability of equipment, and work stoppages) as well as actual characteristics of the labor force itself (skill level, experience, and motivation of the workforce). A study by Carnegie Mellon University indicates that labor productivity can be assessed similarly to employee evaluations, in order to inform effective cost control measures for project construction.

    • Material usage and waste management. Failure to adhere to an effective waste management plan can result in increased overhead costs - as can inefficient use of materials. Accurate tracking of materials usage can help reduce overall waste, inform approaches for onsite reuse of materials, while benefiting sustainability measures and reducing project cost.

  • Machine evaluation and equipment usage. Evaluation of equipment performance is a vital KPI for construction cost control. Objectively demonstrating the ability of equipment to meet project specifications and quality standards allows users to optimize onsite application of resources.

  • Project safety and risk management. An excellent safety record is vital to project success - and a failure to safely conduct onsite activities can result in incidents that waste valuable time and resources. Effective safety initiatives should include frequent and proactive assessment of onsite risk (as well as ongoing alignment with the project recovery plan), in order to eliminate risk and safety issues which expose stakeholders to increased project costs.
  • Quality assessment and items performance
    Quality is a major project performance attribute. Continuous evaluation and improvement of compliance with project standards and procedures is critical to ensure the delivered product will meet project specifications. Non-consistency in the application of project processes and standards leads to rework, poor quality audits, and increased occurrence of non-conformance reports (NCRs) - resulting in increased project costs.
Since financial accounts are historical in nature, some means of forecasting or projecting the future course of a project is essential for management control.” Carnegie Mellon University
Construction Cost Control, Monitoring, and Accounting

Advantages of Cost Control Software for Construction

Developing a construction cost control baseline can help PCMs compare and contrast project conditions with planned costs - still, tracking daily progression is a daunting task for those who still rely on spreadsheets and manual processing.

Cost control software for construction can offer incredible benefits - but ALICE Technologies takes that a step further, using novel AI-driven tech to empower PCMs throughout the entire lifecycle. While most cost control software for construction is useful only in the construction phase, ALICE can be used during pre-construction and project execution - offering deep insight from ideation to completion.

Leveraging ALICE’s cost control software for construction helps PCMs and their project control teams define, track, and assess KPIs which demonstrate project health - as well as proactively identify risks which may affect project cost, and realign projects that stray from their ideal budget.

Construction projects frequently deviate from their budgeted costs - but it doesn’t have to be that way.

Despite the availability of various control techniques, and the introduction of cost control software for construction, many large-scale projects still fail to meet project cost and time objectives. The effectiveness of these techniques and tools must be evaluated, in order to prove their viability and worth.

ALICE Technologies is the only AI-driven software for construction optimization - and we have a proven track record of success. Learn more about how we support project control teams and their PCMs, while reducing both project duration and cost - or schedule your demo, today.
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