Costing construction projects can be a major challenge for project managers to get right. Between human error, constantly shifting market forces, changing customer briefs and siloed base data metrics, construction companies regularly struggle to effectively and accurately enact a nimble financial plan. This leads to these companies being forced to hire additional workers or spend more time on a project than initially intended.

Costing challenges have been so common in the construction industry that cost overruns have become a normal part of conducting business. A report by McKinsey & Company showed that large construction projects of all asset classes are typically 80% over budget. Here are three common challenges construction companies face when attempting to accurately estimate project costs.

Three Common Challenges Project Managers Face When Estimating Project Cost

1.Project Data Has to be Gathered From Multiple Stakeholders Before Total Cost Is Calculated

One of the key challenges that construction companies face when trying to provide an overview of project costs is bringing together information from multiple stakeholders. Among contractors, subcontractors, material suppliers and onsite supervisors, there are numerous points of coordination a project manager has to go through to collect financial information relating to a single project.

This can be challenging since construction projects are dynamic and financial information can already be outdated once a single round of information collection is completed. To close this gap, business leaders must find a more effective way to collect financial information from all the stakeholders involved in a construction project.

2.Financial Data Is Not Stored or Calculated the Same Way Across Operational Silos

Even if business leaders find a way to efficiently collect financial data across all operational silos, the nature of silos means that each stakeholder would have a different method of storing and analyzing financial data. Project managers often rely on complicated spreadsheets to bring this information together. This dependence has not changed significantly even with the introduction of more capable software, with subcontractor dependence on spreadsheets seeing only a 1% reduction from 2018 to 2019.

However, this increases the likelihood of human error since this method depends on manual updates each time a change needs to be made. Manually combining financial information is also extremely time-consuming and takes resources away from other high-value tasks such as project strategy or coordination.

3.Project Scope and Customer Briefs Change Throughout the Project

Construction projects, particularly large, multi-year projects, constantly change in scope, direction, and supply requirements. This has been compounded following global supply chain challenges induced by the pandemic. Traditional methods of cost estimation use basic assumptions on price and material availability to predict project costs. However, the recent fluctuations in price have made this extremely difficult. Even without external market forces causing challenges, changing customer briefs and project scopes can have far-reaching implications for project cost that has to be manually calculated if automated and intelligent software is not being used.

Integrated Cost Management Software Can Provide Accurate and Effective Project Cost Estimates

1.Intelligent Software Estimates the Knock-On Effect a Single Change Might Have on Project Finances

The components of any construction project are increasingly interconnected, especially with the popularity of modular construction. The result of this is that a single change in material price or project scope can have knock-on effects across the entire project. These effects can sometimes be difficult to predict and are susceptible to extremely high levels of human error.

Artificial intelligence can help business leaders plug this gap by constantly analyzing the entire project and alerting project owners and managers when changes in strategy can cause project costs to spike. Automated cost management software can also improve profitability by suggesting areas where costs can be reduced without impacting the quality of the project. Accenture estimates that the use of such AI-based software will increase the industry’s profitability by 71% by 2035.

2.Fully Integrated Estimation Software Combines Multiple Data Sources and Types to Provide a Single, Holistic Financial Overview

Information silos have been a constant challenge that construction companies have been trying to solve. This leads to gaps in data that prevent project managers from developing a holistic overview of a project’s finances and profitability. 71% of project owners have indicated that effectively collecting and retaining project information can reduce operational costs.

Fully integrated estimation software allows business leaders to consolidate all financial information relating to a construction project in a single place. Such software can also be used to view costing trends that can be difficult to extract from traditional platforms such as spreadsheets. Since all stakeholders can update their cost projections in real time without much difficulty, this reduces the amount of friction between silos and allows information to be shared and consolidated easily.

3.Project Data is Collected and Analyzed in Real Time

Fully integrated cost estimation software goes further than simply bringing financial information together from disparate information sources and displaying it in an easy-to-understand dashboard. Estimation software allows contractors, subcontractors, project managers and onsite supervisors to update any changes in their cost calculations in real time. This eliminates the time lag between a financial change being enforced and the project manager receiving an updated quote that can then be communicated to management and project owners. This effect can also be complemented by integrating industry databases that add the most updated supply data and material prices to a project’s cost estimate.

Successful job costing can help construction companies accurately predict cash flow, plan project commitments, and reduce cost overruns. While information silos, dynamic project requirements and outdated data practices still exist in the industry, effective and efficient cost estimation software can help business leaders mitigate the impact of these factors. With fully integrated software, business leaders can combine seemingly disparate data sources and plug gaps in cost estimates using artificial intelligence. Managing cost is a basic requirement for any project manager and intelligent software helps companies make managing costs significantly easier.