The construction industry has recently seen a number of large-scale changes and modernization efforts, from the embrace of new technology, to a more inclusive workforce to address the skills shortage, to the adoption of more sustainable and resilient practices. The industry, as a result, is stronger and more innovative than ever. However, one issue the industry has yet to address in a concerted way is the epidemic of cost overruns and lack of standardized cost management practices.
The State of New York recently conducted a sample study on six projects, and all six projects fell behind schedule when compared with the original baseline dates. Four — with a total budget of $672.2 million — were over budget for a combined total of $43.2 million.
Much of this can be avoided through the use of qualified cost managers, particularly if they’re following the International Construction Measurement Standards (ICMS). The problem is that developers and construction firms in the United States aren’t engaging in robust cost management. The biggest impediment to more sustainable, standardized and transparent cost practices is educating people about what a cost manager does.
Part of the issue is that there’s no standard name for the job. In the United Kingdom, the prevailing term is a cost manager. In Canada, it’s often referred to as a quantity surveyor. In the U.S., many firms instead have cost engineers. You sometimes see the title of construction economist. While the different titles bring some different job functions, they also denote the breadth of what a cost manager can deliver for real estate and construction firms. However, this international lack of standardization also shows a non-standardized way of approaching cost and adds to the difficulty of succinctly outlining what a cost manager does.
This is changing as firms increasingly see the need to create transparency and use cost management techniques as a standard. More firms are using external cost managers to ensure objective insight, and more of these cost managers are using the ICMS to ensure best practices and a broad standard that allows for objective benchmarks. These consulting professionals bring a wealth of independent data and a broader perspective.
Much of cost management is managing expectations for a project. No one can arrive at a business case for a project and expect that to be the final say. Instead, cost managers map out the journey from business case to out-turn cost. They provide real estate, infrastructure and natural resources clients with a plan and KPIs to execute a project in line with their desired output and create fiscal transparency throughout the project cycle.
Furthermore, if there are changes, it’s important to know why and how to manage them. Cost managers take a whole life cost approach, from pre-contract to the final punch list item and past that into asset management and the life of the building.
Reliable international standards are critical to the industry effort to contain protracted projects and cost overruns, while the value of cost management services is highly dependent on the ethics and transparency that come with industry-wide standards. Data and experience may vary on each project, and organizations may have different goals, priorities and building strategies, but planning, structure and cost measurement and risk should not change. The principles should be the same everywhere.
Ultimately, cost management is important to a range of important trends, such as sustainability, technology and carbon neutrality, as the depth of expertise helps companies and organizations deliver on these initiatives through robust fiscal planning.
Similarly, the profession is important to evaluating the macroeconomic conditions of cities, urban design and even public health issues — such as the coronavirus disease COVID-19 — as people consider the supply chain and the workforce and the effects these things have on their projects.
Darren Cash, MRICS
Turner & Townsend
2 St. Clair Avenue West, Floor 12
Toronto, Ontario
Darren.Cash@turntown.com
416-925-1424
