Construction Budget: Common Mistakes and Efficient Handling

How can you tell when a construction project is really successful? Is it the quality result? The happy client? The on-time delivery? Meeting the project objective? Staying within the budget? Actually, it’s the combination of all these, and it is the project manager who’s responsible for making sure that all the above mentioned are achieved. But without a reliable construction project management software, one or two of these can slip the manager’s attention, and it’s going to be really troublesome when it’s the budget that’s been compromised.

There are certainly a lot of tasks that the project manager has to juggle. From construction crew management to project monitoring, it isn’t so simple to manage a project without encountering problems. So how can he make sure that the construction budget doesn’t get lost in the mix? 

Project managers are being strict when it comes to staying within budget because this determines how much profit the company earns. For instance, a change order became necessary because of an error made in the concreting of the first floor. The total cost of the change order appeared to be $25,000 so that means the team lost $25,000 from their profit.  

It happens too often, but project managers shouldn’t be comfortable with this as the norm in their company. $25,000 is a big amount that could’ve helped expand the operations of the firm or update the equipment or been used as a bonus of the members for a job well done. That said, project managers continuously search for the right solution to aid in managing the construction budget.

The best construction management software won’t only help the project manager have an efficient time scheduling his crew members’ tasks, checking their daily accomplishments, or tracking the project’s progress. It should also help him get a clear view of whether the project stays within the set budget and how well the crew members are adhering to it.

Combined with the best budgeting practices, construction firms are sure to save a significant amount of money and make the clients happier. Furthermore, monitoring the budget can help motivate the team to improve the quality of their work and avoid errors. Since their aim is to avoid rework, which is the main cause of extra expenses in construction, crew members will be keener in their work’s details so that errors are minimized.

And speaking of errors, let’s look into the common mistakes done by project managers that often lead to budget-related problems.

Construction Budgeting Common Mistakes

We have a previous blog talking about cost overruns in construction. There, we’ve listed down the common reasons for the project going over the budget. But today, we’re going to help you realize where the error really starts to happen.

1. Inaccurate Estimate

The final budget that the client approves comes from the quotation you’re making. So be sure to pay attention to the estimates you make. It won’t be a problem when your estimate is higher than the actual cost, but when it’s lower, then you might end up either compromising the quality of the building just to meet the budget or shelling out for the deficit.

And you don’t want that – funding a project when you should be gaining profit from it.

Many budgeting mistakes start with the wrong project estimate. The builders’ schedule is a vital element in making a correct estimate, first, because construction labor is one of the most expensive components of the project; and second, because it defines the materials, equipment, subcontracting needed as well as the length of time they should be used.

This is why the builders’ schedule should be well-planned. And we always mention using some tools to help you write a good schedule. Then track them later on with a scheduling app like Pro Crew Schedule so you are sure that the operation stays aligned with the schedule and the allotted budget.

But the problem isn’t just on the poor estimation of the construction team. Sometimes, contractors are tempted to give a low bid because there are clients out there who choose the lowest bidder. This only encourages inaccurate estimates.

We have already reiterated enough how poor estimates can lead to major problems when the construction is already ongoing. One is resorting to poor quality materials that can affect the overall safety of the building. Another is misunderstanding between the client and the construction team that may later lead to litigation.

So, resist low-ball bids. It may make the client happy during the bidding phase, but it can kill your reputation when you end up delivering an unsafe or low-quality building.

2. Flawed Project Design

Mistakes in a construction project can be traced as far as the project design. The project manager and contractor can work together to come up with an accurate estimate, but when the design is flawed, then this accurate estimate also becomes incorrect. But this couldn’t be avoided most especially when the client uses the design-bid-build method of construction.

The unfortunate part of this is design mistakes won’t just cause delays and cost overrun. Oftentimes, it can lead to a lawsuit.

The key to prevent budgeting mistakes due to incorrect project design is to double-check and triple-check the drawing. Have your engineers review the design before writing the estimate so that time won’t be wasted when you jump to estimation first. When you find mistakes, report them at once to the client so that he can have the drawing corrected by the designer. And if you can, use BIM to give you a more detailed report on what could be wrong with the design.

3. Chances for Change Order Not Considered

Previously, we discussed change orders, their causes, and their effects on the project and to the reputation of the construction team. And we mentioned how a change order can affect the schedule and the budget.

When writing the contract, always see to it that provision for change order is added. You can’t always predict everything that can happen to your operation so give some allowance for mistakes.

A costly change order can be avoided, though. When you are able to detect errors in their early stage, then you can make quick adjustments, so they won’t end up becoming fatal errors. So prioritize having a smooth flow of data in your project. Document every process done at the site. Make this possible with the use of construction project management software like Pro Crew Schedule.

4. Neglecting Signs of Delays

Time is equal to money in construction. Every hour of crew members is paid and so is the equipment rental. So, make proper use of time at the site. And to know whether the time at the site is used properly or not, you should have a builders’ schedule as your guide when assessing your crew members’ activities. Use a scheduling app to track accomplishments. When their output is far less than the schedule you set, then this is a clear sign that delays will soon happen.

To make your people accomplish more, motivate them by recognizing their efforts and achievements. Try to offer monetary incentives too for those who have the most accomplishments in a month. And make them accountable for their tasks.

5. Poor Communication with Client

Communication within the project team is very important. This ensures that the workflow is smooth, and everything is going as planned. Continuous communication can also prevent errors by keeping everyone on the same page, most especially when there are change orders or updates on the plan or schedule.

This goes the same with the client and the construction team. Issues encountered at the site that may affect the plan, schedule, and budget should always be reported to the client. This prevents misunderstandings that can lead to litigation. Working closely with the client’s design team will also help prevent errors. Finally, open communication helps the project team secure the funds they need when change orders happen.

So, share documents to clients whenever needed. Be transparent and make sure that you are both on the same page too. Use a digital communication tool that allows file sending so it will be easier for the client to understand your concerns and provide any assistance you need from him. You have a common goal of achieving the best possible structure from the given budget so do not hesitate to report to the client.

6. Management Mistakes

Poor construction crew management can also destroy the budget. When your members are not directed properly or when they aren’t provided with the right schedule, then they are bound to make mistakes; when you don’t track what they do, then they may build the habit of relaxing at work. When you don’t call them out for their mistakes, then they may continue doing the wrong process. All these can lead to delays or errors that may destroy your budget

So, when you’re overwhelmed with all the things you need to do to keep the project on the right track, get some administrative help by automating crew tracking. A simple software like Pro Crew Schedule can do that for you. It has both management and communication features, helping you stay on top of your administrative tasks.

Tips on Better Construction Budgeting

Now that you know where your construction budgeting can go wrong, you probably have an idea too on what to do to avoid those mistakes.

•         First, don’t rush the estimation process. Review the plan thoroughly and from there, right a good plan, prepare the schedule, then estimation comes next.
•         Consult with suppliers on actual prices. Review the state’s wage matrix so you can compute the budget you need for a labor cost. Decide whether you’re buying or renting the equipment you need in the project. This way, you can give factual values to your client and won’t have to use your own money to back up the deficit.
•         Hire a legal representative when writing the construction contract to make sure that there won’t be any problems in the future when there’s a need for a change order.
•         Use construction project management software that will help you track the project whether it is on schedule and within the budget or not.

The budget is an important part of any project. No construction can happen without a proper budget. But the budget depends on the estimation skill of the contractor and project manager. So, take extra care when writing the estimate during the planning stage. And when the construction already starts, then be extra mindful when tracking the costs so that you will finish the project within the budget and make the client happier, hence ensuring your true success.