7 Tips For Managing A Construction Budget Effectively
Updated: Jul 28
The construction industry loses billions of dollars each year through avoidable errors. Most construction projects never go as planned. Apart from errors, there’s always last-minute changes, supplier troubles, uncontrollable weather conditions, or other unforeseen circumstances.
By their nature, construction projects can be quite burdensome, both logistically and financially. Their success usually hinges on the creation and commitment to a comprehensive construction budget. A construction budget allows you to plan ahead for the expected and anything unexpected.
Having a construction budget, however, is not the end of it. Things could still go wrong, and you may still incur losses if you don’t manage it effectively. You not only need to see to it that you make accurate estimates, but you need to stick to them for a successful project.
To make things easier for you, we have compiled a comprehensive guide with the most effective construction budgeting tips.
1. Plan Accordingly
When it comes to construction projects, everything hinges on the plans you make. You need to start with a good plan, which should begin with research. Understand the goals you want to achieve and all the requirements that will complete the building.
Beyond this, you also need to assess the construction site. Note the current weather and anything that must be done to prepare the site for the project. Calculate all costs involved, from the materials to equipment, design, documentation, and labor.
This plan will help you create an effective construction budget. The plan needs to be comprehensive enough to include everything. Consider all the requirements, your schedule, communications, finances, change orders, procurement, and quality control.
2. Make Accurate Estimates
One of the most significant reasons why people flop their construction budgets is because they fail to make accurate estimates. You need to make sure you’re on the safe side before the project commences to avoid stalling halfway through.
Construction is, hands down, one of the most expensive endeavors people go through. It’s understandable why you may want to go with the lowest bids. However, the wrong forecasts will flop the whole project.
The money you spend on the construction will be nothing compared to how much you’ll lose with inaccurate estimates. It’s vital that you take a look through past orders to get a baseline of what’s to be expected. Check all the price changes and whether you should look for new vendors for this project.
Check with your contractors and subcontractors about their rates and have a risk contingency plan that will cover any surprises.
3. Embrace Digital Tools to Prevent Overages
Overages are very hard to contain once they get out of hand, so preventing them is a lot better. The thing is, paper-based processes are a major concern in the construction industry. Embracing digital tools could take you a long way. Some of the best things about digital tools are that they support cross-team collaborations and document management.
You will have more power to make smart decisions in a reasonable time frame. This will keep you from incurring unnecessary losses. It’s imperative for you to digitize all your operations, going from procurement to project management, finances, budget management, on-site reporting, and accounting.
4. Account for Change Orders and Scope Creeps
If you can be sure of one thing, it’s that your budget is highly likely to overrun if you do not consider change orders or scope creeps. Most construction managers fail to consider the fact that the projects may change halfway through. However, clients tend to change their minds quite a lot.
Change orders can especially be difficult to handle when it comes to a construction budget. Clients may realize that some of the materials don’t look as good as they thought. These changes contribute to major overages that could do a real number on the initial construction budget.
The best thing to do is to have a contingency plan. Lay out all available options that the clients want and discuss them with the designer, finance team, and anyone else involved in the decision-making process. This is where you release your contingency funds.
You can also explore scope reduction options and find lower-cost labor if you must to maintain the budget. Some things will be out of your control, like client change orders or harsh weather conditions that damage materials. For this reason, you need to prepare during the contract phase.
5. Hard Costs vs. Soft Costs
It’s only possible for you to make a realistic construction budget if you calculate both the hard and soft costs. The hard costs include the physical aspects of the project. These include the plumbing, electrical, mechanical HVAC, and site preparation.
Soft costs are usually unrecognizable for most people, but they are just as significant. They include taxes, certifications, insurance, financing, legal fees, and budget design. You also need to factor in other costs like demolition, land costs, environmental compliance, and surveys.
6. Communicate Efficiently
Communication with everyone involved is essential because you’re dealing with a large-scale project and tight margins. You need ongoing communication through the project. You also need to be transparent if you’re to maintain your budget.
It’s crucial for you to explain what you need from the suppliers, clients, contractors, and staff, and in what time-frame you need it.
Any misunderstandings will lead to missed milestones, additional labor costs, and wasted materials. These will compromise the construction budget. Use digital communication tools as well and ensure they have mobile solutions.
7. Leverage Experts
Completing construction projects successfully involves multiple experts. It may help if you consult a budgeting expert as well. Despite estimating all the soft and hard costs, an expert could help you make a more realistic budget.
Many people specialize in budgeting jobs, so you’re likely to find one suitable for your project.
How to Create and Manage a Construction Budget
Creating and managing a construction budget can seem like a daunting task. Considering how many things could go wrong, it’s not easy.
However, the trick lies in considering everything that could go wrong and preparing for it in advance. This means including a contingency plan and funds in the budget, which will save you a lot of trouble.
If you would like to have your construction budget simplified and digitized, please get in touch with us today!