Why budgeting and cost estimation is needed for a construction project?

May 6, 2022

The term “budgeting” in the context of a construction project refers to the quantitative allocation of resources.  This include manpower, materials, machinery, time, and money, needed to execute a job within a certain time frame. Project managers must allocate and plan these resources right from the start of a building project.

Why cost estimation and budgeting needed for construction proejects?

What is the significance of having an estimation?

Quality, timeliness, and budget all go hand in hand in a successful building project. The project budget remains the most important element, even if quality and timing are important. Using cost estimating  makes it easier to organize, plan, and carry out projects. As a result, it enables to remain on top of each activity while simultaneously keeping an eye on the project’s restrictions and progress.

Creating a construction cost estimate is good practice for anyone who cares about how much their project will cost. You routinely do cost estimates for all kinds of construction projects, from building new structures to remodeling.

Accurate estimates are especially critical for development projects, which have budgets and timelines closely linked to paying back lenders and generating revenue as early as possible. They are also essential for large civil projects or mega-projects because of their sizable scope and the potential involvement of public money. On a mega-project, small miscalculations become magnified. In projects constructed with public funds, cost estimates increase accountability, provide transparency, and enhance trust in your ability to manage the project properly.

Failing to prepare a reliable cost estimate can have disastrous results. One notorious example was the Marble Hill nuclear power plant in Indiana. The owner abandoned construction in 1984, seven years after it began. The Public Service Company of Indiana had completed the project only halfway and spent $2.5 billion due to cost overruns.

Estimating the cost of any project with absolute precision is impossible, and projects can fail for unforeseen reasons. But a skilled estimator will account for as many factors as necessary — including such things as market conditions — to create an accurate estimate.

The accuracy of a cost estimate relies on a number of things: the quality of the project plan; the level to which the estimator defines a project; the experience and skill of the estimator; the accuracy of cost information; and the quality of any tools and procedures the estimator uses.

Depending on the type and size of a project, as well as the industry, cost estimation may fall to one individual or a team, and estimators may hold a number of different positions. For some construction projects, contractors and subcontractors prepare the cost estimates, though this is not regarded as best practice. At other times, the construction salesperson will be responsible for creating an estimate. Architectural firms may have in-house estimators, typically people who take on the estimator’s function in addition to their primary role. Increasingly, however, qualified independent estimators handle estimates against which one verifies the contractor’s estimates.

For contractors, good cost estimates win jobs. Customers usually select the lowest bid that meets the standards and specifications they set. In a competitive bidding situation, the time and effort you spend preparing the estimate are a cost of doing business and an investment in winning the job. If urgency is a factor for a project, the speed at which you prepare a bid can also be a differentiator.

What would happen if there is no budgeting done ?

A well-thought-out budget is required for any building projects. The length of time and the scope of the work involved are directly proportional to the amount of money needed. Cost and schedule overruns may occur if a building project lacks a budget.

One might anticipate a wide range of outcomes if the budget for a project is miscalculated, and none of them will be beneficial. In both time and quality, one of them is unable to fulfill the job that has been promised. In addition to the contractors, the company’s reputation, and the credibility of the project site engineers, it might have a considerable impact.

Because most building projects have a bigger financial stake, it’s critical to avoid depleting all of the available resources in the process. A contractor that does thorough study is better able to achieve the project’s goals and specifications. One’s losses may be covered if one invests time in the beginning. While some construction businesses may perceive planning as an expense, its effects extend well beyond the scope of a single project.

Construction project budgeting and scheduling services that are provided by Costlogic may be quite beneficial to construction firms in this situation.

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