Disclosure: The following content was written and sponsored by Procore.
Construction Cost Management. Let’s say that again. Construction Cost Management. This plain little phrase may not light up the construction conversation the way—for instance— “autonomous construction robots” or “augmented reality” does. But transformative revolutions don’t always sweep in with trumpets blaring. Sometimes era-defining change quietly saunters onto the scene and bides its time, until the new thinking and practices slowly remold the landscape. Today, construction is in the midst of such an evolution, in a space that technology startups have yet to pursue––construction financials.
The first transformative wave that swept through construction was digital technology itself, which for the past two decades has, for the most part, concentrated on project (and cross-portfolio) standardization, the single-source of truth, drawings, and the former horror that was document management. In the Rise of the platform era: The next chapter in construction technology, McKinsey highlights the technology advancement in nearly every area of construction—with the exception of financials. This next technology evolution is around Cost Management, and it will be a game-changer.
The mild turbulence that greeted the introduction of digital technology into construction passed quickly, with the ever-adaptive construction community ultimately mastering the new tool to do their bidding. Take Boston Children’s Hospital, who decided they needed a project management platform that could help their team standardize processes across the project to mitigate costly inefficiencies. That platform acted as a hub, gathering teams into a connected, collaborative space into which cost data continually flowed from across the project—ensuring real-time cost management that dynamically mapped to budget. This cross-platform transparency also lent itself to smoother workflows, as tasks were tracked to ownership, and ball-in-court notifications regularly apprised teams of where they stood, and for what work they were accountable.
That first seismic shift of digitizing project management effectively prepared the ground for this second wave; a transformation that goes to the very heart of what makes a project succeed or fail. For construction teams in the field, Cost Management may not be particularly exciting, but what it will mean going forward for the entire project team is massive. Linking project management workflows to real-time cost management will connect the office accounting team with the project field teams—resulting in digitally precise, collaborative, data-driven practices that promise a new era of true project control and clarity.
Control Wanted: Construction’s Unstable Environment
Construction’s current macro-environment is roiling with changes that pose challenges. An economy made unsteady by COVID intermittently threatens recession and market devaluation, while volatile material and shipping costs make solid project margins even harder to secure.
Meanwhile, skilled labor as a predictably available resource continues to go the way of the anchor tattoo; the departure of retiring baby boomers unanswered by a matching influx of fresh skilled labor. Construction projects increase but the builders do not. Climate change—and the pending exodus of rural populations into urban centers that have yet to be built—means construction has much critical planning and execution ahead, even as projects are becoming routinely more complex, and come bundled with high expectations. As for the project’s famous Iron Triangle—“cost, quality, and time”—the winking old construction anecdote that asks the stakeholder to “pick two” may not hold any longer. It seems today’s stakeholder wants all three. And with new technology integrating real-time Cost Management into critical workflows, that shouldn’t be a problem going forward.
Cost Management is the final construction element to submit itself to the undeniable benefits of digitization. Today’s project may feature a flock of heat-seeking drones buzzing our buildings and looking for leaks, while robotic dogs stride around the darkened, after-hours jobsite, documenting the day’s progress and unnerving would-be intruders. What are we doing, then, using spreadsheets for forecasting and fiscal guidance? Spreadsheets are indeed a powerful tool––and so powerfully configurable they’re almost fragile. One very slight manual misstep and all those interdependent formulae turn sideways in lock-step—sending your forecast into the next county.
This manual practice is fraught with error and siloed analysis, and could be called the last gasp of project approximation. The analytics and forecasts offered by the new Cost Management will feature the certitude of numbers gathered by automated processes and analyzed by construction-trained AI. The smart-device mobility of the new Cost Management in the field also adds to its real-time effect on the bottom line. Spreadsheets and ERPs were designed for people in the office, not those in the field where minute-by-minute costs are incurred. The way forward is through agility, confidence in process, mapping forecasts to project progress, and real control over every nuance of project cost. It’s time to redefine expectations around cost management solutions. For real.
Advanced Cost Controls, Enhanced Reporting, and the Joy of Knowing
Those construction pros who have grown fond of guesswork may not appreciate this new epoch. From gauging the real-time financial impact of labor costs and productivity against budget to managing financial risk with actionable monthly cash flow forecasts, the new era of Cost Management is about reliable, enhanced reporting whose conclusions can be trusted and built upon. Where does the project data come from that is the source of all this miraculous reporting? Procore’s construction management platform contains, organizes, brokers, and aggregates project data throughout the build—a constantly increasing store of granular project detail that yields whatever truths the stakeholders summon from the platform’s analytics.
In the new era of Cost Management, configurability is also key to producing reports that make plain sense to the stakeholder, whoever she is. For instance, Procore’s Enhanced Budget Detail Reporting allows customization that presents at-a-glance, detail-level financial information in a single view of the user’s own design. Stare straight into every facet of the evolving project, formatting and viewing that data on your terms—clear, comprehensible, actionable.
Cost Management—Connected and Collaborative
It just takes two words to convey exactly how the new Cost Management is changing the landscape; “connectivity” and “collaboration.” The nature of a digital construction management platform is to connect everyone on a project—from your accounting team to your project team, and from trades to owner—in a collaborative space through which tiered project data flows unimpeded. This makes all cost data synchronously available to both field and office, allowing for dynamic tracking of costs against forecasts. The digital character of the system allows incoming cost detail—from such things as potential changes on the jobsite, timesheets-to-budget, and digitally submitted invoices—to be applied with an immediacy that keeps cost management as timely and pinpoint-accurate as the most recent incoming data.
These real-time cost amendments stream in from all quarters of a completely connected project environment, moving the needle in large and small ways. They come from the Super who notices a potential change in the field that could impact the budget, or the specialty contractor whose submitted digital invoice connects immediately to a budget line item. It even comes from the platform's project analytics, constantly aggregated data that uncovers previously buried risk your team can tear out before it takes root. Connected collaboration conquers all.
Job Costing—The Final Frontier
A recent survey of some 1800 Owners, General Contractors, and Specialty Contractors asked these three project roles what they saw as critical for the construction industry to solve through technology. The number one response from all three was “budget and job costing.” The fact is this: whether a chaotic, schedule-busting headache from day one or the most smoothly executed build imaginable, the average project’s untamed sprawl of cost miscalculations and best-guesses will aggregate into a largish pebble that can never quite be shaken out of the work boot. Metaphorically speaking.
Taking control of costs in 2021 is the final puzzle piece. Where is your project making money? Where exactly is it hemorrhaging money? Are you controlling costs, or are costs controlling you? Manual processes and disconnected solutions turn minor missteps into long, curving wrong turns that wander far afield and cost a small fortune to get back on track. Cost Management is connectivity, visibility, and literal control—not to mention project decisions made in the full sunlight of situational awareness.
So it comes down to joining this “second transformative wave.” Construction technology is here to stay, and Cost Management may well be its crown jewel. The businesses and teams who advance their Cost Management processes in 2021 will take an early lead and thrive. But let’s keep our heads. It isn’t possible to Cost Manage all construction projects into predictably positive outcomes. Until it is.
To learn more about the future of construction financials, join Procore at the 2021 Construction Cost Management Summit.