Finances on capital and construction projects are typically pretty complicated. It can takes weeks or even months from when project managers know a cost will be incurred to the time when the accounting team cuts the check. So, it’s critical that a real estate owner’s cost tracking process can track a variety of costs and that it’s diligently maintained.
There are several cost tracking best practices that you can implement to make your process more robust and resilient on the whole. But when you’re in the thick of a new project, you just need to feel confident that the right elements are in place to mitigate risk and optimize efficiency.
Here’s a handy checklist to make sure your cost tracking process is positioned to set your real estate project up for success.
Pick a format for your cost tracker. Be clear about whether you’re going to use a basic format that records lump sums or if you’re going to use a more advanced version that allows you to break line items into sub-categories more detail.
Make sure your cost tracking template includes:
• Committed costs. These costs are expected, even if the delivery has not yet happened. The invoices may not have been paid, but they are already a definite part of the project.
• Anticipated costs. These are the additional numbers you’ve considered in your projected budget, creating comfortable room for any upcoming change orders and work that hasn’t been awarded.
• Pending costs. These costs have been submitted for review, but haven’t been officially approved.
• Change orders. At minimum, you need to record the total amount of change orders submitted. But, it’s even better to track each CO individually so you can easily reference them later if questions arise.
Prioritize your risks. List them from highest to lowest, and determine which costs should be added as potential or “per approval.” Remember that lower-priority risks can become higher priority if they’re not addressed or dealt with. Any priority -- low or high -- can potentially cause trouble during the course of the job, so even if you prioritize them, you still must give them all equal attention and concern.
Pull out historical data from comparable projects. Consider any similar jobs and the mistakes that may have come with them. Ask yourself: what went wrong? How did we make it right? Can it happen again? Keep cost trackers from those jobs handy for impromptu price comparisons throughout the current project.
Consider scope, time and money. During the course of the job, it’s natural to find yourself getting caught up in minute details and the immediate tasks at hand. However, it’s also vital to regularly step back and look at the big picture, continually understanding how the each step of the process contributes to a comprehensive whole. As you look at your project with a bird’s eye view, ask yourself these questions: what factors may change your budget? How does the budget change if you don’t meet your deadline? Name the important milestones that will happen during the project, and what it will cost to get there on time.
Get everyone working from the same cost tracking system. Make sure that the entire team is working from one shared document. A reliable construction software platform can keep everybody on the same page, and inform the team of changes in schedules and costs in real time. It can also help avoid delays, quicken invoice approvals, and improve the accuracy of details. Shared software can let every team member track deliverables and materials, and note when payments are due and paid.
Sync a budget and a timeline. Make sure you and your team understand all the goals, both large and small, associated with the project. Start with generalities and work down to all the granular details (and the costs associated with them).
Prepare for fluctuating prices. There are many factors that can influence a rising price: time of the year, the nearness of the delivery date, high demand, or customized materials, among others.
Involve the entire team. Given the cross-section of team members who may be involved with tracking costs—project managers, asset managers, property managers and accountants—make sure everyone understands how cost trackers should be organized and maintained.
The task of tracking costs seems intimidating—probably because it’s critically important and often hard to keep up with. (No pressure or anything.) But, if you’re organized and on top of what’s next, the project will go through its cycle without a hitch. And even if there is a hitch, you’ll be able to get a handle on it.