The Definitive Guide to Project Budgeting for Contractors
If you work in the construction industry as a contractor, you must budget your projects properly so that you can maintain your profitability. Many contractors don’t put as much attention into their budgets as they should, and they end up overspending as a result of their oversight.
Others think they are budgeting the right way but still miss essential parts along the way. Since project budgeting and calculating profit is a crucial part of your business, you can’t afford to take shortcuts or make too many errors moving forward. Even though some oversight might not seem like a big deal, it can put a dent in your bottom line if you are not careful.
The good news is that you can combat that problem with the right budget management software and a solid plan. This guide covers the basics of budgeting and how you can use project budgeting software to your advantage. You will also discover different types of budgeting software and how they can impact you and your bottom line over the long run. This guide explores the benefits of project budgeting software. It helps you decide what you should look for when choosing a software platform for your construction business.
This section explores some pitfalls you might face and the ways they affect your results. First, many construction contractors make mistakes while designing their projects. They later discover their mistake and must go back and make the needed corrections, which costs them time, energy, and money.
You can prevent up to 70% of your rework by ensuring that you craft your plan the right way the first time. Miscommunication is another mistake that can harm your bottom line. People sometimes assume that others know what is in their heads, but they don’t. When you want to communicate your idea or instructions to another person, imagine that they don’t know anything about your intent.
Go into as much detail as possible to reduce the odds of miscommunications. It’s better for you to go over information people already know than to leave out vital pieces of your message. When it comes to project cost management, project budgeting software can help you communicate your message the right way. You can even use it to craft a project budgeting template to save time on future projects.
Analyzing your project is the first step in project budgeting. When you are starting a new construction project, consider all the supplies, tools, and materials that you need to complete the task. Consider the number of people you will hire to help with the project and how much you must pay them.
Go over your list of requirements at least once or twice to ensure you did not miss anything, and you will save yourself a lot of trouble in the future. Many construction companies analyze each project manually because they have been doing so for many years. In fact, 60% of construction companies don’t invest in new technology. Following their path is not the best way to reach your long-term business goals.
Rather than planning your projects manually, you could use a project budgeting template from one of the many project budgeting software platforms. The project budgeting tools you use depend on your business, needs, and the needs of your customers. Put some thought into the project budgeting tools you choose so that you can get the most return on your investment.
Your project scope includes everything you plan to do while managing your construction project. Your project scope can include constructing new buildings, making repairs, and cleaning the construction zone after you finish the project. Your project scope should also cover how long you expect each project to take. Some people fail to take this step because their project scope can change as they move forward with the task at hand.
While you should expect your project scope to change as you gather new information, it’s still essential for you to have a clear sense of direction when you begin. If you are working on a large project, consider breaking your project scope into smaller sections. Revealing your project scope to clients shows them you are dedicated and that you are moving along as scheduled.
Keep your clients updated on the milestones you reach, and they will feel that much more confident about hiring you. Knowing your project scope matters for many reasons, but it’s also vital to your budget. Knowing what you plan to do each step of the way helps you understand the cost of your project.
If you work on similar projects after awhile, you can easily create a project budgeting template. Some clients might want to pay a deposit upfront and then offer additional funds as you pass various milestones. Keep that fact in mind when considering project budgeting.
Some people don’t see the connection between project budgeting and clear communication, but it’s there. In fact, clear communication is a critical part of project budgeting that you can’t afford to overlook. When speaking with your clients, make sure you are as transparent as possible about pricing and the payment methods you accept. If a client does not have all the money upfront, that’s something you need to know in advance.
Many construction companies use the first deposit to pay for staff and the supplies they need to complete each project. You don’t have to reveal every aspect of your project budgeting to your clients, but you should at least explain that you use the deposit for supplies. Getting a deposit also shows you that the client is serious about moving forward. You might not want to emphasize that fact because the client could take it the wrong way.
Clear communication is also essential when it comes to other team members in your company. If you report to someone in a higher position, you need to justify your expenses and explain how you will use the funds. Your team members must understand their roles in each step of the way. Some project budgeting software lets you send mobile updates to customers and team members. Since 75% of construction companies give cellphones to their project managers, mobile updates are a powerful communication tool. Never ignore the importance of project budgeting tools if you want to get the most for your effort.
Even when you take each step with care and use the latest project budgeting tools on the market, you will encounter unexpected complications on occasion. Deliveries can show up late, or you could have key team members who can’t show up to work for a while. During the construction process, you might discover additional problems you had not considered during the project budgeting phase of your plan.
First, inform your client and team members of the issue as soon as you discover it. This honesty will reduce any hard feelings the client might have about you not completing the project by it’s due date. You will find that a lot of people are reasonable if they can sense you are sincere with them.
When you use project budgeting software and other budgeting tools, account for at least a few unforeseen complications so that they don’t catch you off guard. It’s better to plan for the events and not face them than the other way around. If you plan for a bigger budget than you need, your managers will be pleasantly surprised when you complete the project for less than they expected.
Top-Down Project Budgeting
If you have been in the industry for a while, you already know that companies use different types of budgeting. Those working for large companies often use top-down project budgeting. This approach often involves upper management accepting clients and deciding how much the teams under them should spend on each project.
Many construction teams find that upper management does not provide enough funds to complete the project with quality materials. In these situations, you might not think project budgeting tools are essential. But you can get even more use from them in the top-down model.
