A construction budget features estimates from suppliers, vendors, and subcontractors, and in turn helps anticipate the total cost of a project. In addition, it looks at past projects, that are similar in nature, to estimate the cost and duration of the new project.

A construction budget, in most cases, determines several things, including the nature and grade of resources to be deployed for the project. Affecting the skill level of resources to the allowed numbers of resources, the make of capital assets such as machinery, and also the make and grade of the material being used. A well-designed budget can help manage costs effectively, ensuring that the project stays on track, and prevents the unplanned from derailing the project.

A smart budget is thoroughly pre-planned to allow you to have maximum productivity and efficiency while keeping overhead costs in check. To create a smart budget, follow the below mentioned steps:

 The first and foremost step when initiating a budget exercise is to identify the project stakeholder. This helps the team understand the parties that are likely to contribute to the project/product specification and deliverable acceptance during the project duration. A meeting to understand their involvement, influence and impact will help form the basis for the next step which is key to an accurate cost plan.

Once the project requirements have been determined, the next step is to estimate the costs. This involves breaking down the project into its various components, such as materials, labour, equipment, inflation and permits. At this stage, it is suggested to be as detailed as possible when estimating costs, and to have some buffer to factor in any contingencies or unexpected expenses like design or material upgrades, malfunctions and breakdowns of equipment and tools & accidents, risks and acts of God. Depending on the scale of the project, the contingency fund may be considered. However, when catering for contingency one must be prudent and avoid an inflated factor of safety.

After estimating your costs, it is important to prioritise expenses based on the project requirements and available resources. This involves determining which expenses are essential and which can be deferred or eliminated. Project costs fall under two common categories: hard and soft costs. Hard costs encompass the actual physical construction of a building, the construction site, and the landscape whereas soft costs are less evident because they are often invisible. Prioritising expenses help ensure that the project stays within the budget and that funds are allocated appropriately.

Along with planning, monitoring your progress throughout the project is also necessary. This involves tracking expenses, assessing progress against milestones, and identifying any issues that may impact the project timeline or budget. Regular monitoring will help ensure that the project stays on track and that any necessary adjustments can be made in a timely manner.

While a lot of planning goes into creating a budget for a construction project, one also needs to be prepared for different types of contingencies that may arise. From the fluctuating costs of raw materials and labour, to constantly changing geopolitical and economic conditions, it has become imperative to take several factors into consideration. But, by following the steps mentioned above, one can ensure that the project stays on track and within budget, and that the team is better equipped to manage the challenges.