Digital Builder

Construction Cost Codes: Everything You Need to Know

construction cost codes

In 2020, the value of commercial construction amounted to approximately $5.8 trillion globally. Given the continually changing nature of construction projects, accurately managing and executing construction costs is critical to the project’s financial outcome. A key piece is having the ability to see and compare how much specific items or tasks cost so you can correctly forecast and manage cash flow.  

This is where construction cost codes come into play. Construction firms can use cost codes to document, categorize, and analyze costs efficiently. How do cost codes work, and what do you need to know about creating a code list in your organization? Keep reading to find out.  

The Basics of Construction Cost Codes 

Construction firms use cost codes to divide costs into specific categories. These codes are typically represented by numeric or alphanumeric values and often form part of an overall budget code and a key piece of a work breakdown structure (WBS).  

A good WBS may utilize multiple classifications and information to inform what task is being done (e.g., cost code structure such as CSI), to what (e.g., elemental breakdown such as Uniformat), where (location breakdown structure (LBS)), and by whom.     

Using cost codes to organize and categorize costs provides better visibility into the costs associated with specific projects, jobs, and tasks.  

Firms can analyze these costs to improve future estimating, budgeting, and forecasting on similar projects.  

The format of cost codes often varies across firms and geographies. For example, in the US, they are often based on the Construction Specifications Institute (CSI) codes, and in the UK, the New Rules of Measurement (NRM) and then often customized to some extent to suit the particular company.

Using industry standard codes helps ensure that outside organizations can easily interpret them. However, firms may prefer to generate a completely custom list that suits their individual project and departmental needs in some instances. 

The RICS has created the ICMS, which is a great initiative aiming to bring a worldwide standard to construction. 

Below is an example of a full budget code used by accounting and the cost management system which are generally made up of smaller segments of information. Some companies have many segments, and some only one or two, but typically, cost code and cost type are common. 

construction cost codes example

The Benefits of Using Construction Cost Codes to Plan, Budget, and Analyze 

With cost codes, firms can efficiently account for all costs associated with projects. These cost structures offer insights into where and how expenses are generated and the ability to compare. While there are many benefits to using cost codes, the majority of them lie in standardization, cost control, analysis, and profitability.  

Standardization 

Of course, cost codes aren’t the only way to divide costs into categories. However, standardization is important. For example, using descriptive phrases rather than codes leaves room for error. Someone inputting the costs may use a slightly different phrase than the next person searching for the data. As you can imagine, this makes for a confusing experience for anyone on the hunt for necessary data.  

With cost codes, there’s no room for misinterpretation. The codes are based on a series of standard classifications, which makes it simple for the construction management software to identify the desired firms and data. This simplicity keeps things efficient, repeatable, and replicable. The codes help to develop processes that can be measured and refined based on results.  

Overall, the standardization of cost codes is essential to saving time, raising productivity, reducing mistakes, increasing scalability, and building efficiencies.  

Cost Control 

Construction firms must have a handle on costs to maintain budgets, deadlines, and scope across projects. This is especially true in today’s times of economic uncertainty, fluctuating markets, and labor challenges. With cost codes, firms can quickly associate expenses with projects and activities as well as with outcomes.  

These codes also fit into a central cost management strategy. Firms can pinpoint where costs are being generated, which activities generate the most costs, and which costs can be linked to profits.  

Profitability 

Firms often have multiple large-scale projects running concurrently. The nature of the industry presents challenges in determining which tasks are actually generating profits. Cost codes are essential for organizing data around tasks, activities, employees, equipment, and projects. This information can be used early in the project to identify where money is being wasted and where it is being generated. Early identification can help to set projects on the right track and increase profitability.  

In the long term, firms can also leverage data around cost codes to determine which activities to invest in for greater profitability. Likewise, firms may choose to alter or streamline activities that are heavy on costs but light on profits.  

How to Implement Cost Codes in a Construction Project 

Once you create your cost codes, how do you implement them on a construction project for best results?

Adopt the Right Cost Management Solution 

First, you need a solid project cost management solution that allows for flexibility and customization in how your codes are built. The nature of each project will vary across stakeholders, their processes, and costs. 

With Autodesk Construction Cloud’s robust cost management capabilities, you can flexibly customize your budget structures, including segments such as cost codes, sequence, and cost type, and create hierarchical build-ups. For each segment, you can choose whether the information will be shown as part of the code, in its own column, or hidden for information only. You can select the number of digits and delimiter between each segment value. But, one of the benefits of using software like Autodesk Construction Cloud’s cost management toolset is the import master lists. For example, you can do a one-time import of a cost code master list, so you have every possible cost code you may ever need. This allows you to slice and dice your data flexibly and saves you time by not requiring you to build in groupings before importing your budget.  

Define Objectives and Scope Early 

Next, consider that changes are one of the main constants of construction. They can completely derail your budget and schedule if you cannot forecast and respond to them. For instance, early design changes are one of the biggest drivers of overruns. It’s important to define objectives and scope as early as possible in the project so you can prevent change orders. Doing so requires early alignment and consistent communication across stakeholders and teams.

Still, a financial management solution that locks you into rigid processes and components won’t work for the ever-changing nature of construction. Look for customizable solutions so you can easily integrate new stakeholders and processes as needed.  

That data can be used to generate advanced insights into cost control workflows. These insights are ideal for strategic decision-making and continuous improvement. 

Improve Cost Control with Cost Codes Today 

Are you ready to bring more standardization and efficiency to your cost control workflows? Learn more about how you can bring more flexibility and control into your cost management workflows, including cost codes, with Autodesk Construction Cloud.  

LEARN MORE

 

Ian Turner

Ian Turner

Product Manager at Autodesk, BIM 360

Newsletter
Construction trends, tips, and news – delivered straight to your inbox