How to financially plan for future construction projects

[edit] Introduction

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. But, increasingly, we hear horror stories of large-scale construction projects going over budget by thousands, sometimes millions of pounds. Is this poor financial planning and management or the result of unrealistic expectations?

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

[edit] Look back

Look 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 an eye on the budget or not enough detail in the planning stage?

Taking time to look at past projects and similar projects undertaken by other companies, you may offer valuable lessons for future projects.

[edit] Detailed budget

The budget figure is not a ‘ball park’ one, it is fixed and firm. Projects 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.

A small emergency fund (contingency) – usually around 10 to 15% of the overall budget – should be kept back to meet unexpected or unforeseen budgetary issues.

[edit] Cost monitoring tools

Cost monitoring tools are a worthwhile investment. Set the parameters by inputting the detailed budget as the benchmark and input data (invoice amounts, for example) against individual headings, also known as departments.

It is then possible to see where the budget is heading, and to monitor spending in key areas - giving valuable information for future projects too.

[edit] Real time reporting

As well as monitoring expenditure, there will be times when it is necessary 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 determine where money is being spent, making it possible to monitor the value of expenditure. It also highlights where unforeseen expense happened and helps, not only determine why but cheaper, more cost-effective ways of doing things without compromising on quality or build time.

[edit] 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. When the budget is buckling under the weight of the project, it may be appropriate to try new build technologies that shave pounds and pence from costs.

--MTX Contracts

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki

• Accounting.
• Budget.
• Business plan.
• Capital costs.
• Commercial management.
• Cost control.
• Cost plans.
• Profitability.
• Whole-life costs.