What are 3 main areas of cost control?
According to common business frameworks, the three main areas of focus for cost control are labor costs, materials and supply chain costs, and overhead expenses. The construction industry is no different. That’s why we offer a comprehensive course on Project Accounting and Cost Control.
1. Labor Cost Control
Labor is often the largest and most variable cost on a construction project.
This area focuses on:
- Productivity of crews
- Overtime management
- Workforce planning and supervision
Key aspects include controlling labor hours against estimates, minimizing idle time, and ensuring the right skill mix on site. Poor labor productivity quickly leads to cost overruns, even when material and subcontract costs are well managed.
2. Material & Procurement Cost Control
Materials typically represent a significant portion of project costs and are highly exposed to market price fluctuations.
This area covers:
- Material purchasing and pricing
- Quantity control and waste management
- Storage, handling, and logistics
Effective control ensures materials are bought at the right price, in the right quantities, and delivered at the right time. Tracking material usage against estimates helps prevent losses due to theft, damage, or rework.
3. Project & Contract Cost Control (Including Variations)
This area focuses on managing the overall financial performance of the project.
It includes:
- Budget tracking and cost forecasting
- Change orders and variations
- Subcontractor payments and claims
Strong control here ensures that scope changes are properly priced and approved, costs are captured accurately, and the final project cost remains aligned with contractual agreements.
What does this mean for my company?
If your company can implement key performance indicators to monitor these 3 main areas of cost control, you can gain a real understanding of where money is being spent and why. This allows you to identify cost overruns early, and take corrective action before issues escalate.
Typically, cost control needs to be managed by someone in the accounting department, or someone close to it. Ensuring cost numbers are accurate requires the bookkeeping to be done in a way that makes costs easy to track.
Over time, these processes will help your company deliver projects more consistently within budget, which will strengthen profitability and build trust with your clients.