How to Safely Keep a Building Project on Budget
Construction projects have a bit of an unfortunate reputation; some people think “on-time and under budget” is a myth in our industry. Let’s start by affirming that it’s absolutely not a myth; buildings that are veritable works of art can be created within the estimated timeframe and budget. The trick is making sure you’re crafting your estimates carefully. This article will have a particular focus on doing so safely. You don’t want to be cutting corners when it comes to the health and security of the many tradespeople who work hard to make your concept into a reality.
One of the biggest pitfalls a project can face is scope creep. This occurs when every minute detail of a project isn’t properly defined, documented, and accounted for. Most of this article will be focused on reducing scope creep by very carefully defining exactly what you’ll need and how much it will cost. We’ll even plan for contingencies, creating a place in the budget for the totally unexpected. When projects creep out of scope, costs balloon as you scramble to find labour and materials to cover what you hadn’t planned for.
Creating a Preliminary Budget
Preliminary budgets aren’t as hard to create as you might expect. Land cost is relatively easy to determine; look at the average price of land per square foot in the area the project is slated to be built. You’ll also need to consider planning and feasibility studies, design costs, construction materials/equipment/labour, financing costs, insurance, and taxes. This is just for building the project, mind you; it doesn’t include ongoing costs (which should also be a part of your consideration as a business owner). There’s software available that can help you estimate construction costs. That software comes with a price tag, but it’s worth it if it means your project will be budgeted for correctly. You should trend towards overestimating costs; using techniques like PERT can help you budget for the unexpected.
Narrow in on Building Costs
Now that you’ve created a detailed plan, you’ll get bids on land and building materials. You’ll have to accept multiple bids. Add them all up, and you’ll know exactly how much you’re spending; nonetheless, you should add a contingency of 10-20% of the bids in case something goes awry and you need to acquire more materials.
Assemble Your Team
Here again, you’ll need to take a number of bids. Construction projects are a big deal, and you’ll likely end up with contractors and subcontractors. Ask every contractor if they plan on using subcontractors; if they do, ask them who, and do research on them as well. Again, you’ll add up the bids and add a 10-20% contingency. Some quick tips for finding the best crew:
- Look at other projects they’ve completed
- Ask for referrals
- Look at their safety record
- Make sure they’re licensed, bonded, and insured
You’ll need a lot of different kinds of insurance. Things that will need to be insured include:
- The building itself (Course of construction insurance)
- The labour of the workers (Liability insurance)
- The estimates you’ve been given (Construction bonds)
- Vehicles to get to the site (Commercial auto insurance)
- Worker safety (Worker’s Compensation Insurance)
More often than not, most of this insurance will already be covered by the contractors and subcontractors you hire. Of course, this coverage may lapse if appropriate protections are not offered, from PPE to following construction guidelines. Worker safety is one of the reasons it’s so important to never rush or cut corners, and that’s why it’s essential you have a long conversation with all contractors about worker safety.
A type of insurance you might not consider when thinking about construction companies is life insurance. Paradigm Insurance, a company in Canada, wants you to think again. They say life insurance can be incredibly valuable if you have a partner with a substantial stake in the construction project. Should they pass away, you may find yourself unable to pay for the project, which can put you in all kinds of hot water. Partners with a vested financial interest in each other should all take out life insurance policies on one another to ensure that construction projects (and their business in general) can continue unimpeded.
You’ll want to budget for all the insurance costs that fall on you to pay – generally, that includes the course of construction insurance, commercial auto insurance, and life insurance, but it could include more, depending on your particular arrangement.
The Scope is Clear
Most of this article has concerned itself with cost, but you should be building time estimates into everything you do, too; use the PERT technique to better estimate for an allotted time. With the scope of your project clearly defined, and some wiggle room for error, you should be in the clear. While construction is occurring, you should constantly monitor whether or not your cost and time estimates are relatively accurate. If they’re not, investigate what’s throwing them off; you may have made errors that affected your entire budget, and revisions may need to be made. It’s best to find problems early and revise than to realize you were out of scope halfway through a project.