Name: Adriann C.

Ordas
Section: AR51S1
Date Submitted: August 17, 2022
ADRIANN C. ORDAS

Importance of Proper Cost Management in Construction Industry

Bavadekar, T. S. (2020). Importance of Proper Cost Management in Construction Industry. International
Research Journal of Engineering and Technology (IRJET), 07(01), 764–766.

Construction firms are the primary stakeholders in the construction industry as well as the primary
agents for meeting the sector's needs. They construct public or private projects that necessitate effective
management and coordination to maximize the resources and ensure job and revenue continuity. For survival,
growth, and profit generation, these companies rely heavily on the outcomes of the projects they have
contracted. Contractors must use a cost management system because it integrates extensive cost estimating and
offering functions, planning, programming/budgeting, and financial/cost control. As a result, to meet project
objectives, contractors should be able to focus on various project portfolio management processes, the most
important and widely used of which is project cost management. Cost is a major factor influencing construction
performance and it must be managed and controlled throughout the life cycle of a construction project.

Cost changes, also known as budget or expected cost deviations, have a significant impact on the
project's cost performance. "Changes in projects are common," write William C. Ibbs, Clarence K. Wong, and
Young Hoon Kwak (2001), "but they affect the cost, scheduling, and duration of projects, both directly and
indirectly. A comprehensive project change management system is based on five principles: promote a balanced
change management system, recognize change, evaluate change, implement change, and continuously improve
based on lessons learned. By implementing this project change management system, project participants can
reduce negative change and promote positive change." Poorly planned plans can make it difficult to put
allocated funds to use. Furthermore, it was discovered that the problem is caused not only by a lack of
knowledge about the techniques to be used, but also by a lack of cost control method management, poor site
organization, and insufficient supervision. As a result, contractors must consider cost management functions
thoroughly and objectively. A budget's main purpose is to provide a foundation for comparing actual expenses
and benefits. The cost control system should be capable of tracking and identifying the activities that deviate
significantly from the baseline-based planned amounts. "Construction costs increase in a project with the seven
different mismanagement scenarios, such as delay, cost cutting, resequencing of work, acceleration, change of
scope (rework), defective work and strike," according to Mikhail Chester and Chris Hendrickson (2005). Cost
overruns plagued the majority of construction projects in various countries, but cost management helps project
managers reduce them and achieve project success. This study encourages construction project participants to
actively engage in cost management. The critical factor that drives a construction project, cost/budget, must be
managed more precisely.

Cost overruns, which are major impediments in construction projects, must be overcome. Appropriate
cost management aids in achieving the desired result. Contractors must thoroughly examine all tender
submission-related factors; they must have a bid strategy aimed at acquiring sufficient turnover with a sufficient
profit level; they must keep track of actual data on material consumption and resource productivity; overhead
costs must be identified, quantified, and estimated item by item during the cost estimation phase; and all
potential costs must be identified.