Construction Cost Forecasting: Steps and Factors to Consider

It’s theoretically possible to initiate a construction project without thoroughly forecasting costs, but why would you? Even with infinite funding, choosing to forgo this step could jeopardize both the immediate success and the enduring value of the construction.

Unlike other forms of financial forecasting, construction cost forecasting is uniquely complex. For one, it encompasses not just budget management, but detailed risk assessment. Thorough forecasting is necessary to adequately allocate the abundant resources required to bring a construction project to fruition. It also plays an important role in maintaining transparent dialogue with stakeholders, setting realistic expectations from the get-go and ensuring a project’s quality, value and safety.

Here’s a look at how to create a comprehensive construction cost forecast — a financial blueprint as critical to the success of a construction project as the structural integrity of the building itself.

What Is Construction Cost Forecasting?

Construction cost forecasting is a strategic function of construction project management and accounting that considers the prediction and analysis of financial costs in order to set up a realistic budget and guide financial planning. But the distinct nature of construction — with its wide-ranging variability, complex tasks, generally long timelines and susceptibility to external factors, like market shifts and weather — makes construction cost forecasting a particularly sophisticated discipline.

Effective forecasting models combine historical data assessment that focuses on material cost fluctuations and labor availability with current trend analysis that digs into factors like weather patterns, building regulation updates and environmental standards. Successful construction forecasts also incorporate practical input from a diverse group of stakeholders, including clients, contractors, architects and suppliers. This comprehensive approach helps make sure that every stage of a project is financially sound and built on strategies that address real-world construction challenges.

Key Takeaways

• Construction cost forecasting is a strategic, multifaceted process essential for the realistic budgeting and financial planning of construction projects.
• Accurate forecasting models require a combination of historical data, current market trends and insights from project-specific variables, such as site conditions, material availability and labor requirements.
• Though the process is spearheaded by cost engineers, forecasting requires collaborative input from a diverse group of stakeholders.
• Developing a risk mitigation strategy is essential for managing uncertainties common in the construction industry.
• Companies that integrate cloud-based accounting and project management software can streamline the complex construction cost forecasting process.

Construction Cost Forecasting Explained

Construction cost forecasting is a multifaceted and dynamic discipline that is used throughout the entire course of a construction project, from inception to completion. It begins with initial project planning and management to define project scope. This should include an in-depth analysis of project size, complexity and location, as well as costs associated with required materials, labor and equipment.

When regularly updated, forecasts also facilitate:

• Financial plans, by making it easier for a company’s finance, accounting and project management teams to track and manage costs, plan cash flow and support investment decisions.
• Risk management, by identifying and preparing for potential risks and uncertainties, such as weather delays or material price surges.
• Transparent communication, by keeping all parties informed about the current financial status of the project, potential changes in costs and any adjustments that may become necessary.

Additionally, contractors and construction workers independently use construction cost forecasts to create and submit comprehensive and accurate bids for specific projects. Bids usually include the anticipated price for completing the project, as well as other relevant information, such as timelines, resource requirements and the overall project approach. The more accurate and comprehensive a forecast, the more competitive and realistic the bids — qualities essential for winning a project. And once a project is completed, stakeholders can use the construction forecast to evaluate the project’s financial performance, how accurate the estimates were and what could be improved in the future.

Who Is Responsible for Construction Cost Forecasting?

Cost engineers — sometimes referred to as quantity surveyors in some parts of the world — typically handle the bulk of construction cost forecasting. Their primary role is to ensure accurate cost estimation, effective cost control and reliable resource allocation throughout the construction process. They’re also tasked with assessing potential financial, operational and environmental risks that could impact the project. Cost engineers may work directly for the client commissioning the project or for the construction company undertaking the project, or they may be an independent third-party entity. Whatever the case, the construction cost forecasting process is highly collaborative.

Cost engineers must draw on the expertise of various professionals, including clients, project managers, architects, engineers, suppliers and vendors, whose input is essential because they provide information that influences the cost engineer’s comprehensive forecast and any potential risk mitigation strategies. The client, for instance, establishes the overarching needs and financial framework for the project. Project managers oversee the process, aligning the forecast with the project’s goals and timelines while coordinating efforts across different teams; they may work closely with estimators, who lay the foundation with initial cost estimates. Meanwhile, construction accountants might oversee the ongoing financial health of the project by managing financing, cash flow projection, long-term financial planning and contingency budgets.

