How to Cut Your Project Costs Without Cutting Quality
How many times have you told your client, “Here’s the budget we will be working too.”
How many times has your client said, “Well, we expect some changes, and it will cost a little more than that.”
Good for you. You’ve established a line of trust with your client. You’ve successfully negotiated an increase from the original plan of work from the contract documents, and both of you are on the same page. Congratulations!
It doesn’t matter what type of business you own or manage – every project requires a budget. And if there’s one thing we’ve learned, it’s this: money will always give problems – whether it’s too much or too little.
So you’ve landed a contract with a happy customer, and everyone’s excited about getting started. But if you’re not careful, sometimes halfway through construction, when money gets tight because it always does, someone at your company will say “…but didn’t we make this project under budget?!” And then it’s time to tighten the belt again.
Before you find yourself strapped for cash halfway into your plans, try following these tips on how to cut project costs without cutting quality:
Use a team approach to complete certain tasks
One person can be in charge, but it’s helpful to have 3-4 people working on the same tasks. For example…a plumber, electrician and HVAC technician doing rough-ins together will save you time and money, as opposed to each one coming out separately.
Be more organised and improve your estimating techniques
One of the easiest ways to cut project costs is to stop unnecessary spending while you’re in the planning stages of your project. This requires you to become a good estimator, which takes time and practice. But once you have a handle on it, this skill alone can save your company thousands, if not hundreds, of thousands over time! The project manager must try to stay under budget, since an increase in the budget may not be allowed.
There are several books written about how to estimate construction project costs. Just look for them at Amazon or ask around at local bookstores. It’s definitely an area where investing money up-front will reward you with priceless knowledge later down the road.
Utilise resources at hand, instead of hiring more personnel or subcontractors
If you need extra hands for demo work (which is absolutely necessary), why not ask your existing employees if they want to make a little extra cash? Perhaps offer an hourly wage with the promise of production bonuses if they reach their goals. A few weekends of hard work could come close to paying someone’s full time salary.
Be aware of your material costs
If you’re buying certain materials in bulk, it’s best to find out where you can purchase them at the cheapest price – whether from a supplier or local retail store.
Don't order too many extra supplies
Unless you know they’ll be used before the end of the project. A good rule of thumb is to only buy an extra 2-3% beyond what you would normally use on a typical job of this size and scope. But if there is a leftover product from your last job, make sure those items are put to good use!
Use the same vendors to source your product
If you’ve already established business with a vendor, use that as leverage for future negotiations and to get better prices on materials. A few generous concessions here and there could really add up.
Utilise what you already have
If your company already has a truck with the tools and equipment to complete certain job tasks, you’ll not need to purchase additional products or services – unless the customer extends an incentive program offer.
Get creative and plan ahead for change orders
If you give your client a set price on the contract documents, somewhere down the line, they will probably ask you to do something which wasn’t in there, and it will cost more than what was originally agreed upon. This happens all the time and doesn’t necessarily mean they want to spend more. Sometimes they just want things changed or adjusted slightly.
Don't Forget About Your Indirect Costs
Most people don’t include indirect overhead project cost, because it’s not always easy to quantify, or there isn’t enough time to learn how. This can be a huge mistake! If you’re not sure what your indirect are, think about anything business related that doesn’t actually go towards construction, but is still important; like office supplies, phone lines/phones, advertising, etc.
Sometimes, the project scope can suddenly change, which can upset the project plan. You may be required to add more resources initially not factored in.
Use sub-contractors to complete tasks you don't have experience with
If you want to reduce project costs, but still maintain good quality, experiment with different sub-contractors. You can have a company complete foundation work, for example, then hire another company to pour the slab. It’s a great way for a smaller business to avoid footing the bill of a big job that they don’t have all the necessary equipment for.
Hire smarter and better workers
While it might take more time & effort upfront, gaining control of your workforce can save you thousands in the long run. There is no replacement experience, so hire the most qualified person possible, even if they ask for more than what you were planning on paying. They will get the job done faster and better than someone you hired or transferred at the last minute.
Hire a good accounts payable clerk
This one is more important than it seems. When you hire a new accounts payable clerk, try to get someone who’s been in the business for a while and knows how to track expenses down to the penny. If everyone on your crew makes mistakes with their budgeting, this will add up quickly and cost you thousands. You may not want to pay that much for part-time help, but if they’re good enough, the company might even make back all that extra money from picking up more projects.
Since there is only one person in charge of this area, it’s important to hire someone who knows what they’re doing and has an eye for detail. This person will be responsible for making sure every invoice on their desk is accurate, as well as taking care of payments (assign different days of the week for them to do specific tasks). If you keep up with things like this, chances are you’ll save thousands without even realising it!
Make sure you can do everything they ask for beforehand
This might seem counterintuitive at first, but most projects are delayed because there isn’t enough time for construction. Taking too much work can hurt your cash flow, but take too little, and you may have to delay the project – which can unnecessary costs your company a lot!
If a customer asks if you can do something that might take a month or two to prepare for, then don’t say ‘yes’ unless you’re 100% sure. You’ll need time to research all the necessary permits, as well as to plan and schedule with your workers. If it takes longer than expected, you’ll need time to come up with a new timeline or change orders – both of which could potentially cost you money.
Be nice!
This is more important than some people realise – making new friends while doing business will help immensely in getting things done faster/cheaper, because there’s less stress involved.
Be polite, respectful, and courteous even when they’re seemingly up roadblocks on your job. Don’t get angry, because it wastes money and time getting everything back on track. Sometimes the only thing standing in your way between you and a completed project is someone resigned to being unhappy because of how things have been going so far.
Project Managers are worth their weight in Gold
When you’re working on a big project, it’s important to have someone whose job is to ensure everything gets done the right way. They frequently check in with everyone involved, so they don’t fall behind or forget anything.
Project managers are worth their weight in gold, because these people save you money by maximising efficiency. The project manager needs to ensure that budgets are revised in such a situation. Communication is key to keeping everyone on the same page and making sure things go smoothly.
When hiring new workers, make sure they understand what you want them to do before they start working, instead of asking them after they’ve already done it. This will save you a lot of headaches and reduce costs.
Project Management Software
In this day and age, the best way to stay organised to your project tasks is to use project management software. These software help monitor progress and can prompt you when projects are going over budget. Project managers will also benefit from the structure these tools provide to use their teams better. The ability to manage your project cost reflects the success of the project.
Project management software will help you avoid wasting any time or control project cost by keeping a detailed schedule of all aspects of a project. It is a continuous process within project management costs and requires constant monitoring to maintain the project budget. which can be viewed/edited by anyone with the relevant permissions to do so. This makes it easy for other people associated with your projects to get involved and stay up to date on the progress of each project plan.
You’ll also never have to worry about forgetting anything or spending too much time looking for those misplaced documents, because everything will be in the system.
Keep Good Records
Documenting everything is important, so that you have physical proof of problems, reviews & conversations – this will come in handy if there ever is a problem with the job afterwards.
You might not need these documents now, but being organised about how you manage things will save a lot of hassle & money in the long run. Make sure all information is properly saved and available at any time. Some people even recommend taking pictures of everything, so that it can’t be disputed later on.
Conclusion: In this article, we’ve given you a few simple strategies to help eliminate unnecessary costs without cutting project quality. However, there are many more ways project managers and builders can reduce their budgets.
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