Even as budgeting happens to be one of the most critical areas of construction project management, it is also the most risk-prone. According to a KPMG report, only 31% of projects were within 10% of the budget in the past three years. The most common reasons for budgets going wrong are spikes in the cost of materials, schedule delays, and equipment breakdowns.
It is vital to ensure that none of these problems topple the budgets because even a slight deviation can result in massive losses. The best way to address these issues is by looking for the right solutions to the underlying issues. Further, you can follow some generic tips and practices to stay a step ahead of construction budget management. Here is a list of steps that you can rely on.
Focus on accuracy while making estimates
Construction budgeting often goes wrong due to inaccurate estimates. If you fail to define schedules and budgets at the estimation phase, things are likely to get off-track later. Managers tend to come up with inaccurate estimates because they want to make the lowest bid to get the contract. Steer clear of low-ball bids even if they can win the favour of the prospective client. You should also avoid rushing through an estimate because the mindset will result in losses and frustration in the long haul. It is best to use construction budget management software to ensure accuracy in your estimates.
Go the extra mile with the right design
Even the most accurate estimates can lead to cost overruns if you are working on a flawed design. The worst part is that you will not even know that you have a serious problem until you reach a later stage of the project. The downsides of design flaws go beyond budgeting issues; you can even come across lawsuits over disagreements. It becomes all the more vital to go the extra mile with the design. Checking it before you start is the best way to avoid this problem. You can rely on a software application to iterate designs and come up with one that is flawless.
Understand the client expectations well enough
Another measure that can help you with effective budget management is good communication with the client. It helps in understanding their expectations completely and thoroughly. Miscommunication can translate into unexpected cost increases, so ensure that you have everything clear and in writing. Solid contracts get your budgets on the right track, while you must make sure that they define a thorough scope of work so that there isn’t a mismatch in expectations. Investing in a construction management software tool is a great idea because it can facilitate seamless communication with the client throughout the project.
Account for scope creep and change orders
Even if you have a well-defined scope of work and clear contracts, you may face scope creep and change orders during a project. For example, the client may want a tweak in design, or you may face an uncontrollable issue with the soil. These problems could result in rework or scope creep. Unfortunately, these are the biggest reasons for budgets going haywire. Managers who fail to account for them are bound to get into trouble, even with perfect planning and management. Once again, robust documentation can save the day. The contract must have clauses defining how change orders and additional costs will be handled. The client should be made to bear some financial responsibility for change orders if they want them out of the blue.
Take measures to avoid delays
Project delays are more common in the industry than you may imagine. There are countless reasons you may run behind schedules, from delays in a material shipment to labour absenteeism or slow permit process. The real concern is that time is money, and even small delays can cause massive cost overruns for the project. While you must take tangible steps to speed up things, it makes sense to set aside significant time for unaccounted delays and glitches in the planning phase. You can secure the project by defining the contingencies and creating a Plan B for each situation.
Win with excellent project management
Budgeting issues can be closely related to administrative and managerial mistakes, such as workers going wrong with the specifications or a subcontractor missing a deadline. Even communication errors with the team can get you in trouble. So there is no substitute for good management. It can be hard to handle everything manually, so you can switch to a digital application. Implementing construction budget management software gets you in the right place. It eliminates errors and reduces your workload to a significant extent. Further, you must also look for a smart communication tool that keeps the team on the same page from start to end.
Following these actionable steps can keep your budgets in control and take the project towards success. The effort isn’t as big as you may imagine, but the rewards are significant as they can drive long-term profitability for the business.
Construction project budgets are hard to manage but not making an effort is the worst you can do. Here is a list of actionable steps that can go a long way in curbing budget overruns and keeping projects on track.
The author is a senior construction project manager with a leading firm based in Dubai. He is also an avid writer and often shares his insights in the form of articles and blogs.