An Inside Look at the Construction Project Management Life Cycle

The basics of project management build on one another throughout a project and make up what is known as the construction project management life cycle.

Taken from nearly two decades of working with some of the most profitable and successful contractors and their PMs, this article identifies best practices within each phase of the project management life cycle – initiation (or pre-bid), project planning, controlling the project, executing the project, and closeout.

Whether you’re new to construction or a seasoned CFM, carefully review and discuss this information with your PMs (and their teams) to help ensure each project’s success. 

Phase 1: Initiating the Project 

PMs must focus on both the purpose and scope of the project in this first phase. They must fully understand the customer’s needs and desired specifications in order to prepare an accurate and timely bid. 

Understanding what the owner wants will help PMs proactively develop solutions to meet the owner’s objectives. This can give your company a leg up on its competitors, allowing an opportunity to get the work even if it’s not the low bidder. 

During the initiation phase, it is also critical for the PM to review and fully understand the owner’s requirements, including quality control specifications and other contract requirements (such as a completion deadline or liquidating damages clauses). The PM will also want to perform a comprehensive risk assessment of the contract. Understanding the risks will enable the PM to prepare a more accurate bid and assign an appropriate markup or profit based on the related risks. 

The PM must also prepare accurate cost estimates, which are critical for your direct costs as well as overhead and profit margin markups. Be sure to require a second internal review of all bids before they are submitted to an owner. A second set of eyes on the estimate at this stage is always a good idea. 

The final step in the initiation phase is to obtain the owner’s approval of the solutions and bid package. It is important for the PM and owner to be on the same page for such items as specifications, quality, and timeliness before the work is awarded and started. This can help prevent problems that might arise in later phases of the project.

As a CFM, consider developing an internal checklist tailored to your company that lists the key controls and processes that should be part of your pre-bid phase. PMs can then use this tool to review the contract requirements and prepare and review their estimates. A formal structure will help ensure that PMs address these critical areas before the bid package goes out. 

Phase 2: Project Planning  

Although project planning is one of the most important aspects of project management, when PMs are busy getting bids out the door or wrapping up other jobs it is often overlooked. As a result, PMs go straight from the initiating stage to project execution. CFMs must communicate to their PMs the importance and benefits of investing the time to properly plan a job.

During this phase, it is critical to review and understand the contract terms related to the project. Do not become complacent with long-standing customers and therefore pay less attention to their contracts. Even if your company has worked with a customer and used the same contract for years, these documents often can and will change. Onerous contract provisions can turn a profitable job into a loss. Consider having your legal counsel review the terms before signing the contract.

PMs should also develop a plan, create a schedule, assemble a project team, and communicate roles and responsibilities. To coordinate this process, PMs should hold a project planning kick-off meeting to encourage team members to take greater ownership in the project while also giving them an opportunity to ask questions. Pulling the project team together to roll out the project plan and schedule with clear expectations gets the project started on the right foot. 

It is also important to identify potential risks specific to each project. By focusing on the areas with the most risk, PMs will be able to spend more time in the areas that matter most. Perform a “what could go wrong” analysis to allow time to address and eliminate many of the items that could turn into problems later. Investing additional planning time in these higher-risk areas will often pay dividends and should not be overlooked. 

Some questions to consider in evaluating “what could go wrong” with a project in the planning phase include:

  • Is the job similar to other work the company has performed?
  • Is the size and duration of the job similar to other jobs the company has performed?
  • Will geography or location of the project have any impact?
  • Will there be access to adequate skilled labor to complete the work?
  • Are there any issues with potential price escalations related to job materials?
  • Could weather be an issue?
  • Will overtime be needed to meet the completion deadline?
  • Are there any personnel or scheduling issues?
  • Will there be adequate supervision?
  • Do any safety issues exist?
  • Does the company have prior experience working with the customer?

In addition, develop a comprehensive quality project management plan. Your PMs should be able to answer the question: “How do I need to manage the project based on the type of work to be performed in order for this project to be successful?” While the strategy is likely to vary from project to project, knowing and understanding this in the planning phase will enable your PMs to be much more effective.

Be sure to keep all job project documentation organized in a project folder or file. The project file should include the signed contract, any signed change orders, the bid detail, the plan specs, the schedule, any planning notes, and any other correspondence with the customer. Continue to maintain this project file until the job is closed out. If any questions or issues arise related to the project, the information will be readily available.

A CFM should also consider an electronic document management system for projects to improve efficiencies. Electronic documents can save PMs time, which equates to costs savings. 

Phase 3: Executing the Project

During the execution phase, it is critical to closely and accurately track the progress of the job and hold status meetings with the project team. The best PMs know how budgeted costs compare to actual costs at any point in time. PMs should track these by phase of the project if possible and try to stay in constant communication with the project team by holding weekly or biweekly status meetings.

PMs must also evaluate scope change requests and obtain signed change orders. The best PMs will obtain signed change orders before the work is performed. Often times, the work related to change orders can cause disruptions in your company’s workflow by using unanticipated time and resources. 

PMs should make sure the company is adequately compensated for these. Contractors run a big risk when they perform work outside the scope of the project before or without obtaining a signed change order. Trying to collect on change orders that are not signed can be problematic. 

As the CFM, educate your PMs on the proper accounting treatment of approved and unapproved change orders and the impact they can have on both the job and your company’s financial statements.

PMs should regularly review the job status with the owner to help alleviate problems later on in the project. Building a relationship with the owner and exceeding his or her expectations can lead to future work as well as referrals. 

Monitoring and evaluating quality is also part of this phase. The best PMs will get out to the jobsite at least once a week to ensure the project’s quality control specifications are being met. Being at the jobsite can also help the PM identify certain trouble areas early in order to rectify the issues and salvage the profitability of the job. Recognizing an issue when the project is almost complete is too late.

PMs must also effectively communicate with not just the project team, but also the accounting staff. Communication between the PMs and the office accounting staff is imperative to ensure accurate revenue recognition. PMs should update accounting staff on the status of each of their projects after month-end close. Accurate estimates will give accounting staff the information it needs to prepare accurate monthly work in process schedules and financial statements. 

(For more on this topic, see “Improving Profitability: Bridging the Gap Between Accounting & Operations” by David Brown and Brian M. Andrew in the March/April 2013 issue.)

CFMs can be proactive and initiate this communication with their PMs. Schedule a half-hour meeting at month-end with each PM to review and discuss the status of their projects. Regular communication with your PMs on the status of their jobs will encourage more accountability as well.

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About the Author

Gregory Elpers

Gregory P. Elpers, CPA, CCA, is a Partner is the accounting and auditing department at Harding, Shymanski & Company, P.S.C. in Evansville, IN, and is co-leader of the firm's construction practice. He has more than 17 years of experience providing accounting, tax, and consulting services to a wide range of GCs and specialty contractors.

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