On-the-ground insights come from contractors, who bring practical insights of market rates and operational experiences to the table. Architects and engineers influence costs through their design decisions, while suppliers and vendors provide material and equipment pricing information.

Here’s a simplified example of this complex interplay. Say an individual wants to begin a small residential building project. The construction company has a cost engineer who first works closely with estimators to gauge the initial costs for materials and labor. The client decides to hire an independent project manager to oversee the process. This individual works with contractors to align estimates with the desired project timeline, client expectations and proposed design. If there are concerns about material sourcing due to supply chain issues, the cost engineer might work with suppliers to secure safe and effective alternatives. The project manager then relays key information to the cost engineer so they can finalize the forecast.

The process is dynamic, and the participants — and their degree of involvement — can vary based on the project’s size, nature and the structure of both the client and the construction company. Regardless, the complex interplay of roles highlights how important open communication and regular sharing of data are to creating an accurate and adaptable forecast.

Benefits of Construction Cost Forecasting

Construction cost forecasting is essential for strategically planning and successfully executing construction projects. It provides a foundation for informed decision-making, for example, by ensuring that resources are used appropriately and risks are managed proactively. Here are more of the most significant advantages of construction cost forecasting.

• Accurate budget allocation: Budget allocation ensures that every dollar is accounted for and spent wisely. Because construction cost forecasting meticulously encompasses all possible costs, including potential contingencies, the process confirms that the project will be financially feasible from the start. In turn, companies are able to create realistic budgets that align with project goals and constraints. This can minimize the need for emergency funding or cost overruns — either of which can jeopardize a project’s success.

• Effective resource management: When resources are well managed, project managers can allocate labor, materials and equipment with precision. By anticipating project needs, construction cost forecasting makes sure resources will be available when and where they’re needed, even in the face of project changes, unforeseen events or shifting market conditions. This preparation can prevent critical material shortages that could lead to project delays, as well as overstocks that may unnecessarily increase costs. A smoother project flow results, benefitting the project’s timeline and overall profitability.

• Less risk of material cost fluctuations: Material cost fluctuations are a significant risk in construction projects because they have the potential to substantially impact budgets and timelines. Construction cost forecasting is an inherently proactive task that can mitigate this risk. By analyzing market trends and historical data, for instance, forecasters can predict changes in material costs and advise on the best times to purchase supplies or the best alternatives to use. This foresight can help companies prepare for budget adjustments and plan project specifications that account for these fluctuations, thus ensuring that the project will remain not only financially viable but structurally possible.

• Improved bid accuracy: Once a construction company prepares a bid, it’s reviewed by the client. The best bid isn’t always the one offering the lowest price; quality and timeline are also important — and the more accurate a forecast, the more accurate the bid will be. By thoroughly analyzing the many variables that go into a detailed forecast, from materials and permits to subcontractor fees and potential site-specific challenges, contractors can submit bids that are competitive and reflect the true scope of work. This precision also avoids underbidding, which can lead to financial losses, or overbidding, which might cost the bidding company the opportunity to secure a project.

• Enhanced cash flow management: By generating a steady cash flow, forecasting prevents financial strains that can lead to project delays or compromises in quality. For instance, if a client or construction company can’t pay bills on time, it could result in disrupted supply chains, diminished morale among workers and potentially damaged reputations — all of which can delay the project and increase overall costs. What’s more, the level of detail required in construction cost forecasting can help firms proactively identify potential cash-positive and cash-negative periods, where income exceeds outlays and expenses temporarily surpass income, respectively. Being able to anticipate these financial ebbs and flows can also support timely, strategic decision-making, such as whether to apply for a loan to ease an anticipated shortfall or to take advantage of a cash-positive period and strategically reinvest funds or reduce debt.

• Better strategic project planning: The primary goal of strategic planning is to match a company’s mission and vision with its operational plans. In the construction industry, the process can be significantly enhanced by cost forecasting. At the highest level, accurate forecasting enables project managers and stakeholders to map out a project’s financial trajectory. This permits alignment with strategic goals and operational benchmarks. Zooming in, forecast-related factors, such as resource allocation, realistic timelines and preparation for external cost-impacting variables, also support strategic planning objectives. Good forecasts provide a flexible framework that can help companies adapt to changes, whether due to internal project adjustments or to external market shifts.

