A New Frontier in Construction: Risk-Adjusted Cost

A general contractor in Arkansas knows the importance of offering accurate cost estimates to their clients. It is essential for both organizational and project success.

For years, the cost of construction has been a result of only a few factors, like insurance, labor fees, and materials. However, project complexities and technological capabilities have been increasing over time. Therefore, it becomes important to understand and consider the risks involved in performing complex construction projects when offering cost estimates. Risk-adjusted costs are projected to significantly alter the construction industry shortly.

Let's learn how risk-adjusted cost works and their importance.

Why are accurate cost estimates critical?

Cost overruns are quite common in the construction industry. These are not restricted to specific projects or locations either. It is a problem that most projects globally are also experiencing. Therefore, every construction management consultant scrutinizes the projects and notes every detail to avoid increasing marketplace costs.

Construction companies in Arkansas do not accept overruns as the new normal. But then why do they still face difficulty in getting the right estimates?

You must consider risk differently.

Usually, the total budget is set based on the cost estimates given by vendors and subcontractors. However, a contractor might offer you an estimate based solely on the cost of labor, overhead (management and insurance), and materials while omitting or ignoring the additional costs regarding the risk profile.

Good, experienced contractors use new technology solutions to determine the cost of vendor and subcontractor risk during the bidding process itself. It also helps clients realize that the bidder offering the cheapest services may not be the best for them. Eventually, an expert team is formed and a correct estimate is reached by incorporating risk-adjusted costs, making it more accurate.

How does risk-adjusted cost work?

Basically, risk-adjusted costs calculate uncertainty, leading to more accurate estimates. They consider the chances of an event happening and its potential cost impact on the entire project.

As a customer, you can simply do a google search for ‘commercial builders near me’ and shortlist the ones that display their prequalification and bidding management tools. These contractors will be able to offer you more accurate risk-adjusted cost estimates. However, the contractor will need greater coordination beyond this to generate risk-adjusted cost estimates with higher complexity. They would need various tools for accounting systems, enterprise resource planning, and leveraging technology on the job site.

Using these tools, contractors can anticipate the risks and possibilities that impact the cost estimate. These tools help contractors connect the different phases of the construction process and uncover various risk factors, ensuring project success.

About Farco

You must have understood the importance of cost estimates and risk-adjusted costs in construction by now. At Farco, we offer versatile and reliable general commercial construction services. Our clients choose us for our pristine reputation, transparent processes, and excellent track record of project success. For more information, contact us at (870) 523-2741 or fill out our contact form.

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