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Unique Project Costing Challenges for Architecture & Engineering Firms

For architecture and engineering firms, proper project costing is essential for success. Projects are the business, and without profitable projects, there is no business.

At the center of project profitability is an accurate picture of project cost. Project Costing is the practice of correctly planning and tracking the resources needed to complete a project, and their associated cost. True project cost is paramount to understanding your project financial performance and that requires maintaining laser-focused control over your projects. It is only by gaining clarity and insight into the financials of a project that teams have key information that allows them to monitor project status in real-time so that the project stays on budget.

And while it may be obvious why this is so important; project costing can be a major roadblock for AE firm success.

AE firms face unique project costing challenges.

It is well-known that many projects fail to finish within the initially set budget. Key challenges and the unfortunate repercussions specific to AE firms include:

Unplanned financial adjustments mid-project

Every project kicks off with what are believed to be reasonable expectations, but very often surprises arise. This can usually be traced back to the team not having access to necessary information mid-project, which leaves them grasping for straws and coming in late and over budget.

Resource course correction

At the start of every project, firms assign resources based on anticipated needs, but often a project gets derailed when teams realize that those allocations were off target; and if the team does not have visibility into this during the project, the project can fail.

Disorganization leading to errors

Throughout the project lifecycle, it is essential to be organized. This requires constant monitoring of financial metrics and the latest information, but in the absence of this kind of visibility, errors often occur.

Client relations

Invoicing clients at set intervals throughout the project is protocol and being accurate and timely reinforces your valued client relationships. When the project costing system is not in sync with your billing and invoicing clients receive errant invoices, placing your cash flow and client experience at risk.

Lack of visibility into the whole picture

The best way to ensure accounting best practices is with 100% visibility into every aspect of the project. However, when teams rely on archaic systems to help steer the project, they cannot see the full picture, leading to costly mistakes.

Lack of accountability

Projects keep moving when the people managing them are held accountable for their tasks, but when these people struggle to obtain real-time information, maintaining accountability becomes much harder, and the project—and the company’s financial health—can suffer.

What is project success and how does project cost management play a role?

Project costing is critical for firms needing to achieve clear objectives to meet both internal objectives and client expectations. It is paramount for project cost management to be a clear priority, as it is foundational for profitability.

For a project to be deemed successful—for both the organization and their clients—it must meet clear expectations for timing and budget, as well as be delivered with superior quality. And while all these elements are essential, project cost management is at the core.

For every project, the firm begins with determining a budget; the rest of the project, from timing, to resource allocation, to selection of materials is based on that budget. Having real-time insight into every aspect of the project every step of the way is critical.

Despite knowing how important this is, it more than often seems projects can spiral out of control. Too many moving parts and disorganized systems disrupt a clear, real-time view of progress or lack thereof. On top of that, there is no real understanding, once the project is in motion, of the possible need to change direction, re-evaluate resources or navigate potential unexpected new costs.

The good news: unique solutions for distinctive challenges

AE firms have been trying to manage project costing without the needed resources for years. The results can be devastating to the firm and its clients, and yet it has continued to be widespread practice for firms to keep using spreadsheets, along with archaic software, in hopes projects come in on budget. The problem is this simply does not work; project managers and executives keeping their fingers crossed is not the solution.

The good news is that AE firms can have project profitability at their fingertips with real-time data available in a seamless, interactive dashboard that allows everyone to access information minute-to-minute through an ERP (Enterprise Resource Planning) system. By doing so, teams:

  • Accurately and quickly measure project profitability
  • Implement project costing methodologies that really work
  • Gain flexibility, agility, and efficiency
  • Boost project profitability with powerful, accurate time and expense tracking

Through a seamless, automated, real-time ERP, teams gain control over budgeting, estimation, and resource planning, all of which are necessary for accurate project costing. An ERP helps firms address each of these areas with ease and accuracy.

Project Cost Budgeting and Control

Creating and effectively managing the budget throughout the life of a project is essential for staying on course and coming in on budget. Both are needed so firms can keep control of their margins and better plan for future projects.

Project Cost Estimation

A lot of information is required to estimate project costs, especially given the often-large number of resources required. An ERP helps serve as a guide as project managers go about the task of allocating resources, as well as determining the amount of time and the appropriate materials they will need.

Project Resource Planning

An ERP helps project teams take in needed data, easily determine requirements, review past schedules and output, and more accurately allocate resources for projects.

The reality of project costing for AE firms is that they need a trusted system to plan and complete successful projects and overcome the unique challenges of the industry. An ERP is an effective tool to help firms meet those challenges head on.

For more information on project costing, including maximizing profitability, download this free guide.

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by Lucas Hayden

Jul 09, 2021

AECProject Management