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Viewpoint - Time to get real about costing jobs

Companies must learn to understand project costs, writes Daniel Logiudice

THE NUMBER of companies still calculating project fees using a fingers-in-the-air approach is worrying.

Perhaps they believe that this is acceptable because it is the way it has always been done, or that they are costing it properly despite the fact there is no process involved, or that their competitors do the same.

Worse still, too many companies are more concerned about chasing turnover in order to climb the league tables than they are about profit margins.

How many times have companies priced a job too low and then been unable to deliver it due to lack of resources or going out of business?

This trend is in decline and, as more companies are refusing to lose money on jobs, clients are becoming more sensitive to value as well as cost.

If projects are to be costed properly, it is crucial to know the resources needed to fulfil them. This brings a new problem.

There are hundreds of systems that promise to predict project costs accurately but many are generic and modelled on a consumer business, which is productled rather than service-led.

But project-centric systems exist. It is frightening how many companies do not know a project's cost because they do not complete time sheets regularly, do not have a single database of salaries and do not collate the information in an ordered way.

Perhaps this stems from a fear of complex systems or over-reliance on a single system ? not to mention the up-front investment required to install a system and train staff to use it.

But tracking and prediction does not have to be complicated and an investment can be paid back many times over.

If a system is used that has the capacity to manage data and information and is instrumental in day-today business activities, then it can improve efficiency and the operational and financial success of a firm.

It can enable companies to calculate project costs accurately, set a realistic price and determine the scope for negotiation in order to secure a worthwhile profit.

It can also, because it provides a single point of information, remove the need for a team that is solely responsible for this function.

In order to stay ahead industry must become more responsible, embrace new technologies to predict cost, timeframe and overheads, and manage profitability wisely ? per project and across a firm and on current and predicted income.

Industry reform body Constructing Excellence makes the case for more up-front investment in consultants by clients to deliver reductions over the life cycle of a building.

This could provide the industry with an opportunity to create a benchmark of the lowest fee levels that are acceptable.

If everyone in the construction industry adhered to this, clients would be powerless to chip away at budgets to the point where the project is bound to fail due to lack of resources.

It is time to move away from boom-or-bust business and establish intelligent project costing based on informed decisions.