Construction budgets: a guide (with examples)
How do you ensure construction projects are completed on time, in full, and on budget? It all starts with the budget itself.
Builders, laborers, and home renovators need to give clients and team members a clear project plan, including costs. Same goes for landscapers, plumbers, and really any contract work.
In this article, we’ll explore the construction budget basics, including what should be included and why they matter so much. But first, a little story…
A quick story about Nick
Nick's superintendent for one of the largest construction companies in the US. The conversation began with a complaint about recent project management mistakes that had caused huge delays on a building site.
Nick and the project manager were dragged into the office to account for a missing piece of equipment that led to thousands of dollars worth of losses. They were berated for poor organization and budget management.
The whole thing was a mess.
But with better basic budget considerations, this fiasco could have been avoided.
Budget tracking - alongside a contingency budget for when costs run over - helps keep the project plan on track. It keeps investors happy, contractors paid, and ultimately helps you deliver a successful construction project.
Here’s what a good construction budget should include, and how to stay on target.
What is a construction budget?
A construction budget lets you manage the funding and ‘profit-cost’ planning related to your property development.
Your project budget encompasses the cost of features like materials, labour and official documentation. It strives to accurately estimate the entire expenditure of the project from start to finish.
And without a good construction budget, it will prove difficult to get works off the ground and completed on time.
Generally, stakeholders and investors require a detailed budget plan for your construction costs prior to approving the project. Profits and overheads must be clearly laid out in order to provide value and predicted return on investment.
The more accurate a budget is to true cost, the easier and faster project completion will be. It is, however, important to remain flexible. Your construction budget must allow breathing room for unexpected costs, including accidents, breakages or inflation of materials. This was the downfall for superintendent Nick and his team on their most recent project.
Why is budgeting important for contractors?
Budgeting is one of the most integral initial steps for contractors undertaking construction projects. It's not just a "cost plan" - your estimate affects a number of key outcomes that rely on the overall success of the venture.
Good construction budgets make it easier to achieve several goals.
1. Work efficiently
Nobody likes delays. They impact cash flow, working capital, and ultimately the bottom line.
But a good budget seamlessly integrates into the timeline and schedule of the project. With key budget provisions and access to the right funding, capital is unlikely to become a barrier to progress.
To double down on making and tracking a realistic budget, a good productivity software is recommended. Not only will this help measure how well you stick to the budget, but you can also project final outcomes.
2. Keep costs in check
Your construction budget should consider all areas of expenses to give an accurate and well-rounded view of the project. By planning out these costs in advance, you come from a strong position to make sure they’re reasonable.
Pre-planned costs allow for a period of time to compare and contrast between suppliers, manufacturers, even machinery producers. This way, you’re likely to get “more bang for your buck” and exercise spend control to reduce expenses where possible.
Inevitably, a lowered estimated cost with the same outcomes leads to higher profits. So it pays to give yourself enough time to create a detailed construction project budget. This also helps to keep clients happy with your service.
3. Report easily to clients
A traditional construction budget template can be confusing and too complex for investors. In spite of this, your stakeholders will need to understand where the money is going, and why.
Good budgets are clear budgets; in that they are transparent with both expenses and timelines.
Spend management systems let you integrate and automate reporting based on the data you’ve gathered. Avoid getting bogged down with budget research, statistical analysis and confusing charts. This software allows you to consolidate all the information in one place and present complex spending decisions in a simple way.
Realistically, many of us experience emergency costs that were not planned in the budget. Luckily, Spendesk budgets even work with real-time updates so that, when plans change, you can react accordingly and immediately.
What should be included in your construction budget?
While all jobs are different, there are a few common components that you’ll find in most construction budgets.
1. Pre-construction costs
Before the work even begins, your project will incur some costs. That's the same whether you buy a house or build one.
Unfortunate as this is, they should be fairly simple to plan for. Pre-construction costs typically include the likes of 'soft costs' such as:
Land surveys or a quantity surveyor
To gather accurate information on the forecasted prices of these features, you should work from historical data. There will be a number of online resources that fit the distinctive nuances in your city and state.
Alternatively, to get a more authentic idea of the specific costs relating to your project, why not make enquiries to compare different service providers? This way, you can determine the best price and reduce your predicted overhead costs immediately.
2. Fixed expenses
Next, we consider the expenses related to the actual building work and development, also known as the hard costs. This is likely to include equipment, materials and labor costs.
Another aspect to consider is the land preparation costs. For example, are there pre-existing buildings that require demolition?
Fortunately, experienced construction consultants often build relationships with suppliers after repeated business. This opens the door to discounted or wholesale prices for material costs, which can significantly decrease the budget allocations in this area.
Savings in this area can accumulate throughout the budget plan in the form of cost control. Alternatively, you could use the extra funds towards a better finish, increasing the value of your property. Either way, it should lead to more money in the pockets of all stakeholders.
Labor costs are fixed, but depend on the length of time each worker is required. Delays to the project are likely to increase labor costs, with workers required for more days and weeks than originally planned. On top of their salaries, you're liable for vacation, medical and pension contributions. Alternatively, a clear, detailed budget is likely to reduce the risk of delays and lead to savings in the construction process.
3. Profit projections
A robust business budget includes revenue and profit predictions alongside expense forecasts. The primary benefit of having this paper trail means that there’s an easy explanation when extra costs arise. This creates a smoother overall process and should facilitate good synergy between contractors, accountants and stakeholders.
Profit predictions usually fall under the responsibility of the construction project manager. But, in Nick's case, it was clear that the superintendent position held just as much of the liability.
As agonizing as it was for Nick, the construction industry is often plagued by the types of problems that his team faced.
So, avoid the fiasco of missing equipment on your similar project by investing in good budgeting software to regulate your construction budget and build real estate success, every time.