• Adherence to timelines: By providing a financial blueprint, construction cost forecasting allows project managers and other stakeholders to conform budgetary constraints to project milestones to reduce the likelihood of delays caused by financial issues. Construction cost forecasting also enables firms to better anticipate resource availability to make sure labor and materials will be on hand when needed, keeping the project moving forward and supporting operational efficiency. This proactive approach to managing timelines can prevent a domino effect of delays, keeping the project on track and contributing to client satisfaction.

Construction Cost Forecasting Steps

While the process will vary according to project specifics, company practices and cost engineer preferences, construction cost forecasting is a systematic process that generally follows a core set of steps. From understanding the project’s scope to regularly updating its risk register, each of the nine steps outlined below plays a significant role in shaping a project’s overall direction and success.

1. Analyze Contractual Details

   The construction contract lays the groundwork for cost forecasting, so analyzing its details is usually the first step. The contract establishes the project’s scope, terms and conditions, all of which directly influence costs. Payment terms, penalties and the obligations of each party should also be analyzed, as these items are important for ascertaining the timing and number of payments — factors that will impact cash flow and resource allocation throughout the project’s life cycle. To make sure the foundation of the forecast is as accurate and comprehensive as possible, it’s vital that relevant stakeholders, including project managers, financial analysts and even legal advisers, scrutinize every clause. This diligence can confirm that all financial implications are clearly understood and accounted for. It can also help identify areas that could potentially lead to additional cost savings, such as early completion incentives, clauses related to procuring materials in bulk or opportunities for negotiation.

2. Evaluate Scope of Work

   The scope of work (SOW) sets the stage for all subsequent planning and analysis. Once analysis of the initial project contract is completed, the SOW is created. The document must delineate all aspects of the project, including its size, complexity and location, as well as materials, labor and equipment requirements. It’s also important to include any special conditions that could have an impact on costs, such as unique design elements, a need to adhere to historical preservation guidelines or working in areas with restricted access.

   Evaluating the SOW requires careful collaboration among the project’s key stakeholders, including architects, engineers and construction managers. This collaborative effort helps make sure that the client, project manager and cost engineer all fully understand every facet of the project. It also helps teams identify potential challenges and opportunities early on, making it easier for them to proactively devise strategies that capitalize on cost-saving opportunities or address potential cost overruns.

3. Assess Payment System

   The payment system within a construction project encompasses not only the schedule and terms of financial transactions, but also the methods by which payments are made and received. This step involves a thorough analysis of the contractual payment schedule, including milestones for progress payments, conditions for final payments and any retainage or holdback clauses that stipulate that a certain percentage of the contract payment will be withheld until the project reaches a specific stage. It’s crucial to understand the cash flow implications of these terms to maintain liquidity and financial stability throughout the project’s duration. For example, a project with a back-loaded payment schedule, where major payments are due toward the end of the project, might still require careful cash flow planning to make sure immediate expenses, such as labor and materials, are covered in the initial phases of the project.

   The payment system assessment should also consider how transactions will take place, whether by check, automated clearing house (ACH) transfers, an online digital payment system or other means. The chosen method(s) must be efficient, traceable and secure. Project managers, accountants and financial managers might want to take part in this part of the assessment to understand how making payments will impact the financial piece of the construction project. Without a clear understanding of the process, late, missed or misdirected payments can cause delays. ACH transfers, for instance, might expedite payments but require rigorous data management, while checks could get lost in the mail or take longer to clear during holiday periods.

4. Develop a Work Breakdown Structure (WBS)

   A work breakdown structure (WBS) is a project management tool that deconstructs a project into smaller, more manageable components known as “work packages.” The goal of a WBS is to organize team efforts and provide a clear path for project execution. It’s the foundation upon which the project’s schedule, cost and resource planning are built. This step allows teams to assign specific costs and resources to specific parts of the project, allowing for a detailed and manageable cost analysis and budget allocation framework. For example, in constructing a commercial building, the WBS might distill the project into foundation work, framing, electrical, plumbing and HVAC, with specific resources assigned to each of these segments.

   Creating a WBS involves defining the main project deliverables and dividing them into smaller tasks that can be easily monitored and controlled. The process is typically led by project managers, with input from engineers, architects and other key team members. Note that even though, in practice, it serves as an essential framework for understanding the project’s scope — and for managing the costs associated with each segment — the WBS should be a dynamic document that can evolve to include alterations in project scope or unforeseen challenges that may arise.

