Imagine being in the middle of a construction project when the cost of materials suddenly increases by ten percent. Suddenly, the project is over budget and the timeline is in jeopardy. This happens more often than you may think—98 percent of construction projects incur cost overruns or delays.
Project budgeting is an essential element of construction project management. Expenses can accumulate quickly when you don’t have a pre-planned budget, leading to overruns and delays.
Since it takes an entire team of professionals and suppliers to successfully plan and deliver a project, financial planning in construction is a must. Even a minor missed detail can throw off project milestones and incur additional expenses.
Related: Construction project budgeting software, construction management software
Why Construction Project Budgeting is Critical
A construction budget estimates project expenses, including labor, materials, equipment, and overhead costs. But more importantly, it helps to control costs, maintain positive client relationships, and provide clear expectations for everyone involved in the project.
During the project budgeting process, the general contractor works with professional estimators and collects quotes from suppliers and contractors. They finalize the project scope and timeline while determining what skills, technologies, and equipment are needed. Budget planning gives all parties parameters to ensure the project is completed on time and within budget.
Inaccurate construction budgeting can create lasting negative impacts for your construction company, even after a project is complete.
Limited Cash Flow: When cost overruns occur and your company absorbs added expenses, it puts added strain on your cash flow. This can impact your ability to cover other expenses and pay contractors, suppliers, and lenders.
Damage to Your Reputation: Construction projects completed late and over budget can signal to prospective clients and partners that your company lacks the skills to manage a project and budget.
Inability to Secure Financing: If you need to secure financing for additional project phases or future projects, you may face a lender who’s hesitant to approve your loan.
Decreased Profits: Even a short-term project with cost overruns and unexpected costs can have long-term effects on your company’s financial stability.
Unfortunately, it’s impossible to plan for every scenario that might impact your project budget. This is why accurate estimates and contingency planning are important. Budgeting tools can help you anticipate project expenses and identify where you might run into issues along the way. Having a contingency reserve can then help you keep the project on track financially.
Some of the most common construction contingencies include:
Unanticipated material price increases
Material shortages
Interest rate increases
Subcontractor errors or changes
Weather-related delays
Required upgrades
Design errors
Generally, construction companies should account for a contingency planning rate of five to 10 percent of the total project budget.
Common Construction Budgeting Methods
When it comes to financial planning in construction, there are a handful of budgeting methods companies use. Here are three of the most common methods:
Incremental Budgeting
This type of budgeting involves making small adjustments to a current budget to create a future budget. If you have a budget that’s already adequate and only needs minor adjustments, the incremental method is ideal.
Incremental budgeting can be a reliable construction budgeting method because it’s simple, stable, and easy to implement. However, it doesn’t account for external factors or changes in your business. If you want a budgeting method that replicates previous successes by making minor adjustments to previous actuals, incremental budgeting may be suitable for your construction project.
Zero-Based Budgeting
Unlike incremental budgeting, which works from a current budget, zero-based budgeting creates a new one from scratch every time. With zero-based budgeting, every expense must be justified starting from zero.
A primary benefit of this form of budgeting is that it utilizes every dollar of income for expenses, savings, and debt payments. But it can be a time-consuming process when every expense in a reporting period must be validated every time.
Value Proposition Budgeting
The focus of value proposition budgeting is driving value. Financial resources are allocated to products or services based on the perceived value. Businesses must analyze and justify the value of every expenditure to determine where they should spend money to create a positive return.
If your business is seeking clarity around expenses and looking to maximize value, value proposition budgeting can be a great option. However, everyone involved in the budgeting process needs to understand the value proposition.
Project Budgeting Tools for Simplified Budgeting
In recent years, the construction industry has made great strides in investing in technology, including budgeting tools. IT budgets in construction increased in 2023, with projections reaching a worldwide total of $4.6 trillion—a 5.1 percent increase over the previous year.
Construction budgeting software can not only help your company control expenses, but it can also enhance your project efficiency and drive more informed business decisions. Many construction management software options on the market also offer collaboration tools, scheduling tools, advanced reporting, and analytics.
