When a commercial building project is in the midst of construction, there are a number of moving costs that must be addressed. Labor, materials, equipment and subcontractor costs may change during the course of a project. There has to be financial transparency for bidding to completion. If you have an accurate idea of how much you need, you can have an accurate budget. But the cost of the project can fluctuate rapidly. Thus, it is imperative that contractors have a standard way of accounting for expenses, check the deviations and keep up with the finances throughout the building process.

There should be a methodical approach for linking project budgets with the actual expenses of the project for estimators and managers. Commercial construction estimating software has a system that brings together all labour, material, equipment and subcontractor costs. It also simplifies comparison of costs while the project is being carried out. Therefore, teams will be able to look back at past spending trends, understand where spending is different, and make effective decisions based on the existing project data. 

What Is Commercial Construction Estimating Software?

Commercial construction estimating software is a computerised system designed for making detailed estimates of project costs. Coordinates quantities, rates, labor, materials, equipment, subcontractors, overhead and mark-up. The system can then pass a validated estimate data to subsequent project phases. This helps to ensure the continuity of bidding and project cost management. 

How Estimating Software Fits Into Commercial Construction

Drawings, specifications, quantity takeoffs and supplier pricing are typical initial steps on commercial projects. The information is then translated into cost line items by estimators. They charge prices and rates of production for each scope of work. This leads to an estimate of the cost that is helpful to the project team for getting started.

The software could also be able to structure costs by phases, assemblies and cost codes. This way, it will be easier to compare in the future. Project managers can compare costs with the initial scope. When a new bid calls for similar work, the estimator can go back to make other assumptions. 

Estimating vs. Project Cost Tracking

An estimate is a guess of project costs prior to construction. Cost tracking is documenting what money is actually spent on the project while it's being carried out. These functions are used for various purposes but are closely related to each other. An estimator, for instance, might estimate $80,000 in electrical estimates. The project will have actual costs of $84,000 later in the project. This gives a variance of $4,000. Variance and the cost category can be displayed in a connected system. 

How Commercial Construction Estimating Software Tracks Project Costs

A detailed estimate is used as a basis for the tracking process. The approved estimate then serves as a benchmark for a financial solution. Then real expenses will be recorded in the project record. The system will make a comparison between those expenses and planned costs. Lastly, if a variance occurs because of changes in project circumstances, managers will review the variance and adjust forecasts accordingly. 

Creating the Initial Cost Estimate

A commercial estimate starts with a breakdown of the scope. Labour, materials, equipment, subcontractors, overhead, contingencies and markup are identified by the estimator. They assign numbers and rates to each of the items.

These figures can be grouped into a well-structured cost category with the software. Additional pricing and standard cost libraries of historical prices can be used by estimators. This helps to establish a level playing field for project budgeting. This also helps to simplify comparing costs at a later date. 

Establishing the Project Cost Baseline

After getting approval from stakeholders, the project team can set up a cost baseline. The baseline is a financial position that is expected to be achieved in the project. Provides a benchmark for comparison in the future. This also makes it possible to prevent the original estimate from repeated changes. Teams can differentiate between early and later changes to the plan. That's significant when managers are looking at cost growth or when they have to do a review on the unexplained costs. 

Recording Actual Project Costs

The actual costs are added to the project record as the work is completed. Invoices, purchase orders, labor hours, equipment costs, and subcontractor costs are some examples of these costs. Team members can assign all of the expenses to the project or cost code.

This helps to clarify existing expenditure. It also minimizes the need for using a lot of random spreadsheets and manual data entry. If the financial information is made available in a timely fashion, the managers can have a look at the performance of the project before it finishes. 

Comparing Budgeted Costs With Actual Costs

Next, the plan should be compared to the expenditure to monitor the actual cost. Each cost category can be reviewed by the manager, and the differences can be identified. In a category of labour, expenditure can be over budget, and the expenditure of materials is under budget.

