With the economy still in flux and complex demands on stakeholders across the construction industry showing no signs of slowing down, controlling costs is more important than ever. The best strategy for keeping costs in line differs by specialty, but nearly all methods include some combination of technology, alignment, culture, process, and insights.
Here’s a look at five ways construction leaders across Owners, General Contractors, and Specialty Contractors are successfully approaching cost management:
1. Invest in Technology for Project Cost Management
Technology is a tried and true enabler of cost-cutting measures, helping construction professionals improve efficiency and quality while also saving time. The challenge is in choosing which among the myriad options out there will lead to actual cost savings, without getting caught up in “shiny object syndrome” and merely chasing the Next Big Thing.
“I think a lot of businesses get stuck on which technology to use. Technology can definitely help us get smarter on cost, time, and quality, but we don’t need all the fancy stuff, we need things that are functional and stand the test of time,” said Sarah Heppinstall, VP of Construction at First Capital REIT, who assembled an internal task force to evaluate what technologies would be the best fit for the company.
“People on the ground–those who deliver the projects–definitely need to understand costs and how they relate to final quality, but we also need to be able to have technology that can go up to an executive level, too.”
2. Create Company-Wide Alignment Around Costs
Narrowing the choices to the best fit for a particular business, and securing buy-in from stakeholders at all levels, requires ongoing conversations within the organization.
“We partnered with our construction and accounting teams from the beginning of our Procore endeavor. We all traveled to Procore headquarters for those discovery sessions,” said Morgan Traynor, Senior Director of Operational Excellence at Ryan Companies.
“This allowed for all our stakeholders to be involved, and set expectations for how future integrations would interact between the two teams,” added Traynor.
Moving away from manual cost processes in favor of something new requires organizational realignment, particularly around culture and accountability. That shift goes hand-in-hand with the technology piece.
“You can have the best electronic invoice technology out there, but if you don’t have a good process and accountability method for who owns that, and a good team and company culture, it’s not going to matter. Your company’s still not going to be good at managing costs,” said Wes Simpson, CEO and President at Green Mechanical Construction.
“You have to change the way your organization approaches cost management. Not just from the technology side, not from the process side, but who owns it. You have to have a good culture when it comes to managing costs before the technology can really help everyone. You have to sell them on the why.”
3. Prioritize a Collaborative Culture Based on Accountability
The construction industry isn’t known for rapidly changing gears around processes, especially when existing methods have always seemed to work just fine. Ryan Companies has moved to providing its contractors with digestible dashboards that quickly communicate actionable insights around cost management, incorporating both accounting and Procore data.
“Previously, our superintendents and project managers wouldn’t share financial information together, just like they wouldn’t share schedule information. It felt like there was one owner and one leader of each of those documents. Over time, we’ve been able to show them how leveraging this information together as a team will provide a better outcome moving forward,” Traynor said.
Before integrating Procore, Green Mechanical was also bogged down with archaic cost management processes, from printing out spreadsheets before monthly accounting meetings to manually inputting vendor names for purchase orders.
“To have the ability from a management level, an executive level, even an ownership level, to go in at any moment and see exactly how much cost is going out on a project, and being able to compare that to a bunch of snapshots seven days ago, allows you to really home in on your costs and make better business decisions,” said Simpson.
4. Drive Consistent Process with Visibility
Construction teams also face unpredictable external factors like rising commodities costs, which makes even routine processes like estimating more challenging. Effectively navigating this kind of uncertainty requires new levels of transparency and openness.
“I’ve never seen unpredictability in pricing as it stands now. Everybody in the industry is talking about it and it affects us every single day,” said Simpson.
“From the bottom-up and top-down, we all have to be transparent [about cost increases]. But finding the best solution is a hard question right now because everybody is scrambling. It’s going to have to be a collaborative effort.”
5. Leverage Real-Time Insights
With so much unpredictability in the marketplace, going by instinct and guesswork to drive business decisions just doesn’t cut it anymore. As a result, contractors are leaving gut-feelings behind and moving toward better leveraging their data to monitor and control costs.
“In this year of COVID and commodities pricing unpredictability, we’ve been able to respond with data-driven analysis. We’ve removed the gut feeling and we have real data to base our decisions on. This has brought clarity to an unknown situation and allowed us to make smarter business decisions moving forward,” Traynor said.
“Without knowing the risk you have, it’s really difficult to know where to prioritize your time.”
In order to be successful, controlling costs has to be a company-wide effort. This means forging new partnerships between project stakeholders up and down the chain.
“We’ve really put a big emphasis in the last few years about sharing accountabilities with all departments so you don’t end up with internal conflict. For my team in construction, we have a heavily weighted metric on coming in on-budget. The team member who creates the budget is the one who’s delivering the project team, so they own it throughout and it flows all the way down to the admin, and all the way up to the COOs to make sure things are being delivered on-budget and how it affects all of the teams,” said Heppinstall.
Ryan Construction has managed to control costs by spreading the responsibility across the organization.
“We at Ryan have made cost management a partnership between PMs, superintendents, accountants, and developers. It’s no longer just the project manager’s responsibility at month’s-end. We’ve really tried to eliminate the finger-pointing that would happen between those groups when GCs began to slip or to schedule extends or buy outlooks differently than what our estimated values are,” Traynor said.