Tracking and recording project costs

In this module, we will delve into the construction phase, starting with the crucial task of tracking and recording project costs.

Understanding how to effectively manage costs is a vital skill for any quantity surveyor, and it is foundational to ensuring the financial health of construction projects.

Before you can utilise the skills set out below, you must fully appreciate the tender forecast and budget and every item therein. The data collected and tracked needs a baseline to reconcile with and the forecast will provide this baseline. The QS will need to connect the data collected, costs, timesheet, allocations, GRN’s with items on the forecast tender. Variance in figure will demonstrate over/underspend.

Why is Tracking and Recording Project Costs Important?

Tracking and recording project costs accurately is essential for several reasons:

  1. Budget Management: It helps in managing the budget and ensuring that the project does not exceed the allocated funds.
  2. Financial Reporting: Accurate cost tracking is necessary for financial reporting and audits.
  3. Cost Control: It enables the identification of cost overruns and the implementation of corrective measures.
  4. Client Confidence: It builds client confidence by demonstrating transparent and responsible financial management.
  5. Project Success: Ultimately, successful cost management contributes to the overall success and profitability of the project.

Key Components of Cost Tracking and Recording

  1. Cost Categories:
    • Direct Costs: These are costs that can be directly attributed to the project, such as labor, materials, and equipment.
    • Indirect Costs: These include overhead costs, administration expenses, and other costs that are not directly linked to a specific task within the project.
  2. Cost Coding:
    • Implementing a cost coding system is critical. This system assigns unique codes to different cost elements, making it easier to track expenses and analyze financial data.
  3. Cost Tracking Tools:
    • Manual Methods: These include excel spreadsheets and ledgers. Whilst they can be better controlled and monitored with live data, they are exposed to human error and can be time-consuming.
    • Software Solutions: Various specialized construction cost management software like Procore, BIM and ERP systems, offer robust platforms for tracking and recording costs with higher accuracy and efficiency. However these are better suited for large individual projects and not so suitable for frameworks.
  4. Regular Monitoring and Reporting:
    • Daily Logs: Keeping daily logs of expenses such as GRN, PO’s, etc and works completed such as timesheets, allocation sheets, etc ensures that records are live, contemporary and accurate.
    • Weekly and Monthly Reports: Regular reports help to identify cost/programme performance and early signs of risk and mitigation measures to be adopted.
  5. Variance Analysis:
    • Comparing actual costs against the forecasted costs to identify discrepancies. This analysis helps in understanding the reasons for cost overruns and making informed decisions to control them. This may also be useful to ensure actual costs do not exceed sales value. Should the costs exceed the value then either a CEN/VO is required or a cost is incurred which is not budgeted. These cost musts be managed early to reduce loss or increase value.

Practical Steps to Track and Record Costs

  1. Establish a Baseline Budget:
    • Start by creating a detailed baseline budget that outlines all forecasted costs. This will serve as a reference point for tracking actual expenses.
  2. Implement a Cost Coding System:
    • Develop and use a consistent cost coding system across the project. This will streamline the process of categorizing and analysing costs. This can be broken down in terms cost elements such as staff, labour, plant, material, subcontractor etc or a list from a pre-agreed catalogue. It would be efficient to minimise the number of costs codes as to reduce the time allocating individual costs an a monthly basis.
  3. Regularly Update Cost Records:
    • Ensure that cost records are updated regularly, preferably daily or weekly, to maintain accuracy/live data and relevant records.
  4. Conduct Regular Audits:
    • Periodic audits help verify the accuracy of recorded costs and ensure compliance with financial standards and project requirements.

Engaging Example: A Day in the Life of a Quantity Surveyor

Imagine you are a quantity surveyor named Alex. Today, you arrive at the construction site early in the morning. The first task is to review yesterday’s cost records. You notice that the cost of concrete poured was higher than estimated.

  1. Investigate the variance: You talk to the site manager and discover that there was an unexpected issue with the supply, leading to a rush order with an alternate supplier.
  2. Update the Records: You update the cost tracking system to reflect this variance and categorize it under “Direct Costs – Materials”.
  3. Report: At the end of the day, you generate a daily cost report and highlight the variance, explaining the cause and its impact on the overall budget.
  4. Manage: This loss will need to be recovered, so you will procure a alternative supplier of maybe an alternative product at a cheaper rate than the initial budget. The saving will be off-set against the loss already incurred.

This process of continuous monitoring, investigating, and reporting ensures that you have a clear picture of the project’s financial health at all times. Furthermore, it will highlight losses and create opportunities during the life of the project.

Summary

Tracking and recording project costs is a fundamental task in construction project management. It involves understanding cost categories, implementing a cost coding system, using effective tools, regularly monitoring and reporting costs, and conducting variance analysis. By mastering these skills, you can help ensure that projects are completed within budget and contribute to their overall success.

Now that you have a understanding of tracking and recording project costs, you are prepared for the quiz at the end of this module. Remember, the key to effective cost management lies in accuracy, consistency, and regular monitoring. Good luck, and let’s move on to the next topic.

This engaging and informative content provides a clear foundation for understanding how to track and record project costs, essential for any aspiring quantity surveyor. Make sure to review the concepts and examples provided here, as they will form the basis of your knowledge and the quiz questions for this module.