Research on Cost Control and Management of Real Estate Project Essay

This paper takes the cost control and the management of real estate project as the object in research, and analyzes and studies relevant issues. By analyzing the cost structure of real estate construction, this paper identifies problems in cost control and management of real estate construction at present. Along with the fast development of China’s economy, the real estate industry has achieved wonderful successes, pulling economic development significantly, and contributing a lot to China’s economic development. Today, real estate construction assumes more tasks. In 2008, 3,000 billion RMB enters real estate construction. The cost control and regular management of real estate construction turns into the focus. Once the construction cost is out of control, it will lead to a great waste and will bring about more pressures for property management in later. A nice cost control is meaningful for the whole real estate construction project. To realize better cost control and management of real estate construction is important for today’s harmonious society. The cost of real estate construction is composed of four parts. The first part is the land cost, accounting for 30% of the total cost. It mainly refers to cost for building land, greening land, equipped facility land, and property management land. The second part is the construction installation cost, as the main body of real estate construction cost, accounting for 20%-50% of the total cost. Among the construction installation cost, materials cost the most, accounting for 60% of construction installation cost. The third part is the cost for equipments and machines, accounting for 1%-3% of the total cost. This part is mainly for meeting the needs of operations, management, and maintenance. The fourth part is other cost, accounting for more than 15% of the total cost. It is difficult to control this part. It mainly includes the cost for investigation and design, the cost for project supervision, and the cost for infrastructure. In special, the management cost usually surpasses the budget, which is the largest part that is hard to control in real estate construction. The management cost is only accounting for 1% of the total cost. But the absolute amount is large. It is easy for the construction company costing more in management. At present, serious problems exist in the cost control and management of real estate construction. For example, for some real estate construction, the design is earlier than the study of feasibility, which makes the later turn into useless. In bidding, some construction companies perform illegally, which makes the bidding fail to control project cost well. The popularization of assigned subcontracts and various subcontracts serve as potential threats for project quality. The delay for project payment, especially for workers’ wages, is serious. Some projects can not manage the changes of designs. Construction companies fail to follow the designs completely, which may lead to larger costs for construction. Some construction companies emphasize on the control of quality and period but fail to control the cost. All these activities make the cost of real estate construction out of control in China, which is harmful for the sustainable and healthy development of real estate industry . * Fail to Estimate the Project Exactly: Investment estimation is performed at the very beginning, namely in the study of feasibility. Present compilation of study of feasibility is lack of details. No effective items to control the number of project. The estimation has a lower preciseness. Besides, the study of feasibility has no necessary investigation. Some potential geological disasters can not be identified effectively, which leads to the rise of costs. Although some companies make â€Å"details for implement†, the effect is poor. In order to establish the project, some companies may reduce the number of project and decrease costs. * The Compilation of Project Budget Has Poor Reliability: At the stage of design, the investigation is far from sufficient. Some fundamental materials for design are inexact. As a result, the design may be irrational and will be changed significantly in construction, which causes the poor reliability of budget. * Working Drawing Budget is Unpractical: At the working drawing design stage, compile the project budget according to the design. The working drawing budget is to calculate the cost of design. The rationality of working drawing budget is about how to organize the construction and how to reach the design requirements by what kinds of methods, plus how to arrange the construction period, and how to manage workers and machines under different seasons, according to scientific designs. All these tasks are supposed to be arranged by construction companies. For design companies, to compile the budget is unpractical. * Do not Follow Basic Construction Procedures and Cannot Control Costs: For some projects, time is urgent. Therefore, the design is maybe imperfect. And the construction does not follow the basic procedures strictly. Sometimes, the study of feasibility turns into useless papers. As a result, the estimation and the budget cannot control the project cost effectively. * Contract is not Managed Well, Especially for Subcontracts and External Workers: Some real estate developers neglect to manage contracts. They do not follow the terms written in contracts strictly. Besides, some developers cannot calculate the cost of project quantities correctly. They are incapable of managing external workers effectively. * Irregular Management and Many Changes for Project: Real estate developers cannot design properly and have to change the management methods. Or, the execution is weak. They can change the design as will. Then, the scale of project is increasing and the cost is rising. * The Financing Structure is Unreasonable and Depends on One Financing Channel too Much, Which Contributes to the Rise Of Costs: At present, the funds for real estate construction in China are mainly from domestic loans, foreign funds, self-collected by construction companies, and other sources. Although financing ways are few and some are immature, limits are more. Sometimes, funds can not arrive in time. In order to insure the process of project, the construction companies have to apply loans from banks. Therefore, a large proportion of construction funds are from banks as loans. And the credit period is long and cannot match with investment return. The characteristics of real estate industry determine the lagged-behind investment return. One financing channel increases risks and costs, which leads to the accumulation of loan balance in banks, increasing construction costs and pressures for later in operation. * Cost Management is Unscientific. Lack the Idea of Cost Control. System is Imperfect. Management Cost Is High: By auditing lots of projects, we find that management is one of factors that cause overspending. Main items that cause overspending include management fees, compensation fees for removing, and supervision. Main reasons include: Lack a perfect cost control system and cannot manage and control the cost systematically, which makes it hard to identify the out-of-control of cost in time. Lack the idea of cost control and the constraint mechanism. Project managers are always focusing on quality and construction period, but not cost control. The absence of system makes the expenditure more irregular. No integrated standards for management fee are effective. Workers are more than necessary in construction companies.