Learning to stay under budget is an essential skill in the construction industry. It boosts profits and gives you room to recover from mistakes with minimal stress. Staying below budget also keeps your clients happy and your blood pressure low.
Sounds great, right? The problem is that when you look for advice on staying under budget, you’ll find a lot of sources that basically say, “Don’t make mistakes on the jobsite.” This is like saying the best way to avoid a car crash is to not run into things — technically true, but not exactly helpful advice.
Well, we’re not going down that route. Instead, we’ll identify the fundamental types of costs that make up a construction budget, look at ways to make budget planning easier, and then talk about how to adjust on the fly during the job itself.
Key Factors that Influence Construction Budgets
There are many different costs on any given job, but they can all be classified into a handful of categories: labor, materials, technology, regulatory requirements, and overhead.
- Labor: Covers wages for employees and subcontractors.
- Materials: Accounts for the raw materials required for the construction project, such as steel beams, 2x4s, fasteners, and other essential supplies.
- Technology: Includes software, apps, and tools such as security devices.
- Regulatory Requirements: Think permits, fees, and any other regulatory expense tied to that project.
- Overhead: Varies by company and job. Selecting which expenses are tied to a specific job and which are grouped with general overhead depends on your situation. For details, check in with your accountant.
Now, you may find that your budget would benefit from more specificity, such as breaking out W-2 labor from sub-contractors. But once you’ve established the right categories for your budget, you can place any expense into one of those buckets. And that lets you plan and track your budgets more efficiently.
Effective Construction Budget Planning
When you first begin estimating project costs, you’re not going to hit the numbers perfectly. And when you’re experienced... well, you’re still not going to hit the numbers perfectly.
There will always be unforeseen obstacles and mistakes during the course of the job. That’s why building in a buffer and consulting with the rest of your team is important when creating a construction budget.
Understanding Buffers
A buffer is simply a dollar amount added to the budget to cover general contingencies. A 10% buffer is a good starting point, but you’ll revise that depending on the types of jobs and materials you're working with. (Highly fragile materials may require a higher buffer, for example.)
Effective Consultations
Another key strategy is to make sure that everyone gets a seat at the table. Consult your team and ask for their opinion of the budget. This not only double-checks the numbers, it means that you’ll have buy-in from the rest of the team.
If your lead carpenter or plumber thinks the budget is unrealistic, you’re going to get an earful if they run into issues. But if that same lead signed off on those numbers beforehand, they’ll have a personal stake in finding a way to make it work.
Budget Management Tips for Construction Projects
Here are a few proactive tips for controlling the budget on your next project. (We promise "don’t make mistakes" isn’t one of them.)
Centralize Communications
Clear communication catches mistakes while they’re small. Speak to your team regularly and use a centralized location for digital documents and messages.
Track Expenses During the Job
The important word here is during. Tracking expenses is important, but to identify issues while they’re still relatively small, you need to know about them during the job.
For small jobs, something as simple as a digital spreadsheet can get the job done. For complex jobs, more robust software is appropriate. Choose tracking software that’s easy to use, and integrates with the rest of your tech. (Don’t let your data become siloed in multiple software suites!)
Buy in Bulk
Bulk purchasing can control material costs, especially if you have storage space. Be sure to have crystal clear communication with your vendors when buying in bulk, as a misorder can create a real headache.
Optimize Labor Allocation
Project management software helps put your crews to work in the smartest way possible. Don’t send workers out to a job prematurely, or spread your workforce too thin. Deploy your crews to the jobs where they’ll have the most impact, so you can maintain quality control, get projects closed out fast, collect your draws, and move on to the next job.
Leveraging Technology for Budget Control
It can be surprisingly difficult to identify budgetary issues, especially when you're focused on the day-to-day of getting the job done. Budgeting and project management software provide the access and objective views that help you flag budgetary problems before they grow into nightmares.
Good software should be user-friendly, accessible to everyone who needs it, and seamlessly integrate with your other digital tools. If you’re constantly switching between apps and manually transferring data, you’re not only wasting time — you’re introducing the risk of human error. Look for software that brings everything together in one streamlined solution.
For a good example of the way technology can turn a problem project into a smooth-running operation, check out this case study on how Conexon used Quickbase to streamline and cut costs.
Get Your Budget in Order
Managing your construction budget efficiently is all about catching problems early and finding solutions before they spiral. By using strategies like centralized communication, smarter labor management, and keeping track of every expense, you can stay in control of the project and avoid those dreaded budget overruns.
It’s important to get everyone on board — talk to your crew leads, admin staff, and anyone else involved to make sure they’re aligned on the budget making sense. And don’t be shy about reaching out to software vendors for advice, demos, and tips that can help you choose the right package to manage everything. The right approach to your budget early on can lead to more predictable, profitable projects.
