The very first thing that you need to develop for any successful project is a plan to control your costs.
With over 20 years of experience in all types of development, I have found that no matter the size or complexity of the project, there is one question that everyone wants answered before they spend a lot of time and money. It is, of course:
How much is this project going to cost?
The answer to this question comes from the proper development and use of a budget. It is not difficult for most people to understand the importance of having a good budget at the beginning of a project. What is often difficult is determining how to get an accurate initial budget without spending a fortune doing so!
It is important to understand that budgeting is not a one time task. Rather, it is an ongoing process throughout the life of a project. Most projects end up developing several budgets.
The initial budget is probably the most important and difficult to create for the following reasons:
1. The initial budget is normally used to request money for a project. If you get this budget wrong, you may need to request more money at a future date and that is no fun!
2. It is most often prepared with the least amount of information. Detailed construction drawings are not usually available when an initial budget is prepared.
These reasons create a fundamental problem, it is sort of a “chicken or the egg” thing.
Most people want an accurate initial budget without spending a lot of time and money. They don’t want to waste money on design fees if they cannot ultimately afford the project. But how can you prepare an accurate budget without detailed plans? You can see the dilemma!
So, given these challenges, how do you develop an initial budget? There are three common options:
1. The “do it yourself” method. This involves using whatever resources that you have and preparing the budget yourself. Unless you do this all of the time, this approach can take a lot of time and effort.
2. Go to a contractor and ask for a price. This could work, but if the contractor doesn’t have accurate drawings, how will they know how to prepare your budget?
3. Find a design professional or construction manager who has the ability to prepare detailed and accurate initial budgets at a reasonable price without needing a lot of drawings.
What should a good budget include?
To be effective, a good initial budget should include the following key features:
• A detailed scope of work
• Cash flow requirements
• Costs with and without financing
• Construction phasing options
• Up to date pricing
• Scheduling information
The advantages of this type of budgeting system are:
• Minimal initial cost
• Rapid access to accurate budget data
• Easy to modify
• Confidence in the data! A detailed format will show you exactly how the costs were derived.
Budgeting is such an important part of any successful project that Greenwood & Moore is releasing a new video on this subject in the upcoming weeks. Please check it out!