5. Create a Cost Breakdown Structure (CBS)

   The cost breakdown structure (CBS) provides an itemization of costs for each element of the project. It categorizes costs into logical groupings, from materials and labor to overhead and contingencies, making it easier to track and manage project finances. The CBS works in tandem with the WBS to make sure costs are assigned to the appropriate work packages. Developing a CBS involves identifying every direct and indirect cost associated with the project. Direct costs might include materials and labor specific to each work package, while indirect costs encompass broader expenses, such as site security, insurance and administrative fees.

   The CBS process is often led by cost engineers, who work closely with project managers and other stakeholders to confirm that all potential costs are earmarked. Like the WBS, the CBS should be a dynamic tool that undergoes regular updates to present the project’s ongoing financial health. These updates are crucial for maintaining accurate forecasting over time, as well as for making timely adjustments in response to project changes or unforeseen expenses.

6. Integrate Schedule With Cost and Resource Data

   Adaptability is vital to construction cost forecasting because it allows for real-time adjustments that are based on actual project conditions and progress. This ensures that the forecast will be relevant and captures the project’s evolving nature, rather than being constrained by initial estimates. A main way to encourage this adaptability is to tie the project timeline to the costs and resources allocated for specific tasks and milestones, making sure to update each variable according to any real-time changes. By establishing a continuous feedback loop that incorporates time, cost and resources, project teams can access a more responsive forecasting model that empowers them to quickly assess and manage the impact of any schedule changes on costs.

   For example, suppose the cost implications of foundation laying are mapped against the planned schedule so that teams understand what resources are required, when and at what cost. If excavation is delayed, the forecast can be immediately updated to cover any additional costs incurred due to issues encountered when clearing and preparing the site. Conversely, completing the site preparation phase ahead of schedule may free up funds that can be strategically reallocated — perhaps to bolster contingency plans for potential waterproofing and drainage issues or to enhance material quality or safety measures. This level of responsiveness pairs with the dynamic nature of the WBS and CBS to create a multidimensional approach that makes sure the project will remain financially viable throughout its life cycle.

7. Conduct a Tri-Scenario Cost Forecast

   A tri-scenario cost forecast shows three potential forecasts, based on different project scenarios: an optimistic, or best-case, scenario; a pessimistic, or worst-case, scenario; and a most likely scenario. Laying out these different scenarios can help project teams grasp the range of possible outcomes and develop contingency plans tailored to each potential situation.

   To conduct a tri-scenario forecast, cost engineers gather and analyze data on all aspects of the project, including cost, timelines and resources. They can then apply different assumptions to these variables to model the three scenarios. In an optimistic scenario, for example, the forecast is based on the idea that everything will go as well as possible, such as favorable market conditions, few delays, smooth execution and lower-than-usual costs. A pessimistic scenario, meanwhile, reflects the opposite position, considering factors such as higher-than-expected material prices, project delays and other adverse events that can increase project costs. Finally, the most likely scenario is grounded on considering the most realistic and probable set of conditions, given current knowledge and expectations.

8. Develop a Risk Mitigation Strategy

   Each construction project presents its own set of challenges, whether geographic, environmental, logistical or economic. Developing a risk mitigation strategy involves identifying these potential challenges and creating plans to minimize their impact on the project. This step is a must when preparing for uncertainties that could affect project costs, from necessary design changes and construction delays to unexpected ground conditions.

   To develop an effective risk mitigation strategy, project teams must conduct a risk assessment that identifies and prioritizes all possible risks, based on their likelihood and potential impact. The teams then formulate strategies to mitigate these risks. These might include securing insurance to protect against unforeseen losses, creating contingency plans to source alternate materials in case of supply chain disruptions or adjusting project schedules to account for delays. Developing and implementing risk mitigation strategies are important steps for proactively managing potential issues and ensuring that the project can adapt to unforeseen events without incurring significant cost overruns or schedule delays.

9. Update the Project Risk Register Regularly

   The risk register is a living document that tracks identified risks, their potential impact on the project (especially on cost and timelines), their likelihood of occurrence and factors that could influence them. Each risk in the register should also include mitigation strategies or action plans that outline how the project team plans to manage each risk and minimize impact. By keeping the register current, teams can make sure that new risks are not only identified and managed promptly, but that their impact on the overall cost of the project is assessed and adjusted accordingly.

   To update the risk register, it’s first necessary to review it on a regular basis, such as monthly or at key project milestones. This involves assessing each risk for possible changes and potential impact, and evaluating the overall effectiveness of the current mitigation strategy. Updating the register also includes adding newly identified risks and removing risks that are no longer relevant. For example, a risk initially identified as high impact, such as supply chain disruption, might be downgraded if alternate suppliers are secured.