The comparisons are used to give context to decisions made in projects. A slight range of variation is representative of the normal price fluctuation. The larger the spread, the more likely it is that the scope has changed, there are productivity problems, or that assumptions were incorrect. Hence, the reason for each major difference should be examined.

What Costs Can the Software Track?

There are multiple cost groups used in a commercial construction project. For each group, it has an impact on the total budget of the project. Those categories are separated in a structured system but also offer a complete view of a project. 

Labor Costs

Labour tracking can be hours, rates, overtime and crew allocations. Labour expenses can be allocated to labour phases or cost codes. This helps to provide a clearer understanding of how labour is performing on the project.

Planned labour hours can be compared with actual labour hours by the manager. These can then explore differences between forecasted and actual production. Correct labour information also helps to make better future estimating assumptions. 

Material Costs

Material tracking includes quantity, supplier costs, purchase order and usage of materials. Long commercial projects can have changing material prices. Thus, it is important to take into account current pricing information during the review of project costs.

The system will link purchasing of materials to the appropriate project budget. Managers are then able to make comparisons between budgeted material spend and material commitments. This process helps in recognizing unusual price moves. 

Equipment and Subcontractor Costs

Equipment costs can include rentals, use fees, fuel and any related operating costs. These costs can consist of quoted costs, approved commitments, invoices and more work.

By keeping costs tracked by project category, there is improved visibility of cost. It also provides managers with a better understanding of "planned" expenditures. This is important because the costs that are committed can influence the final forecast prior to receiving the invoice. 

Overhead, Contingency, and Markup

The indirect costs also impact the finances of a commercial project. Administrative and operational costs can be overheads. Unidentified financial uncertainty is covered by contingencies. The commercial margin or markup is set in the estimate. If teams can split these numbers, they'll have a better understanding of their financial situation. This also helps to avoid indirect costs being buried in direct cost lines. 

How Change Orders Affect Project Cost Tracking

The scope and the cost of the project may be affected by change orders. The commercial teams should have a record of each change which was approved. Otherwise, the original budget may not be a suitable comparison. 

Recording Scope Changes

A change order may result in additional work, the removal of work or the modification of the specification. Once the team has identified the scope that is affected, they can document the scope and link it to the corresponding project cost categories. This will ensure the financial record does not become out of step with approved project changes. It also makes for a better separation of the original scope and subsequent revisions of the contract 

Calculating the Financial Impact of Change Orders

A change order may impact labor, materials, equipment, subcontractors and overhead and markup. Each component can be estimated prior to the team's approval of the change.

If approved, the new amount can be included in the project's financial status at the time of the approval. The updated budget can then be compared with the actual costs, and then managers can determine the difference. This process ensures that the cost report will always be relevant to the changing project environment. 

Maintaining an Audit Trail

Changes made to a detailed audit trail that documents revisions, approvals, costs and documents. Provides a time-based perspective of financial decisions to project stakeholders.

This information is important for the internal audits and payment negotiations. It is also helpful for the team to learn why the project's budget changed, and it serves as valuable evidence if they have to explain the budget change. 

How Real-Time Cost Tracking Identifies Budget Variances

As the costs are updated in real-time or regularly, managers have access to the latest information about the project's performance. The benefit is to relate the incurred costs to the approved budget. 

Detecting Cost Overruns Early

Earlier variance detection allows managers to have more time to look into any unusual expenditure. If the labor variance is recurring, it could be an indication of labor productivity. A material variance is where the variance is large enough to suggest a price change by the supplier. Managers have the opportunity to have a look at the impacted category before it turns into a more substantial undertaking issue. So it is crucial to monitor the cost in a commercial project on a regular basis to be able to manage it. 

Monitoring Cost Variances by Category

Managers can have a separate look at labor, materials, subcontractors and equipment. This level of detail gives more useful information than project total information.

For example, expenditures could be in line with the budget. But, one trade can already be over allocated as per plan. It may be possible to find out that issue at the category level before the overall project figure becomes significantly different. 