Unsure which features are most important? Consider your greatest needs and the features that will help make the budgeting process more effective and user-friendly. For example, real-time tracking will help you monitor costs and expenses as the project progresses so you’ll know exactly where your budget stands.
If your construction company is already leveraging other software and tools, integration will also be important. You’ll want to choose a solution that integrates with your existing software to ensure seamless data flow and efficient budget management.
Here are a few of the top tools to consider for construction project budgeting:
Quickbase
Quickbase’s construction management software solution enables tech-savvy business owners to create a budgeting tool that fits their needs. The platform is designed to help teams complete projects faster by staying on budget, meeting deadlines, and optimizing company operations.
Project Budgeting Features:
Build the right labor plan for upcoming projects. With Quickbase, you can sync data from your ops system to reveal resource gaps before they become an issue. You’ll know exactly when you can take on more work and when it might be time to invest in more resources.
Eliminate data errors. To make informed decisions about your budget, you need data that’s 100 percent accurate. Quickbase tracks all your data across systems in one place so it’s there when you need it.
Track every dollar. Know where the money in your budget is going and forecast critical costs with real-time data from the field. See change orders before they occur so you can make pivots and stay on budget.
Get paid on time. Protect your bottom line by connecting your invoicing and account systems to ensure you get paid on time.
Other Features:
Enhance operational productivity. Accelerate project timelines by eliminating repetitive tasks, optimizing resources, and getting rid of bottlenecks.
Remove gray work. Allow your teams to focus on important tasks, like improving field-to-office collaboration, employee satisfaction, and talent retention.
Position your company for growth. As the first application platform built for dynamic work management, Quickbase connects data through a single platform to keep projects on schedule and within scope. This means more potential projects and growth for your company!
Sage
Sage Construction Management software is an end-to-end solution that handles every aspect of construction management. It enables construction managers to deliver projects more efficiently while reducing their risk and maximizing profitability.
Features:
Streamline the estimating process. You can create estimates in the way that works best for you—from scratch, from spreadsheets, or from previous estimates.
Better organize projects and contracts. From contract to completion, set up your projects with centralized visibility, even multiple contract types like fixed, cost plus, and unit price.
Manage projects from anywhere and collaborate effortlessly. Access the platform wherever you are and analyze real-time project data.
Procore
Procore is a top-rated construction management platform designed to simplify work from bidding to closeout. The platform, which integrates directly with Quickbase, allows you to reduce risk and protect your profits while streamlining every phase of construction. With Procore’s Budget tool, you can build and manage a comprehensive budget throughout the lifecycle of your project.
Features:
Import or build budgets. You can import an existing budget or build project budget templates to export to Microsoft Excel or a PDF.
Review all financial performance. The tool allows you to see performance for a single project or across multiple projects.
Share status updates. Help your team make better decisions in the field by easily sharing the status of the budget.
Generate detailed budget reports. Create reports showing budget modification, buyout summaries, line item details, and more.
A Successful Construction Project Budgeting Case Study
Diversakore is a construction industry supply company that helps companies reduce their build costs with advanced framing systems. The company needed a better way to estimate project costs. Using spreadsheets alone, they were unable to optimize their data and take advantage of opportunities. They also needed the ability to collaborate and share information with external stakeholders.
Using an estimation app built with Quickbase, Diversakore has reduced the time it takes to create estimates by 50 percent, which has allowed the company to deliver more cost savings to its customers. The app automatically calculates cost estimation and value engineering data. Each stakeholder receives customized summary reports, and the teams can collaborate across devices and browsers with the cloud-based system.
Diversakore can now manage and track all information related to estimates and provide summary reports to stakeholders, including architects, engineers, designers, owners, and general contractors. Gone are the days of back-and-forth communication trying to capture the necessary data.
Summary
At the core of every successful construction project is a well-planned budget. The tedious tasks involved with budget tracking, including manually adding data to spreadsheets and analyzing reports, become much simpler with the right construction budgeting tool.
When you have a tool that fits your construction company’s needs, you’ll be able to create more accurate, efficient budgets and solidify your reputation in a competitive industry. Bringing together the right tools can start today with Quickbase. Try a free trial of Quickbase today!
