The construction markets in New Zealand and Australia are facing significant hurdles. With the rising cost of living, reduced government spending and a slowdown in building consents, the industry is feeling the squeeze.
As fewer new homes are being built, competition is heating up, with companies bidding lower just to win work. These challenges are putting pressure on profit margins, making effective cost management more crucial than ever.
The construction industry in New Zealand and Australia is currently navigating a tough landscape:
Economic slowdown: With the cost of living going up, fewer people are buying new houses. This has led to a significant drop in building consents, down 24% in the year ended June 2024 compared with the previous year (Stats NZ).
Reduced government spending: Governments are tightening their belts, reviewing and restricting expenditure across the board, including construction projects.
Increased competition: As work drops off, companies are bidding lower to secure projects, further eroding profit margins.
Cost management in construction is fraught with challenges that can undermine even the most well-planned projects. Some of the most common issues include:
Inaccurate estimations: Poorly estimated costs can lead to budget overruns. Estimating too low to win a bid can cause problems down the line when actual costs exceed the budget.
Unforeseen variations: Unexpected changes in project scope or design can lead to variations that aren’t accounted for in the original budget, putting pressure on profit margins.
Delayed cost tracking: Many construction projects suffer from delayed cost tracking, where expenses are only reviewed at the end of the month. This lag can prevent timely adjustments and lead to significant budget overruns.
Inefficient resource allocation: Without proper cost management, resources such as labour, materials and equipment may not be allocated efficiently, leading to wasted time and money.
Manual processes: Relying on manual processes for tasks like invoice reconciliation and cost tracking can lead to errors, delays and missed opportunities for cost savings.
In today’s challenging construction environment, one of the best ways to stay ahead is by focusing on what you can control — your project costs.
Here’s how effective cost management can make a difference:
Effective cost management in construction involves a series of steps designed to control costs throughout the project lifecycle. The key stages include:
Before the project begins, detailed cost estimates are created based on the scope of work, materials, labour and other expenses. Accurate estimation is crucial for setting a realistic budget.
Once the estimates are approved, they form the basis of the project budget. This budget acts as a financial roadmap, guiding all cost-related decisions throughout the project.
Costs are allocated to specific tasks, phases, or departments within the project. This ensures that spending is tracked and monitored closely.
During the project, all expenses are tracked in real-time against the budget. Regular monitoring allows for early detection of potential overruns and enables corrective action.
If costs begin to exceed the budget, cost control measures are implemented. This may involve adjusting resource allocation, revising the scope or finding cost-saving opportunities.
Throughout the project, cost reports are generated to provide stakeholders with updates on financial performance. These reports help inform decision-making and keep the project on track.
After the project is completed, a post-project analysis is conducted to compare actual costs with the budgeted amounts. This analysis provides insights for improving future projects.
Project Cost Management (PCM) software is essential for construction companies looking to streamline their cost management processes. Here’s why:
Implementing PCM software effectively requires careful planning and execution. Here’s a quick step-by-step guide:
Start by evaluating your current cost management processes and identifying areas for improvement. Determine what features and functionalities are most important for your business.
Research different PCM software options and choose one that aligns with your needs. Consider factors like ease of use, scalability, integration capabilities and support.
Develop a detailed implementation plan that includes timelines, milestones and responsibilities. Make sure all stakeholders are on board and understand the process.
Provide thorough training for your team to ensure they understand how to use the software effectively. This may involve workshops, online tutorials or one-on-one sessions.
After implementation, monitor the software’s performance and make any necessary adjustments. Collect feedback from users to identify any issues and address them promptly.
Regularly review your cost management processes and look for ways to improve. Use the insights gained from the software to refine your strategies and enhance efficiency.
Simplifying construction cost management is crucial in today's challenging environment. By leveraging tools like Lentune, you can remove manual tasks, gain real-time visibility of costs, and maintain control over your budget. This not only helps in managing current projects more effectively but also provides valuable insights for future projects.
---
The construction markets in New Zealand and Australia are currently navigating significant challenges, with no signs of relief in the near future. Economic pressures, reduced government spending and a slowdown in building consents are all contributing to a tough landscape. Material costs are rising, project timelines are stretching out and profit margins are being squeezed.
In such an environment, it’s crucial to focus on what you can control — your project costs. Effective cost management is essential to keeping projects on track and ensuring profitability.
Traditionally, cost management has relied heavily on manual processes and spreadsheets. While accounting software can assist with managing finances, it often falls short in handling the specific complexities of construction costing. This is where project cost management (PCM) software becomes invaluable.
Lentune’s suite of automation modules works together to streamline your entire project spend management process. Here are three key benefits of automating your cost management with Lentune:
Lentune automates the repetitive tasks involved in tracking a project’s budget, such as entering timesheets, expenses, purchase orders and invoices.
Even fixed costs associated with equipment are automatically allocated to each project through Lentune’s Yard module, which manages equipment bookings and allows for market-rate charges.
By automating these tasks, you can eliminate spreadsheets and manual budget updates, simplifying the entire procure-to-pay process while reducing errors and saving valuable time.
Lentune integrates all aspects of a project’s costs, providing full visibility in real time through the project dashboard. This includes committed spend, ensuring you always have an accurate view of your project’s financial status. With purchase orders in place, there’s no need to wait for invoices to see what’s been spent.
ABOVE: A screenshot of Lentune project analytics, powered by Microsoft Power BI.
By implementing purchase order automation and setting budgets against individual cost-codes, each part of the budget can be tracked individually. When a new purchase order is raised, the budget for that cost code can be checked. If the budget is reached or close to being reached, further steps can then be taken by the project manager such as raising a variation or pulling back budget from elsewhere.
ABOVE: Lentune's project dashboard keeps your budget updated in real time.
Lentune’s cost management platform helps New Zealand and Australian construction companies to streamline the way they handle project finances. Our software replaces time-consuming processes with automated workflows that create more clarity, control and insight than ever before.