Why cost management is increasingly important in the construction and infrastructure sectors
By Darren Cash, MRICSConstruction Financing
The construction industry continues to undergo large-scale modernization efforts. Whether it’s new technology, more diversity and inclusivity in offices and on sites, education to address the skills shortage or future-proofing and greater sustainability, the industry is more innovative and forward-looking than ever. It makes sense, then, that the industry is also starting to turn to standardized cost management practices to address a long-standing epidemic of cost overruns and a lack of planning transparency.
In an oft-cited international study several years ago, 258 major infrastructure projects budgeted for $100 million or more from across the globe were sampled for cost analysis. Nine out of 10 went over budget, with the average overage at 28 per cent. It is a global problem, and no less of an issue in Canada. There are a number of reasons this happens, from insular thinking, to poor risk assessment and the simple desire to attain project approval, among many others. What this does highlight, though, is the need for independent cost management analysis and international, accepted standards.
This is where qualified cost managers come in, particularly if they’re following the International Construction Measurement Standards (ICMS). The problem is that developers and construction firms in Canada still aren’t engaging these cost managers—and the biggest impediment to more sustainable, standardized and transparent cost practices is educating people about what a cost manager does in the first place.
Part of the issue is that there is no standard name for the job. In the U.K., 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 also sometimes see the job title of construction economist. The different titles may bring different job functions, and this points to the considerable breadth of what cost management can deliver for the commercial real estate, infrastructure and property sectors, but this global lack of standardization also exposes a non-standardized way of approaching cost. This makes it difficult to outline what exactly a cost manager does.
But this is changing. As firms increasingly see the need to create transparency and enter into projects with more accurate expectations about costs and how to control them, more and more firms are using external cost managers to ensure objective insight, particularly through the use of the ICMS to ensure best practices and a broad standard that allows for objective benchmarks. As opposed to clients exclusively using in-house data, these consulting professionals bring a wealth of independent data and a broader perspective.
Much of cost management is managing expectations for a project. While no one can arrive at a business case for a project and expect that to be the final word on the matter, cost managers can map out the journey from business case to out-turn cost. They provide real estate, infrastructure and natural resources clients a plan and KPIs to execute a project in line with their desired output and create fiscal transparency throughout the project lifecycle. If there are changes, it’s also important to know exactly why and how to manage them. Cost managers take a whole life cost approach, from pre-contract to when the final punch list item is done 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 never change. The principals should be the same everywhere.
Ultimately, cost management is important to a range of important trends, such as sustainability, technology and carbon neutrality. 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—as people consider the supply chain and the workforce and the effects these things have on their projects.
Darren Cash, MRICS, specializes in the delivery of pre- and post-contract cost management services for developers, end users, government entities, architects and lenders. He advises clients in corporate real estate, education, healthcare, technology, manufacturing and hospitality sectors.
Cash is on the Americas World Regional Board for RICS.