Your Project's Four Key Budget Elements
Many subcontractor's make the error of balancing a budget at the end of the project or at specific project milestones. This may reduce opportunities to gain on the project and to keep the project in line with the estimated budget.
The four key elements of a construction project budget are:
- Labor
- Equipment
- Materials
- Subcontractors
LEMAS is an acronym that many construction Project Managers use to describe these budgeted elements.
To properly balance a budget, you should first break it down into "Phases of Construction" to make it easier to track. For a commercial concrete contractor, these Phases could be:
- Excavation
- Rebar Installation
- Foundations Poured
- Slab Prep
- Slab Poured
Each of these Phases has a specific allotment of LEMAS.
As each Phase progresses, you should break out the Labor and track it daily to confirm you are on track to meet your budget. Communication between the Project Manager (PM) and Superintendent is key to ensuring the labor for each Phase remains on track. Over a period of time you will discover that labor is the most common of the four budget elements to go over budget.
Equipment costs can be controlled a few different ways. The method you employ may be driven by whether you own or rent the equipment. If you are using rental equipment, ensuring your estimated costs are based on current rates including mobilization, delivery, and pick-up charges is critical.
The PM should monitor the number of days the equipment was budgeted to be on the project and inspect to ensure production rates are met to meet the budgeted expectation. To "close the loop," the PM should also review invoices to confirm he was not charged for additional days after the equipment was called-off and scheduled for pick-up. This invoice review also provides an opportunity to check for miscellaneous overages and unsubstantiated charges.
If you own the equipment, it is important that you consider issues of insurance, maintenance, and replacement costs when estimating these expenses. In some cases there may even be a tax consideration that requires consideration in you decision-making process. From the PM's standpoint, maintenance, abuse, and productivity sufficient to meet or beat schedule demands and budget expectations are a few of the areas that require daily monitoring.
Materials may be one of the easier elements of an estimate for an estimator to quantify, however, the management of materials in the field may be a much more challenging undertaking for the PM. Before each concrete placement, the PM and Superintendent should confirm the quantity of the concrete ordered to ensure correctness in product specifications, quantity, and rate of deliver. This level of communication will reduce concrete waste and the potential for costly removals. Having a rebar supplier bid the project and supply rebar based on their quantities may help control your rebar costs on the project. Unfortunately, errors in an outside vendor's math or takeoffs can affect your materials budget and lead to disputes and delays over the life of the project. An experienced in-house estimator can help to reduce these risks.
The last element in our LEMAS budget is Subcontractors. Excavation, concrete pumping, grading, and sawcutting are just a few subcontractor services a concrete contractor may subcontract on their projects. Having each subcontractor do a thorough review of the project and/or provide them with specific knowledge of the quantities will help ensure your budgetary success and that of your subcontractors. By regularly reviewing the quality and progress of their scope of services, you can improve your odds of meeting budgeted expense levels. Obtaining a hard number quote with clear expectations and expiration dates also enhances your odds of success.
Controlling these four key elements to meet or beat estimated costs in the budget is a major responsibility of the PM. Waiting until the project is over to scrutinize costs can result in the company falling short of anticipated profits, as well as missing additional opportunities for profit throughout the life of the project. Tracking the project daily and making sure project leadership fully understands these four key elements of the project budget is critical to the success of the project.
Robert Greene, Senior Estimator/Project Manager, CJS Enterprises
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