How to control project costs while managing quality, schedule

In the changing real estate market, where construction projects do not comply to time schedules and exceed budget, cost control within these endeavours has emerged as a pivotal aspect of project management.

Following the excitement of contract signings and the initial release of funds, the focus sharply shifts to the stringent management of costs.

This is, is to prevent any deviations from the stipulated budget, thus safeguarding the financial interests of the client or developer.

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He adds: “This aspect of project management is particularly crucial in the Kenyan context, where fluctuations in material costs and labour rates are common, making budget adherence a challenging task. Again, if you focus too much on price, you won’t match the quality.”

So, what should one do to control costs in a real estate project without compromising its quality and avoid delays in completion?

Establish clear payment terms

One of the foundational steps in effective cost control is the establishment of clear payment terms.

“This involves deciding the timing of payments, which can be aligned with project milestones or scheduled after fixed time intervals, such as monthly or bi-monthly, often with considerations for retention sums,” says Mwangi, while speaking to Real Estate in his office last week.

Milestone-based payments, for instance, he says are contingent upon the completion of specific stages of construction, such as casting the foundation, erecting walls, or applying the finishes.

This method, he added, ensures that funds are disbursed in tandem with tangible progress on the construction site.

Manage waste

Waste management is another critical component, where vigilant supervision is paramount to minimise material wastage, thereby curtailing the need for repeated purchases.

“A judicious approach to the utilisation of resources, such as the careful dismantling of formwork to allow for its reuse, can result in substantial cost savings. You have to be very keen with your contractor,” said Mwangi.

He added: “A float of Sh1 billion as contract sum creates an impression that everything is available and can be catered for. Shock on you when you sit down and pile up the little cutoffs of rebars, residuals in paint work or even mortar in the application. It’s a fortune.”

Risk management is a must

According to Mwangi, risk management, too, plays an indispensable role. This, he says is where you critically need a project manager since there is a tendency to be overly optimistic and underestimating turn of events altogether.

“Ideally, all potential risks are identified and mitigated during the planning phase. Nevertheless, unforeseen risks such as theft of materials or onsite accidents necessitate prompt action to minimise their financial impact. The theft of small items like nails, though seemingly minor, can cumulatively lead to significant extra costs. Keep in mind that projects don’t go wrong, they start wrong,” he said.

Labour control is significant

Mwangi says monitoring the productivity of the workforce is essential since a larger workforce does not necessarily equate to faster project completion and can lead to increased labour costs.

He advised that the practice of subcontracting specialised tasks, particularly in areas like electrical and mechanical installations, can also lead to more efficient use of funds.

“A well-structured program of works helps in identifying project delays early on, enabling the reallocation of funds to prevent cost overruns. This could involve prioritising certain tasks, such as beginning auxiliary works like boundary wall construction while awaiting the delivery of materials for the main structure,” said Mwangi.

He adds: “Increased project duration, tends to increase the budget because you are extending the preliminaries such as water, power and other housekeeping matters.”

Value engineering is also key

This, he says focuses on finding cost-effective alternatives that do not compromise the project’s quality or functionality.

“For instance, you can do away with the dead spaces in the design or substituting materials like . By carefully analysing various options, significant savings can be achieved without sacrificing the project’s overall integrity,” he says.

Limit variations to the original contract

Limiting variations to the original contract is crucial, as these can lead to budget inflation. Material audits, Mwangi says ensure that both the quantity and quality of delivered materials match the procurement specifications, thereby preventing any discrepancies that could impact the project’s cost and quality.

“Charge orders can be a mess. They even make everyone have a bad day because it often creates a lot of rework, often at a higher rate,” he says.

Avoid disputes

Disputes and claims are a menace but avoidable. The root cause of these, he says is poor communication and worse off, if done deliberately.

“The best option is out of court through arbitration or other methods of which also `eats` into the budget and remember project time is also being affected. If not managed effectively, can lead to emergency expenditures and project delays, further inflating costs,” he said.

Normalise post-project reviews

Finally, he advises normalisation in conducting post-project reviews, saying it is invaluable. These reviews offer a platform to analyse cost performance critically, identify areas needing improvement, and integrate lessons learned into future projects.

This reflective practice, he says does not only enhances cost efficiency for future endeavours but also contributes to the broader knowledge base of cost control strategies in the real estate sector, promoting a culture of continuous improvement and financial prudence.