Tracking Project Profitability

The profitability of a project is related to the revenues, the costs that have been agreed, and the real costs. Accurate cost information provides managers with more solid grounds for predicting the final financial outcome.

The margin can be affected as the actual costs increase. Teams can then go over the impacted scope and make an improvement to the forecast. This helps to keep expectations in line with the reality of the project. 

How Historical Cost Data Improves Future Estimates

Value of completed projects is estimated data. This gives the contractor an opportunity to check out past labor rates, material costs, subcontractor prices and project conditions. They can then leverage that information when they're bidding on other jobs later. 

Using Previous Project Costs

Real rather than assumed examples are provided on historical project records. Comparisons of similar scopes can be done to completed jobs. They are also able to recognize cost trends. This comparison is more effective when projects are located in the same area, of the same kind, have the same trades or the same specifications. Teams should still carefully review historical records prior to using them for new estimates. 

Updating Labor and Material Rates

The costs for labor and material fluctuate. Before using old rates in new estimates, contractors should consult old rates. Other context may be gained from current supplier quotes and/or market conditions. Location also matters. The cost database might not match another market in another region. So, it's essential for estimators to take local rates and conditions of the project into account. 

Building More Consistent Estimates

Reusable cost libraries can provide a baseline to start from for the estimator. The normal assemblies and historical benchmarks can also minimise the variance in the estimates that would otherwise be associated with such variations.

Consistency doesn't imply that the same set of assumptions is applied to all projects. Rather, it establishes an "estimating process that can be reproduced. The baseline can then be adjusted based on project-specific conditions by the estimators. 

Key Features to Look for in Construction Cost Estimating Software

The right platform needs to be the same as that of the commercial contractor. The key to the evaluation should continue to be cost tracking. 

Detailed Cost Breakdown and Cost Codes

The reporting of projects is simpler if there is a detailed cost structure. All cost codes should be the same as those used by the contractor in his/her estimating and accounting system. Standard coding also helps to make historical comparisons more reliable. 

Automated Quantity and Cost Calculations

Correct calculations minimise repetitive manual tasks. The quantity and rate data should be transferred into line item totals without re-entering data. 

Budget vs. Actual Reporting

Budget vs. actual reports indicate any deviations from the spending plan. Reports should be able to provide a summary of total project costs and individual cost categories. 

Change Order Tracking

Change order tracking should be linked to the scope change approval and monetary values. A clear record can help to keep project budgets in line with authorized revisions. 

Real-Time Dashboards and Alerts

Dashboards can display actual spending, commitments, variations and forecasts. Alerts can highlight unwanted cost fluctuations and/or thresholds. 

Historical Cost Databases

Historical databases provide estimators with a reference with regard to labour, materials and other project costs. Teams need to assess the age and relevance of the data that they are analysing. 

Accounting and Project Management Integrations

Integrations can be used to sync estimating data to accounting, project management, procurement and financial reporting systems. Processes that are connected, minimize duplicate records and ensure data consistency. 

Cloud and Mobile Access

Cloud access allows authorised users to access up-to-date project information from anywhere. Mobile access can also ensure that those in the field and in the office are able to stay in touch with project cost information. 

Commercial Construction Estimating Software vs. Spreadsheets

Spreadsheets still are used throughout construction companies. But when a lot of discrete files are involved, it can be difficult to work with a complex commercial project. 

Manual Cost Tracking Challenges

Manual tracking can result in duplicated records, manual version control, and calculation errors. Other teams can also keep their own records of costs.

These issues can slow down financial reporting as projects grow. These can also make it more difficult to determine why a variance has occurred.

Centralized Project Cost Data

Estimates, budgets, commitments and costs are kept in a centralised system in a connected environment. Teams can use the same project data without having to store separate files.

This structure establishes a more clearly defined control and ownership of financial information. It can also facilitate easier collaboration between estimators, project managers, accountants and contractors. 

