People are often intimidated by the mere thought of managing budgets because of the boring charts and long spending reports. However, when it comes to managing construction, a project’s budget plays a huge role in how it will progress and be completed. A construction budget comprises a million moving parts, and one small problem can cost a few thousand dollars if not budgeted properly.
A good project budget is more than just bucks and cents. It would help if you thought about everything, from the initial project planning and conceptualization to the final project handover. How your budget is doing can show you how well the project is progressing and if it is going on track. It is a way to show what your team is doing and how well they are doing it.
Nowadays, general contractors and project managers have utilized construction software to get a clear overview of their budget and get valuable insights on what works and what does not in real-time. It also gives you hard numbers that you can use to measure your process and get better at planning over time. In this article, let us look at a construction budget, why it matters, and a few tips on keeping your project within budget.
Defining a Construction Budget
A construction budget shows how much money can be spent over time for a particular project, like a building or a remodeling project. It estimates the amount of money you need to do the project from beginning to end, including all direct and indirect costs that may come up along the way. Most of the time, the process will start with a Bill of Quantities from a quantity surveyor. This list will show you all the materials, labor, equipment, and services you need for the project. It might have a general plan for how the money will be spent and a list of what it will be used for. There are things to consider, like preparing the job site, which can involve costs like removal, machine rentals, permits, and inspections. However, even though the budget tries to predict all the construction job costs, you should leave some room for emergencies coming out of the blue.
As soon as the job starts, other costs start to show up. There are prices for labor and safety rules for everyone who works on-site. Costs can also come from getting around. There will also be different prices for building homes and businesses. All of these things must be thought about and figured out.
Why It Is Critical To Manage Your Project’s Budget Efficiently
There is no such thing as unlimited money to spend. Regarding construction, stakeholders invest in the project and want to profit. So, going into any project without a budget is a sure way to spend too much money and even hurt your organization’s bottom line in the long run. This is where accurate funding comes in; it dictates how much you can afford to spend and its effect on your company and your project’s profitability. It is also a great way to ensure your job stays on track while it’s being done. The longer a job takes to finish, the more costs that need to be tracked.
Managing your project’s budget well can help you:
Control The Project’s Scope
Every project manager has had to deal with that one client whose needs keep changing, resulting in an increasing pile of change orders. Efficient budget management lets you see if these changes fit within the project’s original scope or if you need to talk to change expectations and revise the budget or the schedules.
Cost and Expense Control
If you keep track of your spending as you go, you can catch any overages before you run out of money and cannot finish the job. Changes in the budget can be controlled if you see them early before they become a significant problem.
When results are linked to project spending line items, it is easy to see where you are on each job. For example, if you need to buy some paints or other finishes, it must mean that you are already in the finishing stages of the project.
Way to Efficiently and Effectively Handle Your Construction Project’s Budget
Now, you know how critical it is to efficiently and effectively handle a construction project. You might feel intimidated but do not fret! Even the most seasoned general contractor or project manager must make a detailed plan to monitor everything and keep it within budget.
One of the main reasons why contractors do not make as much money as they want is that they need to be more positive about their returns. When creating or checking a budget or estimate for a building job, you must question every claim made. No matter your project’s uniqueness, other projects will be like it. If you look at the costs of past projects with the same goals and aims, you can learn a lot about preparing for your new project.
This section lists several tips and tricks to manage your budget and keep it on track.
Learn About Your Project’s Costs
When trying to figure out how much a project will cost and how much it will use up resources, it is a very difficult problem to solve. The best way to do this is to determine how much you will need for your direct and indirect costs.
Do Some Planning
Start by making a full plan with your project team and anyone with a stake. While in this early stage, you still will not have numbers to work with, but that is fine. It would help if you listed your project’s scope and deliverables to clearly outline how your projects will progress. You must make a step-by-step plan for each product to see the required resources.
List Down Your Required Resources
Time is money, and tools like equipment, materials, and resources are also worth money. Your team will need at least one of these things for every step. Make a list of all the help you need under each subtask like this:
How many people from inside the company will work on the project, and for how long? Will you also need to hire people on their own? You can use a construction crew management system to clearly explain how many people you need at a specific time or activity.
Equipment and Licenses
What skills do your workers still need to learn that they will need to know? What tools will they use, and how long will it take to learn these skills? A construction project often requires a lot of heavy equipment, so you must also account for this.
If you need help, will you hire managers or other experts? Do you need to work with specialty subcontractors or trade partners? Working with many teams across multiple projects can be complicated, so you might need subcontractor scheduling software to boost communication and collaboration and ensure everyone is on the same page.
Put A Price Per Resource
Once you have broken your project into all the needed resources, it is time to determine how much these resources will cost.
You can give each product a certain amount based on how many resources it needs. To get a good number, you will need to predict work hours, worker rates, and the cost of tools. You can also find a past project similar to the one you’re planning for now and use its real costs to estimate what you will need for this project to get an idea of how much it will cost.
Document All Your Costs and Budget
You can make a formal budget paper once you have your products and their costs. It should include all your activities, duration and due dates, resources needed, and how much it will likely cost.
Based on your project schedule, you can tell when you plan to spend money on each resource. Using software can help you have a centralized data hub to write down actual prices and when they were finished, so you can keep your budget up-to-date as the job goes on.
Secure Approval For Your Budget
You can show your budget to a client or give it to your boss or other important people. Make your request fit the crowd.
But make sure you include details that show how your budget will get you the results you want from the project and how a drop in funds will force you to change the scope if the budget stays the same. A detailed budget plan is the key to providing full transparency to the owner and will make it easy to explain why you need a certain amount of money for your project.
Review, Monitor, and Evaluate Your Budget
Your budget can only help you keep track of your work and save costs and scope under control if you keep it up to date. You do not have to update your budget right after every buy, but you should set aside time to add costs and see if you are getting too far away from what you thought it would cost.
If you find big differences between what you planned to spend and what you paid, find out what went wrong first. Make sure that any changes to your project budget are written down, along with notes about what went wrong, so that you can remember what went wrong and spend money more wisely in the future.