Construction Cost Tracking: Tips, Tools, and the Best Practices
Construction cost tracking can feel like a never-ending headache.
Missed receipts, unexpected costs, and lack of visibility lead to construction budget overruns. This is a typical scenario for builders who lack strategic tracking practices in their construction projects.
However, with the right approach and tools, you can keep your work on budget and stress-free.
Table of Contents
- The Basics of Construction Cost Tracking
- What is Construction Cost Tracking?
- 5 Best Practices for Construction Cost Tracking
- 3 Best Construction Cost Tracking Software Solutions
- The Bottom Line
The Basics of Construction Cost Tracking
The idea behind construction project cost tracking suggests having actionable data regarding each project’s financial health. It’s a process where builders monitor and document everything to have a clear understanding of their labor, material, equipment, and any other additional costs.
Cost tracking is very similar to cost estimation and is often used interchangeably. While both involve managing a project’s budget, there are clear differences. Cost estimation is done before the project begins and aims to predict how much a project will cost, while cost tracking is an ongoing process that records actual costs during the project.
What is Construction Cost Tracking?
Neglecting having a solid tracking mechanism for cash flow and unforeseen expenses will leave your construction company vulnerable to surprise costs that put the entire project under pressure.
Construction cost tracking is a system that aims to provide you with real-time information on how much money you are spending and where it’s going. This involves regularly recording and analyzing earned and spent money to stay within budget and have a clear plan for the future.
Moreover, having a contingency plan and budget for the unknowns is essential. While you may be prepared for expected costs, there will always be unexpected expenses that can arise throughout the project lifecycle. With construction cost tracking software in place, you’ll have the necessary information to make adjustments and avoid financial issues.
5 Best Practices for Construction Cost Tracking
While every project is unique, certain strategies help builders maintain budget control and prevent financial surprises. Knowing what works best for your company, whether through systematic data collection or tracking software, is crucial.
We will further cover 5 field-tested approaches that our construction fellows practice to stay within the budget and have transparent financial flows.
1. Establish a Detailed Budget Before Work Begins
And by this, we mean developing thorough construction estimates to have a solid starting point.
Start with precise measurements in your takeoff plans to calculate the amount of material and labor needed for each specific task. Use your team’s experience to estimate the number of work hours required, then determine the hourly rate per worker.
A detailed budget that accounts for all expenses, from labor to materials and permits, will set the foundation for efficient cost tracking. This initial evaluation should also include a contingency amount of 1%-3% of the project’s hard costs. Having this buffer in place will help cover any unforeseen expenses that may arise during construction.
How can you make this easier?
Having a well-developed budgeting plan eliminates guesswork and helps identify potential issues from the start.
However, to have a realistic overview of all project costs requires a scrupulous approach to budgeting and sharp attention to the details. This can be challenging if you run multiple projects simultaneously and need to focus on financial management while keeping track of other tasks.
This is where technology can be a great asset. Construction management software, such as Buildern, offers advanced project management and estimation features that help create accurate budgets and track expenses in real time.
2. Promote Clear Communication Between All the Stakeholders
A culture where everyone is on the same page is half the project’s success. Without it, miscommunication and lack of understanding between stakeholders can lead to costly delays.
This is clearly seen in the following numbers.
Over 76% of companies with effective communication policies manage to stay within the estimated budget, as opposed to the 48% that don’t have a well-established system.
3. Establish Cost Categories for Better Control
Cost categorization into subgroups like labor, material, equipment, and other essential project costs.
Cost codes in construction are numerical or alphanumeric systems used to categorize various costs associated with a construction project. These codes help organize a project’s financial aspects by allowing managers to allocate costs to specific tasks, phases, or types of expenses.
For example, while using construction project management software, you may assign labor costs from the 02.00 category. This code is then further divided into sub-categories like 02.01 for electricians, 02.02 for plumbers, and so on.
You can either create your own cost tracking system or use one of the internationally accepted systems like:
- CSI Standard Construction Cost Codes
- NAHB Standard Home Builder Cost Codes
4. Use Construction Cost Estimating Software
Keeping the entire budget under control can be tough, especially when there are many moving parts, including the constantly changing supplies and labor costs.
