How do you manage a construction project budget? ? Alexander Project Management are self build consultants for Leighton Buzzard, Bedfordshire And Buckinghamshire. We look at how to plan your construction budget and why construction budgeting is important.

Planning Your Construction Budget

Construction project managers can plan a project budget in several ways, with experience dictating which method works best for different projects. 

One of the most common budgeting methods involves splitting your funding for project development into two categories: hard and soft project costs. These are essentially direct costs that relate to the physical building of your project (hard costs) and indirect costs that aren't related to physically building things (soft costs).

You might also think of your soft costs and anything required before or after the construction work is finished. Some people will also refer to them as "intangible expenses", and they usually equate to around 30% of the total budget for a successful construction project. The remaining 70% belongs to your hard costs, also referred to as "brick and mortar expenses". Some projects can be a tremendous undertaking, meaning your hard costs can sometimes be considerable.

Whatever your building structure involves, whether you are building a house, road, bridge or whatever else it might be, hard costs are usually easier to calculate. This is because the goods these actual costs refer to, such as building material costs, have a fixed price. Therefore, anything that isn't a physical material with a pre-determined price can be considered a soft cost.

Dividing your budget between these two types of costs is the best way to determine what you'll need from the very start. You will know roughly how expensive your overall project will be, with a few grey areas, such as service fees for soft costs. 

With an overview of your entire budget, you'll be in a better place to see if you've left anything out or where there might be additional costs down the line. This also makes it easier to implement cost-control measures to the expenses you can control.

What Is a Construction Budget?

Construction project budgets are a summation of the total costs of a construction project from start to finish, including all unexpected costs during project execution. They should include all the costs and expenses that will be accrued during the construction process from the initial stages until closure. 

Project managers create these budgets and contingency funds to predict the amount they will need to spend to complete the project and to set aside a portion of their realistic budget for emergencies or unexpected costs that are likely to crop up.

As a project manager, you must account for all basic budget considerations of the initial scope of your project when undertaking budget management. They will usually start with the project plan and blueprints for the final design to estimate the materials they will need. 

After this, they must consider everything for the project budget, from preparing the construction site and breaking ground to demolition, equipment and tools, securing permits, conducting inspections and unexpected building costs.

However, it's inevitable that other unforeseen costs will arise once the project is underway. Additional safety requirements and labour costs for extra on-site workers, team members and equipment operators are common budgetary necessities during construction projects. Other potential costs include those unique to residential or commercial construction projects and transportation costs, all of which must be accounted for in a contingency budget.

Why Is Construction Budgeting Important?

Accurate budgeting is one of the most important initial steps when general contractors are brought in to undertake a construction project. 

It's more than a simple cost plan and can significantly affect the overall outcome of crucial stages of your project. There are several ways that an effective project budget can make things easier for you and everyone involved, including:

What should be included in your construction budget?

Every project will have its own unique cost requirements, but there are a few common things you can find in all project budgets, including:

Pre-construction costs

Returning to the "soft costs" mentioned at the beginning of this article. The pre-construction phase costs are common for similar projects, whether you're building a house or an entire block of offices. The typical pre-construction costs you'll incur before the project begins include the following:

Since these things haven't happened yet, and their costs can differ greatly depending on where you are located, it's best to rely on historical data to account for them in your budget. If this isn't possible, you can request quotes from local providers and vendors and compare them to understand better what they will cost for your project. This will also help you find the best price, reducing overhead costs before the project starts.

Fixed expenses

Next is the "hard costs". Again, these are the costs associated with the actual building work during your construction project, including equipment hire, materials and labour costs. Building site preparation is also important to remember, such as demolishing existing buildings on-site. Most project managers will have relationships with material providers and vendors, meaning they can benefit from discounts or wholesale prices unavailable to other contractors.

These discounts can help reduce budget allocations in your hard costs, and you can make further savings through appropriate cost control. You can put the extra cash you save into better finishes for your project, ultimately increasing its value. This is a consideration worth making, especially if other stakeholders or project owners are involved.

In most cases, your labour costs and professional fees will be fixed at a permanent rate or hourly wages, but how much you'll pay depends on how long that labour is on your site. This is where delays can seriously affect your costs. On top of your worker's salaries, you are liable to contribute to holiday worker compensation, medical leave and pension contributions. But with an accurate budget at your side, you can avoid any delays and account for all outgoings from the start.

Profit projections

Alongside expenses, your project budget can also include predictions for your revenue and profits. The main benefit of these is that when extra costs crop up, you will have a paper trail to follow to explain them. This will make the whole project and its true costs much easier for everyone involved, from your contractors to your stakeholders and accountants. In most cases, like most aspects of your project budget, profit predictions are the responsibility of the project manager, but more than one person can manage them.

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Are you considering commercial renovation in Bedfordshire or the surrounding areas? Our chartered civil engineer specialises in project management throughout all stages of the process. 

Alexander Project Management work with construction companies and individual home builders throughout Leighton Buzzard, Bedfordshire and Buckinghamshire. Contact us  by following the link below.