Importance of Cost Control System in Construction Industry

Before this economic meltdown, construction business was well known for highest profit margin. This was more true in case of realty construction segment. For last 6-7 years (obviously before June 2008) a multiple appreciation was seen as this sector was croweded by a large no. of Investors, mostly short term investors. This realty bubble was well pumped by Bankers at every part of the globe by making terms and conditions of property loans much easier, and the worst part of this story was recognizing this sector as a means of making quick profit.Leaving this sector almost free was another blunder from Govt. side. In spite of the huge speculation in this sector, Govt. didn't put effective regulation mechanism through proper Regulatory Authority/Regulator.

The another major reason of this crisis (specially in real estate sector) was that - we broke the basic theory of economics-- "Demand & Supply Rule". There was no proper and unbiased survey/analysis of real demand i.e. potential end users made by concerned parties- Developers, Bankers, Governments, etc.

Due to several reasons including above, this bubble has now punctured. And perhaps market is getting downward correction.

Now in this scenario, developers can't expect huge margin, as most of the invertors will either leave this market or at least they will limit themselves. As a consequence, contractors also should not expect big margin. They have to manage with small margin of profit (may be within 10 %). Therefore, now proper cost control is very much required in construction companies. Specially if contract is lump sum, a small mismanagement may eat this margin in one short. A professional and dedicated cost control team is required to monitor every cost centers and every item with the particular cost centre. However, all cost items are important, but few items need to be monitored closely on regular basis; like- Productivity (of Direct Labourers), Indirect Labours, Overhead Expenses, Prelims, Inventory, Plant & Machinery Utilization, etc.