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<\/a>What Is Construction Cost Management?<\/h2>\n
Construction cost management is the process of keeping projects on budget by estimating construction costs<\/a>, establishing a cost baseline and a construction budget<\/a>, monitoring and forecasting costs as projects unfold and reporting on spending to internal and external project stakeholders.<\/p>\n In addition to these core construction cost management steps, ensuring the project is executed as planned is also a way of controlling costs for construction firms, because in the vast majority of cases delays<\/a> cause overcosts from resource utilization and also from contractual dispute fees.<\/p>\n For both the general contractor and the project owner, construction cost management directly determines whether a project becomes financially successful or painfully over budget. Contractors rely on construction cost management to protect profit margins, control cost overruns<\/a>, manage cash flow and keep subcontractor spending aligned with the project budget.<\/p>\n At the same time, owners depend on construction cost management to safeguard their capital investment, validate funding decisions and ensure that total construction costs remain consistent with the approved scope and financial expectations.<\/p>\n From the earliest concept sketches to final closeout, construction cost management influences every phase of a construction project. During preconstruction, it shapes value engineering decisions and aligns the design with the available budget. As procurement begins, it guides subcontractor selection and contract negotiation. Once work starts, it drives cost tracking<\/a>, change order evaluation and cost forecasting. Even material specifications and sequencing decisions affect construction costs, making construction cost management a continuous discipline rather than a single budgeting exercise.<\/p>\n On top of all of that, good construction cost management will give your company a positive reputation in the industry. Property owners without exception prefer to work with general contractors who are proactive, efficient and accurate with construction cost management.<\/p>\n On the contractor\u2019s side, the project manager is ultimately responsible for construction cost management during execution. While estimators may prepare the initial pricing, the project manager owns the project budget<\/a> once work begins. This role is accountable for cost tracking, cost forecasting, change order evaluation and protecting profit margins. If construction costs exceed the approved budget, the project manager is the person expected to explain why and implement corrective action.<\/p>\n On the owner\u2019s side, responsibility typically rests with the owner\u2019s representative, development manager or commercial manager overseeing the capital investment. This role ensures that construction cost management aligns with funding approvals and financial objectives. The owner\u2019s representative reviews cost reports, evaluates change orders<\/a> and monitors cost forecasts to protect overall return on investment and ensure total construction costs remain consistent with the approved scope and funding structure.<\/p>\n Besides those two key roles who are held accountable on both the contractor\u2019s and the property owner\u2019s sides, there are other roles that also participate in the construction cost management process. Here\u2019s how they\u2019re involved.<\/p>\n Now that we\u2019ve defined the concept of construction cost management, it’s importance and the key roles that participate in the process, let\u2019s dive deeper into each of its major stages for a thorough understanding of this process. Here’s a quick overview of each of the seven main stages of construction cost management and their key tools and deliverables.<\/p>\n During the development of architectural drawings, blueprints and CAD models, architects and engineers begin influencing construction costs through value engineering<\/a>. This process evaluates materials, systems and design alternatives to achieve the required performance at the lowest reasonable cost. Within construction cost management, value engineering ensures that design decisions align with the project budget before procurement and construction begin.<\/p>\n Construction takeoff<\/a> is the systematic process of reviewing drawings and specifications to measure and quantify the full project scope. It generates the detailed quantity data used to support pricing, budgeting and cost control. Within construction cost management, construction takeoff ensures that projected construction costs are grounded in verified scope measurements rather than assumptions.<\/p>\n Key construction takeoff tools and deliverables<\/b><\/p>\n Construction estimating<\/a> converts quantified scope into projected construction costs using current market pricing, labor productivity assumptions and construction methods. It builds the financial model that defines how much the project is expected to cost before execution begins. Within construction cost management, construction estimating transforms measured data into a structured cost estimate that supports bidding, budgeting and financial approval.<\/p>\n Key construction estimating tools and deliverables<\/b><\/p>\n Construction budgeting<\/a> translates the approved cost estimate into an actionable financial plan structured around cost codes, project phases and the project timeline. It allocates projected construction costs to specific trades and activities so spending can be controlled during execution. Within construction cost management, construction budgeting establishes the financial boundaries that guide cost tracking, cost forecasting and overall cost control.