If you’re about to embark on your first industrial construction project, you may have anxieties about budgeting and expectations.
Industrial construction projects are exceptionally complex, and while you may think it’s close to impossible to think of everything in the budgeting process, it actually is not if you map out and plan for all of its components.
When you work with the right industrial construction partner, construction budgeting will be transparent, clear, and easy to understand.
This guide will bring the typical elements of budgeting to the surface so you may know what to expect when meeting with your construction company to kick off your construction project.
Budget Overview for an Industrial Construction Project
Direct costs, including labor, materials, equipment and subcontractors will account for approximately 70-80% of your total budget
The remaining 20-30% will account for indirect costs, such as:
- Project management and supervision
- Engineering and design fees
- Permits and licenses
- Insurance
- Temporary facilities
- Utilities
- Safety and security
As not all projects stay 100% on task and on plan, budget 5-15% of your budget for a contingency reserve. A contingency reserve will pay for unforeseen expenses, emergencies, or changes that may occur during construction, such as:
- Weather-related delays
- Cost overruns
- Unanticipated price increases for materials
- Contractor coordination issues
- Labor shortages
- Unforeseen site conditions
Contingency funds should be used as a last resort, only after all other options have been considered. Their use should be documented and approved to maintain complete transparency.
Creating Detailed Cost Estimates
In the budgeting process, your construction company will likely use historical data from similar projects as a baseline for your construction project in addition to obtaining quotes from suppliers and subcontractors. They will also consider location-specific factors that influence labor rates and material costs.
Value Engineering
Assuming your industrial construction company is looking out for your best interests, they will research and identify opportunities for cost savings that will not compromise quality. This may include:
- Evaluating alternative materials to save costs
- Considering creative construction methods to accelerate project completion
- Cash Flow Projections
Interruptions in cash flow will not only stall your industrial construction project, it will likely throw off the entire timeline as many contractors have tight schedules for multiple projects. Even small delays can add up to substantial additional costs.
Therefore, you’ll need to:
- Create detailed cash flow forecasts for the project duration
- Identify periods of high cash outlay requirements
- Ensure adequate funding is available throughout the project
Regular Monitoring and Reporting
No matter how well you budget, you’ll need to implement a system for tracking actual costs against the budget in real-time. You’ll also want to:
- Conduct regular budget reviews (e.g., every two weeks) with key stakeholders
- Develop standardized reporting formats for clear understanding and communication
Change Management Process
During any industrial construction project, unanticipated things may come up requiring you to make changes from the original project scope. For this reason, you’ll want to establish a formal change order process and a way to evaluate cost impacts of required changes. Of course, for each occurrence, you’ll need to update your budget and cash flow projections as changes are approved and implemented.
As you can conclude, proper budgeting and budget planning are critical elements of the construction process. By becoming familiar with commercial construction budgeting, you’ll be able to effectively manage costs, mitigate risks, and maximize the chances of delivering your industrial construction project on time and within budget.