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By: Holly Welles on February 26th, 2020

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How to Manage Risk with Controllable Costs in Construction

Operating Insights

Anyone who works in the construction industry knows that anything can go wrong at a moment's notice. Weather and injuries can delay a project, material shortages may increase prices and lack of communication can completely derail plans. When these things happen, the cost of construction rises. Issues do not bode well for the industry, which runs on a tight schedule and maintains a strict budget to make a profit.

However, not all circumstances are out of their control. The wise construction professional understands that there are many aspects of the job which they do, in fact, have power over. If they take proper steps to manage these risks, they can better control costs and increase profits. Here are a few steps they can take to do just that. 

Take Inventory 

When a construction company doesn't know what materials they already have in stock, they risk over-buying products and wasting money on things they don't need. This poor inventory management accounts for at least 50% of all costs. 

Professionals can easily avoid this expensive mistake by taking inventory regularly. First, workers or project managers should make a list of everything they'll need for a project. Then, they should survey what they already have and make another list with everything they'll need to purchase. 

Invest in Management Software

One way to streamline inventory assessments is to invest in a management software system. It will also improve communication among team members and ensure everyone stays on the same page regarding project specifics. This step is especially crucial because design determines about 80% of a project's total cost, and construction determines the remaining 20%. 

The two sides of a project must work together to balance costs and savings. From workers to architects, a software system allows everyone to receive updates and adjust project plans as needed. 

Estimate Costs 

Taking inventory will enable managers to better estimate costs, which, of course, is essential to staying on budget—and making a profit. Creating an estimate before developing concrete plans will allow managers to build around a budget instead of the other way around. 

This process puts site coordinators in control of costs and minimizes the risk of overspending and eliminating profit margins. Hiring a qualified manager with an excellent track record can help a company estimate costs and stay within budget. 

Conduct Inspections 

Construction companies can minimize risk and control costs by scheduling regular inspections of their equipment and machinery. Workers may either inspect equipment themselves or hire a professional to assess and service it.

Inspections allow organizations to spot problems early on and fix them before they become an expensive issue or require replacement — which can be extremely expensive. For example, changing a dirty oil filter can potentially save a business thousands of dollars in repairs or having to purchase new machinery. 

Avoid Delays 

It may sound impossible to accomplish, but avoiding delays can save construction companies from extra costs by keeping the project schedule on track. Weather, electrical hold-ups, client demands and other factors can all cause delays.

However, project managers can avoid suspended work caused by controllable circumstances like running out of materials or workers getting injured. 

Proper training, enforcing standards, conducting inventories and communicating effectively can all help a team work more efficiently and avoid delays, helping to save thousands in the long run. 

Prepare for Contingencies 

Undoubtedly, construction plans will go awry, even if managers and workers take precautions and attempt to control costs. Therefore, it's crucial to have contingency plans in place before delays, injuries or other mishaps occur. 

Having a set of risk management procedures can prevent having to pay premiums if something goes wrong at the last minute. Plus, budgeting some extra time and money into project plans allows for some cushion, minimizing stress and controlling costs, even when risks become a reality. 

Regularly Update Cost Plans to Manage Risks

During a project, costs will inevitably change and vary with time. The market price of materials will fluctuate, worker pay may increase or decrease and uncontrollable risks like the weather may all affect the budget. Thus, project managers must take care to re-evaluate costs regularly, determine how to balance out rising expenses and still make a profit. 

While this may take extra time, documentation and analysis, updating cost plans will help a site better manage risks and control its costs throughout any project. 


hollywellesHolly Welles is a freelance writer who covers construction and real estate innovations for publishers across the web, including NCCER and Constructible. She also runs her own residential real estate blog, The Estate Update.