For a long time, construction has been one of those industries that sticks to what has always worked - the staples. However, the fact is, staples change, and today’s staple is technology.
This blog focuses on project cost management in the construction industry with and without a friendly AI working alongside you. (If you’re a project manager or a finance professional working in a construction firm, this article is your cheat sheet of brilliant points to make with your CFO on why you need to invest in a construction expense management software.)
What is Project Cost Management in Construction?
Project cost management refers to the process of estimating costs, allocating budgets, and controlling spend for any given construction project.
According to forecasted costs, budgets are allocated to every department. The spends are also approved by project managers/Finance teams before the actual purchase. There are defined costs that employees in construction might incur as reimbursements.
However, in construction, project cost management is incredibly challenging because they often incur unforeseen expenses. For instance, additional materials, mileage, labor shortage, or simply because of a change order management.
If unchecked or not tracked, recorded, and reported in a reasonable timeframe, these costs might result in overshooting of forecasted budgets. Thus, Finance teams in construction firms track the “cost variance” in project management to understand the same.
What is Cost Variance in Project Management?
Finance teams in construction industries calculate cost variances in project management based on the difference between:
- The estimated budget - Budgeted Cost of Work Performed (BCWP) and
- The actual spend - Actual Cost of Work Performed (ACWP)
An ideal cost variance would be when the AWCA is equal to the BCWA. Maybe in the perfect world, this is a reality. Given the unpredictable nature of construction projects, this is almost impossible.
However, it is crucial to track cost variance in projects to keep track of finances and control costs as the project progresses.
Problems Project managers and Finance teams face with cost management in the construction industry
We have established that project costs have to be tracked as they occur. This means, spend data from the construction site needs to be made readily available to the Finance team. Otherwise, it is impossible for them to ensure budget compliance or even identify necessary or unnecessary spending to optimize costs. (Real-time data is the answer, but we’ll come back to that later on. )
First, let’s discuss all the problems that project leads and Finance teams face with traditional ways of project cost management in construction firms:
- No proper way for employees to track and save expense receipts
- Frustrating and time-intensive expense reporting procedures
- Risk of non-compliance due to manual data entry for coding and reporting
For project managers:
- Delayed approvals for necessary expenses in the course of a project
- Tasked with remembering project budgets and expense policies
- Unproductive hours spent on manually verifying and validating expenses
For accountants and Finance teams:
- Lack of visibility into historical and real-time spend data
- Lack of communication due to connectivity issues on-site
- Delayed access to actual project spends, deterring financial productivity
Overall, inaccurate or delayed reporting could lead to a negative cost variance more often than a positive one. Bringing ACWA to equal BCWA is unlikely, but keeping the cost variance positive is very much possible.
The good news is, an AI-powered expense management software is the solution to all of these problems. It brings ease, transparency, and real-time data to stakeholders involved in the project cost management process.
Let’s dive deeper to make a case on why you should invest in a construction expense management software to your CFO.
Advantages of using an AI-powered construction expense management software
According to a recent study by Accenture, the adoption of AI can potentially increase the construction industry’s profits by 71% by 2035. If you want a piece of the pie, now is the time to switch.
Here are all the ways in which an AI helps streamline and automate construction project cost management:
Not-so-fun fact: 95% of all data captured in the construction industry goes unused.
This is a clear indication that project cost management in the construction industry needs nothing short of a revolution - a technological one.
With a construction expense management software like Fyle, you get both historical and up-to-date expense data in one place. This makes it easy for all stakeholders, whether in office or on-site, to access expense data by various categories - expense, employee, project, or even orgs. Finance teams can then take a deep dive into any parameter or cost with a few clicks.
Fyle’s robust analytics also help anticipate any unexpected overhead costs. This helps Project Managers and Finance teams reduce the chances, or at the very least, the difference between estimated and actual costs.
View and manage actual cost performance in real-time and streamline change order management
Construction projects are often dynamic, complex, and find themselves in unforeseen or unpredictable situations. This makes it challenging to juggle multiple change orders and document them correctly throughout the approval process.
It's true! Emerson's study revealed that 30% of initial data created during the design and construction phases is lost by the time the project ends.
The actual costs need to be continuously monitored to ensure the spends agree with the initial estimate. Not just that, but monitoring actual costs allows project leads and Finance teams to identify opportunities to optimize costs and prepare for any uncertainties that might spring up as the project progresses.
A construction expense management software brings all expenses incurred by different stakeholders to a unified dashboard. This ensures all data that matters is always at your disposal, in real-time, on a single screen, with the click of a button.
When you’re tracking progress and costs of multiple projects with age-old tools like spreadsheets, there is a high chance of mix-ups, incorrect entries, and inaccurate totals. In other words, this can be a very costly mistake.
A construction expense management allows you to easily configure any custom approval workflow to add important stakeholders for specific expenses within a project. This level of control simplifies the approval process for all stakeholders involved. Finance teams can also set differential approval budgets for different levels of approvers and enforce them with ease!
A construction expense management software checks every single expense for any expense policy violations and forwards accurate employee expense reports for approval. This drastically reduces the time project managers, and other approvers spend on verifying and approving expense reports. No more back and forth for compliance!
With a construction expense management software, your field staff never has to spend more than half a minute to upload paper/digital expense receipts, add relevant project codes, and other required expense fields data. All they have to do is take a picture of the receipt, and the software will automatically extract all necessary expense data.
Yes, that is all they have to do. Next, if an expense claim is non-compliant, the software flags it and asks for either a correction or an explanation. This is then also documented in a digital audit trail. This makes it easy for both approvers and the Finance team to understand if the expense claim is valid and should be reimbursed.
And just like that, you can erase manual data entry errors and the many many unproductive hours spent on traditional ways of expense reporting.
Psst! If you’d like to check how much your organization can save by automating expense management, here’s a free ROI calculator you can use. We bet your CFO will be impressed with this number!
In a world moving towards contactless operations, your employees shouldn’t have to come to the office just to inquire about their expense reimbursement status.
With a construction expense management software, employees can track the status of their expense reimbursements right from their mobile device. This eliminates the need for multiple emails or visits to check for policy compliance issues or payment status. This data is updated in real-time and is in their pockets anytime they want to check.
A centralized expense management dashboard also allows Finance teams to understand the progress of any given reimbursement at a glance.
A transparent construction employee expense reimbursement process makes the lives of all stakeholders involved so much easier!
Let AI build you an efficient construction expense management process
We get it, implementing new technology is hard. Getting everyone in the organization on-board with technological changes is harder. However, a construction expense management software that comes with top-notch features, a clean and easy to use UI, and a stellar customer success team has something for everyone.
Tell us your story, and we’ll help you make all the stakeholders involved in the construction expense management process happy, productive and stress free.. Schedule a demo today!