Challenges of managing a budget in a construction project
Budget management in a construction project is an elaborate responsibility – the right software solution can set the project management team on a path to success.
Managing a construction project is a unique endeavour. Several evolving factors are at play, differentiating it from most work environments. Myriad variables such as weather, material prices or stakeholder participation affect the handling of a construction project in a very subjective and absolute manner. And yet there is a commonality in all constructions – each one poses its exclusive set of challenges. One specific challenge that demands more attention than the rest is budgeting. When it comes to managing a budget, construction projects in the U.S. are no exception. Project cost overrun is a well-known phenomenon among construction project managers, as numerous studies have repeatedly confirmed. Studies show that 85% of large construction projects delivered during 70-years across 20 countries experienced cost overruns.
Keep reading for,
- Inadequate estimations
- Inadequate project planning
- Poor stakeholder communication
- Insufficient documentation
- Budget estimates
- Cost allocations as per contracts
- Mitigating work scope
- Reliable cost estimates
- Risk identification during the planning
- Better project communications
Common challenges for a construction project manager
Running a construction project requires exceptional thinking and tactical expertise. Construction projects are often multi-million-dollar undertakings with hundreds or thousands of affected stakeholders and program elements. A firm budget management plan allows the construction project manager to interpret and manage the project’s inherent complexities. Yet, despite prompt management efforts, projects falter on cost. For a project manager, it’s not uncommon to face challenges to mitigate the budget for cost control. Here, Linarc discusses the five main construction project management challenges of managing a budget.
The cost estimation phase is when the project budget and scope are defined. It is possibly the most crucial part of a construction project budget. To avoid slips in budgeting, be as accurate as possible. So many projects have been at risk due to incomplete budgeting requirements. To ensure this doesn’t happen, execute a well-planned analysis and forecast your expenses to stay within your margin.
Here, a construction estimating software with construction take-off functionality makes cost estimates much more manageable. Firstly, the software does not use manual calculation methods, thereby omitting the scope for human error. Further, the users no longer must manually gather additional data from project stakeholders or perform mental calculations of project costs. A construction estimating solution offers functionalities of budget versions with exclusive line items, lock budget, and modify budget with change orders. The system facilitates cost tracking as part of the centralized project management console. With AI assistance, estimates are mitigated for errors and provide for higher accuracy.
Inadequate project planning
Plan ahead to ensure that a project completes on time and within budget. With proper planning in place, fewer issues arise during the development process. There could be issues with inaccurate capacity planning or unidentified task interdependencies. Some things, such as permit delays or lack of active collaboration, could slow down the project.
Here, construction management software can help predict potential risks early so you can fix them before a problem arises. Its team scheduling feature allows you to visualize workloads, distribution, and workforce allocation and assess each member’s capacity. With this information, you can understand weaknesses in your planning process and allocate job tasks accordingly. It also provides Gantt charts that help analyze task interdependencies and create an accurate project timeline.
Poor stakeholder communication
As a construction manager, you communicate with many people, including your staff and subcontractors. Miscommunication or interpretation errors can lead to budget overruns and project delays. Another common cause for miscommunication is having only a verbal agreement with your clients instead of signing a legally binding contract.
Onsite and off-site team communication is a valuable area in construction management. With software assistance, you can create a digital paper trail every time you communicate with your clients. This tool gives you the capability to record change orders. These change orders are legally binding agreements for both parties that capture the client’s digital signature when they sign it, therefore saving both parties from any unnecessary misunderstandings or conflict. Field workers can access the app and view their daily schedule, share documents, upload site photos, and communicate with other team members to get vital messages across.
Documentation management, or its lack, impacts construction projects and operations, especially budget management. To create an effective document management system, consider a cloud-based solution. The PM console becomes one source of truth by storing all relevant data on a secure cloud location with restricted access and complete with password protection.
The software stores and organizes all your digital building information, documentation, and facility files in a single location, a central repository for facility documents. All your files related to reports, contracts, bids, photos, bills, receipts, notes, and drawings can be quickly accessed and shared with the proper permission. Changes often happen on a construction project. The document management feature in software creates risk registers where you can record potential project risks. By keeping documentation up to date and accessible, your team will be able to stay efficient and save valuable time.
Fundamentals of cost control
Cost control is crucial for a general contractor’s project management team. The tracking and mitigation of costs are essential to staying at the top of the project’s cost. In Linarc’s construction project management software, the feature of budget and controls is a part of the project management console. The cost control function includes:
Budgets estimates and predictions are vital to the economic health of any construction project. The PM can specify category-wise cost details for expenditures such as materials, labour, subcontractor costs, and overheads with an estimate. The data assists in keeping track of the payments under different heads at different instances.
