6 Construction Budgeting Mistakes You’re Making (And What To Do About Them)

By: on August 6, 2019

It’s no wonder construction managers keep such a close eye on their budget. If a change order comes in that costs $30,000, for example, that’s $30,000 less profit you would have otherwise collected at the end of the project. Ouch.

Whether it’s because of a schedule delay, a spike in the cost of materials, or a piece of equipment breaking down, construction budgeting gone awry is one of the biggest headaches that managers face.

Construction managers look everywhere for solutions, whether it be new construction software, or consultants… or here. Don’t worry, your search has not been in vain: We’ve got some tips you can apply to your next project to save some serious money.

Using a combination of software, new planning practices, and some best practices over the course of a project, construction managers will see significant savings on the budget of their next project.

Here are some of the most common reasons for budget overruns and what to do about them:

1. You’re making inaccurate estimates

Many construction budgeting mistakes happen at the project estimation phase. If you don’t properly define schedules and budgets, you’re going to be in for some pain when you’re midway through the project (and it’s too late to do anything about it).

The problem is that many clients often make project decisions based on the lowest bid, encouraging inaccurate or poorly thought-out estimates by contractors.

Resist the urge to low-ball bids or rush through an estimate—even if it makes your client happy at the beginning, it will kill your reputation once you’re deep in the project.

What to do about it: If you’ve been failing to stay on budget recently, enlist a professional to help you with an estimate. It will cost you money up front, but will save you a boatload over the span of the project. If you want to do it yourself, look into construction estimating software to help you cover all your bases.

2. You’re making mistakes in the project design

It won’t matter how good your project estimate is if your design is flawed. You won’t know for sure if there are serious design problems until you’re well into a project, so this is something you need to double-check and triple-check before you get started.

Project design issues don’t just cause delays and wreck your budget, but also can result in lawsuits over disagreements about what kind of work was expected.

What to do about it: Find a construction software solution that uses building information modeling (BIM), which results in more accurate designs and allows you to spot flaws earlier in the process. It’s also easier to manage changes down the line by simply modifying the digital design.

3. You didn’t account for change-order surprises and scope creep

Change orders and scope creep are one of the biggest causes of budget overruns. Many construction managers simply don’t account for the possibility of changes to a project, which is always a fatal error as far as the budget is concerned.

No matter how well-designed your project is and how lock-step you are with your client, something is going to come up during the project that will prompt you or your client to tweak the design. It could be that your client wants to adjust the height of a deck by a foot, or you’ve come across an inaccurate specification, or maybe there are issues with the soil, or some specified materials just aren’t available. Whatever the case, you need a plan.

What to do about it: The first step is prevention, and for that you need three things: documentation, documentation, and documentation. Make sure every aspect of the project is laid out in the contract’s scope of work so everyone is on the same page.

The second step is to add clauses in your contracts that spell out exactly what will happen in the event of change orders and additional costs. Your client should be willing to take on some financial responsibility should they have a change of heart during a project, and that should be specified before you get started.

4. You’re running into delays

There are a million things that can delay your project. It could be a government approval or permit process that is dragging on, or a material shipment is a couple of days late.

Delays are a big problem because time is money for a construction project. For example, if your workers aren’t able to start a project on time and you have them killing time with less-important tasks, that means you’re going to pay more for labor then you planned.

It’s also possible you have some incentives tied into your contract to finish on time, and the delays are wiping those out.

What to do about it: As with many things that affect your budget, the biggest mistakes are usually made in the planning phase. Set aside significant time before a project starts to map out everything that could delay your project, and create a Plan B for each. Could a permit get hung up? Plan to submit the application a couple weeks earlier than you usually do. Could soil issues make it impossible for your workers to start on a critical phase three weeks into a project? Begin site surveys now, even if they ultimately may not be necessary.

5. You don’t communicate well with your client

Good old-fashioned miscommunication is at the heart of a lot of unexpected cost increases. For construction managers inexperienced enough to enter into a verbal agreement with a client, you may find out a month into the project that they expect you to redo the foundation as part of the refurbishment, totally destroying your budget.

You can never be too specific in your contracts with clients. It’s not always an issue of trust—your client may have simply assumed you knew that the foundation needed to be redone, while you thought the client would have told you if the foundation was inadequate.

What to do about it: Solid contracts and a thorough scope of work should usually prevent problems of mismatched expectations. But you should use construction management software with a communication tool that allows you to communicate and share documentation with your client throughout the project so that you both are on the same page.

6. You are making management mistakes

Yes, sorry to tell you, but sometimes your own administrative mistakes can be your downfall, as much as you’d like to think it was a subcontractor missing a deadline or workers putting up drywall in the wrong area. That may have been a costly mistake on their part, but it may very well have been your mistake as well.

Even small communication errors between you and your crew—which includes subcontractors—can result in catastrophic delays and budget overruns. And it’s your responsibility as construction manager to avoid these communication errors, not theirs.

What to do about it: Are you feeling overwhelmed? Perhaps you need to bring on some help with administrative tasks and project management. That can mean hiring someone new or adjusting the responsibilities of someone on your team.

You can also invest in construction management software that has both project management and communication tools. Many of them have apps so that you can instantly message workers no matter where they are on the job site.

Now’s the time to get your budget under control

Aren’t you tired of being over-budget all the time and watching your profits disappear at the end of a project? It’s time to take some simple, effective steps right now to address this all-important issue.

  • Increase the amount of time you typically set aside for planning before the project begins by 50%.
  • Bring on a legal professional with construction contract experience to help you with future contracts.
  • Search for a construction software solution that fits your management style, and take it on a test drive to see if it will help you get more organized.
  • Have your team review your project plan to make sure there aren’t any oversights.

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