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Budget Management


The budget is one of the three main items pulling on your project (the other two being schedule and quality), so budget management is essential.

The initial step in budget management is establishing a realistic budget in the first place. This might be fixed by specific funds having been allocated for the project, and the goal then is to see what can be achieved for the previously established funds. Alternatively, the scope requirements may have been established, and a realistic budget will then need to be arrived at, based on those requirements. For a commercial development, there is also the need to ensure that the development will be profitable for the enterprise. Sometimes the scope requirements and specific funds have been allocated, and the goal is then to establish ways to make the two work together, or adjust one or both to attain a satisfactory balance.

The project budget would include such items as:

  • Construction costs
  • Design fees
  • Construction management fees
  • Allowance for change orders
  • Regulatory authorities' fees and charges
  • Utility company connection fees and charges
  • Loose furniture
  • Special equipment and instrumentation
  • Land costs
  • Legal and administrative charges
  • Relocation costs
  • Other owner costs

Sometimes the above list is summarized as Hard Construction Costs (the first item on the above list) and Soft Costs (the other items on the list). The relationship between these elements has been depicted as an iceberg, with the visible portion of the iceberg (the part above the waterline) representing the Hard Costs, and the hidden part below the waterline being the Soft Costs.

Once the design phase has begun, the design needs to be assessed at points during the design to ensure that it is keeping on target, and that 'scope creep', market conditions, or other factors are not moving the design off target. Estimating the project when large parts of the work has still to be designed means that you need good records from previous projects, so that appropriate allowances can be made, and we have a substantial database of project information to call on. Apart from providing regular estimates based on the design as it progresses, Value Engineering provides an excellent means of ensuring that the building owner's goals are being maximized within the constraints of the budget. Related to value engineering is life-cycle costing, where the initial and on-going costs are combined to compare different options and establish what option is most cost effective over the life of the building.

Once the design is complete, and successful bids have been achieved, budget management then needs to keep track of change orders, claims, and other project related costs.

Sometimes costs need to be analyzed for allocation to different people. On one infrastructure project we have been associated with recently the costs for the joint trench had to be subdivided for allocation to the various utility companies running services through it. Another government project had to have the construction costs allocated to each of the agencies using the building.

So budget management can be seen to be an essential element of the project, from inception to completion, and we are available to provide these services at any or all stages.

Recession & Bid Prices (Bay Dimension newsletter, 1st Quarter 2009)
Cost Management (Bay Dimension newsletter, 1st Quarter 2007)
Cost Estimating & Cost Management (Bay Dimension newsletter, 3rd Quarter 2007)

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