Cost allocations as per contracts
Understanding the contractual commitments towards the nature of work from speciality trade subcontractors, time of delivery and expected spend is key to managing financial risks. To interpret the current posture of a project’s cash flow, the PM needs to review the status of all contracts. Here, the project management console helps display the subcontractor’s estimates or schedule of values as line items. The PM can infer detailed insights to track budget variations to capture the project’s financial performance.
Mitigating work scope
Budget variations are a frequent occurrence during the lifecycle of a construction project. A construction project management software such as Linarc is responsive to the changes, thereby creating scope for budget edits. In the beginning, the PM uploads an initial original budget. The budget file is informed with details of subcontractors and line items. After due diligence, stakeholder approvals, and an exhaustive review from PM, the budget is locked. The ‘lock’ status means no one can modify the financial details. However, to respond to the evolving nature of construction projects, Linarc allows creating a change order or CO. This CO function aids contractors and subcontractors to amend operational budgets as per revised work scope.
How to create a project budget for a construction project?
A project budget includes everything from features to be included in the final design, the quality of materials to be used, and whom the company can hire. Establishing a realistic budget is an ongoing process, and tracking and mitigating costs are vital to keeping an eye on the project’s cost.
Here are the steps to create a cost-effective budget for construction projects.
- Budget estimation
The first budget estimation must be done when the architect has begun the Schematic Design (SD). An estimator or even a general contractor can give a general overview of what the project cost is likely to be.
- Present the information
Present this information to the owner for his cost approval. You will find out early if the budget’s too high and whether adjustments need to be made.
- Establish the project’s works
Once the drawings and plans are finalized, the process of establishing the budget starts. First, define the project’s scope and turn it into manageable sections of work using the Work Breakdown Structure (WBS).
- Request bids
Send each scope for each subtask to relevant contractors and request their bid for the work.
Each phase and contract in the project will need evaluation, and many of those may change as construction progresses. Each contractor must evaluate whether they can deliver the project on time and within budget.
Once you get proposals from the contractors, sum it up, and there’s the baseline budget based on the full plans.
- Manage and mitigate
There are specific items that must be included and evaluated continually as the project evolves. They are:
a. Budget for contingency and cost escalations.
b. Licensing and permit costs
c. Cost of material, equipment, and rental fees. With Linarc’s construction management software, you can group your entire materials cost across the entire project or even multiple projects. This way, you have a better insight into your requirement and can ask for volume discounts from suppliers by buying in bulk.
d. Inflation costs for long-term projects
The Linarc advantage for construction budgeting
Cost estimation with Linarc is one of the most beneficial systems for professionals managing a budget in construction. It allows you to work efficiently and significantly improves the accuracy of your project planning, saving you time and money. The software can assist you with the following tools:
Reliable cost estimates
These tools offer reliable and quick cost estimates thanks to the automatic calculation of materials and labour costs, creation of bid proposals with pre-built templates, integration with cost databases, and expert libraries to help you create accurate project estimates.
Risk identification during the planning
Construction project management is all about planning. Software that allows you to predict and identify risks during planning is beneficial. It’s essential to know the plan and the probable dangers. By having a way to anticipate everything that could go wrong and being prepared to fix it, you can better budget and manage costs.
Better project communications
Linarc’s budget and controls feature can significantly increase communication efficiency between all parties involved. With digital uploads and descriptions, field workers have easy access to documents or blueprints they’ll need during a project. They can share photos and attach messages to files, allowing them to communicate more easily with their colleagues, project managers, and customers.
Tips for managing a budget in your construction project
Here are some tips to better control the financial details related to your construction project and its respective budget.
Allow more time for planning
Allocate more time for planning the project, and make sure you take additional time to consider all the variables when managing a budget.
Review for oversights
A quick review of the project plan is an excellent way to ensure you have considered all the necessary details. Oversights can lead to cost overruns, longer schedules, and inefficiencies.
Seek legal counsel to interpret the contract
Construction projects post many challenges that can confuse budgeting and management. To minimize these inconveniences, you should refer to the services of a legal professional with construction contract experience.
With Linarc’s ‘budget and control’, your construction project management team can collaboratively manage budgets, keep track of estimates, cost revisions, and change order impact on a centralized budget manager. By linking your financial reports to WBS, your PM can take charge of project costs with budget forecasts and actionable insights. Also, Linarc generates forward-looking predictions in real-time, so you proactively take control of cost factors.
Now is the time to unite your entire project team to increase profitability and minimize delays and cost overruns. Is your team ready to reduce risks with best-in-class collaborative construction project management software? Yes, connect me with Linarc