Purchasing and Cost Control
Sometime in the near future we will pay our bills with the click of a mouse, perhaps even before receiving an invoice from the vendor. In order for this to be effective, we need proper procedures to track our costs and ensure that we pay only authorized bills. Payment could be made directly into a vendor's checking account as soon as they have properly completed the required work. This is what Preferred Builder Status is all about.

We've actually had many of these paper processes in place for nearly twenty years now - just not the mouse click part. The key components to successfully manage invoicing and cost control are a purchase order system and work packages or scopes of work.

Purchase Order System
Purchase orders and work orders are basically pre-agreed purchases for materials or services on a project. After bids for most of the components on a project have been received, orders are placed with each of the appropriate vendors. This locks in the price for each of the estimated line items and prevents cost surprises.
 
Most current cost control software packages work well with purchase orders. Typically the systems red-flag invoices and allow only the pre-agreed amount to be paid. If most of the project costs are controlled by purchase order, few surprises should be expected.

Work Packages
Sometimes referred to as a scope of work, a work package is a detailed description of the requirements to complete a specific task or phase of a project. Good cost control is dependent on each trade or supplier being responsible for completing their specific work requirement. Thorough work packages cover all the bases without omission or overlap of the task list. Combined with a detailed work breakdown structure, every task and cost component should be addressed.

Purchasing Functions
Detailed Estimate
  • Specifications: Create technical specifications with adequate detail to facilitate easy bidding by trade contractors and suppliers. Research innovative and best value products and construction techniques.
  • Scopes of Work: Develop scopes of work for trade contractors that clearly state expectations and standards they are required to achieve.
  • Vendor Bids: Produce necessary and concise information so trade contractors and suppliers can provide accurate bids.
Quantity Takeoff
  • Material Orders: Provide material quantity takeoffs to suppliers for accurate apples-to-apples bids. 
  • Efficient Deliveries: Coordinate deliveries to reduce trips and maintain organized project sites.
  • Tracking: Organize material orders to facilitate proper use of specific items as they are intended, for instance: a lumber takeoff that indicates precise use of materials for the framer.
  • Use Analysis: Structure orders such that the installed use can be verified and variances are found so that subsequent order efficiency can be improved.
Purchasing
  • Project Budget: Establish an accurate and reliable budget for each project, broken down into sufficient detail for monitoring and analysis.
  • Committed Cost: Commit to committed cost procedures. By locking in pricing on each home, variances are minimized and analysis is streamlined.
  • Variance Reports: Develop reporting procedures that are efficient and routines that don’t burden those responsible for tracking progress.
Cost Control
  • Purchase Orders: Utilize a purchase order system for payment procedures to vendors. Pre-defined purchase orders and work orders establish the exact price to be paid for each component of the project.
  • Approved Work: Monitor procedures for when vendor invoices are approved to be paid. Develop routines that clearly define when payment is due and what must be done to receive payment.
  • Variance Purchase Orders: Develop and monitor a system for tracking and reporting any variances from the authorized project budget. Establish routines to provide information to be utilized during debriefing of completed homes so that lessons learned can be used to improve the process.
  • Payment Procedures: Investigate streamlined processes and utilize new technology for making payments to vendors as promptly as possible.
Construction Management

Florida and the Gulf Coast have climate and environmental conditions that are unique from anywhere else in the United States. With energy efficiency and a new green awareness on the minds of many in the industry, building systems and construction techniques are evolving quickly. 

ResConServ.com provides construction and green management services and resources to businesses and consumers that want to optimize the residential construction process.

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