Evaluating the Effect of Cost Management Practices on Profitability and Financial Stability in Nigerian Construction Firms: A Theoretical and Conceptual Perspective

Abstract

Effective cost management in construction requires accurate estimation, ongoing cost control, value engineering, activity-based costing, cash flow management, and risk adaptation to ensure profitability, financial stability, and project efficiency. This study evaluates the effect of cost management practices on Nigerian construction firms' profitability and financial stability, addressing the unique economic challenges within this sector. Exploring theoretical frameworks such as Activity-Based Costing (ABC), Lean Construction, and Contingency Theory highlights how cost estimation, control, and optimisation can contribute to financial resilience amidst fluctuating costs and economic volatility. The study underscores the importance of adapting global cost management practices to Nigeria's context, where firms encounter inflationary pressures and resource limitations that often compromise financial stability. Findings suggest that tailored cost management approaches, including precise cost estimation, proactive cost control, and value engineering, significantly enhance profitability and cash flow stability, strengthening long-term financial health. This theoretical and conceptual perspective is a foundation for future empirical research to refine cost management practices within Nigeria’s construction industry to bolster competitiveness and sustainability in emerging markets.