How can you develop a construction budget that accounts for risks and uncertainties?

1 Know your scope and specifications

The first step to develop a construction budget is to define the scope and specifications of your project, which include the design, materials, equipment, labor, and services required to complete it. You should also identify the key stakeholders, such as the owner, the contractor, the engineer, and the end-users, and understand their expectations and requirements. Having a clear and detailed scope and specifications will help you avoid scope creep, change orders, and rework, which can increase the construction costs and cause delays.

2 Use reliable data and methods

The second step to develop a construction budget is to use reliable data and methods to estimate the costs of each component of your project. You should collect and analyze historical data from similar projects, as well as current market data from suppliers, contractors, and consultants. You should also use appropriate methods and tools, such as unit cost, parametric, or bottom-up estimation, depending on the level of detail and accuracy you need. You should also consider the inflation, contingency, and overhead factors that can affect the final cost.

3 Identify and assess the risks and uncertainties

The third step to develop a construction budget is to identify and assess the risks and uncertainties that can impact your project. Risks are events or conditions that can have a negative effect on your project, such as weather, accidents, design errors, or regulatory changes. Uncertainties are factors that are unknown or unpredictable, such as material availability, labor productivity, or market fluctuations. You should use a risk register to list and prioritize the risks and uncertainties, as well as their probability and impact on your project.

4 Plan and implement risk responses

The fourth step to develop a construction budget is to plan and implement risk responses that can reduce or eliminate the risks and uncertainties, or increase the opportunities for your project. Risk responses can be classified into four types: avoid, transfer, mitigate, or accept. For example, you can avoid a risk by changing the design or scope of your project, transfer a risk by outsourcing or insuring a part of your project, mitigate a risk by implementing safety measures or quality controls, or accept a risk by allocating a contingency fund or adjusting the schedule.

6 Use software and technology

The sixth step to develop a construction budget is to use software and technology that can help you automate and optimize the budgeting process. For example, estimating software can assist in creating and managing estimates, while risk management software can identify, analyze, and respond to risks. Project management software can help you plan, execute, and control the project, while building information modeling (BIM) can create a digital representation of the project and simulate its performance, cost, and quality. Popular software and technology for these purposes include RSMeans, Sage, ProEst, Oracle Primavera Risk Analysis, RiskyProject, Palisade @RISK, Microsoft Project, Smartsheet, Asana, Autodesk Revit, Bentley Systems, and SketchUp.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?