The biggest worry that every contractor has is how to ensure their project is within the given budget and timeline. If, as a contractor, you can do this, you can rest assured that you will have a happy client, and this may lead to more work. In this guide, we will discuss budget basics and how to ensure your project is always within the given budget.
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What is a construction budget?
A construction budget is the amount of money that has been identified to undertake a given project. The money includes fees incurred during the pre-construction stage up until the project is complete.
The budget can be tracked using an excel spreadsheet or an AI-powered construction and optimization platform such as https://www.alicetechnologies.com/product/manage. Whether you use a spreadsheet or a more technologically advanced platform, it is entirely up to you. However, keep in mind that, unlike an AI-powered platform, spreadsheets lack data security, are less efficient, and make it difficult for different key players to collaborate.
Construction budgets are essential because they help the developer keep costs in check, resulting in higher profit. If you use an AI-powered optioneering platform, your clients can easily follow up on how much has been spent. Lastly, construction budgets help contractors and subcontractors know whether a project is viable.
Components of a good construction budget
A reasonable construction budget has three main components; direct costs, indirect costs, and profits. These three components form budget categories irrespective of the construction project.
- Direct costs- These are costs directly linked to the project. An example of a direct cost is labor, material, and equipment.
- Indirect costs- Indirect costs are necessary for the project to take off but are not directly related to the construction work. Examples of indirect expenses include legal, architectural, and engineering fees.
- Profits- Are calculated by subtracting the expenses from the amount of money earned.
How to keep a construction project on budget
As mentioned above, your profits as a contractor will depend on the amount of money you are left with after deducting your expenses. Therefore, it is in your best interest to ensure that your costs are within manageable levels. So how do you ensure that your construction project is within budget?
1. Use modern planning and scheduling solutions
You can use spreadsheets that are prone to errors or use a modern planning and scheduling solution. Modern technologies enable you to identify risks and have a complete view of the project’s financial health.
Another good thing about using platforms powered by AI technology is that they can help you recover a stalled project. An example of AI-powered software is ALICE Technologies.
2. Use accurate estimates
There are many estimation methods that you can use, such as the unit cost method. With this method, it is easy to add your markup, making it simple to identify how much you will make in profits. To avoid common construction estimation mistakes, you need to understand the scope of work.
As a contractor, you must understand the drawings and the specifications and qualities required by the client. If you are working on a commercial project, you need to be aware of factors that affect the cost of commercial projects.
Another factor you need to consider is the specifications in terms of materials. For example, if the client requires custom-built windows or fiber cement rainscreen, the price per square foot will automatically increase.
3. Create a schedule
A construction schedule is a timeline created based on tasks that need to be done to execute a construction project successfully. The good thing about a construction schedule is that it will have the cost required to implement a given task. This way, you can quickly identify any deviations from the original budget.
4. Ensure material takeoffs are correct
A material takeoff is a document containing a list of all materials necessary for completing a given project.
Takeoffs will affect an entire project’s budget. Therefore, double-check your takeoff to ensure there are no items that have been left out. Another thing to avoid is underestimating the cost of materials. To be on the safe side, ensure the cost is up to date.
5. Regularly review your job cost reports
One way of ensuring that your construction project is within budget is to review your job cost reports regularly. This will help you identify trends and areas where you are bleeding cash before it hurts the project. The earlier you identify these trends, the better you can sustain higher profit margins.
Job costing reports are the key to cash flow. Modern platforms can help identify unproductive labor. Ideally, the cost of labor should be equal to productivity.
6. Hire skilled labor
Another strategy to ensure your construction budget is on track is hiring skilled labor. It is better to take the time and hire the right people. Unskilled labor can affect your budget if expensive mistakes are made. In addition, unskilled labor may translate to low productivity, which might affect your schedule. To ensure your construction budget is on track, you need to ensure factors such as labor and the cost of materials are within your control. The best way to do this is to use modern scheduling and planning solutions powered by AI technology. These platforms are designed to save you money and reduce operational risks.