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Blog Banner of Construction Cost Management - Definition, Budgeting, and Creating A Plan

Construction Cost Management – Definition, Budgeting, and Creating A Plan

In the construction industry, one major challenge is tracking costs and monitoring risk while keeping a job on budget. Effectively implementing construction cost management is pivotal in delivering a project on time and within budget.

In the construction industry, it is essential to fine-tune the cost management process to maintain the efficiency of your services and remain profitable. Now cost control in construction can be managed easily if you understand some essential concepts.

This is what we are about to discuss in this article. We will explore how construction cost management relates to your workers’ efficiency and, ultimately, your bottom line.

What is construction cost management?

Construction cost management is primarily focused on keeping the project budget within the planned limits and avoiding any increase in the total cost of the budget that can eat up your profits. Simply put, with construction budget management, companies can set a standard for all project costs ensuring that spending at any point stays within the pre-determined cost limits.

Cost control on construction impacts all phases of a project, including planning, designing, estimation, change orders, hiring of laborers, and the finished product. Maintaining a reputation as a proactive, efficient, and accurate service provider in estimating and executing a proposed project budget is also essential.

Construction companies have a lot to take care of when they take on new projects and maintain many requirements. It is easy to mismanage the costs, which is why construction cost management is essential.

At the core, the main requirement of cost control in the construction project is to implement systems to ensure that the project is delivered within scope and on budget.

Mismanaged areas in construction cost management

It is common for construction projects to get out of budget. According to the consulting giant KPMG, “Just 25% of projects came within 10% of their original deadlines in the past 3 years.”

It shows that without proper construction cost management, companies can lose profits and end up in debt.

Why is it that even with careful cost control in construction, only 25% of the projects can maintain a positive cost budget?

The answer lies in the external factors that affect the overall construction cost of a project. As such, a construction project requires raw materials procured from external sources. Compared to other industries, it is impossible to stock the building materials, as they are procured and delivered directly on-site.

According to market reports, the cost of construction has risen 10%-12% in the last year, which has pushed the prices of real estate. This increase in the construction cost is due to higher input costs from the supply-side constraints. The rising price of crucial materials like cement and steel makes it tricky to estimate the construction cost accurately.

In 2022, the price of essential construction materials has increased by 20%. According to the real estate consultancy firm Colliers, “With rising material cost, developers will be compelled to increase prices as construction materials account for about 2/3rd share in the total cost of construction.

With wholesale price inflation (WPI) and material cost, both seeing a double-digit rise, the construction cost can rise by a further 8-9% by December 2022.”

Planning a construction budget

The best way to ensure that you are at the top of construction cost management is to plan it at the beginning of the project. Your construction budget is just like any other budget that anticipates and adds up all the costs so the project can be executed.

Every construction project cost falls under one of these categories:

  • Direct costs: Materials, labor, heavy machinery, and consultation fee falls under this category.
  • General conditions: Also known as an indirect cost, it includes preconstruction costs, construction organization costs, and project operating costs.
  • Overhead and profit: Overheads are the expenses associated with running your business, and profit is your earnings after all spending is deducted from project costs.

How to create a construction cost management plan?

An accurate construction budget requires that you include the following steps:

1. Project research and analysis

Accurate forecasting is required for cost control in construction projects, so you must review the historical data of similar projects. Meet with suppliers to anticipate fluctuation in essential material costs.

2. Project development

Research and project analysis help architects create the final design before it can be executed. A project manager uses this information to create a requirement list that includes materials and cost estimations. It is a crucial phase of cost control management because it guides your bidding.

Depending on the cost estimations from the project managers, you can set the actual construction project budget to give to the clients by factoring in your profit margin.

3. Preconstruction and documentation

This is where the project manager speaks to the stakeholders to highlight the issues the construction project will resolve. The preconstruction phase is necessary to make stakeholders aware of any unexpected costs that can come up. This is important to ensure that contractors don’t have to bear additional charges if they are already discussed with the stakeholders.

Cost control in construction project

As KPMG highlight that only one-fourth of the construction projects remain within the budget, it is safe to assume that a construction project has a high likelihood of getting out of budget. Here are the steps you can take for effective construction cost management:

1. Keep labor costs in check

The construction industry is one of the largest employers of unskilled labor and contract workers. You must have adequate measures to monitor the productivity of such workers. Truein is a cloud-based, hardware-less time and attendance management solution that construction companies can deploy on-site.

Workers can download the Truein app on their phones, and managers can set GPS-based geofencing attendance to ensure that workers are present on site. Truein provides segregated contractual workforce management to ensure project managers can easily manage full-time and contract workers.

By tracking workers in real-time, you can ensure labor cost is justified. Schedule a free demo today and see Truein in action at your organization.

2. Monitor project status

Things might go wrong during a construction project, and the role of project managers is to avoid the blame game and look into the factors that result in costs getting out of budget. You can utilize the Five Whys Technique to explore the underlying problems.

3. Adjust key result areas

It is common for project managers in construction cost management to assume that cost correction will happen later. In construction projects, small mistakes here and there don’t wash up. Instead, they have a snowball effect on the overall budget. Project managers must adjust such minor discrepancies in project costs as they occur.


With construction cost management, every aspect of a construction project can achieve the best outcome. With successful cost control in construction, you set up your company for success time and again.

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