Construction estimating software helps automate the process of tracking expenses by providing real-time financial updates and other essential insights. You can get a detailed breakdown of your WIP and WIPAA reports (data otherwise to be calculated manually) in a few clicks.
Why does your company need all this information?
It goes beyond being “nice to have” information.
Lacking precise reporting and estimating tools, you risk running out of money and losing control over what is actually being spent.
This can lead to underbilling or overbilling undermining your brand’s credibility. To avoid this, it’s essential to track all financial information, including bills, expenses, purchase orders, change orders (variations), and timesheets. Implementing all the estimating with reliable software will help create accurate financial fundamentals for future projects.
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5. Be Open to Budget Adjustments
With the dynamic nature of the construction industry, there are always unforeseen costs and changes that can occur during a project. Whether driven by uncontrollable conditions, design modifications, or the client’s new requirements, these changes can significantly impact the project budget. Thus, it is crucial for you to remain alert and responsive to such developments.
One thing is having the already discussed contingency fund. Again, this will help you to cover any costs that are outside of your initial estimate.
You can also work with construction allowances, providing a predetermined budget for specific items or aspects of a project that may not have been fully defined at the outset. These are used as flexible spending limits to manage costs for finishes and materials, such as fixtures, flooring, or countertops.
Allowances make the selection process easier and clearer for your clients and you.
Another thing to help you with budget adjustments is the use of change orders, otherwise called variations. These are official amendments to the original project estimate that clearly outline any new work, material alterations, or revised costs.
By documenting changes through formal change orders, you can maintain transparency with clients, ensure that all parties agree to the modifications, and effectively manage the financial implications. This practice not only allows for better budget control but also enhances project communication and overall execution.
3 Best Construction Cost Tracking Software Solutions
Now that you have a clearer understanding of the importance of budget management in construction projects, you may be wondering how to effectively track and manage costs.
There are certain software solutions specifically designed for this purpose. Some of the options available on the market offer a relatively narrow choice of tools focused solely on expense tracking aspects. On the other hand, there are software solutions that provide a complete all-in-one toolset, supporting your construction project management processes from start to end.
Study each to find the best option for your company.
Buildern: Ideal for Every Stage of Construction
One of the most comprehensive construction estimating and project management software available is Buildern.
We offer features for every stage of the construction process, from initial budgeting and bidding to change order management, client invoicing, and beyond. Accurate cost tracking requires ongoing data comparison and monitoring of all bills, expenses, timesheets, purchase orders, and change orders (variations). This can become a real time consumer when you don’t have a specialized solution to support it.
With Buildern, you can easily access all this information in one place and automate the cost-tracking process with granular financial overviews.
We also have accounting integrations with popular accounting software Xero and QuickBooks for automated cost tracking and reporting. This and other capabilities make Buildern an ideal solution for residential and commercial builders of all sizes.
It also integrates with popular accounting software Xero and QuickBooks for automated cost tracking and reporting.
Mastt
Specifically designed for cost tracking and project control, Mastt is a cloud-based software solution that allows for real-time tracking and analysis of project costs. Some of the key features include working with payment schedules and certificates, project templates, tasks and actions, etc.
According to user feedback, it’s rather user-friendly software, making it easy for project managers to track costs and make timely adjustments.
RedTeam
RedTeam offers construction management solutions to help you with job site duties and overall project management. Its cost-tracking features include change order management and pre-construction estimating. It also offers real-time collaboration with subcontractors to help you stay on top of project costs.
However, it also comes with flaws.
Particularly, some users reported issues with the inability to delete certain items, which can complicate data management for users. RedTeam’s change order functionality would greatly benefit from adopting an import capability similar to Buildern, which excels in this area by streamlining the process and enhancing user experience.
The Bottom Line
Construction cost tracking requires thorough planning, accurate data, and the use of efficient software tools to gather, analyze, and report costs.
Search the web to find what’s best for your team to stay in charge of all your project finances. Look into Buildern to get an all-inclusive solution that can cover your pre-construction, project management, and post-construction needs.
Keep in mind that cost tracking is just one component of successful construction budgeting, but it’s a crucial one. Don’t ignore it.
