A construction budget is a powerful tool that limits how much a project can spend. It also gives the home builder a method for dealing with unexpected costs. Unforeseen expenses rarely go away completely, but addressing them immediately and effectively reduces their impact. This helps to keep a project on schedule and within budget.
Creating and tracking a project schedule, like what New Home Star does, starts at the planning stage. Thorough cost estimates and accurate scheduling will help to avoid scheduling issues down the road. Appraisals should be based on available resources, including the availability of skilled labor and equipment, as well as potential constraints such as environmental permits, permit timeframes, and supplier lead times.
Critical activities are those whose delay will affect the project’s completion date. These activities must be performed on time to meet the completion target. Non-critical activities can be postponed (for a period called float, buffer, or slack) without impacting the project delivery date.
Home builders celebrate moments of truth for their customers – from signing purchase agreements to announcing new communities, breaking ground, moving dirt, and finally closing on the house. Key milestones are tracked by tracking cancellations, finished inventory, sentiment-based traffic, and expected sales ratings.
Creating budget plans is an essential first step to managing project costs. It involves breaking down the activities in a build into detailed cost estimates that can be added up for each activity. Adding up these individual estimates is known as cost aggregation and can be used to create a budgeted cost of work scheduled (BCWS) or planned value (PV).
When building contractors know how much they can spend on each activity, they can limit costs by staying within that number. This ensures that every dollar is accounted for and invoiced accordingly. It also helps to avoid unexpected expenses that may arise during a build and saves builders money.
Often, unplanned expenses are statistically predictable and can be forecasted with confidence. This is why setting aside a contingency fund for unexpected costs is necessary. This can be done by creating a reserve in the project plan that is a percentage of total costs.
Having clear procedures in place for handling change is essential to project success. This is especially true when building homes. It’s estimated that buying a home is the most expensive purchase 99% of the population will ever make, so tensions can run high if the construction budget or timeline changes need to be handled better. By documenting, approving, and sharing change orders quickly, builders and homebuyers can review the impact of a new change request, understand why it’s needed, what else might be impacted by that change, and how overages can be minimized. This helps keep everyone on track throughout the build.