The top cost drivers in the construction industry

One of the key components to meticulously factor these costs is establishing a good cost management plan and approach. However, there always needs to be room for the unknowns. Take the current global economy for example.

Fluctuating exchange rates of INR against the top global currencies effects the Import cost as well as effects the basic decision of choice of source of the procurement . To top that, there have been several disruptions in global supply chains over the last few years. This has led to a skewed demand- supply ratio, leading to a hike in prices.

The consistent fluctuation in oil prices has caused a significant impact on the cost of transportation and other construction-related activities. To add to this, rising interest rates are also increasing the cost of financing construction projects.

So how does one successfully navigate through this?

While the factors affecting construction costs in India are beyond our control, there are a few strategies that can be employed to reduce the impact. These include:

Diversifying supply chains: Supply chains can be diversified by sourcing materials and equipment from multiple suppliers in different regions. Through this, the impact of disruptions in any one region can be mitigated. This can also involve basic discussions along with the end user for basic decisions like “make or buy” in order to reduce the overhead and handling charges where possible, or on the flip side reduce the learning costs of initiating an in-house production of a certain product.

Using locally sourced materials: By using locally sourced materials, companies can reduce their dependence on importing materials. This can also reduce the impact of exchange rate fluctuations and supply chain disruptions.

Adopting sustainable construction practices: Sustainable practices, like using recycled materials and energy-efficient designs, can help reduce operational costs in the long run and minimize the impact of rising prices.

Employing efficient construction methods: Employing efficient construction methods, such as modular construction or prefabrication, can help reduce the cost of labour and materials by reducing the dependency on the same.

Optimising Specifications: A detailed understanding of the product requirement along with the end user/product owner can lead to producing the optimum specification for the product which avoids rework costs while acquiring the end user satisfaction.

Planning for contingencies: Including contingency funds in the budget can help account for unexpected cost fluctuation on a local as well as global scale. This can also cater for the unknowns that our industry is often subjected to.

Costs in construction can typically be planned for in advance. However, it also becomes imperative to plan for contingencies and have dynamic cost plan. While one cannot be absolutely prepared for everything, a lot can be seen by how you manage change. Be it global or local, when situations are tackled with insights, experience, and maturity, it portrays resilience and agility.