What is the construction budget?
The construction budget is an estimate of the money required to carry out a construction project from initiation to closure, including all related costs and expenses incurred during the construction process.
While a budget is an attempt to estimate all costs in a construction project, you should leave some wiggle room to account for emergencies or unforeseen building costs.
The cost estimation method commonly used in construction projects Parametric estimation.
The parametric estimation method uses historical data and statistical modeling to estimate the costs required for a project. This is much more accurate than analog estimates but requires more initial data to accurately assess costs.
The accuracy of this method depends on the available data and whether the model is scalable or not for different conditions.
If you want to know about the other estimation method, you can read this article about Project Budget Template.
Guide to Budgeting Your Construction
Typically, 5 phases in the construction project management life cycle overlap with each other to deliver the completed project.
The construction project life cycle is divided into these systems/phases: Pre-project Phase (Analysis and Discovery), Planning & Design Phase, Contractor Selection Phase, Documentation and Pre-Construction, and Construction and Project Closeout.
Analysis and Discovery
First, form a team to prepare a construction budget. Budgeting requires more than one person to be able to provide an internal perspective on the company’s financial condition (team members are trusted by the CFO to represent that point of view) or from an external point of view.
You will need to research and analyze the objectives and requirements for this project. You must have detailed information about the project. To help increase the accuracy of the amount of construction project costs you need, you should review historical data for similar projects, talk to suppliers, and understand the project you are about to start.
After that, you can start budgeting with specifics, and if necessary can evaluate the condition of the site and existing documentation.
Planning and Design
Next, you need to define the scope of your project. You can start by discussing with architects and their design consultants to help you determine the shape of your project.
Here you can explain the concept of your project to design consultants and architects. Then you can request creative options for your project, along with models and drawings.
Once agreed you can compile a list of what points you need to carry out your project.
At the end of this phase, finalize your project budget and schedule, then start seeking bids from potential contractors.
Contractor Selection Phase
In the contracting industry, there are commercial contractors and residential contractors.
The two construction services have differences based on the use of materials, project deadlines, equipment needed, codes & permits, and also different costs.
Residential construction refers to buildings that are designed to be lived in, such as a home construction or home renovation project. If you want to know about home construction, you can read and download our new home budget template here.
Commercial construction is carried out for businesses that may require new office buildings, additional establishments, or industrial facilities
You have to adapt the contractor to your construction project well. So that you can optimize the costs you spend on your project.
Documentation and pre-construction
After you have done the design and development phase, you need to get approval for the final design and budget for the project.
You can get approval from your supervisor who understands or is responsible for this.
Before approving, make sure the party understands the project you have.
You can hold meetings with all stakeholders (contractors, architects, utilities, etc.) to discuss the project, assess potential issues, and work to resolve them. This will reduce risk early on and help keep your project budget and schedule more precisely on the track.
Keep all documentation for permits, regulations, deliverables, and contracts in an organized location. Prepare and submit all necessary documents
When managing pre-construction, everything must be properly documented and tracked. Visit the site as often as possible during demolition and pre-construction to ensure everything runs smoothly and according to your planned schedule.
Use tools like Construction Documentation Tracker, Subcontractor Documentation Tracker, and Daily/Weekly Site Inspection Reports to track work in progress, so there are no questions or uncertainties when resolving issues with contractors.
Construction and Project Closeout
Building and closing contracts will almost certainly be the longest phase of the project. You should always monitor development and ensure that progress is always close to the projected target time and budgeted costs.
During the execution of the project, changes may occur. Keep logs and record detailed change orders to ensure that changes can be tracked. In addition, you need to identify trouble spots beforehand to assist you in developing solutions.
Keep all stakeholders aligned, from contractors to utilities. Track your submissions and any materials used. This will help keep your contractor’s progress payments on time, accurate, and fair for work completed. Prepare punch lists, sale checklists, warranties, and necessary inspections.
For this final phase, use smartsheet templates such as Time and Materials Invoice, Construction Punch List, and Project Closure Checklist to help you manage these steps.
Another article about Budgeting : Construction Estimate
Manage your Project Management Budget
After the project design and your project budget are approved, the next step is to run your construction project.
In running a project, of course, there needs to be control and regulation, so that your project fits your project design and there is no cost overrun. In the implementation of projects, of course, changes in plans often occur that can interfere with your expenses, therefore you need to manage your expenses properly.
Here are some things you need to do to avoid overexploitation of funds in your construction project
Many factors lead to the success and failure of a project. One of them some costs are too over budget. In project implementation, it is necessary to have control in minimizing the factors that cause the failure of a project.
Controlling is a subfunction of project management that focuses on two things – cost and schedule. Controls are there to monitor the project and ensure that it is going as planned without any outstanding deviations from its original plan and budget.
Reasons why it is necessary to carry out control in carrying out projects.
A project that overbudget budget indicates that the controls carried out is not appropriate. Due to additional costing, there will be changes in profit margins, changes in productivity due to opportunity costs, and financial stability due to decreased liquidity.
Check the project status regularly and make sure
This activity is an important part of project maintenance that should be practiced by project managers. Receive every update systematically during the project phase, from project initiation to project closure. This activity is done to see if spending is in line with trends and can help identify problems quickly. If a cost increase is found, it is important to address it and fix it as soon as possible.
Manage any changes and communicate them
This is one of the things that is often underestimated when managing projects. Project management specialists understand the importance of communication and how processes affect stakeholders. The slightest change can have a significant effect on increasing costs, making you waste more on your budget.
The change management specialist must work with the project team to identify, document, and communicate appropriate strategies for dealing with any internal and external changes that have the potential to increase project costs.
Tracking and reporting
You need to keep an eye on every expense you make and track it. In addition, you also need to organize the receipts that you get. Each of these receipts can help you to track every expense you make and confirm it with the budget you have previously made.
When budgeting your construction project, you should have a budget contractor template to help you do your job.
Here you can use our construction budget worksheet template for free in a pdf.