The Benefits of Real-Time Cost Monitoring

Recently, one of our prominent co-op clients embarked on a massive 5-year capital-improvement project with a projected outlay of about $40 million. To get on with the project, which essentially involves rebuilding the facades, windows and doors, they had to refinance their mortgage and take out more funds. Of course, they involved an architect and an engineer throughout the planning stage.

And being their accountant, we were worried about the project’s cost surpassing the budget over the course of its 5-year life. With such large projects, cost overruns are always around the corner. And as it were, our client wasn’t big enough, and didn’t have enough funds to mitigate any cost overruns.

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As a result, we decided to conduct a real-time cost monitoring process, which included tracking the project cost, both in total costs, and cost per vendor or item. It didn’t stop there – we would keep an eye on the architect’s contracts, monitor payment requests, and most importantly, do weekly analysis on change orders. Moreover, our charges would be per hour of work, instead of a slide scale or a fixed percentage, as an owner’s rep would charge.

As an accounting firm, we have little idea about construction projects, but we knew the base costs of projects just from looking at our client’s financials. We also knew to add to the total cost whenever we received a new change order. We kept track of the payments made so we could tell the payments due. Further, by keeping tabs on the cash account, we knew when we were about to have cash flow problems. In such cases, we compiled all the invoices from each vendor, and all their changing orders, being sure to include all the dates and amounts, then presented the information to the board in real-time. As a result, they were in a better position to make decisions in a timely manner based on facts, which means the project never ran out of cash.

In the course of our extensive real-time cost monitoring endeavor, we spotted lots of potentially costly “errors”, including mis-billings, double billings, and mis-postings. Of course, not all of them were done intentionally, as we know very well that oversights and errors occur a lot in such big projects. Our point is, while similar projects often have cost overruns of at least 10 percent over the base cost, we managed to reduce the overruns for this project to about 6 percent. For a project costing tens of millions of dollars, that’s a considerable amount of savings. Through our real-time monitoring services that provided them with accurate, real-time data on the project, our client was able to make prudent decisions and correct any arising errors way before they become costly.