How To Create a Construction Budget and Why It’s Important for the Success of Any Construction Project

 March 8, 2023 by Michael Gober & Denis Gritsiyenko

When it comes to a construction project of any size, staying within budget is important but might not always be the easiest to do.

With so many factors to consider and unforeseen circumstances that are sure to arise, it’s not as simple as pulling a dollar amount out of thin air and calling it good for your budget.

With the right tools, creating a smart and as-close-to-accurate-as-possible budget for your construction project is possible. Using construction management software with cost-tracking abilities is your answer.

Here you will learn how to create a construction budget that includes all costs — big and small — of a construction project.

  1. CM Fusion: Construction Project Management Tools in a Cloud-Based Software
  2. Why Is Knowing How To Create a Construction Budget Important?
  3. 3 Necessary Parts of a Construction Budget
  4. How To Create a Construction Budget in 5 Steps
  5. Manage Construction Project Budgets With CM Fusion Software

CM Fusion: Construction Project Management Tools in a Cloud-Based Software

Construction projects can get pricey. And not much is worse than blowing your budget (or your client’s) during a project.

Any project — no matter how big or small — is going to cost you. The key to successfully staying on budget is utilizing a cost-tracking system that not only keeps you accountable for your spending but also tracks the money coming in.

CM Fusion’s cost-tracking software is superior to using a basic excel spreadsheet and when it comes to creating a construction budget and helping you stay within that budget, we’ve got you covered.

Our cost-tracking feature allows you to manage project costs and budgeting with a live log that organizes costs by code, category, and vendor. It also allows contractors to:

  • Do real-time over/under tracking

  • Track labor materials and fixed costs

  • Create custom codes and categories

  • Manage your construction budget anywhere via mobile or tablet

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Why Is Knowing How To Create a Construction Budget Important?

Anticipating the total cost of a project and working to stay within that budget is important for everyone involved in a construction project.

To create a construction budget, you generally include the costs of:

  • Materials, labor, and equipment

  • Non-trade costs required for a project to take place

  • Design and other services

  • Permits and fees

  • Unforeseen circumstances 

Knowing how to create a construction budget that is as close to accurate as possible is important to everyone involved in a construction project. A construction budget:

  • Gives clients a more accurate idea of the total cost of their project

  • Allows suppliers to purchase the right amount of necessary materials

  • Allows contractors to more accurately staff their workers

  • Leaves room for changes, delays, or mistakes

  • Considers costs of things required for a project to happen

3 Necessary Parts of a Construction Budget

Creating a construction budget isn’t as simple as guesstimating how much material you’ll need, how many hours a project might take to complete, and paying your workers. Depending on the scope of the project, a construction budget can have a lot of moving pieces.

That’s why to create a construction budget that is all-encompassing and as close to accurate as possible, you’ll need to include three essential components at the very least.

#1: Hard Costs

Hard costs — or direct costs — have to do with the costs associated with the actual construction. They are tangible things like:

  • Materials

  • Labor

  • Equipment 

Hard costs can be described as things only relating to the construction. Most construction projects will incur these costs at similar levels.

Take building an office building, for example. Hard costs might include things like:

  • Materials like concrete, wood, steel, insulation, glass windows

  • Labor costs to pay the wages of the workers doing the construction

  • Installing utilities like electricity, plumbing, water, and sewage

  • HVAC installation

  • Painting and/or wallpaper

  • Flooring and installation

  • Paving for sidewalks or parking lots

  • Alarm installation

Generally, hard costs make up about 70-80% of your total construction budget.

#2: Soft Costs

Soft costs — or indirect costs — are costs that don’t deal with the actual construction of a project. Instead, they are simply necessary for the project’s completion. These are things like:

  • Legal fees

  • Closing costs

  • Architect costs

  • Approvals 

Consider that same office building. Your soft costs could include:

  • Engineering costs

  • Legal fees

  • Taxes

  • Permits

  • Insurance

  • Financing fees

  • Architectural planning fees

  • Marketing

  • Building equipment

  • Furniture

  • Real estate fees

  • Overhead costs incurred with running a business

Generally, a construction budget allocates 15-30% for soft costs.

#3: Profits

A construction budget’s profit is the difference between the money you earned for the project vs. the actual costs of the project. 

This changes project to project because a profit is dependent on:

  • The scope of your work

  • Potential costs; and

  • How you manage your budget

If you’re using a standard excel sheet to manage your construction project costs, chances are there is going to be a mistake or two made here or there. 

Somewhere along the lines, money coming in or going out might be missed. This can throw off your entire budget and affect your overall profit.

Instead, utilizing a cost-tracking software like the one included with CM Fusion’s project management software allows for the most accurate and efficient budget tracking. 

Our construction cost tracking software:

  • Is simple and easy to use

  • Allows for accurate cost-tracking data to stay on budget and maintain profitability

  • Directly integrates with your financial system 

Take advantage of our 30-day free trial and test our construction cost-tracking software on your next project.

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How To Create a Construction Budget in 5 Steps

Learning how to create a construction budget might seem overwhelming, but with the right tools and necessary information, it doesn’t have to be so difficult.

Consider implementing these five simple steps next time you’re working on a construction budget and cost controls.

#1: Research and Analysis

When planning a construction budget, you can’t just pull numbers out of thin air and hope they pan out. 

To accurately forecast the cost of a construction project, project managers must review historical data of similar projects to gain an idea of actual numbers.

A project manager should:

  • Speak to suppliers to review costs of materials and how much they’ll need

  • Consider how many workers will be needed to complete the project

  • Estimate how long the project might take

  • Consider design options

#2: Pre-Construction Planning and Development

Once the research is complete, a project manager can bring the data to the project owner or architect and choose a final design. 

