Sunday 18 June 2023

Project Cost Management in Construction Projects


Project Cost

The earliest project cost appeared in the United Kingdom, and in the early days it was only used to count simple quantities of work in order to facilitate the settlement of project costs. 


With the development of the times, the project cost has been given a broader meaning, becoming an indispensable part of the construction project management, the decision-making stage, design stage, bidding link, construction process and completion settlement of the project and other links to effectively control, timely correction of deviations, to help the project implementer to achieve the design budget, investment estimation and completion settlement and other aspects of the goal, to ensure that the overall expenditure in the entire project process is kept within the expected range. 


Rational use of material, human and financial resources to obtain maximum benefits from investment through projects.

First, the reasonable control role of project cost in the decision-making stage

In the decision-making stage, the basis of engineering cost lies in the formulation of decision-making content, and its various economic and technical decisions do not affect the amount of project cost. This includes the selection of project sites, the determination of building levels, the selection of processes and equipment, etc. Therefore, in the decision-making stage, the following work must be done:

1. Project feasibility analysis

The project implementer should determine the construction standards and reasonable scale of the project according to the current market demand situation and development trend, and the project approval application should have strong feasibility and persuasiveness to ensure that the project can be established as soon as possible.

2. Make preparations before implementation

Before making a decision, the implementer should carefully collect and study all aspects of information, such as the equipment required for the project, the technical parameters and operation of the equipment, the possible problems in all aspects and the solutions.

3. Conduct scientific benefit evaluation of the project and estimate the amount of project investment

It is necessary to proceed from the reality, try to compile the investment estimate as comprehensively and meticulously as possible, so that it is reasonable and grounded, and fully consider all kinds of unfavorable factors and emergencies that may affect the cost of the project in the construction process, and refer to the current market situation, clarify the floating coefficient of the reserved price of each construction raw material in the construction stage, leave a certain flexible space for investment, and truly make the investment estimate accurately control the total investment amount of the project.

Second, the management role of project cost in the project design stage

After the project is approved, engineering design becomes the key mitigation, and the quality of design will play a decisive role in the efficiency, construction quality and return on investment of the project. Therefore, the project cost management at this stage is extremely important. At this stage, the project cost management should do the following work.

1. Do a good job in the control of design costs

According to data analysis, the general design cost does not exceed 1% of the entire project cost, but the impact on the overall investment exceeds 75%, especially the selection of building materials in the early stage of design. 

The structure and construction plan have a particularly significant impact on the investment, such as how to choose the façade form, how to select the bay and depth, floor and floor height setting, the choice of structural form and foundation type, the design of the floor layout and other aspects. 

Through the technical analysis of these aspects, up to 20% of the engineering cost can be saved under the same circumstances, so the low-cost solution should be selected as much as possible to ensure that the use of functions is complete.

2. When formulating the design plan, the method of effectively controlling investment should be adopted

(1) Select the most reasonable one through bidding to ensure that the design unit uses advanced technology and reduce the cost of the project.

(2) In the preliminary design, implement the design scheme limit system, so as to achieve the unity of economy and technology, first carry out the design estimate, and then carry out the design drawing accordingly to avoid the adverse consequences of exceeding the standard after the design is completed.

(3) Attention should be paid to the review of design estimates, avoid miscalculations and omissions, ensure the accuracy of project estimates, estimates, and budgets, and complement each other to form a control system for project costs.

(4) When evaluating the design scheme and the general drawing scheme of a single item, the most reasonable and economical design scheme should be selected in combination with economic and technical indicators, and the most reasonable and economical design scheme should be selected from it, and the review should be strengthened before the design plan is drawn, and the defects or deficiencies of the design scheme should be overcome before construction to avoid waste caused by design errors after entering the construction stage.

Third, the role of project cost in the bidding stage

In the construction industry, due to the differences in construction technology, operation plan, management ability and other aspects of different construction units, the construction cost is quite different, and the winning bid price in the bidding stage most truly and reasonably reflects the value of the design results, and controls and guides the project cost control in the later construction stage, so it is extremely important. 

The key to the success of the bidding is determined by the construction unit's understanding of the current market price, so the project implementer should fully understand the tangible market of the construction project, close the project cost control, and lay a good foundation for the project management in the later links.

4. Project cost control in the construction stage


Since the project enters the construction stage, it involves a wide range of areas and there are many participants, so the workload of the project cost has also increased significantly. 

Therefore, the project management at this stage should focus on the project cost as the core, and carry out effective project management, including six aspects: project quality control, construction progress control, engineering cost control, construction information management, construction contract management and construction organization and coordination.


Using project cost control, engineering contractors are required to use advanced construction technology as much as possible and formulate the most reasonable and effective construction plan under the premise of ensuring the progress and quality of the project, so as to reduce the project cost and shorten the construction period.


Timely measure and account for the completed individual project strength, and timely follow up the application, review, and payment of relevant progress payments to avoid unnecessary abnormal delays.


 During the construction process, unforeseen changes may be encountered, such as owner's requirements, design negligence, environmental changes and other factors, and it is necessary to change the function, appearance, quantity and other aspects of the project or some parts, at this time, the technical assessment and economic accounting of the changed design scheme should be carried out first, and then the reasonable and feasible and low-cost construction plan should be negotiated with the design unit, and the owner and the supervision agency should be reported to the audit department for approval and confirmation, so as to effectively control the costs caused by the change. 


In addition, there should be a special person to collect and sort out the confirmed change data, such as construction records, drawing records reflecting the changes, meeting minutes, etc., and timely analyze and evaluate the impact on the project cost, so as to be orderly and reasonable, and the evidence is sufficient to prevent claims.


When there is a need for intermediate payment, the construction drawings and contracts, bidding materials, bills of quantities and other payment basis documents should be sorted out in a timely manner, and at the same time the completeness and reasonableness of the current construction progress should be carefully reviewed, and the current progress and project quality, manpower allocation, material usage, equipment in place, etc. 


Should be tracked and checked, and after strict comparison with the design drawings, measurement and payment should be carried out in accordance with the provisions of the contract and bidding documents.


Project cost control can prompt the implementer to strengthen the procurement management of equipment and building materials, compare the procurement of engineering bulk materials and equipment, and select the best suppliers from the aspects of service level, selection and pricing, and material quality.

5. The role of project cost in the completion and settlement link

The project cost runs through the entire project management, in the final link of the project completion, the whole process of the project should be reviewed, the midpoint of the project cost should be sorted out and evaluated, and the aspects and reasons of overspending or savings in the project process should be analyzed, which will help the implementer improve the management level, accumulate case data and experience, and use it as a reference for decision-making of similar projects in the future. 


At the same time, the completion settlement submitted by the contractor is carefully reviewed to prevent improper acquisition of high profits, such as false declaration of construction quantity and high fixed base price. In addition, warranty planning and management should be done, and equal attention should be paid to the cost of the project during the warranty period.


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