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Cost Tracking

Structuring an Effective Commercial Real Estate Cost Tracker

Capital, construction and tenant improvement projects are made up of numerous evolving factors, making it difficult to monitor where costs stand in relation to budget—but no less important. One of the best ways to empower your real estate team to diligently audit and control costs despite shifting conditions is to start with a well-structured tracker.

The building blocks of any tracker are the line items. Picking the right format and the right level of detail for your line items will help you find the right balance between getting deep analysis and being able to keep the tracker up-to-date.

ORGANIZING YOUR COST TRACKER

There are two common ways to organize your tracker: by type of cost or by vendor. They are both effective, depending on the needs of your project.

Here’s a basic side-by-side comparison:

Organized by:

Type of cost

Vendor

Use this format when:

Vendors haven’t been selected or when some vendors are performing multiple jobs.

Each line item is being performed by a different vendor.

Example line item:

  • General Contractor
  • Permits
  • ABC Construction
  • Department of Buildings

Regardless of which format you select, you may want to group related costs into categories, like hard costs and soft costs, or reimbursables, to give you a general summary of how a group of line items are performing. For each line item, you’ll also want to include the following: budget, committed and anticipated costs, and payments, which we will define shortly.

DECIDING HOW MUCH DETAIL TO INCLUDE

Once you select the right format for your real estate project, you need to decide how granular the line items should be. While you don’t want to waste time keeping track of details that won’t add meaningful insights to ongoing or future analysis, there is value to reporting on selected contracts at a more detailed level.

Case in point, by including all of the line items from a given vendor’s proposal—and monitoring progress on them throughout the course of the project—you can potentially improve your understanding of exactly where you stand in the job at any time. For example, instead of just tracking General Contractor, some Project Managers prefer to see all of the subcategories that make up a contract, like demolition, millwork, HVAC, etc.

Let’s take a look at an example of the same project using basic and advanced cost tracking templates.

Example of a basic cost tracker

Basic cost tracker.png

Example of an advanced cost tracker

Advanced cost tracker.png

You can see that both versions track committed, invoiced and remaining amounts, but the advanced version also tracks the pending costs and holds.

•  Pending costs are costs that haven’t been officially approved yet but you expect will be, like a change order that you just received. 

• Holds are costs that are not yet committed or pending, but they’re still likely to be incurred.

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 go over budget as future invoices trickle in. By tracking these additional items, you can more accurately monitor the financial status of the project.

However, setting up your cost tracker in this manner will also require the project manager to track this level of detail on an ongoing basis. For this reason, we tend to see this level of detail used for larger projects, like development jobs, and used less often for smaller projects like TI or smaller capital projects.

Only you can decide which structure and level of detail will work best for the project at hand. Both versions have their benefits and their drawbacks. Just make sure you define which direction you’re going in at the start of the project—being consistent over the course of the project will help you maximize any advantages.

Download The Fundamentals of Cost Tracking [GUIDE]
Pauline Nee

Written by Pauline Nee

Pauline is the head of content for Honest Buildings. For over twelve years in the commercial real estate industry, she has held diverse roles focused on product development, digital marketing, user research, web design and arts programming.