Connecting Project Teams.
Creating Reliable Project Budgets:
Creating
Reliable Project Budgets, Continued
"THE
TEN COMMANDMENTS" for avoiding major budget busts
In
my 30-year career as an engineer and general contractor, I have seen many
projects, both public and private, that have suffered from "under budgeting".
The consequences can be severe. However, a preliminary budget must still
be completed before most projects can be authorized. Executive decisions
on land purchases, financing, and the commitment to retain design professionals
all hinge on the preliminary budget. To guide the preparation of better
budgets, I have created the following "Ten Commandments":
1. Select a qualified person. Just like all doctors aren't qualified to perform open-heart surgery, all engineers and architects are not qualified to create preliminary budgets.
2. Establish a detailed program. Decide what the facility needs to accomplish. What functions will be performed at the facility? Where will it be located? What is the life expectancy of the facility? Does it need to be expandable in the future? What restraints are there? Write it all down in a formal document.
3. Locate similar facilities. You need a starting point. Learn from other people's experiences. Don't start from scratch if you can avoid it.
4. Visit the similar facilities. Find out what they cost to build and operate. Talk to the users to learn what they would do differently the next time. Pick out the features of each that you would like to include in your project.
5. Review applicable laws and codes. Laws and codes change annually. They also vary from jurisdiction to jurisdiction.
6. Seek out user input. Users are the people who will be required to function in the facility, and they typically have ideas and experiences that will help develop a solid concept. An additional benefit of user input is that the individuals will feel more pride in the facility if they had an opportunity to be involved.
7. Develop a project schematic plan. It doesn't have to be fancy, but it does have to have all the key project elements accounted for.
8. Identify the differences between your schematic and the similar existing facilities. After the differences, or "deltas", have been identified, price them. Use these deltas to adjust the cost of an existing facility to create your project's budget. The more comparative estimates you can do, the more reliable your budget will be.
9. Finalize your budget. Don't forget to allow for inflation. If the project is being planned for construction two years from now, include the expected inflation rate for the next two years. Clarify the scope of work included in the budget. For example, does it include "soft costs" such as construction interest, design fees, operating reserves, permits, and inspections? What about furniture, fixtures, and equipment?
10. Reality check. Does your budget make sense? Can you afford it? Do you really need everything that's being included? If the answer to any of these questions is no, you should revise your plan, start over, or scrap the idea altogether. This is the cheapest opportunity you will ever have to change your mind.
In conclusion, it's clear that creating a preliminary budget is one of the most important steps in any construction project. By following these "Ten Commandments", you will develop a reliable budget every time and help your organization avoid budget disasters like the ones described above. You never know when your future employment may depend on it!
©2000 John A. Jones, PE, CBO
John A. Jones, PE, CBO is President & CEO Dart Engineering and one of only a handful of individuals to concurrently hold three different professional licenses in Florida. He has current active licenses in engineering, general contracting and mechanical contracting, in addition to being a Certified Commercial Arbitrator with the American Arbitration Association. To read more about his qualifications, click here.
