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Construction projects require a multitude of planning. New projects need to have labor, materials, timelines, legality and certifications, and of course, costs, figured out. None of this is easy, and that’s why it often takes entire teams of people to just get a building planned, let alone built. Construction contractors need to work closely with developers and suppliers in order to make sure that any project stays on track. 

Keeping a construction project on-track requires careful planning and hard work. Part of that careful planning process is also one of the most important parts of construction: planning a budget. The budget helps determine the scope of the project from the building size and quality to the amount of time it should take to finish. 

 

Figure out the basics

 

The first step of the construction project is figuring out the basics for the project itself. These important elements will tie into what the budget looks like. These details include:

  •  What is the scope/size of the project? If the new building will be a business, how many customers will it handle on a daily basis? How many employees? 
  • What do the timings look like? Will the project need to be rushed? Timings can seriously hurt the bottom line when materials need to be expedited and labor requires overtime.
  • Teams working on it:
    • Do you have a full-time commercial contractor or is it a part-time team?
    • Is your team working part time contracting?
    • Will it affect your existing business model (renovation projects might slow down or halt business)?
  • Who’s paying for it? If it’s a private stakeholder with a lot of money, budget is less of an issue. If it’s a business currently going through market fluctuations to pay off the investment, the budget could change or suddenly dry up.

All these basics goes into figuring out a general estimate of your construction’s costs. Subsequent steps will get you more specific numbers.

 

Hard costs/soft costs

 

The next step is to figure the hard costs and soft costs. Soft costs are the intangible costs not related to the physical materials and building. Hard costs are the tangibles- materials, supplies, equipment, labor, etc.

 

Soft costs can account for about 1/3rd of the budget

 

  • Architectural and design costs.
  • Land and Real Estate. Land not used in the completed building, but over all staging areas/supply routes are also a part of this cost.
  • Inspection fees. These costs can be high for a large-scale production facility that has to be legal and safe both for workers and the things it makes.
  • Equipment, rentals, and tools. The things you need to build will cost money too – even if you are just using them temporarily.
  • Insurance. These costs can go up or down based on past performance of the construction contractor.
  • Professional dues. These are for things like bid bonds and payment bonds.
  • Project management costs. This is the compensation for the staff handling all construction-related drawings and documents. This also goes into the periphery staff: security, safety, temporary, and more. 
  • Loan interest and accounting/financial fees. If you are paying for your building with one or more loans, you are going to need to figure out what those will cost you as the building is under construction. Other financial fees include accounting fees, bank transaction fees, and mortgage broker fees. Be aware of your expenses pertaining to financing as you build your budget.
  • PR and advertising. Getting your new business on its feet will require some advertising. Public relations costs may come from ads, open-houses, brochures, marketing products, and more.
  • Works and studies. There may be unexpected studies that go into building your project. They include traffic studies, land surveys, cost estimates, consultants for health and safety, startup fees, and much more. There are numerous additional works and studies that may add to your costs. 
  • Taxes. Local and state taxes should certainly be factored into your costs. These costs can vary widely depending on the size of the project and the location.

 

Hard costs cover the rest of the budget

 

Hard costs may be a bigger chunk of the budget, but fortunately they are simpler to calculate. These are the physical, tangible things you must pay for to get your building done.

  • Site costs. Rather than land costs, these are the utilities at the site. Underground, HVAC, fire, paving, sewers, and more. Paying for the materials in these utilities is also part of site costs.
  • Landscape. Hard costs associated with trees, bushes, and everything else planned in the architectural designs for outside of the building.
  • Structure. These are the materials that will go into the building itself. Anything that can be quantified and put into the building is part of these costs.
  • Overhead. The costs associated with doing business. Some may use the soft costs of insurance, permits, and security as part of overhead. Others might include all soft costs in the overhead calculation. 
  • Contingency. This is not measurable, but estimated from the total costs. It can be 5-10% of total new construction projects and 10-20% for remodeling projects.

For a simple, organized breakdown of both hard and soft construction costs, the CAT corporation has a great budget planning article.

 

Starting your own project

 

Now that you know a breakdown of the different costs associated with a construction project, you can get planning! Obviously, this process can be a bit complicated, as we’ve only outlined two types of costs in this article, without going into further planning details. If you’d like to plan your project and get a good cost estimate, Reliable Commercial can help. We are an experienced commercial contractor, and we offer estimates for both our renovations and new projects. If you’d like some help budgeting your construction project, let us know, and we’d be happy to help you get your project done.