Construction budgeting: what it consists of and how to optimize this process
Posted: Thu Dec 26, 2024 3:38 am
When we talk about Engineering and Construction, we inevitably talk about the importance of planning in the effective management of works . This planning is the fundamental pillar, both for good budgeting of works and for the respective budget. However, and despite these concepts being part of the daily lives of engineering and construction professionals, there is a certain difficulty in differentiating each one and its respective application.
Therefore, and in order to answer the most frequently asked questions - namely, "What is the main difference between budgeting and construction budgeting?", "What does construction budgeting consist of?" and "How to carry out effective construction budgeting?" -, we have prepared this article.
What is the main difference between budgeting and construction budgeting?
Although the terms budgeting and estimating are similar, there are differences india whatsapp number database them. In this sense, and in order to understand their complementarity, we must understand construction budgeting as the process of determining and forecasting costs that gives rise to the final cost or sale result, that is, the construction budget .
What does construction budgeting consist of?
With the main objective of estimating the costs of a project, from the planning and pre-construction phase to the moment the project is delivered to the client, the budgeting of projects is a process that is the responsibility of the estimating technicians, which is why these professionals must have in-depth technical knowledge of the plans, drawings and specifications of the project, but also demonstrate the ability to identify the difficulties inherent to each stage and service, thus understanding the execution costs.
What aspects are involved in budgeting?
In general terms, all construction budgeting processes must include the forecast of direct and indirect construction costs , but also a margin for parameters that are outside the company's control but that may have a direct influence on the final price of the work and profit margins, namely:
● Natural phenomena and disasters (storms, climate change, soil conditions, etc.)
● Productivity problems (available workforce, possible work stoppages, etc.)
● Availability of materials (failure in production and distribution lines, supplier flexibility, sudden price increases, etc.)
Finally, all construction budgets must take into account a tangible time horizon , as the market is dynamic and all services and materials tend to experience price fluctuations, depending on the law of supply and demand.
It should be noted that construction budgeting represents one of the most important stages in the construction management process, since it is through this cost estimate that it is possible not only to determine the complexity of the project and how construction resources will be invested, but also to define the project's profit margins .
How to carry out effective construction budgeting?
Budgeting is one of the main areas in the engineering and construction sector, since it is based on this that the price of the project is set. Therefore, one of the crucial factors for a profitable result and, consequently, the success of the engineering and construction company, is the existence of an efficient and effective budgeting process.
In this sense, and in order to avoid failures that could lead to budgetary fluctuations and frustrations for all parties involved, it is necessary to consider the following steps during the budgeting process:
Analysis of Constraints
The first stage of any construction budgeting process involves reading the construction project and its technical specifications. Additionally, it is necessary to carry out an analysis of the construction site of the project, as well as an in-depth reading of the specifications for the work, especially if we are talking about a public works tender. This analysis is essential for clearly identifying needs related to:
● Purchase of materials
● Manpower required
● Infrastructure to support the construction site
● Temporary construction site facilities
● Licenses
● Taxes
● Risks (environmental, human and safety) associated with the location of the work
● Other needs/requirements of the owner of the work
Cost Composition
Next, it is necessary to transform all the data obtained from the constraint analysis into a cost composition. In this sense, the works budget document must include:
● Direct costs: this type of cost concerns all expenses that directly affect construction, namely the purchase of materials, labor or equipment rental.
● Indirect costs: this type of cost refers to all expenses related to the work but not directly applied to the construction. This includes, for example, costs associated with the back-office team (salaries, office supplies, etc.), fees associated with water and energy, insurance, taxes, licenses, among other expenses.
● Profit margin: the main objective of all companies is to make a profit, so this is a parameter that must also be properly identified in the construction budgeting process.
It should be noted that the better the identification, listing and accounting of the above-mentioned parameters during the budgeting process, the better and more accurate the final work budget will be, which will benefit and optimize the entire work management.
Therefore, and in order to answer the most frequently asked questions - namely, "What is the main difference between budgeting and construction budgeting?", "What does construction budgeting consist of?" and "How to carry out effective construction budgeting?" -, we have prepared this article.
What is the main difference between budgeting and construction budgeting?
Although the terms budgeting and estimating are similar, there are differences india whatsapp number database them. In this sense, and in order to understand their complementarity, we must understand construction budgeting as the process of determining and forecasting costs that gives rise to the final cost or sale result, that is, the construction budget .
What does construction budgeting consist of?
With the main objective of estimating the costs of a project, from the planning and pre-construction phase to the moment the project is delivered to the client, the budgeting of projects is a process that is the responsibility of the estimating technicians, which is why these professionals must have in-depth technical knowledge of the plans, drawings and specifications of the project, but also demonstrate the ability to identify the difficulties inherent to each stage and service, thus understanding the execution costs.
What aspects are involved in budgeting?
In general terms, all construction budgeting processes must include the forecast of direct and indirect construction costs , but also a margin for parameters that are outside the company's control but that may have a direct influence on the final price of the work and profit margins, namely:
● Natural phenomena and disasters (storms, climate change, soil conditions, etc.)
● Productivity problems (available workforce, possible work stoppages, etc.)
● Availability of materials (failure in production and distribution lines, supplier flexibility, sudden price increases, etc.)
Finally, all construction budgets must take into account a tangible time horizon , as the market is dynamic and all services and materials tend to experience price fluctuations, depending on the law of supply and demand.
It should be noted that construction budgeting represents one of the most important stages in the construction management process, since it is through this cost estimate that it is possible not only to determine the complexity of the project and how construction resources will be invested, but also to define the project's profit margins .
How to carry out effective construction budgeting?
Budgeting is one of the main areas in the engineering and construction sector, since it is based on this that the price of the project is set. Therefore, one of the crucial factors for a profitable result and, consequently, the success of the engineering and construction company, is the existence of an efficient and effective budgeting process.
In this sense, and in order to avoid failures that could lead to budgetary fluctuations and frustrations for all parties involved, it is necessary to consider the following steps during the budgeting process:
Analysis of Constraints
The first stage of any construction budgeting process involves reading the construction project and its technical specifications. Additionally, it is necessary to carry out an analysis of the construction site of the project, as well as an in-depth reading of the specifications for the work, especially if we are talking about a public works tender. This analysis is essential for clearly identifying needs related to:
● Purchase of materials
● Manpower required
● Infrastructure to support the construction site
● Temporary construction site facilities
● Licenses
● Taxes
● Risks (environmental, human and safety) associated with the location of the work
● Other needs/requirements of the owner of the work
Cost Composition
Next, it is necessary to transform all the data obtained from the constraint analysis into a cost composition. In this sense, the works budget document must include:
● Direct costs: this type of cost concerns all expenses that directly affect construction, namely the purchase of materials, labor or equipment rental.
● Indirect costs: this type of cost refers to all expenses related to the work but not directly applied to the construction. This includes, for example, costs associated with the back-office team (salaries, office supplies, etc.), fees associated with water and energy, insurance, taxes, licenses, among other expenses.
● Profit margin: the main objective of all companies is to make a profit, so this is a parameter that must also be properly identified in the construction budgeting process.
It should be noted that the better the identification, listing and accounting of the above-mentioned parameters during the budgeting process, the better and more accurate the final work budget will be, which will benefit and optimize the entire work management.