Understanding Cost Planning in Construction: Benefits & Types

In the rapidly changing modern world of the construction industry, adequate cost planning in construction is no longer a choice it is a must-have. As the country experiences large-scale developments in the context of Vision 2030, companies have to reconcile the feasibility of the project, the accuracy of budgeting, and compliance with the Saudi VAT/ZATCA requirements. Digital transformation comes in at this point. A Quickdice ERP system in Saudi Arabia can be used by construction companies to simplify financial planning, better cost management, and compliance.

This paper will discuss cost planning in a construction, its types, advantages and difficulties, and how the current ERP programs such as Quickdice ERP can empower construction companies to be efficient and profitable.

What is Cost Planning in Construction?

Simply put, cost planning in construction is the methodical procedure of forecasting, estimating, as well as controlling the project expenditures throughout the lifecycle of a construction project. It makes sure that a project is still financially viable yet not compromised in the quality or compliance.

There are two major categories of costs that are typically included in cost planning:

• Direct Costs: Direct costs are costs of materials, labor, and materials that are directly connected with the construction activities.
• Indirect Costs: Indirect costs include over heads, permits, insurance and administration costs.

Saudi Arabia Context

Other construction projects in Saudi Arabia should also consider:

• ZATCA (Zakat, Tax and Customs Authority) requirements of VAT compliance.
• Public and privately procurement laws.
• The challenges in the region like supply chain logistics in Riyadh, Jeddah and Dammam.

As construction activities in the Kingdom rise, construction cost planning has been of paramount importance in terms of profitability, as well as compliance with the regulations.

Types of Cost Planning in Construction

The knowledge of the types of cost planning in construction can enable business to choose the best method based on the size, complexity and available information of the project.

1. Preliminary Cost Planning

• Carried out during the project concept.
• Makes a crude estimate on feasibility study and approval of funding.
• New commercial tower in Riyadh based on initial cost per square meter benchmarks.

2. Top-Down Cost Planning

Begins by having an overall project budget and allocating funds to various phases.

• Applicable where time constraints are straining.
• Case in point: Dammam infrastructure development projects.

3. Elemental Cost Planning

• Splits the project into its elements (e.g., foundation, superstructure, finishes).
• Helps make comparative costs on various components to make a better decision.

4. Bottom-Up Cost Planning

• Involves ground up detailed estimates, including all material, labor hours, cost of equipment.
• Examples: luxury residential villas in Jeddah that need a careful planning.

5. Contractor’s Cost Planning

• Having been prepared by contractors in the bidding process to make profit yet satisfy the clients.

All these methods give project managers an opportunity to transform their construction project cost planning in accordance with the scope, resources, and regulations.

Benefits of Cost Planning in Construction

Cost planning in construction has a number of strategic benefits particularly to organizations in a competitive market such as Saudi Arabia.

1. Budget Accuracy

• Ensures construction projects are viable financially.
• Eliminates the possibility of over-budgeting and cost management.

2. Saudi Regulation Compliance

• Helps in line with ZATCA VAT policies and local procurement standards.
• Avoids expensive fines and delays in case of non-compliance.

3. Resource Allocation

• Directs effective utilization of resources, human and material.
• Favors improved financial planning in building.

4. Risk Management Construction

• Risks to be determined include the uncertainty in the prices of materials, currency, and logistics.
• Establishes a buffer in the estimation of the cost.

Simply put, the advantages of cost planning in construction are not calculated in monetary terms- they are protective in terms of profitability and reputation of the business.

Challenges in Construction Cost Planning

To be as important as it is, construction cost planning has hurdles especially in the Saudi Arabian market.

• Changes in the cost of materials: This is the volatility in oil markets around the globe that has direct impacts on steel, cement and transportation costs.
• Regulatory Approvals: Delay in approval of permits and financial realignment can be unforeseen.
• Availability of Labor: The challenge of recruitment and management of skilled labor is still a problem in mega-projects.
• Climate and Logistics: The difficult conditions in deserts and the lack of infrastructure may contribute to costs.

Through these challenges, construction project budgeting has become more complex and it has to be tracked in real time and make use of advanced forecasting.

Tips for Effective Construction Project Cost Planning

In order to conquer the challenges, the construction companies are advised to select best practices in the construction project cost planning:

• Stage-Gated Estimates: Phase cost estimates (concept, design, procurement, execution).
• Add Regulatory Costs: Include VAT, permits and compliance of ZATCA.
• Benchmarking: Compare with other similar projects within Riyadh, Jeddah or Dammam.
• ERP Integration: The ERP tools such as Quickdice ERP should be used to monitor costs centrally.
• On-going Risk Assessment: Revise the budget with the appearance of new risks.

How Quickdice ERP Streamlines Construction Project Budgeting

In the advanced construction, companies are considering smart ERP solutions in their quest to be efficient. Quickdice ERP is a complete platform that deals with financial control as well as compliance.

The way it improves budgeting and construction cost planning in construction projects works is as follows:

• Centralized Set up: This system consolidates financial information, procurement and project costs.
• Real-Time Tracking: Gives an insight into the spending, cash flow, and the cost variances.
• Compliance Reporting: This automates the VAT/ZATCA compliance in order to reduce mistakes and fines.
• Risk Mitigation: Assists in predicting the cost increase in the future and promotes the more optimal allocation of resources.

Quickdice ERP is operated by many construction companies in Saudi Arabia to remain competitive in a fast growing market. Quickdice is also a favored product to use in managing the small-scale and mega-projects because of its ease of use and integration features.

Conclusion:

Proper cost planning during construction is the basis of successful construction in Saudi Arabia. It provides accuracy, compliance, and profitability, depending on the initial estimates to the detailed ones. Though the problem of fluctuation in material prices and labor shortages exists, there are the sophisticated solutions like Quickdice ERP which gives the construction firms means of simplifying the financial management.
Through technology, the companies are able to enhance the cost planning of construction projects, the construction project budgeting as well as smooth adherence to Saudi VAT/ZATCA regulations.

Are you willing to just change your cost management process?
Free demo Quickdice ERP today and discover the benefit of smarter planning resulting in a better project outcome.