85% of construction projects go over budget. It is one industry where a small mistake or issue can have large consequences. While many in the industry believe it is the norm and to be expected, there are ways to keep your construction projects within budgeted costs.
Effective Cost Estimation
Construction requires bids on materials, labor, and project management expenses. Especially for long-term projects, prices for certain materials can differ drastically every year.
Utilizing technology properly can help you stay on top of cost estimation. Software like A-Systems Corp can help you track in real-time actual vs budgeted costs. It can also forecast cost-to-completion, helping you better plan for any major changes that may be needed and factor in your spending.
It is important to get accurate and relevant data in a timely manner. With so many variables such as payroll calculations, customer management relations, to accounts receivable and account payable predictions, even the most skilled general contractor may find it difficult to be on top of everything.
Leveraging technology can help you keep track, analyze, and predict the best cost estimation strategies. Often, it isn’t one major issue that forces a construction project to go over budget, but the small budget issues that add up over the course of the project.
Plan For Emergencies
It’s important to plan for emergencies and have a safe budget buffer in place. Weather and transportation delays, permitting issues, and other unforeseen problems are common in the construction industry.
Having a contingency fund can help you overcome these unexpected issues without impacting your overall profitability.
Consider Labor Costs
Labor is often the largest budget item for construction projects. Labor costs are important to balance. You don’t want to overhire, which will increase your budget, and at the same token under hiring could mean the project completion is pushed to the right, also increasing your budget.
To what extent should you employ extra labor, project managers, or use outsourced help? Your insurance and safety protocols are also impacted by the number of workers. Remember that labor costs involve more than just employing people. There are costs to provide the infrastructure, tools, and materials for your labor force is important.
Clarity, Clarity, Clarity
Clarity is important. Never allow a client to give you a very generic and general guideline as to what they want. You want to have all the specifics agreed upon beforehand. Change orders are one of the biggest reasons projects go over budget.
Communicate frequently with the client and get feedback often. Always discuss every stage of the construction process with the client. Have any agreements agreed to in writing. Ensure that no matter what, you are on the same page with your client and are able to refer back to previous correspondence.
This also includes ensuring contracts are signed before work starts, and they agree to your invoicing terms. Sometimes, going overbudget means preventing the risk for any late payment or disagreements that you could have planned for in advance.