Cost engineering teaches us that profitable projects are not a fluke - they are carefully monitored, managed, optimized. Learn all about the art of cost engineering for project management in our guide.
With so many factors impacting project profitability, the pressure can feel overwhelming.
Balancing direct and indirect costs - including procurement and labor costs - is no easy feat. There are lots of huge numbers to churn, large-scale timelines to plan, and resources to allot correctly to prevent project delays.
Thankfully, though, this is where cost engineering comes into the picture — taking on cost forecasting and management throughout a project’s lifecycle. This cost management science can help you take a systematic approach to balancing all the elements that stack up and contribute to your project's financial health.
So, what is cost engineering, and how does it contribute to project management? This guide answers it all for you as we dive into:
Cost engineering refers to the process of estimating, managing, and optimizing project costs.
A cost engineer has a handful of responsibilities as they:
Note that cost engineering isn’t limited to foreseeing resource deviations. Instead, it involves estimating the impact of those deviations on different project aspects and its overall progress.
Say the working labor goes on a strike. In that case, it’s the cost engineer’s job to estimate the impact of the deviation on the project’s progress as well as recalculate the timeline and cost changes.
The word ‘cost’ here denotes all the costs involved throughout the project’s lifecycle, such as the cost of resources (including labor costs), time, and project expenses.
And the word, ‘engineering’ means skillfully managing project costs, timeline, and resource allocation.
Put this way, you’ll see that a lot falls under a cost engineer including identifying potential risks, keeping project scope and, subsequently, the costs in check, and helping the project manager make informed decisions.
Cost engineering is critical for timely project delivery — within the agreed scope and budget.
In addition to managing project costs, resource engineering helps with cost control and risk assessment, which are essential for effective project financial management.
In short, strategic cost engineering is the backbone of efficient program and project management. And it plays this fundamental role in all the project stages, from project planning to completion.
Let’s break down its significance in detail below:
Cost engineers forecast delays and obstacles in a project’s route. They estimate project timelines that factor in the buffer time to deal with these variables.
This makes cost engineering crucial for not only handling risks but also timely project deliveries.
Cost engineering allocates appropriate resources to the project at hand. This involves choosing the right project team, preventing resource clashes, and ensuring the selected resources fall within the budget.
This responsibility of putting together a team based on their expertise and availability is key to ensuring project success and improving the deliverables’ quality. At the same time, correctly allocating resources while making sure they aren’t double-booked for work boosts team satisfaction.
Meaning: cost engineering contributes significantly to internal team wellness and client satisfaction — all through accurate resource management.
As mentioned above, cost engineers forecast risks and indirect costs throughout the project timeline.
In doing so, they take a proactive approach in preparing the project team to deal with the variables while keeping project progress on track.
Cost engineers work closely with project managers, providing them valuable insights into project costs, resource availability and allocation, and time estimates.
Since the engineering practice also involves anticipating changes and calculating the impact of variables on the project, cost engineers provide project managers with the necessary data to identify the right solution.
This makes cost engineering pivotal to quick and practical decision-making. In turn, of course, all this assists in overall project success.
Cost engineering helps with transparent, data-backed communication with stakeholders, uncompromised output quality within the agreed upon project scope and budget, and timely delivery.
All these factors, in turn, breed satisfied clients for your business. In fact, in the long haul, satisfied clients contribute to growing word of mouth and referrals — meaning more business down the line.
With it being settled what cost engineering is and its importance, let’s look at the exact role that cost engineering plays. The work is mainly divided into the following pillars:
Cost engineers apply their skills and knowledge from past projects to make cost estimates. They factor in the cost of supplies, labor, and the time it’d take to reach different project milestones.
By putting together all these estimates, they also provide:
Remember: these cost estimates depend on several factors including client requirements and the type of project and the work that goes into it.
For example, the cost of renovations varies for construction projects that start from scratch. Similarly, constructing a commercial or residential building or house adds another layer of variation.
Now factor in the cost and time that goes into overcoming construction challenges and other variables such as expected weather, and political and economic stability, and you’ll see exactly how deeply cost estimating contributes to project management.
Dig deeper: All about project-based accounting.
