Boosting the Bottom Line - Financial Wizardry for Construction Professionals


Profit always begins with project budgets, more importantly, accurate project budgets. The key to effective budgeting is to create budgets that reflect all financial aspects of your projects and to understand that budgets are fluid -- they exist as estimates, initial budgets, and committed budgets, and include a reflection of labor, change orders, general conditions, and overhead. A budget isn’t an item––it’s a process––and must be thought of and managed as a process.

The basic formula for a budget is labor (or subcontractor costs) and material, plus general conditions, plus profit. This simple formula, however, does not come close to encompassing all the intricacies of budgeting. Subcontractor’s costs are initially estimated but aren’t actually solidified until the subcontracts are signed. Even then,  scope problems will inevitably arise and change orders will be created. General conditions also fluctuate, including project management salaries, site costs, transportation costs, software and other overhead.

While it’s difficult for the owner or manager to get his hands around all of these moving parts, it’s precisely what effective budget management requires––a complete understanding of what causes numbers to move and proactively responding to them.

Start with the Estimate
A budget begins with an accurate estimate. Evaluating the quality of an estimate can and should be accomplished at several different points in the process. A good manager will create a culture of continuous improvement in the estimating department. If the work is mostly subcontracted, the estimate can be evaluated soon after buyout, but general conditions and self-performed work will have to wait until the project is complete.

Every estimate should be evaluated against actual costs, but make sure you look at planned durations, not actual durations. Change orders and time extensions also need to be considered apart from the estimate. Company assumptions concerning overhead and other such costs need to be continually updated due to the ever-changing nature of these costs. It’s also crucial to have a handoff meeting moving the project from estimating to the project management team and buyout.

The Budget and the Buyout
After the estimate is fixed as a budget, the next step is buyout. This is an important step for the manager to scrutinize, as it will gauge the financial success of the project. At this point, the manager will uncover scope problems and create a clear path for purchasing––every cost that can be committed will be committed. Do not settle for a slow buyout; get the budget committed to the fullest extent possible.

The goal of buyout is to maximize the desirable qualities of the project: profit, early completion, quality, safety, and customer experience. Many companies fail to focus on these aspects during buyout and, while there are many ways to maximize, the aspect most often ignored is “time”. In today’s excessively competitive market, early completion is often planned during the estimate.

The Result of Inefficiency
One of the most important goals for any successful construction company is efficiency: to successfully manage teams, schedules, materials, and equipment in order to complete projects on time and under budget. When these are all managed well, many financial woes are eliminated. So, to be a financial wizard, you must first and foremost attend to project efficiency.

What is the primary result of project inefficiency? Delay of information, such as delay for instructions, RFIs, contracts, materials, or equipment. For example, overdue RFIs are common bottlenecks inhibiting project schedules, as they are necessary to confirm the directive of project information before work may start or resume. When administrators and management seek specific project information, or look to clarify specific project details, any delay in response impacts the success of the entire project, sometimes even to the point of completely halting construction.

Barring unforeseen events, these labor inefficiencies largely stem from oversights during planning and scheduling. If your team tracks their time on paper, you’re not receiving real-time information. When you manage paper instead of documents, your operations get bogged down, you can’t respond to change in a timely manner, and your competitiveness suffers.

Saving Your Bottom Line with Construction Software
Construction software can help centralize, streamline and automate many project management processes, saving construction professionals ample time and money. By properly leveraging the power of construction software, teams can cut their document creation, distribution, and management time in half.

With cloud-based platforms, entire teams have the power to securely deliver real-time project information to team members at any time, with any Internet-connected device. When project teams have the capacity to access vital project data from their devices, they can make timely, confident decisions directly from the job site. Every time a contract adjustment is made, a commitment is entered, or a change order is submitted, it’s tracked in the software. The beauty of cloud-based construction project management software is having the power and efficiency to provide your entire field and office staff with vital project information all from one centralized repository in seconds.

Construction software eliminates many project management delays, like bottlenecked RFI, by automating and streamlining time consuming project management processes. For example, with construction software, RFI composition is automated with ready-made custom formatting and attachment capability––attaching documents directly to the RFI––decreasing the recipient's search for the corresponding information in his own records. Furthermore, once responsibility and a due date are assigned, the recipient automatically receives overdue notification reminders via email as the deadline approaches, keeping RFIs on schedule.

Benefits Post-Project
At the end of the project, the preeminent tool for effective budget management becomes available––evaluation. It may be too late to impact the completed project budget, but you can have a profound effect on the projects to follow. Conduct a budget closeout meeting for every project. The only way to truly improve the budgeting process is to learn from each one, not only from successes, but failures, too.

The better the project was documented, the more you will learn. When information is documented correctly, especially when using construction software, it has tremendous power to illuminate issues for future projects. It gives you the power to look back and the ability to discuss the problems that impacted the budget throughout the project, analyze the estimate, and compare it to actual costs.

Reflecting on decisions that both saved and cost money and time allows you to become a wizard as you implement future strategies to further duplicate or eliminate these occurrences.  You now have the power to boost your bottom line.

This article courtesy of Procore, a cloud-based construction management software application that strives to make your project management effortless, one task at a time. Find out more at

Tags: Costs, More, Construction Management

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