Construction Budget Example: Guide for Your Next Project

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Can you think of the last time you created a budget for personal use?

Was it effective in telling you where your money was going and helping you to manage your costs?

Well, you can think of the construction budget in the same sense. Except with the construction budget, you want to manage your cost to increase your profit margin.

What is a Construction Budget?

The construction budget is a cost management tool allowing project managers to view financial status of the job. The budget can be used to forecast actual costs and your profit margin. It also helps to identify troubled areas needing attention, requiring a project plan to correct the issue.

Budgeting is a major responsibility of a construction project manager. You will need to review the budget frequently to stay on top of the costs.

Why is a Construction Budget so Important? 

Once you get familiar with a construction budget, you can gather so much information.

Here are some reasons why maintaining a good budget is so important:

• Provides an understanding of where the job stands financially
• Identify issues with different aspects of the projects
• Gives insight into how you can make tweaks to the estimating phase
• Forecasting of the project’s actual costs and profit margin

Each of these items aims to improve the construction businesses’ bottom line. Without the proper budgeting procedures, it would be difficult to track this.

The Free Construction Budget Template

In this construction budgeting template, you will find two sheets.

The Budget

The Estimate

I’ve constructed the template this way because you should base the budget on the estimated costs. This way, you know if you performed inaccurate estimates for the construction costs.

Here are the links to the templates:

• Construction Budget Template – Google Sheets Link
• Construction Budget Template – Microsoft Excel Download

In the template, I have it filled out to serve as a construction budget example.

I’ll set the scene for you.

Imagine you’re a civil contractor, and a customer has asked you to pour a new concrete pad for them.

First, you will need to develop your estimate to provide them with a price. It will include office, field, equipment, and material costs.

Once you win the job, then you will formulate the budget. The template will automatically pull over the values from the estimate.

There are limitations to the project budget template.

I’ve only created a total of 7 rows for the individual costs. So, if you need additional rows, then make sure you copy and paste the formula into the new cells.

Also, adding rows may affect the sum in the “total costs” row. Adjust the formula to include the additional costs for a new total.

Once you modify the template to suit your needs, you should be able to use it on similar projects.

Important Note for the Template

This template uses an iterative formula. Make sure this is enabled in your settings.

Google Sheets and Microsoft Excel both have this feature available.

A Construction Budget vs. A Schedule of Values

These two items are very different from one another.

A construction budget is something that your company will use to manage project costs. This is an internal document that you should not share with anyone outside the organization.

A schedule of values (SOV) is a list of job costs for each activity item in a project. This is made to be shared with the customer for billing purposes.

It’s easy to get the two mixed up since they look similar. They both include labor and material costs, but this is only for items related to construction.

In the SOV, you do not show the indirect costs for the project. This is your project managers, engineers, drafters, admin, etc..

Additionally, you will not show your profit in the SOV. You don’t really want the customer to know this information anyways.

Once complete, the SOV goes to the project owners for their approval. You will then fill it out and submit it for the project progress billings on a regular basis.

What is Included in the Budget? 

The budget will be broken into two basic categories: Direct costs & indirect costs.

• Direct costs or hard costs: These costs are directly tied to the construction activities on a job. Some examples of hard costs are:
  • Field labor costs
  • Equipment rental costs
  • Material costs

• Indirect costs or soft costs: Opposite to direct costs, these are costs that are associated with running the project. Things like:
  • Office staff or project team costs
    • Project managers
    • Project engineers
    • Project admin
• Office operating costs
  • • Temporary facilities or trailer rental
    • Toilet
    • Internet connection

Some additional items that need to be included in your budget.

• Subcontractors: Contractors that work under you to complete a specific scope of work. Their cost is fixed on your budget and should not change unless there are change orders in the project. This is a direct cost but I think it should be separated from the internal costs.
• Fees: Depending on the project requirements, you may need to pay for bonds and permits. These are your fees.
• Contingency Budget: This is an amount of money that is included in the estimate to make up for any unexpected costs.

Including these items in your budget will establish your baseline for the project. As the job progresses, you will monitor the budget items and compare them to the actual costs.

What are Contingency Costs?

One of the best practices when it comes to budgeting is including costs for unforeseen circumstances.