With this information, a list is created including all of the project’s materials and cost estimations to help guide the bidding process. During this process, a project owner chooses a general contractor and can begin building the actual construction project budget.

#3: Pre-Construction and Documentation

Stakeholder relationships can positively or negatively influence the project’s life cycle, so during this time you’ll want to identify key stakeholders and create a plan for meeting their requirements.

A project’s stakeholder might be an individual or a group or an organization that is impacted by the outcome of the project. Most importantly, they could be:

  • The project owner

  • Project sponsors

  • Project manager and team

  • Consultants

  • Suppliers

  • Subcontractors

By identifying these stakeholders and speaking with them, potential issues can be noted and resolved before the project is completed. 

It’s important to note this during the pre-construction phase so the project manager has a paper trail to show where unexpected costs might arise since these unforeseen costs could impact the overall construction budget.

#4: Cost Tracking and Analysis During Construction

Despite all the time and effort put into pre-construction planning, your budget will still overlook some incurred expenses, so tracking and analyzing as you go through the project is important.

Budgeting isn’t just about tracking overall expenses, so you should consider all costs you might incur for each activity throughout your construction project.

Costs To Include in a Construction Budget

A construction budget is complex and includes many line items. Knowing what they are and keeping track of them throughout the project is key to the project’s overall success.

In your construction budget, you should consider including:

  1. Property costs, including:

    • Land costs

    • Real estate fees

    • Financing

    • Taxes

  2. Professional fees and services, including:

    • Building and occupancy permits

    • Surveying, studying, and testing dees

    • Architectural and design services

    • Professional engineering stamps

  3. Cost of materials which are typically fixed costs and can be quoted from your suppliers. They can include both site preparation materials like landscaping or building structure materials like:

    • Framing materials

    • Roofing

    • Insulation

    • Mechanical systems

    • Doors

    • Windows

    • Flooring

    • Drywall

    • Paint or wallpaper

  4. Labor costs or tradespeople, subcontractors, equipment operators, and other necessary professionals. Keep in mind the true cost of human resources, including:

    • Hourly wages

    • Workers’ compensation costs and payroll expenses

    • Vacation and sick time

    • Non-productive work time and re-work

  5. Equipment and tools and whether they are rented or owned. Consider expenses like:

    • Rental fees

    • Delivery costs

    • Operating costs

    • Fuel costs

    • Maintenance and repairs

  6. Project management costs to cover the team members and any supplies or equipment they might need to perform their jobs. Things like:

    • Salaries of team members

    • Safety supplies

    • Security staff

    • Office rent

    • Utilities

    • Internet connection

    • Phone expenses

    • Office supplies 

    • Construction technology tools like software

  7. Liability insurance is required on all construction projects as well as performance bonds to ensure subcontractors, tradespeople and material suppliers will be paid.

  8.  Utilities and taxes, depending on the project. This could include:

    • Gas

    • Water

    • Sewage

    • Electric

    • Local or state taxes

#5: Closeout and Post-Construction Analysis

Once a construction project is complete, the project’s budget shouldn’t get closed down and go away forever. It can provide your business with insight and be helpful when creating budgets in the future to help improve estimates, scheduling, and the overall project management process. 

To make this phase as simple as possible, be sure you’re:

  • Tracking all change orders in an easy-to-use system

  • Identifying problem spots early on in the planning process

  • Creating a workaround for potential issues

  • Keeping stakeholders in the loop

  • Tracking deliverables and materials 

  • Preparing punch lists, checklists, warranties, and necessary inspections

CM Fusion’s project management software makes both creating construction budgets and closing out a construction project simple and organized. With the ability to stay connected wherever you might be and to manage …

  • Projects 

  • Reports

  • Scheduling

  • Documents

.. and so much more, the real-time access will keep you from ever missing out on anything important during your construction projects again.

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Manage Construction Project Budgets With CM Fusion Software

Imagine working on a dozen different construction projects at once. You’re pulling up different excel sheets, entering costs and numbers all over the place, attempting to stay organized, trying to pull up data from old projects to help you guide the budget for a new project — it’s enough to give you a headache, right?

CM Fusion’s cost-tracking software makes it easy to manage construction project budgets with its many features. With things like …

  • Utilizing live logs for project costs and budgeting

  • Organizing costs by codes, category, and vendor

  • Tracking labor materials and fixed costs

  • Utilizing real-time over/under tracking

… and more, you can easily manage a construction budget from anywhere, anytime.

How CM Fusion’s Cost Tracking Feature Can Help With Construction Budgets

Not only does CM Fusion’s cost-tracking feature help you to create budgets for different construction projects, it also allows you to align your budget with different purchase orders or invoices to help keep the money coming in and going out streamlined, up to date, and on track with your overall budget.

The cost-tracking feature also separates everything by labor and materials and itemizes things to make it easier to view and understand the budget breakdown.

The major benefit? Everything is organized in one place and can be easily accessed from anywhere. Its dynamic ability allows data points to be pulled to help track costs to see if you’re staying on budget or if things need to be readjusted.

How To Create a Budget With CM Fusion’s Project Management Software

At CM Fusion, we don’t want to overcomplicate things for you. That’s why we’ve made it quick and easy to create a budget with our project management software.

  1. Create a new project.

  2. Click on the cost tracking feature.

  3. Choose a budget.

  4. Plug in budget line items, assign them a cost, and leave a brief description if necessary.

If you’ve been using excel spreadsheets for your construction project budgets in the past, we even have a simple way to import those excel spreadsheets directly into CM Fusion’s software for an easy and seamless transition.

Interested in getting started? Try CM Fusion for free for 30 days before you commit. You won’t regret it.

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