<\/p>\n Key construction budgeting tools and deliverables<\/b><\/p>\n Construction cost tracking<\/a> records and monitors actual construction costs as work progresses, comparing them against the approved budget and cost baseline. It captures labor, materials, subcontractor invoices and other project expenses at the cost code level. Within construction cost management, construction cost tracking provides the financial data needed to identify cost variances, protect profit margins and maintain control over total construction costs.<\/p>\n Key construction cost tracking tools and deliverables<\/b><\/p>\n Construction cost forecasting<\/a> projects the expected final construction costs of a project using actual cost data, committed expenditures and the value of remaining work. It analyzes performance trends, cost variances and identified risks to determine the projected cost at completion. Within construction cost management, construction cost forecasting provides forward-looking financial visibility that supports strategic adjustments before cost overruns materialize.<\/p>\n Key construction cost forecasting tools and deliverables<\/b><\/p>\n Construction cost reporting organizes and presents financial performance data related to construction costs in a structured, consistent format. It compiles budget figures, actual expenditures, cost variances and forecasted outcomes for review by project teams and stakeholders. Within construction cost management, construction cost reporting formalizes financial oversight and ensures that decision-makers understand both current cost performance and projected financial results.<\/p>\n Key construction cost reporting tools and deliverables<\/b><\/p>\n Construction projects generate multiple categories of construction costs, each affecting budgeting, cost estimating and overall construction cost management performance in different ways. The primary types are outlined below.<\/p>\n Construction hard costs<\/a> represent the expenditures required to physically build the project as defined in the construction drawings and specifications. These costs are directly tied to transforming design documents into a completed structure. In construction cost management, hard costs form the core of the project budget because they reflect the measurable work installed in the field and the tangible progress achieved on the jobsite.<\/p>\n Unlike hard costs, construction soft costs<\/a> relate to the planning, coordination and compliance activities necessary to deliver the project but not to physically construct it. They arise from professional services, regulatory requirements and financial arrangements that enable the work to proceed. Within construction cost management, soft costs must be forecasted carefully because they accumulate across the project lifecycle and significantly influence total construction costs.<\/p>\n Claims and delay<\/a> costs arise when a construction project experiences disruptions that extend the project timeline or alter the agreed scope of work, triggering contractual compensation mechanisms. These costs are typically tied to schedule impacts, lost productivity or disputed responsibilities between parties. Within construction cost management, claims and delay costs must be documented, analyzed and evaluated carefully, as they can significantly increase total construction costs and affect project profitability.<\/p>\n Direct construction costs are expenses that can be clearly assigned to a specific construction activity, work package or cost code within the project budget. They are incurred solely because a defined portion of the scope of work<\/a> is being executed. Effective construction cost management relies on accurately identifying direct construction costs, since they drive cost tracking, earned value calculations and precise cost control at the task level.<\/p>\n Here are some examples of direct construction costs:<\/p>\n Indirect construction costs support overall project execution<\/a> but cannot be traced to a single unit of work or specific activity. They enable the jobsite to function as an integrated operation rather than as isolated tasks. From a construction cost management perspective, indirect construction costs require disciplined cost allocation methods to ensure that shared project resources are properly accounted for within total construction costs.<\/p>\n Here are some examples of indirect construction costs:<\/p>\n Fixed construction costs are expenditures that remain constant over a defined period regardless of production output or work volume. Their value does not fluctuate based on installed quantities<\/a> or daily progress. In construction cost management, understanding fixed construction costs is essential for accurate cash flow forecasting, since these obligations continue even when productivity slows or project timelines shift.<\/p>\n Here are some examples of fixed construction costs:<\/p>\n Variable construction costs change in direct relationship to the level of construction activity performed. As project production increases or decreases, these costs rise or fall proportionally. Managing variable construction costs is a central function of construction cost management because they directly impact unit rates, cost forecasting accuracy and the financial outcome of the project as scope quantities evolve.<\/p>\n Here are some examples of variable construction costs:<\/p>\n Overhead construction costs represent the ongoing operational expenses required to run a construction business that are not attributable to a specific project task. They exist independently of individual contracts but must ultimately be recovered through project pricing. In construction cost management, properly accounting for overhead construction costs ensures that bid estimates, markups and profit margins reflect the full cost structure of the organization.