Quantity surveying fundamentals: cost control

We continue our QS fundamentals mini-series with a focus on cost control. I had originally considered writing this article on cost forecasting but, the more I reflected on it, the more I realised that I should cover the wider topic of cost control.

As with my previous articles on QS fundamentals, this is another area that is ripe for improvement if we can innovate our methods with a data science approach. There is so much data processing for the quantity surveyor to do when it comes to cost control, so imagine how much more value could be added if we were focused on the insights gained and taking action to improve cost performance?

I have challenged myself (again) to cover a wide area in a 5-minute bitesize article, so let me see if I can skim across the surface and give you some top tips without taking up too much of your time and attention.

The key principles

Let’s start with the key principles of cost control.

What you are looking to achieve is an outturn cost projection that aligns with the scope, programme, rates, and risk profile, and gives you information that indicates where cost expenditure might be, or is, ahead of budget so that action can be taken to address the issue causing the potential to overspend.

Easy right? In principle yes, but when you layer in the complexities of the systems you interface with to obtain the information you need to control cost, then it becomes a lot more challenging. You need to know the risk profile from the contract (which is no doubt thousands of pages long), design information from the 3D modelling software (which can change every minute of every day), programme information from the planning software (which is not always easy to consume), and cost information from a finance system (should be ‘bread and butter stuff’ but can come with its challenges).

It's no easy task and, unless you have developed an automated approach, you will either take a ‘little and often’ everyday approach where you track issues daily or you will find yourself in a last-minute monthly rush trying to get your forecast together.

Keep that in mind as we move on to some of the key aspects of effective cost control.

Cost to date

Always have your finger on the pulse when it comes to how much your project is spending and, this may come as a surprise to some, do not be solely reliant on a finance system to tell you this information.

On a project there are so many data sources available which indicate your rate of expenditure. Whether this is the number of staff allocated, how many operatives you have, the key commodities consumed, or the production rates being achieved; you need your finger on the pulse when it comes to all sources of information which indicate your expenditure.

Inevitably, at month end, you will need to reconcile this information against the information contained in the finance system to prepare your monthly financial report. This information reflects the allocation of cost from central data sources (payroll, invoices paid, subcontractor payment certificates) to your project.

An obvious action to take, when you access the information, is to check the finance team’s allocation against your own records to see whether there are any issues that need to be raised and resolved.

A top tip for you? Extract data from the finance system that gives you more than just the amount. The quality of your analysis will be much improved if you have data such as rates and quantities structured in a way you can use them.

Cost forecasting

I really have seen the good and the bad when it comes to cost forecasting.

For me, I know if a cost forecast is robust by asking a few very simple questions about the process followed when preparing it. It is very, very rare, but there are those who take a ‘total cost, less cost to date, equals cost forecast’ and that would be an immediate red flag for me; never do this.

What I am looking for is a quantity surveyor who understands the cost performance trends and can explain these, before moving on to describe whether these were one-off events or that the trend will recur. Their forecast will be informed by the programme, design development, procurement, and on-site performance. The quantity surveyor would be able to demonstrate that they have grasped all aspects of the project, and understand the risks and opportunities in the programme, the design etc.

Where trends are adverse to the previously reported position, risk allowances may be utilised where appropriate and / or tested to determine whether the contingency needs to be increased or reduced.

Closing the cost control loop

For me, you close the cost control loop by testing cost performance against the budget.

By this I mean really getting under the skin of the amounts and testing the detail of the rates and the quantities. Remember that top tip about getting cost data with rates and quantities structured in a way you can use them? Here’s where you need it.

What you are looking to do is run analysis to understand how your rate and / or quantity performance is tracking against budget. This will lead you to investigate ‘why’ that is happening and, once you have made your operational colleagues feel a little hot under the collar, you will have information that will inform action you need to take.

The action might be resetting performance with the operational team so that cost expenditure is aligned with budget. If you can work with the operational team to find solutions that optimise cost performance then, for me, this is what commercial management excellence looks like.

If the cost increase has been caused by a risk which is not your responsibility under the contract, then your actions will be different. You would notify the event under the contract and justify your entitlement to be paid, make an application to be paid the value of the work performed, and provide sufficient records to substantiate your valuation (the basis of last week’s article).

Final reflections

An effective approach to cost control is vital for successful commercial management on construction projects, and to avoid conflicts arising and escalating.

However, our methods have not advanced as quickly as the business systems used to control cost. This means it is becoming harder and harder to keep on top of issues and control cost effectively.

Next week’s article will focus on change control. Again, I am not sure how I will cover that area in a five-minute article, but I will do my best!

Look out for that one and, in the meantime, enjoy the rest of your week!

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