How to Create a Construction Project Budget

How to Create a Construction Project Budget

Construction project budgets notoriously go over budget. Whether that’s because of construction technology, unforeseen challenges, or poor planning. Better estimates and better budget management should be the driving force in the creation and perfection of a construction project budget. As Matti Siemiatycki points out in his study Cost Overruns on Infrastructure Projects: Patterns, Causes, and Cures, that estimators tend to underestimate the time and costs needed to complete a project. With that in mind, these steps will simplify construction project budget creation with consideration to overruns.


What Goes into a Construction Project Budget?

A common anecdote around construction projects is that they run over time and budget. However, many reasons behind why projects run over budget are poor budget and project management. Inaccurate project estimates, design errors, lack of contingency budget, administration errors, are common errors that lend to projects running over budget. Project managers should consider the cost of construction, property, related fees and taxes, planning costs, insurance, and the contingency budget when building a budget. Along with research, development, documentation and proper management can help create a good construction project budget.


Project Research and Analysis

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Like with any project, research helps project managers develop their construction project budget. Research helps determine what will factor into the final cost of the project. The first step to creating a project budget is understanding the project. Knowing what the goals and requirements of the new building are will guide the project. Next, things like site conditions, cost of resources, design options, and existing documentation develop the specifics of the project. These help set realistic expectations for the project if the site conditions or code requirements might change the overall costs.

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Project Development

Once projects are through the research stage, they enter development. This is when ideas become models and designs. From here the final design is picked, and the project designer or manager must create a requirement list. This should include the required materials and estimated project costs. Using final costs from similar projects and in similar areas can also help the manager prepare a better cost estimate. These estimates provide two important sets of numbers. It tells the project manager how much a bid should actually be. But it also provides a good foundation for setting a contingency budget.


Pre-Construction and Documentation

construction project budget

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This might seem like an unusual step in a budget since usually a budget is put together before the preconstruction work; however, this will help prevent as many issues down the road. By talking to the contractors, architects, utilities, subcontractors, and others involved with the project, a project manager can pinpoint any possible issues or hold-ups. From there they can find fixes or other ways to resolve the issues. This gives the project manager a chance to see where unexpected costs could occur and estimate the true cost of them.


Contingency Budget

Project managers should draft the contingency budget after the project costs calculations and issue mitigation. A contingency budget is where change orders and other changes or additional costs are drawn. The contingency rate is what pads the budget and helps smooth any issues. While a typical contingency rate is between 5%-15%,  it’s dependent on the level of comfort. Too little and many project expenses will come directly out of pocket, too high, and the ability to raise funds could take too long. However, a contingency budget isn’t just for unexpected costs, but also for owner requested changes and design changes. These can add more costs to a project’s total. And having some room built into the budget for them stops these expenses from coming out of pocket.


Construction Project Budget Management

The last step is keeping the project on time and on budget. While your plan should encompass most foreseeable and many unforeseeable events, careful monitoring of change orders and reports will help manage your budget. A study on Cost Overruns on Infrastructure Projects found that poor project monitoring was a cause to budget overruns. Without the appropriate oversight and monitoring, it’s easier for projects to slip further off budget. Implementing a strong job progress report to track project completion and performance should eliminate many budget overruns. While too many meetings can cause delays, project managers should be up-to-date on all projects and make changes as necessary.

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Posted in Construction Software.