Whether embarking on a residential or commercial construction project, all contractors know that budget is key. Staying on budget without cutting any corners is the top concern for clients and project stakeholders alike — but such a task requires the right organizational skills.
Creating an accurate budget actually starts before construction even begins. Regardless of the size of the project or the firm taking it on, there are a number of tips that can help any contractor adhere to their financial plans. Here are five tips on budgeting a construction project that will come in handy for any contractor.
Understand Different Types of Cost
As you begin to create your construction budget, it helps to understand cost on a general level. There are costs that will be related specifically to your project, also known as direct costs. These costs are also called “hard costs” and are made up of things like equipment, labor, and materials that will be used only on the project.
And then there are the costs that will play a role in your budget but aren’t only traced back to the project, as they play a role in your company as a whole. These indirect costs, or “soft costs,” include things like administrative spending, rent, utilities, license fees, bid and performance bonds, and insurance. Only a portion of these indirect costs will be attributed to the project’s overall budget.
Break Your Budget Down Into Detailed Categories
When creating a budget, you’ll need to be as detailed as possible. Once you’ve started to analyze your direct and indirect costs, you can begin to create cost codes for each category. You’ll need to make estimates for every single line item in your budget, based on the needs of the architect, engineers, and subcontractors.
As you zero in on the details, you’ll begin to see potential for savings across categories. For instance, if several aspects of the project require the rental of a piece of equipment, you can find efficiencies so that you don’t need to rent that piece of equipment numerous times. Instead, you’ll be able to use it to accomplish both tasks, rather than creating a redundancy in your budget.
Apply Your Experience, and Use the Expertise of Others
Trust your own experience when it comes to creating a budget. If, in your previous work, certain categories have repeatedly surpassed the budget, account for that. For example, if your geographic region tends to face significant delays during the winter due to weather, you should allot for this in your labor budget and overall timeline.
You also need to trust in the people with whom you’re working. The details of the budget will stem from the needs of the entire team (the architects, subcontractors, and engineers). If they say something is too costly, or if an expensive piece of equipment or material is absolutely necessary, don’t fight them on it. Additionally, ask others if they see room for cost savings or if they have ideas for improvements.
Ensure All Stakeholders Are in Agreement
When you feel that your budget is in a good place, you’ll need to make sure that the entire team is in alignment. Transparency is key here, and you’ll want to establish a solid paper trail not only to make sure that everyone has access to the details, but to also protect yourself against liability in the unfortunate instance that tensions arise or the project doesn’t go according to plan.
No matter the size of the project, there will be an incredible amount of detail involved. Allowing all parties access to the budget ensures they can review information in their own time without taking up your time, and ensures that you’re on the same page with your client.
Closely Monitor Your Budget Every Step of the Way
Finally, when the project actually begins, you’ll need to closely monitor every cost to ensure you’re on track. Log everything in accordance with its correct budget code, and incorporate budget-tracking technology to easily analyze weekly and monthly spending.
This hawk-eyed approach will also allow you to spot any financial issues in advance. Should an unforeseen budgetary issue arise, you can work with the appropriate parties to figure out the best workaround. You’ll want to continue being completely transparent with your client and stakeholders when encountering changes to the budget.