How to Build a Budget for Your Construction Project
Construction project management (CPM) requires careful attention to detail, especially when building a budget for a construction project. Unlike other industries that have mainly fixed costs, the nature of the construction industry requires a lot of moving parts. These variable costs, like labor, materials, and equipment, for example, can fluctuate not only from one job to another, but even within the same job. And a seemingly small miscalculation in budgeting can mean the difference between profit and loss. This requires CPMs and onsite supervisors to maintain quality control and manage costs effectively to minimize project delays and cost overruns.
Labor is the biggest cost of a construction project and the most difficult to estimate. On average, labor accounts for 40% of construction costs. But in tight markets with labor shortages, the cost of skilled labor can easily escalate to 50%. Other factors such as weather, late material deliveries, worker productivity and other manpower challenges can also affect the most conservative labor estimates.
Approximately, 30% of construction cost will be for materials. Establishing close relationships with suppliers and subcontractors is vital for controlling materials costs. The need to estimate type and quantity of all materials required to complete the construction project is vital to avoiding waste and shortages that can eat away at profits. Realizing an extra ton of rebar is needed in the middle of a parking garage project, for instance, can increase materials, labor and other costs when you have to pay a higher price for delivery and overtime to minimize construction delays.
Equipment & Machinery Costs
Whether building a school, an office building or remodeling a restaurant, every construction project requires a variety of heavy equipment and machinery such as cement trucks, excavators and dozers that will need to be allocated in the budget. For large construction projects it may be helpful to sub-categorize equipment and machinery costs under each phase of the construction project.
Insurance, Permits and Inspections
There are a lot of fees and payments like liability insurance, building permits and inspections that unavoidably pile on construction projects. There may also be interest payments for equipment and machinery owned by the general contractor. Regardless of how big or small these fees may be, it is important to account for each one when building your budget.
Even the best estimators make mistakes and there are always unexpected expenses that seem to appear out of thin air. Allocating approximately five to ten percent of your total construction budget towards these contingencies will help protect your bottom-line while still remaining competitive when bidding your project.
The key to building a realistic budget for a construction project is the full understanding of the requirements and delivery method for each project and appropriately allocating each cost. Be flexible and watch out for those hidden costs that can creep up on any construction project.