How to Budget for Your Residential Projects

Although we have discussed budgeting within this website, we thought it beneficial to summarize our thoughts regarding some techniques that would allow you to control the financial portion of your project, in the most efficient and profitable manner possible. 

Residential Budgeting

Budget Set up 

  1. Be realistic:  An unrealistic view of your ability to finance the project will not provide a realistic financial foundation for the project and will cause issues as you attempt to complete the work.  Be realistic and plan and budget only what you can afford!
  2. Knowledgeable: Research the various methods of financing your project.  There are several different methods of financing, from refinancing your existing home to new construction loans.  The financial market is changing so rapidly, and the ability to perform your own research is so advanced, that any logical advice regarding financing is best left to your own research at the time of your project. 
  3. Communication Discuss your project with family, friends, neighbors and fellow workers.  It is important that you obtain, real life scenarios and information to enable you to clearly and logically evaluate your personal financial position, as well as the financial cost of the project. Neighbors are extremely important to communicate with due to their local knowledge of costs and contractors.  If there are favorite contractors, designers or architects that have built within the neighborhood, these are the individuals that will probably offer the best work for the money spent. 
  4. Formality: The ability to set up an interactive spreadsheet, has advanced to the point that there is no excuse, not to set up a work budget on your computer to help with your financial planning. See Residential Budget Template for help in establishing this type of spreadsheet control. 
  5. Overruns Anticipate overruns.  Have you ever heard of a construction project that did not go over budget. Once again, be realistic.  The project, as it advances, will encounter unknowns that will cost additional money.  Unfortunately any unknowns on your residential project will cause additional cost, it never goes the other way.  This is one of those interesting realities of construction, it never occurs that something unexpected costs less money, it is always more. Anticipate overruns when you set up your budget, they will occur. 
  6. Incidentals Don’t forget all of the incidentals that will be required to fully complete the project.  Items such as leaders and gutters, interior towel bars and toilet accessories and even furniture to fill your new home or addition, should be considered when budgeting the project. These will be real costs and should not be ignored. 

Budget Control 

It is important that once you set up your construction budget, that you set up some type of financial control system to allow you to monitor this  budget.  

What good is a budget if it is not followed and controlled

  1. Spreadsheet setup The best method of financial control is to set-up a budget spreadsheet that will allow you to monitor the costs of the project.  Our recommendation for this budget control set up will be detailed in another article, Residential Budget Template,  but for this presentation, we strongly recommend a detailed spreadsheet be developed. 
  2. Monitoring The weekly monitoring of your construction budget is important to the overall budget control.  The need to continually and systematically monitor your construction budget will allow you to make decisions as the project advances, to ensure compliance with the overall budget. 
  3. Control data:  It is extremely important that you continue to update the financial data that has created your budget.  Such elements as equipment pricing, contractor billing, owner supplied product analysis, etc. must be constantly monitored to ensure that the financial data within the budget remains accurate. 
  4. Restraint:  Construction projects can be very exciting and energizing.  These elements of construction can cause the owner to become less conservative in their financial decisions.  This development of a more liberal atmosphere must be controlled.  It is very easy to get caught up in the moment and not have the maturity to control spending urges.  This is where constraint and maturity must be implemented. 
  5. Communication:  Budget control is only achieved if the entire team is clearly aware of the need for budget control.  It is important that the owner convey a sense of efficiency and determination, when it comes to the overall budget.  A conservative financial environment, in terms of the project, will convey a sense of importance to budget control.  This importance is necessary to throttle overzealous contractors, designers, architects, etc. that are involved in the project. If you as the owner stay conservative and controlled, the other members of the team will take the hint. 

Budget Modifications

Once the budget has been set up as well as the monitoring of this budget in conjunction with the progress of the construction project, you must set up a formal means of budget modifications.  There will be necessary modifications that will need to be made, as the project advances.  This is a reality of construction, and the more efficiently controlled, the easier it is to maintain the relative final cost of the project. 

  1. Change Orders:  A change order is a formal method of controlling any adjustments required to be made to the budget.  It is very important that any add or deduct to the project be formally identified by the use of a change order system of controls.  An actual recommended Change Order format will be presented as a separate article within this website, however for this article, the awareness of change order formatting is the important point that must be understood. 
  2. Scope revision Like the change in the financial budget on the project, the overall scope of the work, is a formality that must be monitored and accurately represented.  Any changes can be handled in a manner similar to the change order for cost revisions.  In most instances, a change in scope will result in a change in budget, however, there are situations that could not. 
  3. Budget adjustment As the budget is being monitored and the project is progressing, it is important to have the ability to shift money from one activity to another.  For example, if the budget had identified a cost for rock removal when excavating the foundation, and no rock is encountered, there will be money left in that activity.  You must have a method of monitoring any shifting of money from one activity to the other.  The formal change order that you have developed for your project can be used to formally identify this shifting of money within the budget. 

The most important aspect of your construction project is cost control.  Your new project can be exciting and perfectly designed to satisfy all of your needs, however, if the costs are not monitored and controlled, the results can become very challenging.  Finding additional funding, or not paying financial obligations that have been incurred as the project was completed, is not the goal of any successful project.  

Be realistic and conservative and you will keep your financial budget in control.  

Author Bio

Peter Arcoma has been in construction for over 40 years.  He currently works for Manafort Brother in Planville, CT. You can read more of his construction insights on his personal website at www.builder-questions.com

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