Why Use Construction Cost Codes?
The market for commercial construction in the United States is a little more than $230 billion in 2022, according to research firm IBISWorld. Given the high monetary stakes and the complexities at various stages of the project, construction companies need to rely on standardized processes to keep an eye on costs.
Anyone in the industry can attest that budget and construction cost management codes are the way to go. They enable firms to categorize costs, identify spending patterns and easily provide the documentation necessary for reporting and oversight.
Construction Cost Codes in WBS and Flat Organizational Structure
Keeping this method of classifying projects as context, construction firms use techniques that broadly shake out into two categories:
- Work breakdown structure (WBS) - WBS is a project management system that breaks down categories into detailed hierarchies. Such a level of detail allows managers to pinpoint, to exacting detail, where the money is being budgeted and spent–and when.
- Open or flat structure - The open structure allows more flexibility if managers are unsure of hierarchies and want to build the code without being tied to a fixed set of parameters. You can elect to utilize the same breakdown as a WBS structure, simplify your options, or do a combination of the two.
Additionally, industry professionals can break down projects into even more detail using “segments” as needed. So a complete code would look like:
- Project phase–Construction Code–Construction Type–Segment
Looking beyond cost codes in construction management software
So why am I delving into a system that you're likely already familiar with?
I recently ran across several prospective customers sharing stories of cost code misuse and errors that ended up costing them.
Essentially what all their stories had in common is that construction management software companies sometimes brag about the levels of cost codes and segments their programs are capable of accommodating—but it helps to remember that such complexity can be overkill and unnecessarily overwhelming for documentation purposes.
I am compelled to share a few tips when evaluating financial-related capabilities for a construction management system:
End users and end use cases
If one subcontractor is assigned all the work, it might be easier to break down the project by subcontractors rather than drilling down to windows and labor and more. Determine the level of granularity by figuring out the amount of tracking you need done and, equally important, who needs to work with the documents.
While it might be tempting to set-up 10 or more levels of custom segments, such detail can easily become overwhelming and unwieldy to document consistently. Such constraints might lead to workers skipping documentation altogether or an increase in errors.
Always pick a solution that delivers flexibility in its budget code structure so you can make your reporting work for your business. Groups that are not dependent on each other give additional flexibility when it comes to higher-level tracking.
Some software packages might promise lots of granularity but insist you arrange components in very specific ways. But be wary of systems that insist on a set protocol—you do not know what technologies are coming down the road and how your tech stack will need to talk to various components in the future.
Ease of integration
The ideal project management software will integrate easily with the ERP system of your choice so you save time and effort and improve accuracy, instead of having to key in data into two separate systems.
Success in construction
A successful construction project depends on visibility–into your financials, design and drawings, documentation, change orders. You cannot make room for something you can’t see.
The construction project management software needs to accommodate the way you work right down to the construction codes you need to incorporate. It cannot afford to lose sight of the larger picture though. Flexibility and the ability to work well within your integration ecosystem have been–and always will be–the biggest plus points in a construction management software system.
Consider Trimble ProjectSight—with an open structure for creation of construction codes, you are not locked into a rigid hierarchy at the very outset. At the same time, you can dictate the level of recording you want. Equally important, ProjectSight understands the real-world system in which you operate and integrates with your existing ERP systems and many other solutions.
Learn more about ProjectSight and its ease of use for construction project management.