Construction Cost Forecasting Factors to Consider

Accurate construction cost forecasting hinges on several critical factors, including historical project data, current project scope and market conditions. Each plays a pivotal role in shaping a forecast that is both comprehensive and representative of a project’s unique challenges and opportunities. While the relevance, context and depth of each factor outlined below may vary by project, company or forecasting team, when combined they contribute to a well-formed forecasting process.

• Historical data: Historical data serves as the empirical backbone to construction cost forecasting because it provides a factual basis from which to project future costs. This repository of information might include previous project budgets and construction accounting data, actual material and labor expenditures, productivity levels, cost overruns and the outcomes of similar projects. By analyzing this data, forecasters can identify patterns, trends and anomalies they can use to establish more accurate benchmarks, all integral to accurate and reliable project estimates.

  For example, reviewing the cost performance of past projects can highlight areas where expenses often run over, such as material waste or underestimated labor hours. It can also inform forecasters about how long it takes to complete specific tasks or phases, which aids in scheduling and resource planning.

• Quantity takeoff: Quantity takeoff involves itemizing all materials required for a project so that estimates are grounded in actual project needs. Done accurately, the process can help prevent underestimation, which can lead to project delays and cost overruns, as well as overestimation, which can unnecessarily inflate project costs. In addition to informing cost estimates, quantity takeoff data helps project managers and procurement teams devise a procurement strategy.

  The process typically starts by analyzing project drawings and specs and listing every material needed, from bulk items, like concrete and steel, to the smallest details, like fixtures and fittings. With this info at hand, project teams can determine optimal ordering times to avoid rush-order premiums, or even leverage bulk purchasing benefits. Modern construction software can make this meticulous process more accurate and efficient.

• Material prices: Material prices highly influence a construction project’s overall budget. But costs can fluctuate significantly, due to factors like market demand, supply chain issues and global economic trends. To prevent budget shortfalls or excesses, accurate forecasting must take into account potential pricing fluctuations, not only for the materials themselves but for related factors, such as delivery expenses and potential tariffs. For example, Gordian’s “Construction Cost Insights Report for Q4 2023” notes that the transportation costs associated with commodities, such as concrete, gypsum and asphalt, tend to be much higher in certain regions due to their weight and where they’re produced.

  To better manage the volatility of material costs, project teams may want to try to lock in prices with suppliers in advance. Another option is to include price escalation clauses in contracts to manage potential increases. These clauses can allow for adjustments in the contract price if material costs increase beyond a certain threshold. Project teams may also want to explore alternative materials and suppliers to find more competitive prices. If the cost of a particular type of lumber spikes, for instance, the team might consider alternative wood types or even different materials, such as composite products.

• Project scope: Scope defines the scale, complexity and specific requirements of a given project. This encompasses everything from physical dimensions and design specifications to quality standards, regulatory requirements and labor needs. To get a comprehensive understanding of the work to be done, the scope should also include a review of the project’s site conditions, potential environmental impacts and logistical challenges, as these elements are often overlooked but can have significant cost and planning implications.

  Because every aspect of the project’s scope will influence cost considerations, it’s important to accurately define it from the start. This involves detailed discussions among cost engineers, clients, architects and building engineers to make sure all expectations are clear and will be accounted for in the forecasts. An accurately defined scope lays the groundwork for all subsequent cost estimations and project planning activities. That said, it’s also important to be prepared for how potential scope changes could affect the overall budget and timeline.

• Project duration: Project duration directly influences project scheduling and resource allocation. Longer projects, for instance, may face a higher risk of cost fluctuations caused by market changes, while shorter projects may require more immediate use of resources. Accurate project duration forecasting can optimize the use of labor, materials and equipment to reduce idle time and expedite the project, which, in turn, minimizes costs. Accurate planning can also help teams account for seasonal variations in labor availability and material costs, as well as weather patterns.

  For example, the duration estimate for a project scheduled to run through the winter months might reveal the need for additional heating equipment and weatherproofing materials. With this foresight, teams can budget for these materials, procure them in a timely manner and schedule work accordingly. This can prevent last-minute-rush costs while ensuring that the project stays on track despite seasonal challenges.

