What is cost control?

Cost control or management in property or project management is the process by which managers maintain costs under human resource management, assets, and capital expenditure to ensure that the project ends on a budget basis. Cost management depends on reasonable estimates and ongoing monitoring during the project. As a result, good cost control is essential for any construction business that wants to succeed.

Project Management

During project development, project management and record-keeping processes become important tools for managers and other stakeholders in the construction process. These tools serve the dual purpose of recording financial transactions and providing managers with performance indicators and work-related issues.

Project management problems are aptly summarized in the old definition of a project such as "any group of unidentified related activities is ninety percent complete, over budget and late". The function of project management systems is to provide an accurate indication of the presence and extent of such problems.

The limited purpose of project management needs to be emphasized. Project management steps are more focused on identifying deviations from the project plan. This feature indicates an advanced stage where project management is important. The time when cost savings can be achieved during project planning and design. During actual construction, changes may delay the project and lead to excessive cost increases.

As a result, project management is focused on completing actual or proven design plans, rather than seeking significant improvements and cost savings. This is where redundancy is needed when major changes will often occur in the construction program.

The project budget

Project cost management, construction strategy and associated revenue, and expenditure estimates can provide a basic indication of subsequent project monitoring and control. In schedules, progress in each activity and the achievement of milestone completion can be compared to a project schedule to monitor project progress. Details of the contract and the works provide the conditions for evaluating and verifying the required level of construction. The final or detailed cost estimate provides the basis for financial performance evaluation during the project. In terms of cost within the detailed cost range, then the project is considered to be under financial control. Exceeding the cost range indicates the potential for problems and provides an indication of the problems experienced. Cost-planning and management planning are based on the categories included in the final cost estimate. This focus is particularly important on projects with few tasks and major duplication such as grading and paving.

Characteristics of construction project stages of various project management approaches.
CC BY-SA 4.0 | Image credits: https://commons.wikimedia.org | Ricmagno

For control and monitoring purposes, the detailed cost estimate is initially adjusted to the project budget, and the project budget is subsequently used as a management guide. Certain items in the detailed cost scale become features of the cost of the project. Expenditure incurred during the project is recorded in the account of specific operating costs to be compared with actual cost estimates for each category. Thus, the cost accounts for each activity usually represent the basic unit of cost control. Alternatively, work expense accounts may be categorized or classified into work features related to both specific scheduled activities and specific expense accounts.

In addition to cost estimates, material value information and staff inclusion within each work account are also often maintained in the project budget. With this information, the use of real materials and hired work can be compared to the expected requirements. As a result, cost overruns be identified as a result of the change in the price of used goods, the productivity of employees.

Converting the final cost estimate into a project budget that accompanies organizational expense accounts is not always a straightforward task. Cost estimates are usually categorized according to the appropriate project categories that are operational or resource-based. For instance, the number of staff and material can be included in each part of the project material. To calculate costs, the number of employees and the material are grouped according to the type in which the material part is employed.

For instance, certain types of workers or building materials can be used in many parts of building structures. In addition, the varieties of cost accounts formed within the organization may be slightly similar to the prices included in the final cost estimate.

Forecasting for cost control

For project management and control of costs, it is not sufficient to consider only the previous record of costs for the project. Good managers should focus on future income, future costs, and technical issues. For this purpose, traditional financial accounting schemes are not sufficient to demonstrate the flexibility of a project. Accounts typically focus on recording system costs and past operating costs.

Generally, past expenditures represent hot costs that cannot be adjusted in the future and that may be related or ineffective in the future. For instance, after a task is completed, it may be found that a certain quality error makes the work useless. Unfortunately, the materials used in the faulty construction will usually be immersed and will not be able to be recovered for reconstruction. Since financial accounts are natural history, other ways of predicting or predicting the future project course are important in managing managers.

Control of projects cash flow

Project managers are also involved in assessing the overall project status, including project status, funding, payments, and receipts. These variables include project and financing. These categories include costs incurred (as described above), debts and debt receipts to owners (contractors), amounts payable to suppliers and contractors, financial cash flow system (bonds or other financial instruments), and so on.


This is a summary of costs as shown in the account of operating expenses, including expenses and estimated costs. This line provides an integrated summary of costly work information described in the previous section. This new measure will reflect actual percentages of completed work and other effects such as changes in unit price values or building materials.


This line summarizes the state of the cash flow in relation to the property owner; this line would not be included in reports to owners. The allowable payment amount is specified under the terms of the contract between the owner and the developer, builder, or builder. Note that this benefit figure does not reflect the amount of time or discount.


The payment line summarizes the amount owed by a contractor to suppliers, employees, or subcontractors. The total cost is equal to the total project cost shown in the first cost line.


This line summarizes the cash flow of receipts from the owner. Note that actual receipts from the owner may differ from prices charged due to delays in payment or retention by the holder. Net-billed is equivalent to gross billed less for the owner to keep.

Cash positions

This line summarizes the project finance area as if all project costs and receipts are combined into one account. As a result, the balance of the balance can be used in a bank account earning interest or financing shortages for other projects.

Context and Applications

This topic is important for professional exams in both undergraduate and postgraduate courses like:

  • Bachelors in Technology in Civil Engineering
  • Masters in Technology in Civil Engineering

Practice Problems

1. What is the amount required to deposit to the department as a guarantee of tender, while submitting it?

  1. Earnest money
  2. Security deposit
  3. Bank guarantee
  4. Caution money 

Answer- a

Explanation- Earnest money is the amount required to deposit to the department as a guarantee of tender while submitting a tender.

2. Which of the following is the most crucial factor in project finance?

  1. Strong sponsor
  2. Asset base
  3. Cash flow
  4. Good management

Answer- c

Explanation- Cash flow is the most crucial factor in project finance.

3. What is the main source of project funding?

  1. Sponsors
  2. Banks
  3. Government
  4. Insurance companies

Answer- b

Explanation- Banks are the main source of the project's funding.

4. What can you get by using a discounted cash flow to test a project?

  1. How much a potential project will add to managers wealth
  2. How much potential investment is important for the project
  3. Both of the above
  4. None of the above

Answer- c

Explanation- By using a discounted cash flow to test a project, we can get the worth of project's investment and what it adds to the manager's wealth.

5. What does the negative value expected mean?

  1. The project must continue
  2. The project should not continue
  3. Both of the above
  4. None of the above

Answer- b

Explanation- The project should not be continued if the value expected mean is negative.

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