Project cost optimization

In today's dynamic commercial real estate market, cost optimization is a determining factor when it comes to project success.

There are many approaches in investment and construction such as value management, cost reduction and value engineering, which have different meanings, but that all together involve cost optimization.

Several challenges may arise in achieving cost optimization. For instance, the construction industry could be dealing with concerns like increasing material and labor costs, stringent regulations, market uncertainty, inflation, to name a few. Pro-active cost optimization strategies are the most effective way to combat these challenging conditions that the construction industry face on a day-to-day basis.

Why is cost optimization required? 

With economic uncertainty, increasing competition and the quest for innovation, cost management needs to be looked at differently. Instead of short-term goals, it is essential to factor in a long-term vision to ensure innovation, profitability and quality remain consistent.

Here are a few key reasons to implement cost optimization: 

1. Mitigating economic uncertainty

Market downturns are inevitable, which is why cost optimization in construction projects is a critical tool to assist businesses and projects to mitigate these economical risks. By cutting down on unnecessary spending, the economic downturns can be managed better. This will also assist businesses to become more stable and sustainable in the long run. 

2. Competitive advantage

It is not just about surviving but also thriving in the competitive business world. This means that staying ahead of the curve is a necessity, which can be done through cost optimization. It is not about reducing expenses across the board, but rather on non-essential items that will not fundamentally impact the operation of the business. Through cost optimization, these funds can be diverted toward the adoption of better technological tools or innovative solutions to grow in the long run. 

3. Improved allocation of resources

While evaluating the reasons for cost optimization, one of the most neglected aspects is how resources can be optimized. The end goal is high profitability without compromising on efficiency. It involves planning, forecasting, allocating, scheduling resources, and using them effectively to meet the business objectives. 

How optimization can be done

Here is a multi-pronged approach to assist businesses to effectively minimize costs and ensure efficiency to achieve their desired outcomes.

Value management is the first step to ensure cost optimization. It is a proactive process aimed at achieving the best possible value for money throughout the entire project lifecycle. It is not simply about cost reduction but rather about optimizing value by considering functionality, performance, and quality alongside cost. In a nutshell, it brings together innovative thinking with practical solutions.

Value Management implementation consists of the following key steps:

1. Identifying areas with high costs - This involves analyzing the cost breakdown structure and identifying potential areas for optimization.
2. Value engineering - This includes a comprehensive evaluation of their function, cost, and worth, exploring alternatives, and seeking different materials or methods but still achieve overall project objectives.
3. Internal contributory process—This consists of a collaborative approach by the multidisciplinary project team to achieve the objectives.

Cost reduction is the second step which can be achieved by taking the following actions:

1. The first is the initiation stage. Here, setting realistic objectives with the project owner and the stakeholders is the foundation.
2. Next is the project design and development stage where reviewing design drawings and addressing cost drivers happens at an early stage in the project.
3. Finally, the procurement stage is where controlling dry costs and changing mindset is essential. Some clients always turn to partners in their database to save time and avoid conflicts. But it is equally important to continuously conduct market reviews and source various suppliers who are committed yet flexible and want to support the buyers. 

Conclusion

Value management programs followed by cost reduction workshops are the pillars of a successful project cost delivery. It is important to understand that it is not just cost cutting today but cost optimization or management. By reframing this approach, it is possible to free up ineffective resources. Efficiency is the long-term vision, so ensuring it is achieved right from start to finish is the way to go. It not only helps with improved financial outcomes but also contributes to long-term success.