Post the initial project cost estimates stage, cost engineering takes on cost management. That is: cost engineers are responsible for managing cash flow based on the estimates they create.
For instance, they ensure the cost of supplies doesn’t go over the budget. And if there’s an unexpected scope change, they coordinate with the project manager to find and analyze possible solutions and make necessary cost adjustments.
By managing project costs, cost engineers contribute to making sure the project turns in the estimated profits.
At the same time, cost engineers take preventive measures to save the project from anticipated variables.
To this end, they track project KPIs to identify risks before they grow. Should a bump hit the project route, they provide project managers with the data they need to make the right decisions to keep the project on track.
Another way that cost engineering adds to efficient project management is by forecasting outcomes.
Cost engineers make informed guesses about the future of ongoing projects. This helps the project management team, and subsequently, the stakeholders set realistic expectations regarding the completed product, project timeline, and costs.
These forecasts aren’t just made during business and program planning but throughout the entirety of the project. The aim here? To identify scope changes before its too late and communicate them with the project team.
A major chunk of cost engineering focuses on making accurate resource allocations to ensure the success of estimated project costs and timelines.
For instance, if cost engineers allocate busy resources to an upcoming project, the project ends up with a getting-started delay as the team works to find alternate resources to jumpstart the work.
And while this is a small example that may or may not have a significant impact on the project cost and timeline, resource-related mistakes like these can quickly add up to leave a substantial impact on the project’s progress.
At the same time, estimating project costs is incomplete without reviewing resources’ cost per hour. Again, there’s no scope for making errors or using assumptions to calculate resource costs as they contribute heavily to the overall project cost.
The solution? Using a resource management software that manages all resource data including their cost and availability, in one place.
Runn is one example of a resource management software that simplifies and speeds up resource allocation for cost engineers. It gives you a heat map of everyone’s availability and utilization, which:
Runn also gives you a resource inventory that features all the essential data you need to make resource-related decisions and estimates. This includes information on each resource’s skill, availability, and utilization. This way, you can allot the most skilled resources that meet a project’s requirements.
Successful cost engineering depends on the cost engineers’ skill and knowledge, the resource management tool you use, and how smooth your cross-team collaboration is.
Remember: cost engineering cannot succeed in a silo.
It’s a function that relies heavily on educated and data-backed guesswork, which is impossible without speaking to resources and working with the project management team.
So here’s what is foundational to the success of cost engineering:
Since cost engineering involves extensive data study and coordination with internal teams, the following skills are essential to cost engineering:
Not only do cost engineers need to build their relationships with project managers, but also with the resources involved in the project.
This is critical to:
The last point even requires certain cost engineers to be on the ground to observe and learn the time it takes to complete project work. In turn, this helps them make accurate project timeline estimates.
One of the best ways to improve cost estimates and management for cost engineers and the wider project team is to regularly review project performance after its completion.
This is essential for getting better at understanding how the estimates translate in real-time, how accurate they were, and what expected and unexpected variables came up.
A thorough post-project performance analysis alongside profitability analysis assists cost engineers in improving the accuracy of their:
Over time, it also improves cost management.
Focusing too much on direct material costs can lead to cost engineers losing track of other indirect and important costs.
At the same time, opting for cheaper input such as tooling and supplies can increase after-sale costs, which can easily eat into the hoped-for savings.
Therefore, taking a total cost management overview is an essential prerequisite for successful cost engineering. It involves looking at the big picture alongside reviewing and estimating the cost of the little details, but never getting deeply caught up in either of the two too deeply.
Lastly, it’s important cost engineers use the right software to gather, organize, and review all the resource data they need for cost estimating, forecasting, controlling, and managing.
Having all the data in one place improves the speed at which they make accurate resource estimates while reducing the odds of error.
It also makes it easy for them to forecast and make estimate reports to share with the management team.
Successful cost engineering guarantees project success and profitability.
But this isn’t a skill-dependent field alone. Instead, you need to also make sure you’re using the right tools to manage project data including resources.
Curious to see if Runn is the right tool for managing costs by assisting in better resource allocation and utilization? Book a free demo today and we’ll show you exactly how Runn can help you grow.
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