DIGITAL COST MANAGEMENT: ENHANCING COST EFFECTIVENESS AND PROJECT PERFORMANCE IN MALAYSIA CONSTRUCTION INDUSTRY
Authors: Sr Dr. Nazirul Fariq, Junaida Fatina, Ts. Sam Tan
Project cost is one of the crucial elements determining the success of a construction project. At every stage of the project lifecycle, the project cost has a significant influence on the project’s direction. Therefore, it is vital to manage the project cost carefully to avoid unwanted circumstances that can jeopardize the project’s performance and the quality of its outcomes.
Construction professionals, such as quantity surveyors (QS), play a vital role in managing the cost and contract-related matters of a construction project. With the rapid development of technology, questions still remain about how QS can leverage this technology and identify gaps in the practice of project cost management. As a leading digital solution provider, Glodon has put careful thought and consideration into how we can support the construction industry in bridging these gaps.
We have observed that construction firms, such as cost management consultants and contractors in Malaysia, are increasingly adopting digital solutions for project cost management purposes. Public and private universities have also taken initiatives to enable students’ digital journeys. Despite these advancements, there is still more work to be done to fully realise digitalisation in cost management practices and achieve cost effectiveness and enhanced performance in construction projects.
Limited capabilities in cost planning, monitoring, and control
The lack of robust systems and processes for effective project cost management, including planning, tracking, monitoring, and controlling, is often an issue for local construction firms. Factors such as inadequate cost planning, a lack of understanding of the project requirements, and failure to consider market conditions can contribute to inaccurate cost estimates. This can also lead to difficulties in identifying cost
variations, delays in capturing cost data, and inadequate cost control measures.
Construction firms in Malaysia often struggle with accurate project cost estimation. This can result in cost overruns and financial challenges, which can affect various stakeholders that have a direct impact on the project. There is a significant risk that construction firms will face when making informed decisions and taking corrective actions to prevent commercial issues such as project cost overruns. Even worse, when the project is not performing well due to an outdated approach to information tracking and poor cost management. It could lead to more serious issues that expose them to legal and contractual risks or even bankruptcy.
Another issue to highlight is the lack of use of historical data within the firm for cost prediction. Data wastage often occurs within various construction firms, resulting in a loss of resources and potential value. Cost data originating from every stage in the project lifecycle is not being gathered, systematically managed, and analysed for its validity. This leads to a situation where valuable cost data is continuously expended,
but the large volumes of data may never be effectively utilised in practice.
Minimum utilisation of technology
Some construction firms in Malaysia may be slow to adopt advanced cost management technology and tools. This can limit their ability to efficiently plan, monitor, and control the cost of projects. They also face difficulties in analysing the project cost data, which prolongs the generation of cost reports.
While there are various technologies in the construction industry, including those used by architects and engineers, QS is considered a late adopter of digitalisation. Recent studies by the Royal Institution of Chartered Surveyors (RICS) (2022) found that construction firms are not consistent in their processes and practices in digitalisation for project cost estimation, prediction, planning, and control.
Inefficient procurement practice
Inefficient procurement practices can impact cost management in construction projects. Construction firms, such as contractors, may lack streamlined processes for sourcing and procuring materials, equipment, and services at competitive rates. This can result in higher project costs, delays in procurement, and potential quality issues.
Additionally, proper inventory tracking and warning systems are essential to preventing delays in project delivery. Situations like Coronavirus disease (COVID-19) have taught us that supply chain issues can heavily disrupt construction progress and negatively impact project delivery processes.
Inadequate risk management practice
Risk management plays a crucial role in project cost management. Several case studies have found that projects experiencing cost overruns did not implement any risk management practices. According to Andric et al. (2019), almost 57 percent of construction projects in Asia experienced a cost overrun of 26 percent due to risks. However, systematic risk management is still not being implemented in most construction firms in Malaysia.
