Three important factors of the Budget are:
1. Preparation
2. Monitoring
3. Controlling
The Costing Team is instrumental in preparing and monitoring the budget in coordination with respective agencies and departments.
Budget parameters are controlled by senior management by accelerating decisions to resolve relevant changes over the duration of the project.
Sharing herewith the template having 180+ items in soft cost as well as hard cost to control the financial health of the project.
Budget preparation:
The cost management executives interact with representatives from following departments and create a precise budget having all reasonable assumptions with relevant factors.
- Design
- Liaisoning
- Planning
- Marketing & Sales
- Procurement
- Project execution
- Finance
Key elements for preparing a budget are:
- Design elements based on development norms
- Specifications as per client’s brief & market trends
- Timelines for multiple activities
- Marketing & sales promotion strategies
- Innovative products at competitive rates
- Site logistics and construction methodology
- Financial strategies for smooth cash flow
3 Stages of Budget:
- Stage 1 budget is for investment evaluation purposes derived based on general thumb rule factors, which comes from basic data and experience on similar projects.
- Stage 2 budget will be at the time of concept/schematic drawings submission for approval. It will be helpful in streamlining the expectations from the project stakeholders.
- Stage 3 final budget after completion of the design development process and by aligning the quantities for tender/contracting work with detailed schedule in place. At this stage the cost team works on detailed quantifications of all key elements indicated above.
The third stage budget is deemed as a base budget for real time monitoring until the completion of the project.
Budget consists of 2 Segments which are divided into 4 sections each.
A. Soft cost: 4 Sections:
- Architects & Consultants
- Finance & Legal
- Marketing & Sales
- Project administration & Overheads
B. Hard cost: 4 Sections:
- Site development work
- Structural works & Services
- External development works
- Project specific special items for Hospitals, Hospitality, Retails, Logistic parks (Furniture, furnishing, escalators, parking lifts, medical equipment, & weighing bridge)
Two important items in each section are contingency % and escalation % and it varies for each section due to,
- Activities are being executed at different timelines
- Design modifications, catering to the future requirements based on latest technological innovations (environmental, energy savings, security)
- Factoring latest market trends, For example: Contingencies and escalations for soft cost shall be minimal whereas for services it will be on the higher side.
Budget Monitoring:
Monthly monitoring is required at project level for which the cost team prepares a cost report highlighting budget vs actual expenses in all items.
It’s preferable to monitor project budget with respect to percentage for section as well as in totality.
Generally any minor variation in a particular section will be addressed by analysing other section’s % as well as focusing more on value engineering.
It is important to observe minute variations in major items, for example: structural cost where the team can focus more on not only quality control aspects but also on value engineering.
Whereas major variation in a particular section needs to be brought to the notice of senior management to take corrective actions resulting in streamlining the cash flow.
Budget Controlling:
Quarterly review by senior management of budget Vs actual expenses.
Major variations in budget to be addressed through proper analysis and debate on various aspects, such as
- Value engineering
- Team’s contribution based on allocated responsibilities
- Setting target for department/vertical to adhere to budget allocations
- Quarterly review of detailed budget with all concerned (Brainstorming)
- Setting action plan and monitoring the progress on it
Value engineering will be effective with inputs of various consultants and team members (Designers/consultants, planning, execution and costing teams).
- At the time of designing the structure, specifications need to be discussed amongst concerned personnel to cater to market/budget requirements
- Inputs from the planning team while defining construction methodology, scheduling and resource planning based on utilization and efficiency
- Value addition from the execution team by exploring various site parameters, such as ground conditions, logistics along with strict quality control measures and effective use of resouces.
- The cost team’s focus on assumptions, use of new/latest technology, cash flow analysis and relevant factors such as standard consumption of steel and concrete
Teamwork amongst both internal departments as well as external agencies need to be looked into because excellent teamwork leads to increasing or managing project profitabilities.
As per organization structure and system, each vertical head is responsible for their performance within defined budget limits and senior management will review the team’s contribution accordingly. For example, a contract department’s performance can be reviewed by analysing various parameters considered at the time of award of multiple contracts over the project duration.
General practice followed during quarterly review of budget vs actual expenses with all concerned is brainstorming. Efforts are being put by all department heads to identify the areas to improve profitability. It encourages lateral thought movements streamlining the efficiency & effectiveness of processes & systems.
Defined action plans during quarterly review discussions are being implemented and are monitored as per defined timelines. The outcome of the action plan along with new observations becomes an agenda for next quarterly review.
Beneficiaries of the detailed project budget/monthly cash flow are finance team and senior management, as they are managing the organization’s fund flow.
Lessons learnt from factoring all relevant items & variations will be helpful in improving the assumptions & estimates for future projects and bringing value to organization’s data bank.
Related Reading
2.1 Flow chart for Project Life Cycle
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2.2 Detailed Project Life Cycle
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2.3 Importance of Time, Cost, Quality and Processes & Systems
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2.4 Significance of written communications in Execution Management: Project Development Strategy
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