Finance and accounting play a vital role in project management and administration by helping construction managers to control and oversee all the costs involved in the process with comparison to estimated costs.
Having a granular view on every asset, expense and inward/outward transactions, construction managers can not only complete the project as expected but also provide appropriate information for decision-making, planning, cost control, and performance evaluation.
Here are some of the functions of Cost & Management Accounting in construction management:
1. Reporting To Management
Since construction managers are responsible for reporting progress, performance and other key indicators to the management, they need to keep themselves updated with all the finances pertaining to the project. This helps in providing better insights, suggestions, views, and opinions to the management which will help in taking timely decisions.
2. Data Driven Decisions
Many of the times, construction managers have to take decisions on behalf of the team assigned for their project. These decisions cannot be based on experience alone but will need to have a calculative approach. Using techniques like differential costing, absorption costing, marginal costing, etc. construction managers can derive useful data to aid in their decision-making.
Forecasting the time, money and resource allocation is one of the responsibilities of a construction manager. In order to manage this, one needs to be aware of the expectations from management, current project status, and assignments. Using regression and time series analysis, construction managers are able to forecast budgeting, allocation, time management, etc.
4. Control Performance
Construction managers have to ensure effective control of the project and also manage tasks pertaining to daily operations. Using techniques like budgetary control, standard costing, management audit, etc. construction managers are able to visualize and control the performance of all resources.
5. Interpreting Financial Statements
Collecting and analyzing the data is a key role in construction management. This needs managers to be able to systematically keep a tab, maintain, interpret and get reports on the financial data like cash flow, fund flow, ratio analysis, trend analysis, etc. Usually, a software/tool is used to maintain and get insights in this case.
In a nutshell, cost and management accounting helps construction managers to make the most informed decisions when they are planning finance or deciding on the best long-term moves for the project. Cost and management accounting helps in determining and understanding the costs of products, operations, processes involved in a project to ensure effective reporting and planning.
Since the past few years, more and more service companies have taken the route of analyzing the finances based on which decisions are taken by management. There is a high demand for experienced estimation/costing professionals and cost and management accounting is considered as an integral skill set for construction managers.
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