Truth be told, for all parties involved in a construction project, it’s the bottom line that's the top concern. Owners and developers, architects and engineers, general contractors and subs, and consultants—every member of the team is ultimately—if not overtly—focused on the project’s profitability.
While this is the case, conventional approaches to cost estimating that many owners and developers have come to rely on may not always yield the best or expected results that benefit all parties. Budget shortfalls can often happen when they rely on data that is outdated, or when obtaining costs from a single source without enlisting a second pair of eyes to provide independent assessments and monitoring of budgets.
An alternative—working with an independent cost manager—may be a new concept for some owners, but holds far greater promise of saving them [and their team members] money and time. By treating the client’s investment as if it were their own, and actively serving as the client’s advocate, an independent cost manager adds quantifiable value to their work. Engaging a cost manager in the earliest stages of a project has a relatively modest impact on the process and timeline and can help to avoid snowballing setbacks as the project progresses.
Here’s a checklist of some key go/no-go indicators that cost managers use to put a project on the road to profitability:
- Scheduling. Hindsight may be 20/20, but in construction, foresight offers greater value. Cost managers use both historical and predictive data to determine the best time to break ground on a project and calculate its duration. Drawing on their knowledge of manufacturing and global logistics, cost managers can chart a reliable course for timely sourcing and procurement, resulting in an optimal schedule that appropriately captures project delivery risks.
- Market conditions. To make the most of investment dollars and establish a favorable financing environment, cost managers factor in real estate trends and cost variances for different locations. As part of the due diligence process in the early stages of a project, a cost manager can also advise clients on the programming of a building. Replacement cost estimates can reveal a building’s true value in the market, maximizing its selling value. This allows owners to see if the numbers work, and to make a go/no-go decision on the path forward.
- Procurement. A conscientious cost manager can advise their client about the advantages and disadvantages of a variety of alternative construction delivery systems, such as design-bid-build, design-assist, and design-build, helping them select the method that best aligns with their budget and schedule goals.
- Pricing. Lately, material, labor, and equipment costs have been exceptionally volatile. Unlike contractors and sub-contractors who draw solely on their past experience from the builder’s perspective to guesstimate these prices, cost managers minimize unexpected and unwelcome budget disruptions by using highly targeted, real-time data to accurately project future pricing trends. This forms the basis for creating a provisional budget for the various project-building components [i.e., structural system, exterior wall, lighting, and HVAC systems], an essential tool for developing and analyzing the project construction budget.
Watching for Red Flags
If a cost manager isn’t on board for the initial stages of the project, there are still opportunities to enlist their aid; in fact, there are critical situations when reaching out to an independent cost manger can mean the difference between a successful, profitable project and a resource-sapping undertaking. These three red-flag scenarios include:
- “Free” estimates. Often offered as an incentive for prospective clients by contractors, free cost estimates are frequently based on non-competitive data from a single source that may not reflect current dollar values or cost influencers, and therefore may not equate to a comprehensive construction cost. Third-party cost managers work only with fresh data—in many cases, proprietary—that accounts for current market conditions, is tailored to the needs of specific projects, and provides realistic cost information throughout the course of a project.
- Doubts from the design team. If the design team says the budget is inadequate, there is an opportunity to mitigate that before resorting to value engineering. Working directly with the design team, a cost manager can guide them through the process of identifying and selecting alternative solutions that won’t derail the design—or the budget.
- Rapid cost escalation in design-build projects. The efficiencies of the design-build delivery method are predicated on an accelerated schedule and a reduction in change orders. If there is a delay in any phase of the process, costs can quickly soar. A cost manager can step in and make new budget projections that can help reduce loss.
Once a cost manager has created the optimal scenario for the project, it’s a “Go” to the design phase. Having prepared cost estimates based on the schematic design documents, design development documents, and construction documents, the cost manager can provide guidance to the design team related to the cost impact of design decisions throughout the design process. Armed with this information, a realistic budget can be created, giving the design team a solid foundation on which to build, and minimizing budgetary surprises as the project moves into construction.
With construction costs typically making up about 70% of an owner’s budget in a project, there’s a lot at stake in a building project. When engaged at the outset of the job, a proactive cost manager will not just protect that investment, they will identify ways to increase the profit margins throughout the process. There’s little doubt that engaging a third-party cost manager adds a small cost up-front, but it will yield a larger payback; one that also pays it forward in terms of client service.
Related Stories
Mass Timber | Jul 11, 2023
5 solutions to acoustic issues in mass timber buildings
For all its advantages, mass timber also has a less-heralded quality: its acoustic challenges. Exposed wood ceilings and floors have led to issues with excessive noise. Mass timber experts offer practical solutions to the top five acoustic issues in mass timber buildings.
Multifamily Housing | Jul 11, 2023
Converting downtown office into multifamily residential: Let’s stop and think about this
Is the office-to-residential conversion really what’s best for our downtowns from a cultural, urban, economic perspective? Or is this silver bullet really a poison pill?
Contractors | Jul 11, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of June 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in June 2023, according to an ABC member survey conducted June 20 to July 5. The reading is unchanged from June 2022.
Codes | Jul 10, 2023
Water Demand Calculator outperforms traditional plumbing codes for energy, carbon, and water savings
Using IAPMO’s Water Demand Calculator tool can result in energy, carbon, and water savings as compared to using traditional plumbing specification methods in plumbing codes, according to a study by Arup.
Adaptive Reuse | Jul 10, 2023
California updates building code for adaptive reuse of office, retail structures for housing
The California Building Standards Commission recently voted to make it easier to convert commercial properties to residential use. The commission adopted provisions of the International Existing Building Code (IEBC) that allow developers more flexibility for adaptive reuse of retail and office structures.
Laboratories | Jul 10, 2023
U.S. Department of Agriculture opens nation’s first biosafety level 4 containment facility for animal disease research
Replacing a seven-decade-old animal disease center, the National Bio and Agro-Defense Facility includes the nation’s first facility with biosafety containment capable of housing large livestock.
Market Data | Jul 5, 2023
Nonresidential construction spending decreased in May, its first drop in nearly a year
National nonresidential construction spending decreased 0.2% in May, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.06 trillion.
Contractors | Jun 30, 2023
Construction industry task force aims for standardized carbon reporting
A newly formed Associated General Contractors of America (AGC) task force on decarbonization and carbon reporting will address the challenges around reporting and reducing carbon emissions in the construction industry.
Standards | Jun 30, 2023
New ASHRAE standard aims to reduce disease transmission risk in indoor spaces
ASHRAE Standard 241, Control of Infectious Aerosols establishes minimum requirements to reduce the risk of disease transmission by exposure to infectious aerosols in new buildings, existing buildings, and major renovations. Infectious aerosols are tiny, exhaled particles that can carry pathogens that cause infections or disease.
Mixed-Use | Jun 29, 2023
Massive work-live-play development opens in LA's new Cumulus District
VOX at Cumulus, a 14-acre work-live-play development in Los Angeles, offers 910 housing units and 100,000 sf of retail space anchored by a Whole Foods outlet. VOX, one of the largest mixed-use communities to open in the Los Angeles area, features apartments and townhomes with more than one dozen floorplans.