Construction Budgeting 101
Construction projects, by their very nature, can be burdensome, both financially and logistically. Yet a project’s success often hinges on creating and sticking to a comprehensive budget. Creating a construction budget allows you to prepare for potential delayed completion dates, owner modifications, unforeseen structural problems, and other hidden costs. A little time spent estimating construction costs saves a lot of time (and money) in the end. Insufficient planning is one major reason why projects fail!
Project Planning and BudgetingThe first major step in creating a budget is to sit down with the client/owner of the project and discuss specifics of the project. The owner should have an achievable vision for the property, including its primary use, general design ideas, desired completion date, and a rough cost tolerance. One should gather as many specifics from the owner as possible to ensure that the estimated construction costs are relatively close to the finalized budget. Once the budget approaches finalization, you should begin blueprint drawings, either through internal means or via a contract with an outside vendor. Note that this budget - even if not completely finalized - may later be used as an effective tool for measuring how the project is performing at a given point.
Basic Budget ConsiderationsThough some construction projects may be more complex than others, you may find the following list of general budgetary considerations helpful:
- Permit issues include adequately addressing permitting involving zoning, survey, land disturbance, electrical, mechanical, plumbing, environmental, and department of transportation.
- Insurance considerations include whether general liability insurance is sufficient or whether job-specific or business-specific policies are necessary. Also other important policies are builder's risk, wind, flood, and inland marine for materials purchased but not installed.
- Blueprint drafting and review issues include payment to architects and engineers, engineering, design and development of a bid set, client review and review times at any given municipalities.
- Interest and fees may be difficult to estimate, but managers should account for legal and management fees.
- Site preparation may include the cost of excavation as well as labor and machinery costs as well as erosion control and monitoring of erosion control.
- Foundation issues include soil condition, stability of ground, and compaction requirements.
- Exterior considerations include windows, doors, seismic zone, and insulation (sound or temperature) requirements and design and review boards for local city.
- HVAC issues include accounting for building type, height, occupancy, and other special system requirements, load requirement and manufacturing city.
- Interior considerations include floor-to-ceiling heights, spatial area, and special finishing requirements.
- Contingency allowances are a way to account for unforeseen costs. A good rule of thumb is to reserve at least an extra 5% of the budget for such costs.