3 Tips to Keep in Mind When Preparing a Budget for a Construction Project

Budget

Other than time constraints, the biggest challenge to the successful completion of a project is usually money. Sometimes, a project ends up requiring more finances than were initially anticipated. This might result in the stalling and ultimate failure of many projects. There are many possible causes for such disparities. It is possible to a certain extent to reduce that deviation.

Acquisition of Equipment

A construction company may decide to either purchase or hire the equipment to be used. In the case of hiring, there may be a need to consider the cost of hiring earthmoving equipment. Hire rates offered by different equipment suppliers should be carefully compared. Remember to also consider the amount of time that the construction project may be in progress. The hired construction company may also decide against hiring the construction equipment and opt to purchase it. This calls for a whole other vetting process as you aim to identify the company whose equipment is both cost-effective and durable. Remember that the decision to either buy or hire equipment has varying effects on the budget.

Inflation

Coins being stacked by businessman

This refers to the steady rise in the prices of commodities and services in a given market over time. It may be expressed as a percentage of the initial price. Inflation tends to negatively affect both the demand and the purchasing power of buyers. Inflation remains to be a real menace when preparing a budget for a construction project. It is impossible to determine whether the prices of various materials will remain steady over the period that the project will be in progress, especially for projects that last for up to a few years. The price of a single bag of cement today may not remain the same over the next five years. The effect may even be worse in the unfortunate event that the country is rocked by some political instability. All these uncertainties might result in the need to introduce an inflation factor when preparing the final budget.

Import Costs

These mainly apply when a construction project involves the use of construction materials that are not locally available. For example, it may be the use of special stones that are not found in the local mines. In a majority of countries, all imported products are subject to import duty and other tariffs, which increase the final price of a product. When collecting estimates, it is essential not to solely rely on the stated prices for such materials in foreign countries. Instead, keep in mind the expected additional costs. The final price estimates should have provisions for even the expected shipping costs to be incurred. Otherwise, you may be at risk of underestimating the required budget.

It is far better to operate on an overestimated budget than deal with a deficit. With the former, the project sponsors recover the excess money that may even be allocated to the maintenance of the construction project. However, in the event of a deficit, it may be impossible to secure a new source of funding in time to salvage the project.