It’s difficult to capture everything in the estimate during the bid. By adding a contingency, you can make up if you encounter unexpected building costs.

The project manager will thank you, knowing that there’s some contingency in their budget.

You can base the contingency amount depending on the type of project you’re bidding.

For the more complex projects you might consider increasing the dollar amount. At the same time, the small construction project may only need $5,000 – $10,000 allocated.

How to Develop the Budget With a Specific Example

Let’s look at the construction budgeting template and how the values carry over from the estimate.

This way, you’ll better understand the intent behind how the template was designed.

Identifying the Different Line Items with Cost Codes

You will need to utilize a cost code system to effectively manage your costs. In this template, I have them as ID’s.

By implementing a cost code system, you can better track your spending on the project.

For example, let’s say your journeyman spent 16 hours one-week performing demo work. He will need to log his site work by using a time card.

A time card will show the amount of hours spent on a specific project or activity for the week. Take the hours, multiply it by his hourly rate, and this becomes the actual costs for the job.

Labor rates will vary throughout a job site, so each employee should fill out a time card.

This needs to be done for material costs as well. You will need to develop a construction process for documenting the receipts for materials purchased.

If not, you will not be able to track the material costs accurately. This is an even bigger problem, as you will not have an accurate budget.

Software Solutions for Construction Cost Tracking

Hiring someone to track all the construction costs would be highly suggested. They will have a large paper trail to manage, which can be a job in itself.

Having a project manager juggle cost tracking along with their other responsibilities is not advised. They have coordination, procurement, customer relations, and more things to worry about.

With that, I also suggest using some construction cost-tracking software or project management software. This way, you can expedite the tracking process, saving you money in the long run.

Something that can act as a hub for managers to come and view the actual costs. They can then include it in their budget to make cost comparisons.

Here’s the different cost-tracking software available for the construction industry:

1. https://projectsight.trimble.com/construction-budgeting-software-cost-management-tracking/
2. https://www.procore.com/project-financials/budget
3. https://www.cmfusion.com/features/construction-cost-tracking-software
4. https://www.projectmates.com/construction-cost-tracking-software/

The Different Construction Budget Categories

The budgeting sheet is split into the following categories:

1. Indirect Costs
   1. Office Hours Costs
   2. Office Operating Costs
   3. Additional Fees & Contingency
2. Direct Costs
   1. Labor Costs
   2. Material Costs
   3. Equipment Costs
3. Subcontractor Costs

If you look at the estimate sheet, you can see how the descriptions line up with the estimate. This is done intentionally so you can compare the actual cost to what was estimated for every item.

Not all jobs are equal, meaning they won’t all have the exact costs. You will need to modify the template based on your project needs.

The Cost Difference or Under/Over in Construction Budgeting

After the actual costs have been applied, you can view the difference from the budgeted costs. This is so you have a dollar amount for how much you are either over or under your budget.

The Construction Budget Profit Margin

You may have also noticed that the budgeted values appear higher than the estimate. I have allocated the profit and overhead costs to each line item.

Technically this is the actual amount you have for each item. The goal is to keep each cost above a specific margin percentage. That way, you know you’re not cutting into your profit.

Of course, you don’t want to spend any of your profit, but we need to have a realistic budget. If the costs for something go over your budget, you will be affecting your profits.

It is just the unfortunate truth. That’s why I include the profit in the costs, so you know how the job is affected overall.

Your Overall Budget Information

On the very last row of your budget page, you will see the totals added up. The most important value here is the profit margin percentage.

This will be your overall profit for the project, and the cost difference will give you the dollar amount.

Ideally, you want this value to be greater than your profit margin percentage. This can be found on the “Bid Estimate” sheet toward the bottom.

If you can meet the estimated profit margin, your project went well.

The true goal is to go above and beyond the margin percentage. That’s how you can determine if you had a successful project.

Key Takeaway

When it comes to budgeting, understanding all the different costs is key. From there you can learn how to utilize a budget for forecasting and identifying issues.

Before you go I suggest you check out my post on construction plan development. This will give you a better understanding of how the different roles apply to a project.

Also, consider taking a look at the difference between a general contractor and a subcontractor. That way you’ll know where they fall in line with your job and their costs as well.

Thank you for reading.