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Risk Mitigation

5 Problems Good Cost Tracking Can Uncover in Your CRE Projects

Capital, construction and tenant improvement projects involve numerous evolving and shifting factors, making good cost tracking practices essential to accurately monitor project spend against the budget. But smart property owners and managers know that job financials can also be one of the best places to uncover early warning signs that a CRE project might be in jeopardy.

Here are five problems that your cost tracking report can expose, if it is thorough and kept current.

1. Your project is late getting started

Comparing the amount of funds that you have contractually committed to your vendors against your forecast amount will show if real progress is underway—or if it isn’t. For example, if your job was scheduled to start construction last month, but only 15% of the budget has been committed, there’s a good chance that the vendor selection process took longer than expected and project kickoff was delayed.

2. Your project is running behind schedule

Similarly, comparing the amounts that your vendors have invoiced to the amounts that you have committed will indicate how much work is yet to be done. If the invoiced amount on your project is well below the committed amount, then much of the work probably hasn’t been performed and your project might be lagging.

3. Relying solely on budget vs actuals may be exposing you to risk

At the completion of a job, your budget in comparison to your actual spend is the ultimate arbiter of whether the project was financially successful or not. However, during the job, relying solely on your ‘budget versus actuals’ number will give a picture that is woefully incomplete.

Because payments can take so long to process, your actuals can appear to be way below your budget for the vast majority of the project, but you can still end up going way over budget as future invoices trickle in. In order to accurately assess risk, you need to use more advanced cost tracking methods with early warnings signs built in.

4. There is an error in the pricing of one of your line items

By using a standardized cost tracking format and consistent cost categories across projects, your team can create a reliable pricing index. By tracking individual line items in real-time and comparing them to historical pricing data, you can catch anomalies or mistakes early in the project.

5. Bottlenecks in your company are harming your projects

Internal processes might be slowing your projects down. Are vendors holding off work because it takes too long to get invoices paid? Are design changes common on your company’s projects? A good cost tracker process can help uncover systemic roadblocks that need to be addressed.

In order to accurately assess risk and leverage your cost tracking data as an early warning system, you need to use more advanced cost tracking methods. Download our guide to The Fundamentals of Project Cost Tracking to get industry best practices, recommendations and examples.

Download The Fundamentals of Cost Tracking [GUIDE]

Pauline Nee

Written by Pauline Nee

Pauline heads up content marketing for Honest Buildings. During her ten years in commercial real estate, she's worked in a variety of roles including art consulting, web design, product development, and digital marketing.