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Last edited 06 Sep 2017

How to financially plan for future construction projects

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Contents

[edit] Introduction

The budget figure can be dazzling. From a few thousand to millions of pounds to construct and finish a project, it is easy to think that you have ample room within the budget.

Increasingly, we are hearing horror stories of large-scale construction projects going over budget, and not just by a few pence but by thousands, sometimes millions of pounds. Is this poor financial planning and management or the result of unrealistic expectations of what you can get for your money?

There is no doubt that a tight hold on the construction budget is critical but how do you go about bringing a project in on budget? Here are 5 tips for efficient financial planning.

[edit] #1 - Look back

First on the list is looking at past projects and how they performed in terms of the budget allocated to the build. What were the main financial problems? Was it not keeping a keen eye on the budget or enough detail in the planning stage.

Taking time to look at past projects you have been lived with and looking at similar projects with other companies, you may learn valuable lessons for future projects in the golden glow of hindsight of construction projects past.

[edit] #2 - Detailed budget

You have allocated or been allocated a certain amount of money to complete the build. This figure is not a ‘ball park’ one, it is fixed and firm. You are expected to come in on budget or under budget, but not over.

A detailed breakdown of the budget, where it needs to be spent and how much is critical to the success of the project. For example, if you are constructing a build that will be labour intensive, requiring many trades to be on site at any one time, clearly the costs of this will be significant.

Materials will vary in price too and therefore, you will need to bear in mind that a small emergency fund – usually around 10% of the overall budget – should be kept back to meet unexpected or unforeseen budgetary issues.

[edit] #3 - Cost monitoring tools

As project manager, you will oversee many aspects of expenditure but invoices piling up on your desk is not the best way of monitoring expenditure. When everyone has gone home on Friday afternoon, you could up to the small hours, working out what has been spent and on what.

Cost monitoring tools are a worthwhile investment. You set the parameters by inputting your detailed budget as the benchmark and you input date (invoice amounts, for example) against these individual headings, also known as departments.

Once you have inputted the detail, you can see where your budget is heading. It also allows you to monitor spending in key areas, giving you valuable information for future projects too.

[edit] #4 - Real time reporting

There is no doubt that as a project manager, the more proactive you are in monitoring your budget, the more likely you are to pull the project in on budget.

As well as monitoring expenditure, there will be times when you will need to discuss the budget with key members of the build. The more accurate and up to date this financial information, the more useful it will be.

Real time reporting also helps you determine where money is being spent, allowing you to monitor the value of the expenditure. It also highlights where unforeseen expense happened and helps you not only determine why but cheaper, more cost-effective ways of doing things without compromising on quality or build time.

[edit] #5 - Don’t be frightened of new build technology

Building with bricks, mortar, concrete and breeze block may, to some people, be the accepted norm, the only way of doing things. Just because someone is more comfortable and familiar with a build technology doesn’t mean it is the only way of doing things.

Some of these accepted and traditional build methods are expensive today. The quality is not in doubt but when the budget is buckling under the weight of the project, the time has come to source new build technologies.

As the budget holder, you should be constantly sourcing new components and materials that shave off pounds and pence off their cost.

[edit] Managing money

The bigger the project, the more detail will be needed in the budget. Financial planning of future projects needs to be detailed and with new build technologies being developed all the time, could your next big project come in under budget?

--MTX Contracts

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