While government incentives helped businesses during the surge of the pandemic in 2021, post-pandemic supply chain issues and a rise in inflation rates are expected to put pressure on construction budgets in 2022.
According to The National Home Builders Association, the average price of a single-family home will increase by $18,600. And lumber mills have not been able to keep up with production demands.
So what does this mean to construction owners?
If you’re a construction owner, you need to start planning your budget effectively if you want to decrease construction costs and avoid losing your profitable clientele.
This article will show you how to plan a construction budget for next year and beyond and what essential construction costs you need to track.
Owning a construction company comes with a lot of responsibilities. You need to manage your time, workers, and resources efficiently to get the job done on time and within the budget.
You also need to be proactive in preparing for financial risks, such as an increase in the cost of materials or a sudden drop in demand for your services.
A construction budget is a critical tool that can help you make informed decisions about where to allocate your resources and how to respond to changes in the market. It can also help you track your progress on construction projects and ensure that you are on track to achieve your financial goals.
Creating a construction budget may seem daunting, but it is essential to the success of your business.
When you think about starting several construction projects, things can get messy if you have large projects on hand that require different materials and equipment and more manpower.
To make your construction budgeting process less chaotic, you need to break down your costs into two categories: hard and soft costs.
Doing this will help you better understand where your money is going and what you need to spend on each construction project.
It will also be easier for your project management team to apply cost-control measures and change your construction budget as needed.
Besides hard and soft costs, you must consider the smaller construction budget branches.
While no construction project is 100% the same as another, there are some essential costs that you need to include in your budget, such as:
If you’re buying the land for your project, you need to factor in the cost of the property, as well as any taxes and fees associated with the purchase.
Highly desirable locations will be more expensive, so you must consider the trade-off between location and cost.
Land acquisition expenses are crucial to your construction budget because they will determine your project’s profitability in the end.
With initial investment into a project, the land’s value increases. So you can show your clients how investing in a property with your company will give them a higher ROI.
You should also keep up with the new trends and demands in construction buildings that are taking over in 2022. For instance, according to JP Morgan, hybrid office settings are increasing, so companies are looking for commercial spaces to cater to those needs. And sustainable buildings are also becoming more popular.
As a construction company, you may lose out on potential clients and business opportunities if you’re not considering those types of requests.
Your pre-construction costs will include the fees associated with designing and planning your project. This may include the cost of hiring an architect or engineer and the cost of any feasibility studies or environmental impact assessments you need to complete.
Planning your construction drawings is crucial because it will determine the accuracy of your construction budget and prevent any cost overruns.
You will also need to factor in the cost of any permits or approvals that you need to obtain before you can start construction. Depending on your location, you might need to consider local waste disposal fees, for instance.
Pre-construction costs are often overlooked, but they are essential to the success of your project.
Your construction budget will need to cover the cost of all the materials that you’ll need for your project. This may include the cost of lumber, concrete, piping, insulation, and other materials you’ll need to complete your project.
The cost of materials will vary depending on the type of project you’re working on. For instance, a residential construction project will require different materials than a commercial construction project.
You also need to consider the cost of delivery and storage for your materials. If you’re working on a large construction project, you might need to rent a storage space to keep your materials safe and secure.
Because construction material costs are rising, you need to factor in an accurate estimate of the cost of materials for your project.
The price of lumber, concrete, and steel has increased significantly over the past year, so you need to ensure that your budget considers these costs. You can reduce material costs by using recycled materials or sourcing materials from local suppliers.
Subcontractors, foremen, electricians, plumbers, carpenters, and other construction workers will need to be paid for their labor.
Estimating labor costs can be challenging during the pre-construction phase since you don’t know exactly how long the project will take to complete.
You can use historical data to estimate the time each task will take to complete. And use cost codes to track the cost of each type of labor during the project construction phase.
Moreover, you will need to factor in the cost of benefits and workers’ compensation insurance.
According to a recent HBI report, the construction industry is facing a labor shortage that is affecting the success of many construction businesses in the post-pandemic era.
So, when considering employee wages, keep in mind the following:
You will need to factor in renting or purchasing the equipment and tools you need for your construction project. This may include the cost of excavators, bulldozers, generators, and other large pieces of equipment.
You will also need to consider the cost of small tools, such as hand tools, power tools, and safety equipment.
The cost of renting or purchasing construction equipment and tools can be high, so you need to make sure that you factor this cost into your budget.
Always remember to choose a reliable supplier that provides professional services and quality tools and equipment. It also helps if they offer competitive prices or discounts for bulk orders. This way, you can save money on your construction project.
This may include the cost of hiring a project manager, an architect, and other professionals who will be involved in the planning and execution of your construction project.
You also need to consider the cost of project management software, which can be used to track the progress of your construction project.
Office and utility expenses that include the cost of renting an office space, furniture, and equipment will also need to be considered. And if you have remote teams, the cost of renting a big office space can be reduced by opting for a coworking space.
So the project management costs can vary significantly depending on your construction project’s size and scope, plus your overall company work style.
These expenses include liability insurance, workers’ compensation insurance, and builders’ risk insurance.
The cost of insurance can be significant, so you need to make sure that you factor this cost into your budget. If you’re a member of any construction association, you may be able to get some discounts on your insurance premiums.
There are also payment and performance bonds that you need to consider.
So ensure you review the terms of your contract carefully and understand the type of bond that you need for your construction project.
Taxes and utility costs can also significantly impact your construction budget.
Make sure you factor in the cost of property taxes, sales taxes, and other taxes that may apply to your construction project.
Also, don’t forget to factor in the cost of utility costs, such as water, electricity, and gas. These costs can add up quickly, so it’s important to factor them into your budget.
While not at the top of construction budget costs, contingencies are important to consider.
Contingency costs are typically 10-15% of the total project cost and cover unforeseen costs that may arise during the construction process. These costs can include permit fees, unexpected repairs, and environmental cleanup.
While you can’t always predict when these costs will arise, it’s essential to have a contingency fund in place to cover them.
When planning your construction budget, it is important to take into account all of the associated costs. Doing so can ensure that your project stays on track and within budget.
Before starting a new project, consider reviewing your budget with these tips to help you to ensure you are on track to meeting your financial goals.
There are a lot of ways to deal with no call, no show employees. The policies you enforce will depend on the type of manager you are.
Naturally, productivity and work ethics are positively and strongly correlated. There are many ways to set up a work environment where ethics are valued, and one of the most effective ways has proven to be guidance and empowerment. If you are ready to tak
Having an employee handbook is essential to the efficient operations of your business. In general, it contains all the procedures and policies that go on in your firm. It’s vital to have one, especially in construction companies, where logistics plays a h