Failure to identify and mitigate potential risks, such as changes in material prices, labour shortages, or regulatory changes, can lead to significant cost overruns and financial setbacks for the project. Various studies have highlighted the necessity of risk management in construction projects in Malaysia, given their uniqueness and complexity.
Inadequate cost optimisation strategies
Construction firms, such as cost consultants or contractors, often focus more on cost control than exploring cost optimisation strategies. While cost control involves managing costs within predefined budgets, it may not necessarily lead to the most efficient allocation of resources or the best value for money. Construction firms in Malaysia should adopt a more proactive approach to identify opportunities for efficiency improvements, value engineering, and alternative procurement methods to optimise project costs.
For example, when considering the performance of a particular system over time, a better cost prediction can be made to estimate how much the owner would need to pay. If the numbers do not align with expectations, alternative systems, designs, or equipment can be considered as part of the cost optimisation. Otherwise, the value of assets may deteriorate over time.
Lack of transparency and accountability
The lack of transparency and accountability in cost management practices can create issues among project members, such as within the contractor-client relationship. Project owners often face difficulties in obtaining clear and detailed information on project costs.
Consequently, assessing financial progress and project performance becomes challenging. Contractors may also struggle to demonstrate accountability for cost overruns, variances, or discrepancies, which can potentially erode trust in the relationship.
VALUES IN DIGITALISING COST MANAGEMENT
Increase in productivity
Over 10 years ago, before the measurement process began, QS were required to prepare various report templates, print out the drawings, and only then start measuring.
With the technology available today, all quantities can be measured automatically and generated into quantity reports before the cost estimation process begins.
Tasks that require a high level of detailed attention can be done using technology that enables high-speed item identification from the drawings. In our recent case studies, construction firms using digital cost tools have managed to complete time-consuming tasks such as measurement 50 to 70 percent faster than the manual method. To provide another perspective, Table 1 offers a comparison of the measurement process before and after the adoption of the digital tools.
Meanwhile, with a sophisticated cost platform, QS no longer needs to set up spreadsheet formulas, hire external parties for data analysis, struggle with collaboration, have limited cost analysis capabilities and scalability, or deal with errors.
These are tasks that can be avoided with the use of a digital cost platform that includes integrated formulas, analytical functions, a standardised data structure, and many more. The turnaround time for adopting a digital approach to project cost management is impeccable and deserves careful consideration by local industry professionals. Therefore, more effort can be dedicated to high-value tasks such as modelling cost
strategy, asset sustainability, risk management, and value engineering.
Speed up the cost management process
Changes in construction projects are inevitable, with numerous issues arising from design-related matters regulatory requirements, site conditions, and others.
QS needs to be flexible, especially when providing cost advice for alternatives. It is crucial for project owners to have insights into project cost matters.
A digital cost platform enables QS to manage changes or variations in the cost management process with quick cost estimates. It provides multidimensional cost management combined with intelligent features to help QS work faster and more efficiently.
Additionally, the project owner can gain a better understanding of the various factors on the construction site that affect the project’s finances. The management of project cost data, including data collection, analysis, and visualisation, can be made more transparent to the relevant stakeholders.
Increase opportunities for participation
Work that typically takes weeks for QS to complete can now be done in a matter of hours. The higher the participation in tenders, the higher the success rate.
Factors influence construction firms’ decisions to participate in a tender such as;
• project size
• overhead costs
• and technical capabilities.
Participating in tenders with a digital approach has proven to increase opportunities for construction firms and make them more competitive.
Data-driven decision-making processes
Without data analysis and contextualisation, data hold little value for construction firms. Prioritising and interpreting data can help determine the aspects of a problem or situation that are considered important and should be measured. From a project cost management perspective, project leaders must make critical decisions in various situations, ranging from financial and revenue aspects to supply chain issues.
For example, cost benchmarking in a project contributes to more accurate cost estimation by providing a reference point.
