Effective Expense Management for Construction Projects
Budget overrun is an all-too-common issue in construction. Overspend is the norm, in fact, with as many as 9 out of 10 construction projects going over budget. Part of this is outside anyone’s control: Weather, market fluctuations to source and ship materials, and other conditions are outside a construction company’s hands. Other times, though, ineffective expense management practices can contribute to inaccurate estimates, delays, and expense reporting errors.
Improving expense management in your company might start with a review of your current practices. Updating your approach to expense management can help you catch errors and track projects more consistently to reduce cost overrun.
Expense Management Needs in Construction
One of the challenges of budget management in construction is that every project is different. The timeline, design, materials, location, labor availability, and weather can all affect a budget.
Construction inherently involves some degree of travel, whether that’s to a local job site or a site hundreds of miles from office headquarters. When job sites are too far to make commuting feasible, labor costs also need to include accommodation, meals, rental vehicle costs, and other expenses. Your cost management strategy needs to include the ability to track these expenses as well as direct project expenses.
Another challenge is handling a wide range of concurrent projects. Supervisors and management employees need to keep an eye on multiple job sites remotely. Using a system that can automatically apply budget limits, or automatically trigger a request for supervisor approval, streamlines processes and keeps managers in control of spend.
Expense management software for construction needs to provide a central resource for far-flung workers and managers. It should also support timely updates so supervisors have the information they need to control budget overrun as much as possible.
3 Features Construction Expense Management Needs
Admittedly, no software solution is going to prevent budget overrun altogether. Going from blueprint to completed project often means dealing with the unexpected on the way—and devoting the time and expense needed to rise to the challenge. That said, expense management software can give you more insight into the aspects of a project that you can control.
The following are some of the top features that can lead to more effective expense management.
Scoping out a project includes estimating manpower needs and hours. You also need to consider what costs you’ll cover for employees when they’re not on the clock. The right software solution can help you stay on top of current hotel and rental car rates, per diem allowance, and other expenses. The more accurately you can predict these costs (as well as costs for direct expenses like materials), the closer your estimate can be to the actual total.
Digital receipt capture
Workers may not have ready access to a scanner or a computer. Previously, that meant holding onto a pile of receipts and filling out tedious expense reports weeks after the fact. Lost receipts can obscure true project expenses and put financial stress on workers using a personal card.
Digital receipt capture lets workers snap a photo of a receipt and upload details to the correct expense category in a matter of seconds. It’s easier to minimize lost receipts and reimburse employees promptly.
Instant expense report submission
Finance professionals in construction often follow the “percentage of completion” method to check whether a project is on budget. That involves tracking a running total of expenses incurred against the overall completion status of the project. If employees don’t have the tools they need to submit expense reports on time, this can impair the finance team’s ability to keep track of a project.
The easier it is to complete and submit expense reports on the fly, the more accurately the finance team can follow a project’s progress and alert project leads about budget issues early.
How Expense Management Software Can Improve Processes
Effective expense management has the potential to improve processes at nearly every stage of a construction project. Some of the main benefits you may see from optimizing expense management include the following.
More accurate project estimates
Planning a project is a critical time to calculate costs. Expense management software that can compare figures from your previous projects and draw on current market prices gives you an estimate based on real data.
Improved visibility between offices and job sites
Management in the office can view each project more easily. Supervisors can flag certain expenses to require approval, so they can work directly with employees to plan the most cost-appropriate approach.
Stronger job cost organization
Connecting each expense to the correct project makes tax preparation and billing simpler. It also makes it easier to assess how profitable each project is. Clear, organized software helps assign expenses correctly.
Early detection is important to find the most cost-effective solutions for challenges that arise mid-project. When it’s easy for remote workers to submit expense updates, you’re more likely to see higher rates of compliance and timely reporting.
Retaining a skilled labor force in a competitive market carries its own challenges. (High employee turnover and training costs can eat into budgets, as well.) Replacing time-consuming, confusing processes with software that’s quick and simple to use takes the burden out of necessary paperwork. Fast expense reimbursement (thanks to on-the-go expense report submission) can also help employees feel valued at their company.
Budget management is likely to be an ongoing area construction companies need to watch closely. The right expense management software helps you go in with the tools you need for the job.