Construction projects continue to become larger, more complex and more costly to manage. Redevelopment costs for the World Trade Center soared from $11 billion in 2008 to almost $15 billion today, and reconstruction costs for Interstate 287 in New York are reported to be more than $78 million over budget. These are just two recent cases of high-profile U.S. construction projects that continue to suffer from overruns.
Aside from the significant cost and delay, a further consequence of the austere economic environment has been greater demand for transparency—particularly when tax dollars are at stake. For example the series of cost increases experienced at One World Trade Center have filtered through to the local economy in the form of higher bridge and tunnel tolls, as well as prompted an audit of the Port Authority of New York and New Jersey (the regional transportation agency responsible for the site). Results of the audit published in January 2012 revealed poorly coordinated capital planning processes, insufficient cost controls and a lack of transparent and effective oversight.
All of these factors represent significant challenges for the firms responsible for managing complex construction projects. In response, project cost management solutions have been developed specifically to help firms translate owner capital investment strategies into tightly controlled project execution for contractors to realize true ROI. A project cost management solution should allow an organization to better control all financial aspects of a project through its life cycle—from initial estimating, budgeting and forecasting to measuring progress, controlling changes and reconciling actual expenditures. It should provide better visibility into how a project is performing and allow a construction team to make proactive decisions to improve that performance during the project’s execution.
Fundamentally Challenged
Many construction firms still rely on manual methodologies to manage schedule and cost data. With much of the reporting based on this data compiled by hand, entered manually and produced inefficiently, management teams simply cannot obtain reports fast enough to ensure timely and accurate insight into a project’s performance.
The problem is compounded by the fact that today fewer employees are often responsible for managing the same, if not greater, amounts of work. As the economy continues to take a toll on the U.S. job market, construction managers’ oversight is stretched by assuming responsibility for more resources and departments. Yet the legacy management systems available to them were originally designed for use on a per-project basis and are incapable of supporting a broader, organization-wide view of performance.
The result is large volumes of siloed data and a lack of transparency spanning all the way from the accounting and budgeting departments through to management and other stakeholders. Moreover, the larger the project, the more stakeholders are involved—with owners, contractors, joint venture partners and even competitors delivering different parts of the project. As these groups input data within their own silos, there is little transparency in any direction. This means managers are unable to accurately forecast budgets and schedules, competing contractors cannot gain insight into the necessary disciplines pertinent to their success, and stakeholders have no way of gaining an accurate holistic picture of a project’s progress or assessing and mitigating risk—all scenarios that contribute to the difficulty of protecting margins and driving profitability.
Ensuring Effective and Efficient Controls
Business-driven technology, such as project cost management software, is a small but productive investment compared to the money and time lost when a large project experiences overruns. Effective cost controls not only improve profitability, but also are essential to building accurate budgets, maintaining data integrity and measuring project expenditures. They also enable firms to gather data in a timely and accurate manner and report in an understandable format.
Because construction projects vary in type and size, a solution must incorporate a flexible database that allows users to tailor work structures, workflows and project controls to their needs. For large jobs, a project controls system must be robust enough to handle complexity, such as providing earned value management that complies with the ANSI-748 standard. By contrast, small projects don’t require this level of overhead. For smaller jobs, a project controls system should facilitate quick and easy planning of resources and reporting according to a standardized process. The best systems will enable project managers to quickly cut away superfluous information and access different slices of project data from a single source.
Some of the greatest benefits of a project controls system arise from its support for standardizing information and processes. For example, projects can be planned and measured both along work breakdown structures, as well as cost breakdown structures, resulting in easy reconciliation and alignment between the work execution approach and procurement/sourcing strategies. By using project cost management software to balance the supply and demand of available resources, construction executives can more easily anticipate potential staffing gaps and make informed decisions regarding project scheduling and resource allocation. This visibility lends a competitive advantage to contractors that can provide an accurate assessment of costs for project bids, while also helping keep projects on time and on budget. These types of systems also allow project managers to provide multiple stakeholders with limited access to appropriate parts of the project.
Being Predictive Rather Than Reactive
Complex and large-scale construction efforts require state-of-the-art tools and resources to run efficiently and on budget. Effective project cost management solutions improve profitability. They also help firms gather data in a timely and accurate manner and report in a clear, routine format. Being able to reduce the time and effort it takes to report project data leaves more time for construction executives to focus on strategic processes that deliver project efficiency, such as forecasting and analyzing budgets .
Project cost management technology provides a foundation for more advanced project metrics – whether it’s tracking key performance indicators or enforcing compliance by meeting government-mandated reporting requirements. It also can help companies analyze historic data to deliver more realistic forecasts. For example, it is important to not only identify the root cause of missed benchmarks, but also to more accurately predict the project’s cost at completion should issues remain unchecked. Being able to track a project and predict potential outcomes ahead of time can be the difference between finishing a project and incurring a construction cost catastrophe.