Managing costs and sticking to a budget are two of the most challenging yet crucial aspects of any project. Mismanagement of funds can result in delays, reduced quality, or even project failure.

Completing projects in a timely manner and within budget is not only crucial for profit margins but also for maintaining a reputation for reliability and professionalism in the industry. This instalment of Tricks of the Trade, offers an in depth look at how construction businesses can ensure they stay on track financially, providing actionable tips and strategies to help manage costs throughout the project lifecycle.

Establish a Realistic Budget

The foundation of every successful construction project is a well crafted budget. A common mistake many contractors make is underestimating costs or failing to account for hidden expenses. To avoid this pitfall, take time upfront to create a comprehensive budget that includes:

• Labour Costs: Don’t just account for the hourly wages; factor in insurance, benefits, and other indirect labor costs. Pay attention to overtime pay, as this can significantly increase labour costs if not managed.
• Materials: Estimate the quantity and cost of materials, including wastage transportation and any storage fees.
• Equipment and Tools: Include the rental or purchase costs of equipment, as well as maintenance and fuel costs for machinery.
• Subcontractors: If you are hiring subcontractors, be sure to factor in their fees, insurance, and any additional costs associated with hiring them.
• Permits and Fees: Building permits, inspections, and other regulatory costs can be significant, depending on your location and the scale of the project.
• Contingency Fund: A well thought out contingency fund (typically 10-15% of the total budget) is essential for handling any unexpected issues. This should be set aside specifically for unforeseen expenses that could arise due to changes in scope, weather conditions, or other surprises.

Plan for Scope Creep

One of the leading causes of budget overruns in construction is scope creep - the slow and often unnoticed expansion of the project’s scope beyond the original plan. Scope creep can result in unforeseen costs, delays, and ultimately, financial strain. To prevent this, try following these steps:

• Define the Scope Clearly: From the start, work with your client and stakeholders to clearly define the scope of work. Set expectations on what is and isn’t included in the project.
• Document All Changes: As the project progresses, any changes to the original scope should be documented formally through change orders. Each change order should include an updated cost estimate and a revised project timeline and circulated with the relevant stakeholders. Consider utilising EWN (early warning notices) to stay ahead of the curve.
• Establish a Process for Approving Changes: Before agreeing to any changes, assess the impact they’ll have on both budget and schedule. Make sure that any extra cost changes are approved by the client before they are carried out.

By controlling scope creep and maintaining a firm handle on changes, you can ensure that additional work doesn’t throw your budget off track.

Use Project Management Software

Manual cost tracking methods can be inaccurate and time consuming, which is why adopting project management software is a smart move for any construction business. There are various options and features you can use to keep track:

• Budgets and Expenses: Track labour, materials, and equipment costs, allowing you to spot any discrepancies early.
• Forecasting: With accurate data input, these tools can forecast potential cost overruns and help you adjust your budget proactively.
• Invoicing and Change Orders:  Streamline the process of invoicing contractors, suppliers, and clients and provide easy documentation for any approved changes.

Using such software helps to maintain accurate records, ensuring that costs are tracked consistently and transparently throughout the project.

Negotiate with Suppliers

Supplier and subcontractor costs can represent a significant portion of your project’s budget. Effective negotiation can help reduce expenses and keep the project on track. Here’s how to do it:

• Get Multiple Quotes: Don’t settle for the first quote you receive. Gather multiple pricing options for materials, equipment, and subcontractor services. This allows you to compare prices and negotiate for the best deal.
• Negotiate Payment Terms: In some cases, you may be able to negotiate better payment terms with suppliers and subcontractors. This could mean securing discounts for bulk orders or extending payment deadlines to improve cash flow during the project.
• Build Strong Relationships: Maintaining long term relationships with reliable suppliers and subcontractors can lead to better pricing over time. If you’re a repeat client, negotiate discounts for future work or bulk purchases.

Effective negotiation and strong supplier relationships can result in significant savings, helping you keep your project within budget.

Minimise Material Waste

Excessive material waste is one of the common causes of cost overruns on construction projects. Materials can be expensive, and waste can add up quickly. To minimise waste:

• Accurate Material Estimation: Leverage technology, such as Building Information Modelling (BIM), to create more accurate material takeoffs and avoid over-ordering.
• Proper Storage and Handling: Ensure that materials are stored correctly to prevent damage or theft. Improper handling can result in unusable materials, leading to wasted costs.
• Reuse and Recycle: Where possible, reuse materials from previous projects or recycle leftover materials to reduce waste.

By reducing material waste and preventing over-ordering, you not only save money but also contribute to sustainability efforts, which can enhance your reputation.

Improve Labour Efficiency

Labour is one of the largest ongoing expenses in construction. To stay within budget, ensure that your workforce is working efficiently:

• Proper Training: Ensure that all employees, including subcontractors, are trained properly. Skilled and knowledgable workers are less likely to make mistakes or require additional time to complete tasks.
• Streamline Scheduling: Having a detailed and well managed schedule reduces downtime and ensures that the right workers are on site when needed. Delays or misallocation of resources can lead to increased costs. Keep track of where everyone is with a time tracking job scheduling tool like TimeKeeper.
• Avoid Overtime: Overtime should be avoided whenever possible, as it adds to labour costs. Proper scheduling and efficient workforce management can help prevent the need for excessive overtime hours.

Monitor Progress and Costs

Regular progress meetings and reviews are essential for keeping a construction project on track, both in terms of timeline and budget:

• Frequent Site Inspections: Conduct regular site inspections to ensure that the work is being completed according to the schedule and that costs are being tracked accurately.
• Track Milestones: At each project milestone, conduct a financial review to compare actual expenditures with budgeted figures. This allows you to identify any cost over-runs early and adjust plans accordingly.
• Adjust Forecasts: If you spot discrepancies between budgeted and actual costs, adjust your cost forecasts. This helps to ensure that the project stays on track and provides an updated view of the financial situation for stakeholders.

Stay Ahead of Permit Costs

Building permits and inspections are often overlooked when estimating costs, yet they can become significant expenses if not properly planned for. Always account for:

• Permit Fees: Different regions and project types will require various permits. Ensure that all necessary permits are obtained before starting, and factor in the associated costs.
• Inspection Costs: Plan for any inspections required during the project and ensure that your schedule allows for them without causing delays.

Prepare a Contingency Plan

Even the best plans can encounter the unexpected. For this reason, every construction project should have a contingency plan in place. This typically involves setting aside a portion of the budget (usually 10-15%) to cover unforeseen circumstances like:

• Unexpected site conditions (e.g. poor soil quality or hidden structural issues)
• Weather delays
• Material shortages
• Resource shortages
• Design changes

A contingency fund ensures that you’re not blindsided by unexpected events and allows you to keep the project moving without significant disruption to the overall budget.

Review and Learn

After completing a project, conduct a thorough review to identify areas where the budget could have been better managed. Analyse what worked, what didn’t, and what could be done differently in future projects. This continuous improvement process will help you better estimate costs and manage budgets in the future.

Conclusion

Sticking to a budget in the construction industry is challenging but entirely possible with the right strategies and practices in place. From creating a comprehensive and realistic budget to using technology for tracking labour costs, the key is proactive management. By staying organised, managing expectations, and consistently monitoring progress, you can keep costs under control, meet project deadlines, and maximise profits.

With these strategies, your construction business can not only finish projects on time but also build a reputation for financial reliability and efficiency. Thanks for checking out Tricks of the Trade: Part 4! We have plenty more Tricks of the Trade coming your way, covering some of main the challenges faced by construction and field services businesses every day.