The goal of every construction project is to come in on time and within budget. But, as you know, construction costs can fluctuate wildly in a short amount of time. Of course, this frustrates you as the builder and the customer because no one likes unpleasant surprises like rising costs that did not get factored in when you bid on the job. You require a plan to control those costs and track them over time.
It is essential to track costs. You also need to know how to track material prices and forecast cost inflation so you don't lose money on your project. You do not need to be a rocket scientist or have a crystal ball to look into the future, but you need facts and a system to develop those facts into usable data.
Develop a data bank of historical market data. Do not just use your company's internal data, but add historical information to it. Use external data, like selling-price market indices and cost models that measure the fluctuations of prices in your industry that drive the material costs.
Add in current market data and risk factors that may affect your pricing. Then you can adjust your internal data and bid processing to acknowledge these historical changes to your pricing structure. With this combination of internal and external historical and predictive data, you will find you can forecast any pricing changes that will affect your bid pricing structure.
Even with all your researched data into market conditions past and present, it is difficult to determine what market conditions will be months or years from now. So, ask yourself some calculated questions:
1. What will materials costs be when we start the project?
2. What will be our O & M costs be at the time of commencement? This may include staff, utilities, computers, vehicles, travel, etc.
3. What categories of my budget line items are at most risk of volatile changes?
The answers to these questions lie in the data you have researched. You can forecast where costs are likely to rise in specific categories in the future.
Your research data can estimate where pricing could go in the future, but we know that life does not always perform to our expectations. To make the best possible informed decision for your budget, you must evaluate various scenarios if a risk scenario happens.
By performing these various evaluations, you will understand the limits of your forecasting and how these risks may affect your profit margin should they occur.
Another factor that will affect your pricing is the construction inflation indexes. These will vary with the amount of construction activity over time, making construction activity one of the best ways to judge the current market's inflation rate.
Construction inflation is an increase in construction costs because of a variety of factors, including supply and demand. Inflation can be caused by an increase in the price of building materials, such as steel or cement, cost of labor, even the time of year affects inflation costs. Increases in the cost of fuel or electricity can also have a hand in these costs over time.
A rule of thumb to offset rising inflation in your construction projects is to increase pricing in the middle of the project's duration. Every year that a project is delayed adds to the cost of that project. That and today's low-interest rates will not be here forever. Smart companies are starting their projects now rather than fighting the profit-killing inflation rate later.
So now that you know how to track construction market prices, evaluate risk scenarios, and judge inflation rates and how they affect your construction project, you can figure those percentages into the fixed and variable pricing for your bid.
Material costs rise and fall with supply and demand, and the price of fuel continues its endless march upwards. It is easy to get lost in the day-to-day decisions, which is why the best builders know how to keep their eye on the ball.
To make the right decisions, builders need to track material costs. With project management software, they can do just that.
Project management software is a great place to track your expenses. You can easily upload pictures and files, and attach notes to any project task. You will never lose even the slightest receipt or reminder note. It can attach important documents to a task, allowing everyone with online access to reference the material.
Once you have a project management software such as Gigover in place, it is time to begin the foundation of your project:
1. Establish your cost tracking system. This could be spreadsheet-based or the financial software of your choosing.
2. Establish your budget line items. Factor in your forecasting and inflation costs from above and add any other line items necessary, including materials, labor, travel, legal, etc.
3. Create your budget for the project.
4. Assign an authority to track the project expenses.
Keeping track of the price of your construction costs over time is essential to staying on budget for your project. In this article, we have shown you how to do just that. If you need help to manage your project, be sure to reach out to Gigover and try us out free today!