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In this sense, in this article, we will approach the concept of cost control and understand its importance for companies, also emphasizing the evolution of the civil construction sector over the last few years, as well as its capacity for change, resilience and adaptation in the face of constant economic crises.
At first, we can mention that cost control can be perceived as an “oracle” that allows us to predict the future and thus take the necessary precautions for the company’s success.
The civil construction sector has, in recent years, given constant evidence of its dynamism and resilience.
From the chart below, it can be seen that this sector is recovering due to the economic crisis caused by the entry of the troika in 2012. In the last two years, there has been a slowdown in growth, more noticeable in the first quarter of 2021, as a result of the worsening in construction costs, due to the shortage of raw materials and labour caused by the Covid-19 pandemic.
More recently, with the outbreak of the Ukrainian War, its effects on the construction sector are expected to be disturbing. As a result of this conflict, there has been a lack of raw materials on the market and a new rise in prices, which causes a situation of instability in manufacturing companies.
The current reality of the sector has implied a “budgetary gymnastics” in companies, leading them to adopt strategies focused, inclusively, on mechanisms to control the costs incurred in their activity and adjusted to the current market. In this way, it enables management to take timely operational control initiatives, ensuring its sustainability and, at the same time, presenting an excellent capacity to respond to the market.
The following factors contribute significantly to the success of a construction company: cost, time and quality. In other words, the work must be completed within budget, within the stipulated time and with the desired quality, meeting or exceeding customer expectations. This path will allow you to create or maintain a reputation in the market that can be beneficial for future ventures.
The concept of cost is often confused with the ideas of expense, payment or loss. Cost should be defined as the consumption or use of resources to obtain a particular good or service.
In other words, when raw material is purchased, it is considered an expense, it is only considered a cost from the moment it is consumed in the production of a product or service. If there is any waste or damage to the purchased resources, they are considered a loss for the organization since no benefit is obtained.
Therefore, cost control consists, for the different phases of the work, of the monitoring, evaluation and comparison between the planned values based on the budget and the real ones (invoicing, costs and/or results) to evaluate the fulfilment of the objectives stipulated by the management at the prices of each work, the pre-defined deadlines and the final quality of the projects.
The on-site economic control estimates cost with precision, obtaining the most realistic forecast possible so that the company can promptly identify and quantify deviations in terms of costs and duration of deadlines. This way, it is possible to identify the causes of these deviations and take the most appropriate corrective actions to keep the activity as profitable as possible.
However, the prediction of the final result is the more practical and up-to-date information you have, so it needs to be constantly updated. It should be noted that even so, there are parameters that contribute to the increase in the uncertainty of the estimates, such as the fluctuation of market prices for these materials (e.g. diesel, steel), labour or equipment; changes to planning; errors and omissions and natural phenomena (e.g. pandemic, war, natural disasters).
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