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 Budget shortfalls can often happen when they rely on data that is outdated, or when obtaining costs from a single source without enlisting a second pair of eyes to provide independent assessments and monitoring of budgets.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
Industry Research | Jun 15, 2023
Exurbs and emerging suburbs having fastest population growth, says Cushman & Wakefield
Recently released county and metro-level population growth data by the U.S. Census Bureau shows that the fastest growing areas are found in exurbs and emerging suburbs.
Engineers | Jun 14, 2023
The high cost of low maintenance
Walter P Moore’s Javier Balma, PhD, PE, SE, and Webb Wright, PE, identify the primary causes of engineering failures, define proactive versus reactive maintenance, recognize the reasons for deferred maintenance, and identify the financial and safety risks related to deferred maintenance.
University Buildings | Jun 14, 2023
Calif. State University’s new ‘library-plus’ building bridges upper and lower campuses
A three-story “library-plus” building at California State University, East Bay (CSUEB) that ties together the upper and lower campuses was recently completed. The 100,977-sf facility, known as the Collaborative Opportunities for Research & Engagement (“CORE”) Building, is one of the busiest libraries in the CSU system. The previous library served 1.2 million visitors annually.
Resiliency | Jun 14, 2023
HUD offers $4.8 billion in funding for green and resilient building retrofit projects
The Department of Housing and Urban Development (HUD) recently released guidelines for its Green and Resilient Retrofit Program (GRRP) that has $4.8 billion for funding green projects.
Arenas | Jun 14, 2023
A multipurpose arena helps revitalize a historic African American community in Georgia
In Savannah, Ga., Enmarket Arena, a multipurpose arena that opened last year, has helped revitalize the city’s historic Canal District—home to a largely African American community that has been historically separated from the rest of downtown.
Building Materials | Jun 14, 2023
Construction input prices fall 0.6% in May 2023
Construction input prices fell 0.6% in May compared to the previous month, according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices declined 0.5% for the month.
Contractors | Jun 13, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of May 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in May, according to an ABC member survey conducted May 20 to June 7. The reading is 0.1 months lower than in May 2022. Backlog in the infrastructure category ticked up again and has now returned to May 2022 levels. On a regional basis, backlog increased in every region but the Northeast.
Mass Timber | Jun 13, 2023
Mass timber construction featured in two-story mixed-use art gallery and wine bar in Silicon Valley
The Edes Building, a two-story art gallery and wine bar in the Silicon Valley community of Morgan Hill, will prominently feature mass timber. Cross-laminated timber (CLT) and glulam posts and beams were specified for aesthetics, biophilic properties, and a reduced carbon footprint compared to concrete and steel alternatives.
Industry Research | Jun 13, 2023
Two new surveys track how the construction industry, in the U.S. and globally, is navigating market disruption and volatility
The surveys, conducted by XYZ Reality and KPMG International, found greater willingness to embrace technology, workplace diversity, and ESG precepts.
Mixed-Use | Jun 12, 2023
Goettsch Partners completes its largest China project to date: a mixed-used, five-tower complex
Chicago-based global architecture firm Goettsch Partners (GP) recently announced the completion of its largest project in China to date: the China Resources Qianhai Center, a mixed-use complex in the Qianhai district of Shenzhen. Developed by CR Land, the project includes five towers totaling almost 472,000 square meters (4.6 million sf).