Detailed information about a project helps identify cost drivers, make reasonable allowances, set realistic budgets, and mitigate cost risks. A digital cost platform can process large volumes of data and provide meaningful insights for the project. By leveraging the insights gained from cost benchmarking, whether internally or externally developed, construction firms can make better cost predictions and improve overall
project cost management. Therefore, it is important to process and reuse the accumulated data for the project’s benefit.
Client confidence in digital adoption
Project owners are increasingly inclined to enable their projects delivery through digital implementation. With the systematic and objective-driven approach of Building Information Modelling (BIM), project owners understand that the benefits of digitalisation extend beyond project handover.
Not only can the quality of the asset and project delivery time be controlled, but even short-term and long-term financial commitments can be outlined as early as the design stage. As a result, we have observed an increase in project owners’ preferences for project teams that can leverage advanced technology in their project delivery.
The idea behind BIM is also to empower the key stakeholders, including the project owner, to make information-driven decisions that help them derive more value from the asset. When data and information are easily accessible and visualised, it increases their confidence in the project team
FOUR FOCUSED AREAS IN TRANSFORMING COST MANAGEMENT PRACTICE IN THE CONSTRUCTION INDUSTRY
There are four key areas on which the local construction industry can focus to raise the standard of cost management practices in Malaysia: standards development, human development, infrastructure, and relevant technology.
Firstly, the industry must create standards and universal references at all levels to promote collaboration and transformation processes. This requires a collective effort from the leadership to the operational level of firms in establishing standards that align with practices in different disciplines or even with stakeholders in different countries.
For example, the International Cost Management Standard (ICMS) Coalition has developed ICMS 3, a global standard for cost and carbon management in the construction industry. Malaysia must find a way to promote and adopt this standard. Standardisation demonstrates a commitment to service and product quality to stakeholders and customers.
Secondly, industry professionals, particularly QS, must continuously acquire relevant knowledge and adopt new practices to stay relevant in the new digital environment.
Construction firms should also promote a digital culture among their employees and attract new talent with a digital mindset. Employers must assess and identify individuals to be involved in specific technologies, provide relevant training, and prepare them for business and industry needs.
Thirdly, the infrastructure of the construction firms, including hardware and connectivity networks, plays a crucial role. A robust and reliable digital infrastructure is essential for digitalisation process. High-speed internet access and stable connectivity enable seamless data transfer, which is increasingly important with the rise of cloud computing.
Additionally, infrastructure supports project communication and collaboration among digital systems, devices, and stakeholders. A good infrastructure can also handle large volumes of data and support various digitalization initiatives.
Finally, relevant technology, such as a digital cost platform for QS, can significantly accelerate digitalisation efforts, improve operational efficiency, and enhance the competitiveness of construction firms. Adopting relevant technology can improve project cost management processes and practices in areas such as data management, analytics, stakeholder management, project collaboration and integration, and customer experience. As a digital solution provider, we understand the importance of relevant technology in driving digitalisation in the industry.
Given the rapid advancements in technology, the construction industry, especially the cost management practice in construction projects, needs to continuously evolve to unlock more values and maximise potential benefits.
Industry professionals, including academic institutions and the government, have a vital role in establishing high standards through digitalisation and technology, in line with the objectives of the National Construction Policy (NCP) 2030. With over 20 years of experience and a strong track record of success, Glodon is a leading expert in digital building solutions. With millions of users and completed projects globally, Glodon offers comprehensive and advanced digital platforms tailored for the construction industry.
Glodon drives the digital transformation of the construction sector by leveraging technologies such as
• cloud computing
• big data
• the Internet of Things (IoT)
• and artificial intelligence (AI)
Through the integration of these technologies into the digital building platform, Glodon facilitates seamless collaboration among all project stakeholders and streamlines processes, data, and business systems.
This integrated approach forms an ecosystem that fosters industrial upgrades in areas like digital design, digital construction, as well as digital operation and maintenance.
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