<\/p>\n Here are some examples of overhead construction costs:<\/p>\n We’ve created dozens of free construction project management templates<\/a> for Excel, Word and Google Sheets. Here are some of them that can help with construction cost management.<\/p>\n A cost breakdown template organizes project scope, resources and budgeted costs into structured categories, allowing teams to compare estimated and actual expenses, calculate cost variance and maintain clear financial visibility throughout construction cost management.<\/p>\n A schedule of values<\/a> template breaks the total contract value into detailed work items, tracking progress, percent complete, retainage and stored materials to support payment applications, cash flow control and accurate construction cost management.<\/p>\n A budget dashboard template consolidates material, labor, equipment and overhead construction costs into visual charts and summaries, enabling real-time budget tracking, variance analysis and improved financial decision-making within construction cost management.<\/p>\n ProjectManager<\/a> is award-winning construction project management software that helps you plan, manage and track your construction costs in real time. When you create a project in our software, you can set the budget or set it anytime you want. There are two types of costs, resource costs and general costs, both can be tracked as planned and actual costs. General contractors can plan out their projects on Gantt charts that track costs and resources, setting a baseline to monitor project variance in real time.<\/p>\n Once you\u2019ve set a baseline on the Gantt chart<\/a>, you can track live costs throughout the software. If you want to get a high-level view of the project, just toggle over to the dashboard, which automatically collects real-time data and displays it on easy-to-read graphs and charts. Besides a cost chart that shows live actual and planned costs, there are time, workload and other metrics to keep you updated on progress and performance. Unlike lightweight tools, you don\u2019t have to waste time setting up our dashboard. It\u2019s ready to go when you are.<\/p>\n We offer several reports available that help you manage and track construction costs. If you\u2019re managing more than one project, use our portfolio status report, which has a color-coded cost column to see if you\u2019re over or under budget at a glance. Use our project status report<\/a> for the same cost details for one project. If you want to see tasks about your work breakdown structure (WBS), generate a project plan report to see the budget and costs spent to date. Drill down into specific tasks with our task report and track planned and actual costs and resource costs. There are more reports, and all are customizable to show only the data you want to see. They can be easily shared across platforms and even printed for stakeholder presentations.<\/p>\n Construction cost management is only one part of construction project management. Our software covers all those bases, from task and resource management to keep your crew working at capacity to risk management that identifies and tracks issues until they\u2019re mitigated. We\u2019ll help you deal with project cost, cost planning and project cost control and everything else you need to deliver a successful project.<\/p>\n ProjectManager is online construction project management software that empowers teams to plan, manage and track their projects in real time. We connect architects and engineers in the office with your work crew on the job site so they can share files and comments to foster better collaboration. Get started with ProjectManager today for free.<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"Why Is Construction Cost Management Important?<\/h2>\n
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<\/a>\nWho Is Responsible for Construction Cost Management?<\/h2>\n
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Construction Cost Management Process: How to Manage Construction Costs<\/h2>\n
1. Value Engineering<\/h3>\n
2. Construction Takeoff<\/h3>\n
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3. Construction Estimating<\/h3>\n
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4. Construction Budgeting<\/h3>\n
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5. Construction Cost Tracking<\/h3>\n
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6. Construction Cost Forecasting<\/h3>\n
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7. Construction Cost Reporting<\/h3>\n
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Types of Construction Costs<\/h2>\n
Construction Hard Costs<\/h3>\n
Construction Soft Costs<\/h3>\n
Claims and Delay Costs<\/h3>\n
Direct Construction Costs<\/h3>\n
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Indirect Construction Costs<\/h3>\n
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Fixed Construction Costs<\/h3>\n
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Variable Construction Costs<\/h3>\n
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Overhead Construction Costs<\/h3>\n
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Construction Cost Management Templates<\/h2>\n
Cost Breakdown Template<\/a><\/h3>\n
Schedule of Values Template<\/a><\/h3>\n
Budget Dashboard Template<\/a><\/h3>\n
ProjectManager Has Construction Cost Management Tools<\/h2>\n
Track Construction Costs With Real-Time Project Dashboards<\/h3>\n
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\nUse Multiple Reports to Manage Construction Costs<\/h3>\n![\"ProjectManager's](\"\/wp-content\/uploads\/2022\/03\/Reports_Wide_Zoom-150_Project-Status-Report.jpg\")
<\/a>\nRelated Content<\/h2>\n
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