Understanding how a builder budgets for success isn’t rocket science. You’re probably already doing some of these processes in your head or writing them down whilst pricing a project.
Not completing these processes correctly is where many building businesses fail and with stats showing that our industry makes up for over 20% of all insolvencies, it’s important you get it right.
Here are a few simple measures to achieve quality management processes to manage your budget using forecast (estimated) costs rather than actual costs.
Create Cost Codes
Use cost codes to break down the quotation you submit. Each cost item quoted is given a simple identifier (cost code). This becomes powerful data later on which you can use again and again on future quotations that ultimately saves you time.
Track Your Expenditure
Using your quotation data you can track expenditure on your project. You do this by comparing actual expenditure on each trade item versus your estimated cost at time of quotation. All expenditure can be tracked using your existing cost account system which tracks costs by that same identifier (cost code) used on your quotations.
By tracking expenditure you can easily report on the financial status of your business, rather than flying blind and hoping for the best. It shows professionalism and organisation giving your company more value and more leverage with your banks and suppliers.
Analyse this forecasting data regularly (at least once a month) and identify deficiencies in your projects and in turn your business. E.g. You have spent more than allowed on concrete for the project and you still have more to go, why? If there are any failures like this you can quickly identify the area of concern and fix it. For example:
- You can identify price increases in materials or labour not allowed for in your quotations.
- You can identify estimating errors which can be corrected for future quotations.
- You may identify a potential variation due to a change in design or an unknown (latent) site condition.
- Your supervisor may have over ordered causing additional cost
- A product failed during the project causing additional cost.
See? Understanding how a builder budgets for success isn’t rocket science. By preparing your next building budget with these factors addressed you will be working with the industry’s best possible practice.