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Cost Codes

  • Oct 14, 2021 | Debi Prasad Bal

A series of numbers, usually a few digits long, that are used to track, manage, and report on amounts, quantities, budgets, profit, and other account data are known as construction cost codes.. associated with the job. It helps a project to be broken down into smaller deliverables.

Cost Codes are also commonly known as tender item number or PO serial number

Construction cost codes structure

Work can be organized by structure, with the project cost codes format assisting in the division of tasks into smaller deliverables (e.g. foundations and installations, support structures, and facades, among other things).

The project forecast and cost management should be linked to the job tasks and structure using construction cost codes. From the overall project level to individual jobs and accounts, the cost codes should have a recognizable structure.

The Construction Specifications Institute (CSI) in the United States provides cost code lists to ensure that their documents can be easily interpreted by outside sources. (i.e. fellow contractors). The cost code systems in America are standardized. Unlike in many countries, where each consultant decides their own unique cost code system, or commonly referred to as Bill of Quantity (BOQ) items.

Benefits of using construction cost codes

  1. Activity-based costing and resource management depend largely on cost codes.

Construction management professionals can use this accounting method to link costs to results, which are referred to as cost drivers.

The cost can be summarized at different levels. An example of work breakdown structure on a typical construction project is:

Level 1 – Building Names

Level 2 – Category: Civil, Mechanical, Electrical, etc

Level 3 – Group with each category: Excavation, Concrete, Masonry, Etc

Level 4 – Activities within each group. Eg. Concrete: M25, M30, formwork, reinforcement

Construction management becomes simple when companies can see where their money is being spent and which activities are actually the most vital and productive.

  1. Easy identification of productivity and efficiency

Standard building cost code lists assist professionals in determining which activities are profitable as a result of promoting activity-based costing. Because it gives tangible facts with which to make capital allocation decisions, this opens the door to additional investment in those productive areas.

  1. Standardization of Project management

Well, the standardization of data is one reason. Multiple construction projects will have one expense head. This makes it easier to compare quotes and categorize expenses.

To what extent should construction cost codes be broken down?

There is no one answer to this question. The above example shows 4 levels of breakdown. You should start by tracking the level of detail needed by finance or the project team leader. Compiling costs at levels 5 or 6, leads to too much information gathering. It makes reporting a time-consuming task for the project site team and adds complexity to the costs analysis process.

Most important is to think about who will be using the cost code information. Remember to collect costs for project estimators to be able to use the information for future bidding purposes.

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