Most construction companies dream about exceptionally profitable projects with reasonable spends-revenue ratios and cost-efficient budgets. But how to develop the financial plan correctly to avoid unexpected expenditures and losses? We are going to take a closer look at the construction budget planning together.

Components of a Construction Budget

It is worth noting that there are five main components of the average construction budget. They are hard costs, soft costs, permits & fees, contingency, and general conditions of the project. Let’s review all these aspects that play an important role when it comes to project profitability.

Hard Costs

Speaking about hard costs, these are actual figures for construction that cannot be neglected from the very beginning. Among them are expenditures planned for equipment purchase or rentals, labor costs, and material value. This is the baseline of the project bid subcontractors, contractors, and suppliers estimate and agree.

Soft Costs

Soft costs are supplementary but also very important expenditures to take into account for the construction budget. These are architectural and engineering costs together with insurance and bonds, fees, and other payments. Note that these expenditures and plans are specified usually by service providers. Here, it is possible to discuss the terms and the schedule of the performed project.

Permits & Fees

Permits & fees are calculated individually for every project. Remember about local jurisdiction and other legal backgrounds while pretending on the order with the bid. Additionally, permits and fees depend on the size of the construction project. The construction budget should include all the obligatory payments that can be added to the database and template portfolio of reports.

Contingency

The extra funds should be reserved for unexpected circumstances. For example, some force majeure situations can take place like broken machinery, failed supply chain, unforeseen weather conditions, incidents, etc. Some commissions and fines should be paid in case of project delays. That is why contractors and subcontractors should include some money for these expenditures in their construction budget.

General Conditions

There are auxiliary expenditures that always take place when it comes to each construction project. Among these costs that are presented in the budget are time-to-time utilities (not regular), supervision spending, project management, and other payments that are not fixed (e.g. rental costs or a range of administrative budget items).

How to Develop the Construction Budget in 2022?

First, you need to determine the scope and size of the project. Additionally, understand all the material costs and expenditures required for equipment purchase and rental. One more important factor that has a direct impact on the construction budget is the quality of design and software subscription.

These digital tools also require investments. The more progressive design programs, estimating software, and other solutions for the digitization of the construction workforces and environments, the larger the budget item is expected.

Do not forget about project schedule routines. Note that shorter terms are less expensive. More long-term projects will not be cheap. But do not specify too limited a schedule because delays and imperfections in the rush can ruin your budget plan and affect the profitability of the order.

Here is a list of recommendations for contractors who are interested in good revenue and risk-free development of budget plans:

• * Pay attention to the status of the owner. You can save some money with special insurance, bonds, reduced taxes, and wage rates.
  

• * The initial stage is the measurement of the building object's square footage. Use digital tools like drones, laser projectors, and other devices that simplify the measuring of dimensions.
  

• * Then, you can determine the cost per square foot for the project. This is the baseline of your project budget.
  

• * Think of the trade and supply chain map to set up the first spreadsheets for your construction estimating software.
  

• * Add general condition costs and supervision expenditures to the draft of your budget plan. Try to understand the most optimal pricing taking into account all the temporary payments on this stage of development.
  

• * The list of scopes is specified. After that, it is high time to pay attention to material and labor costs. Do your first estimating reports in the context of these aspects.
  

• * Find subcontractors you would like to cooperate with. Compare their pricing and estimate their bid invites. If you are satisfied with subcontractors’ scopes, approve quotes and add all the costs to the budget plan.
  

• * The same story is about suppliers and other parties of the contract. Pick sides with pricing and add to the budget plan.
  

• * Use cost tools to compare final prices with the desired/planned costs. Try to correct all the weak spots detected by the estimator to have target profits.
  

• * Predict some challenges you might face (bad soil or weather conditions). Leave some money for additional expenditures for machinery rentals and extra materials to restore anything on-site.
  
  

The final stage is revising your budget and discussing it with your top managers. Ask your department leaders to suggest improvements to hasten target revenues. Use these above-listed tips for accurate budget planning.

This article was distributed by Conwize https://conwize.io.