Better Visibility Across the Project Lifecycle

A workflow that connects the project from estimate to bid, contract to budget to actual costs to close out. The financial information from the previous stage is used to develop the financial information in each stage.

This continuity enables managers to have a more complete understanding of the flow of costs. It also builds a better history to refer back to for estimating and review of projects. 

How to Choose the Right Estimating Software for Commercial Projects

Choosing a platform isn't simply a matter of checking out a list of features. Contractors should take the size of their project, their workflow, the size of their team and the type of reporting they need into account. 

Match Features to Project Complexity

If you're a small contractor, you might need simple estimating and cost tracking. For a big commercial contractor, they may need detailed cost codes, integrations, approvals, forecasting, and reporting on multiple projects. 

Check Cost Tracking and Reporting Capabilities

Discuss how the platform captures true costs and can be used to compare these with budgets. Reporting should be helpful but not cause unnecessary hassle for routine reviews. 

Evaluate Integrations

Look for software that integrates with existing accounting, project management, procurement and document systems. Well-integrated systems can maintain consistency of financial data through workflows. 

Review Data Accuracy and Security

Making decisions on cost is based on accurate data. Prior to using a platform, contractors should look at data controls, user permissions, backups and security before doing so. 

Consider Scalability and User Access

The system should be implemented in line with the needs of the current operations and future projects. Take into account the number of users, projects, locations and cost categories the platform is able to handle. 

Assess Reporting and Forecasting Features

Current costs, variance, commitment and forecast should all be reported. Forecasting capabilities can help the manager have a forward-thinking range of project funding. 

Best Practices for Accurate Construction Cost Tracking

Disciplined project processes are the base of accurate tracking. When there is consistency on data and review costs regularly, software will work best for teams. 

Start With a Detailed and Consistent Estimate

It is important to have a clear estimate to provide a solid financial starting point for the project. Estimators must record quantities, rates and assumptions and scope boundaries. 

Use Standard Cost Codes

There is a common cost code, which will simplify reporting across projects. They also establish quality historical data to use in future estimates. 

Update Actual Costs Regularly

The lag time between costs being entered can result in an "outdated" financial picture. Invoices, labour, purchases and commitments should be recorded by teams at regular intervals following a schedule. 

Record Change Orders Promptly

Changes approved by the project should be put into the project record without any delay. Current budgets are kept in sync with authorized scope with timely updates. 

Review Budget Variances Frequently

Variance reviews can uncover anything that is unusual, as it is conducted regularly. Material differences should be explored and documented by managers for reasons. 

Compare Completed Projects With Original Estimates

Project closeout provides a chance to evaluate planned cost vs. actual cost. Each project can capture the lessons learned and pass forward relevant data for future estimates. 

Conclusion

The commercial contractors have better visibility during all the phases of a project when they can have accurate cost tracking. Commercial Construction Estimating Software seamlessly integrates estimates, budgets, actual costs, change orders and forecasts into one workflow. This approach will help budget variances to be easily identifiable and reviewed. Standardised cost codes and up-to-date information also give a reliable project record. The detailed estimates, along with disciplined cost tracking, will allow construction teams to make informed financial decisions and ensure they have greater control of project performance from the point of bidding to the closeout. 

FAQs

What is commercial construction estimating software?

Commercial construction estimating software is an electronic system designed to create construction estimates and manage construction costs. It can link the budgeted expenses to actual expenses, change orders, and financial reports.

Could software be used to estimate true construction costs?

Yes. Estimating platforms include tracking labor, materials, equipment, subcontractor costs, commitments and invoices. These can be compared between teams and the costs/benefits of the project.

What does construction estimating software do about change orders?

The software can capture scope changes, estimate the costs of all scope changes, and adjust the project budget. It may additionally keep approval records and change histories.

What is the strategy for estimating software's cost overruns?

The system makes a comparison between planned costs and actual/committed costs. Managers will then be able to see the differences between cost categories (labor, materials, equipment, subcontractors).