Three Keys to Controlling Project Costs :: The Construction Management Pro

Three Keys to Controlling Project Costs

How often have you heard an investor or homeowner say, “Why is this costing me more than your estimate.” There is no easy answer to that question. There are a lot of factors that go into a project cost and what the original estimate is. There are however a couple of things you can do to control project costs.

The first thing is to establish a comprehensive Scope of Work. We went over this in a previous post. The bottom line here is to know what is and what is not in the contract amount. Once that is established there should be less chance of a misunderstanding regarding what should be done and how much it should cost. Many contactors make huge profits on Change Orders. Things they knew would have to be done, but were not included in the contract. It is imperative to make sure as much of what you believe will be needed is in the base contract.

Secondly, minimize “Scope Creep”.  One of the three pillars of project management is controlling the scope of the project. Scope Creep is when the scope of the project enlarges incrementally. Just one small change or addition leads to another and another. Soon the project is much larger than originally planned. As a contractor and consultant, I often have to remind clients of the original scope of the project and their decisions will increase not only the scope of the project, but it’s time to complete and budget!

Lastly, one must keep a handle on payments. Now you would not think that should be a problem. But how often have you heard of a contractor requiring 25% or a third of the project cost up front! Once you start down that road there is the potential for trouble ahead. Many small contractors have cash flow issues. They rely on the upfront payment to pay for materials and have funds on had to pay for labor. Plus they don’t want to pay for a job out of pocket and then have to chase the client for what is owed them.  That’s understandable; however this is a matter of trust. As the client, you are putting yourself in the position of trusting that what you have advanced will be done some time in the future. Not a position I want to be in. Remember the Golden Rule, “He Who Has the Gold, Makes the Rules.” It’s your money spend it only when it is earned. If you have a problem with a contractor, but have advanced them a significant amount, you either have to eat that cost when you terminate the contract, or chase them and hope they will complete the job in a satisfactory manner; good luck.

If you keep an eye on these three issues, you will have increased you prospects of getting your project done on time and within budget.

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