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10 Ways To Improve The Accuracy Of Your Client's Budget

7/2/2013

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The key way to avoid going over budget is to have a realistic budget in the first place. There are 10 issues that your budget must address in order to be realistic. Those ten key issues are: 

1. PROJECT COSTS VS. CONSTRUCTION COST 
There is a tendency for everyone to focus on the constructions costs, but they aren't the whole story, sometimes they are only 70% of the story. Include all the non-construction cost.

2. CONTINGENCY
A contingency is intended to make up for omissions or just plain mistakes in the budget. It is common to reduce the contingency as the project progresses, but it is wise to have at least 5%.

3. LABOR RATES
Some projects require union workers, compliance with the Davis-Bacon Act or "prevailing" wages. This can add 8% to 15% to the cost of construction. If this applies, add a factor.

4. SMALL PROJECT MULTIPLIER
In construction, smallness is uneconomical; and, at the extreme, can make a difference of over 100% in the cost of your project. Add a line item to compensate for the smallness of the project.

5. FINANCING IMPACT
Nearly all projects have interim financing costs. Determine the amount and how long it will be needed to estimate how much to budget. Show a line item for financing.

6. INFLATION
Although inflation has been low, you should anticipate the lag between your budget and when the costs are actually incurred. Add a line item for inflation.

7. BONDS AND INSURANCE
Some projects require performance and payment bonds, which add up to 2.5% to the cost of construction. Builder's Risk insurance is needed on all projects, but it is one-tenth the cost. Include these line items.

8. TAX-FREE ASSUMPTIONS
Even if you aren't tax exempt, historic districts or enterprise zones could provide a savings. If you are exempt, see if it is practical to take advantage of the exemption. Rules vary by state. Add a line item for tax breaks.

9. IN-KIND WORK
It is very difficult to budget accurately for donations or work by your own forces. It is often best to ignore the impact on your budget. If in-kind work becomes a reality, you will have a positive impact on the project.

10. PERMITS
Obtaining permits is not usually expensive, but the unanticipated work that may have to be done can be substantial. Include permit costs.
"Getting money is like digging with a needle; spending it is like water soaking into sand." - Japanese Proverb

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