• Cost of labor: According to some industry sources, labor costs can constitute as much as half of a project’s budget. Labor costs are governed by factors such as wage rates, labor productivity and work schedules. Wage rates vary by location, skill level and labor type, while productivity is contingent on worker experience and work conditions. Additionally, work schedules, especially if overtime is involved, play a significant role in determining overall costs. Forecasters must also consider factors like employee benefits, compliance with labor regulations and costs for training and certifications.

  Job costing, a method used to calculate the total cost of a job by aggregating disparate labor, material and overhead costs, can help project teams accurately assess labor expenses. This approach tracks every aspect of labor costs to arrive at a more precise and comprehensive estimate.

• Equipment costs: Construction equipment costs encompass purchase and rental prices, as well as operational and maintenance expenses. These costs can depend on a project’s scale, complexity and duration — all defined by the project’s scope and requirements. For example, a large-scale project may require specialized cranes for lifting heavy materials. The cost of renting these cranes, along with their operational and maintenance costs, must be factored into the overall budget. It’s also important to consider any costs associated with equipment transportation, insurance and regulatory compliance requirements.

  Project teams should also evaluate the necessity of each piece of equipment. How often will it be used? Will it be more cost-effective to buy or rent? These considerations can influence project budgets, as can the potential for unscheduled equipment downtime, which can delay project milestones and increase labor costs.

• Regulatory compliance: Construction requires adherence to local, state and federal regulations in areas such as zoning laws, workplace safety, environmental standards and building codes. For example, environmental regulations might require costly ecological surveys or design alterations to comply with building codes. Similarly, obtaining necessary permits may involve application fees and document preparation costs, which can affect the project budget, while noncompliance can lead to legal penalties and project delays.

  Compliance efforts need to be integrated into project planning from the outset. This includes understanding the costs associated with safety training, protective equipment and the construction methods required to meet safety standards. Staying on top of regulatory changes is key, and companies should consider careful collaboration with legal advisers or other compliance specialists, as well.

Construction Management Software Makes Cost Forecasting Easier

NetSuite cloud accounting software can significantly streamline the construction cost forecasting process. By accessing the software’s ability to quickly analyze both historical and current financial data and track costs in real time, teams can quickly adjust forecasts to make sure they always reflect current project realities. And finance teams can have the tools they need to optimize cash flows and manage bank accounts in order to support strategic decisions.

Also, because NetSuite cloud accounting software is cloud-based, a business’s data is available anywhere, at any time — as long as there’s an internet connection. This means that all stakeholders, from accounting teams and executives to operational teams and project managers, can collaborate on project forecasts in real time, as needed, to support the decision-making process and improve project outcomes. Moreover, the software seamlessly integrates with all other NetSuite products, including project management and procurement software, to further round out support for the construction cost forecasting process.

Construction cost forecasting is a complex process that relies on detailed analysis of historical data, current market trends, project-specific needs and input from various stakeholders. It serves as a critical financial blueprint that guides projects from conception through completion, ensuring that decisions are well-informed, risks are thoroughly assessed and resources are allocated with precision. The outcome of such a meticulous and collaborative effort is a construction project that is more likely to meet financial expectations without sacrificing quality and safety.

Construction Cost Forecasting FAQs

How do you estimate construction cost?

Construction cost estimation involves analysis of a project’s scope, as well as the required material, labor, equipment and overhead costs. It typically involves a quantity takeoff to determine the quantities of materials needed. The cost engineer must also consider factors, like project location, duration and any special conditions, that might affect costs, such as unexpected weather occurrences. The process is highly collaborative and benefits from input from all project stakeholders.

What are the methods of construction forecasting?

Construction cost forecasting methods typically involve a mix of the following factors:

• Historical data analysis: Reviewing past project data to identify cost patterns and trends that can inform future project estimates.
• Market analysis: Monitoring current market conditions, including material and labor costs, to predict future price fluctuations.
• Resource allocation planning: Assessing resource needs (labor, materials, equipment) for a project and estimating costs based on these requirements.
• Risk assessment: Identifying potential risks and uncertainties in a project and estimating their financial impact.

Technology, such as construction management or project management software, can make it easier to manage and use this data, in one place.

How do you forecast project costs?

Forecasting project costs involves creating an itemized budget that accounts for all phases of the construction process. This includes analyzing contractual details, evaluating the scope of work, assessing the payment system and developing a work breakdown structure. It also requires integrating the project schedule with cost and resource data, conducting a tri-scenario cost forecast and regularly updating the project risk register.