Remodel Budgeting

— By Blake Callahan —

Essential steps to plan for success.

 

There are many phases of a remodel project depending on the size of the project: planning, budgeting, demolition, construction/build-back and cleanup. There’s also a great deal of questions that go with each of these phases.

I’m going to focus on the ever-important budgeting aspect of the remodel phase. It’s been determined that nearly 2/3 of companies surveyed did not make expected profit and three or four large budget fails is enough to put most companies out of business. During this phase the project managers and estimators are forced to sharpen their pencils and have continued review with the accounting department to assure accuracy. A few questions that arise during this time are:

1. What’s the capital outlay and payment terms?
2. Are all trades lined up and contracts signed?
3. Are we using our own crews for this project or portion there of?

Below are the 7 essential steps toward creating and managing your project budget:

• Historical data
• Reference lessons learned
• Leverage your experts
• Confirm accuracy
• Baseline and re-baseline the budget
• Update in real time
• Stay on track

We will begin with historical data. Why completely reinvent the wheel, right? Maybe the project is a familiar concept you and your peers have performed in the past. Maybe it’s very similar to a recent project. Although you may have a starting point and even baseline pricing, remember things are always different. It could be the same remodel and project you completed in Florida although this one is in Arkansas. Boom! Your first issue arises. Will your trade contractors be willing to travel and, if so, what’s their additional travel expenses?

Next up, lessons learned. Bottom line: no one is perfect and somewhere along the line we have all goofed and made mistakes. The important thing is to learn from them and don’t let them happen again. I have a quote on my office wall: “You have to be willing to fail while working your tail off to succeed.” To me there are no truer words. Common mistakes made during budgeting:

• Not conducting a site visit
• Inaccurate takeoffs
• Labor costs
• Materials and supplies costs
• Failing to access risks and creating contingencies
• Making uneducated guesses
• Not reviewing your work
• Not reviewing subcontractor estimates

All of these common mistakes can be very detrimental to your budgeted project and all speak for themselves without a whole text of elaboration.

Next step in the budget process is always remembering to leverage your experts. Never feel like you’re on an island in this process. The great thing about the organizations we are associated with is the contacts and peers we create over time. Your experts may be in the office next door or they may be across the country. There are many aspects and questions to this phase as well. Experts could be either a construction project manager or even a CPA. Remember to utilize them all and “uncover every rock” within your budget.

Confirm accuracy. This is your final stage before submitting your estimate for the project. Be sharp in all your line items but also figure in contingency in each line item. Your project will always have hiccups that you can’t predict or help. I was recently on a project in Oklahoma City and had everything laid out. We had material scheduled to arrive on certain days to the site to continue progress. Perfect budgeting, right? Wrong! Our material was sold to other freight companies in the area and was beginning to delay all kinds of trades. My COO and I had to try to track down our material so the project could move forward. So, confirm accuracy but also expect the unexpected. A good rule of thumb: when you get everything hammered out in your budget, add 10-15% for the unknown.

Next is baselining your budget. This means updating or modifying your project baseline (original estimates) and as a result of any approved change to the schedule, cost or deliverable content. The more you continue to do this the more accurate your future budgets will be. Remember, this project will become historical data for your next project. You’re not only working on the present budget but future as well.

Updating in real time may possibly be the most important step of the budgeting process. If something changes, as it will by the minute, always update accordingly. If you don’t, it will continue to throw a wrench into your project and quiet honestly you’ll possibly forget if you don’t do it in real time. Projects move fast and hopefully on schedule but always slow your mind and think through the process. Real time changes has a broad range of items. They could be straightforward agreed-upon change orders, change in material pricing if the project is delayed, delays to labor, and even changes in interest rates if the project is financed.

Finally, stay on track. This was discussed briefly in the previous paragraph about updating in real time. Staying on track within your budget is, of course, essential to the current project but also all future estimates and projects. As discussed earlier, there will always be hiccups in a project but the more you stay on track, the more you learn and continue to create on-point estimates and budgets.

 

 

— Blake Callahan, CRFP, CPA, CVA is CFO of MC Builders, LLC, a national facility maintenance and construction remodel company self-performing across the U.S. South, Northeast and Midwest.