Use a project budgeting template and project budgeting software to show upper management how much money you need to fund the project on which you are working. Your project budgeting template itemizes each expense and shows where you put every dollar you spend. If upper management is not open to your suggestions, use your project budgeting template to stretch your budget as far as possible.
Bottom-Up Project Budgeting
Bottom-up project budgeting is not the exact opposite of the top-bottom project budgeting. Upper management still makes the final decision in this model. Still, they are much more open to suggestions from front-line supervisors. This model gives project managers much more flexibility when it comes to planning each construction project.
As a supervisor or project manager, you will suggest a budget and send it to upper management for approval. If they believe your project budgeting plan is reasonable, they will approve your request and let you proceed with the project.
Most construction companies still file most of their paperwork by hand. With fewer than 36% of construction companies using five or more mobile applications, the construction industry is the least digitalized industry. Only keeping paper copies of your project budgeting and other essential records creates a range of issues you won’t want to face.
For example, you could misplace your documents and have no way of locating the data. Or fire or another disaster could destroy essential records related to your budget and the other parts of your business. Protect yourself and your data from that threat by going digital. Even if you prefer doing paperwork by hand, you can still scan or take pictures of your documents for digital storage.
Having digital copies of your project budgeting documents also makes it easier for you to share information and get feedback from your team. Having more than one person review your project budgeting plan is the best way to spot errors and generate additional ideas.
Project Budgeting Software
If you are looking for a great service to increase your project budgeting, consider project budget management software to meet your needs. The project budgeting software you use will keep you as a project manager on track and reduce the odds of making mistakes as you craft and plan your project.
Some project budgeting software automatically connects to a network and empowers you to share your ideas with your team from any location with an internet connection. You can find budget planner templates and edit them to fit the needs of each project you accept. The budget planner templates you use will streamline your project budgeting and let you complete it faster with less effort.
Many software platforms are available to help you reach your desired outcome. A lot of project managers use Microsoft Planner and the budget planner templates that work with it. MS Planner enables you to account for your budget, anticipated costs, and the actual costs associated with the projects on which you work. MS Project budgeting is an excellent resource from which any construction contractor can benefit.
What to Look for in Project Budgeting Software
Since many tools are on the market that promise to help with the project budgeting process, you must find one that fits your needs better than the rest. Keep your unique situation and industry in mind as you follow this step so that you can make the right choice.
Different people will look for different budgeting features when selecting a tool for budgeting their projects. The amount of technical knowledge you have is one factor that should determine the path you choose. For example, you will want a software platform with an easy-to-use interface if you are not skilled with computer platforms. On the other hand, a more sophisticated software platform could make sense if you have the experience and training to use it effectively. Those who want a program that adds up the cost estimate of the entire project might consider the Microsoft Project costing feature.
Whether you use existing project cost management Excel templates or use Microsoft Project budgeting software to create your own templates from the ground up. Picking a software package that works for you saves you a lot of time and energy over the long run. If you don’t know where to begin, you can contact different developers and ask about trial versions of their software. Explain that you want to find one that best matches the needs of your construction business.
Rather than making software for the construction industry, most platforms provide a generic project budget template Excel. Even software packages designed for the construction industry might not meet the exact needs of your business. So make sure you look for budgeting software with customization options for your projects, and you will be glad you did.
You want to have plenty of templates that are almost ready for you to use, but you also want the ability to make small changes that fit your projects and goals. In some cases, upper management will ask for copies of your budgeting report for their records. Adding your company name and logo to your budgeting plans makes you that much more professional. You will likely make changes to your templates as your construction business expands and evolves.
To save as much time and energy as possible, look for budgeting software that comes with project management features. You can then use the software to plan each part of your construction project.
From listing the supplies that you will use to crafting a timeline for project completion, these software platforms cover all your bases. You can enter data about your project and let the software update the estimated cost management in real-time. Rather than entering data into separate platforms, budgeting software that includes a construction management feature only requires you to do it once.
For many construction companies, managing payroll is a full-time job that requires a lot of dedication. You must calculate the base pay of each employee and the number of hours they work each week. In addition to tracking their base pay, you must also take overtime and holiday pay into account as you manage your payroll. Doing your payroll and project budgeting on separate platforms gives you room to make mistakes.
You could overlook an important payroll factor and not account for it when crafting the budget, causing you to spend more than you expected. Defeat that problem and increase your accuracy by getting budgeting software that includes a payroll feature. This software lets you calculate employee pay into your project budget, saving time, and improving accuracy along the way.
Project Budgeting Template
Creating a template can be a long and confusing process if you have never done it before. Also, many construction contractors shy away from using the latest technology because they don’t have experience in that area. No matter your training or experience, the right construction project management software comes with budget planner templates you can use. Go through the budget planner templates to find one that best matches your business model.
You can use the budget planner template as it is or make a few changes so that it better fits your needs, and you can then save your new template for use on future projects. Many templates have formulas that automatically calculate your expenses based on your input. For example, you enter the average cost of the materials you use. You then enter details about the project and let the budget software help track your spending.
Although most construction contractors remain reluctant to use the latest technology, doing so only makes their jobs that much harder. Doing everything by hand takes time and increases their odds of misplacing relevant documents. The right budgeting software, though, empowers you to overcome those problems and calculate your budget without the stress.
In addition to enhancing the budgeting process, your software lets you communicate and collaborate with your team from your smartphone or other portal devices. You can send and receive project updates and alter your budgeting plan as needed. If you have never seen construction budgeting software in action, you will be pleased with the impact it has on your overall success.