Consider only one-third of completed construction projects come within 10% of their budget — a percentage that drops as projects grow in size. Clearly, working without proper construction cost forecasting presents high risk.
Imagine a situation where the more you work, the higher chance your business goes bust. The problem becomes even more pronounced in periods of high interest rates, slowing activity and rising construction costs.
In spite of all of this, and no matter the urgency, for many home builders construction cost forecasting proves too time consuming. Others find forecasting difficult and don’t know where to begin. This doesn’t have to be you. Today, tools exist that make forecasting a simpler, more predictable process.
What is construction cost forecasting?
A construction forecast, or construction cost estimate, lies at the foundation of a profitable construction project. It contains project design, labor and material costs, while also outlining job schedules and any indirect costs that arise.
To create an accurate construction forecast, you must break down the project into individual tasks. These tasks have associated labor and material costs that you line item based on a takeoff. Once done, you have a forward view of costings and associated milestones. From this, you can create material deliveries and subcontractor schedules.
With this information in hand, you now can consider the risks and associated indirect costs that often go unseen when a project first begins. For example, often the rising cost of living, inflation and associated pay rises are forgotten when costing. Working this out in advance gives you time to prepare. Now, you have an accurate construction forecast that you can clearly communicate to your client. More upfront client communication means less surprises and less change orders.
Further benefits of construction cost forecasting
Imagine knowing the profit margin of all the jobs you have planned and have under way. This can inform you on what additional jobs to take on and the ones to avoid. Picking the right projects for your business is critical to managing long-term financial risk. Other benefits include:
Cost control, not cost spirals
Making sure your project costs are under control and on track throughout the construction process is vital to keeping a budget. With cost forecasting, you can quickly spot overspending and make immediate changes. Very often, a basic lack of planning leads to going over budget. Whether they are direct (like labor costs) or indirect costs (like insurance or rent), you need to know your limits in advance.
Plan more, react less
Having a cost estimate makes for better-informed decisions. You may determine that the project plans are too ambitious or that the client’s preferred materials prove too expensive. With construction project forecasting and risk assessment, you also can determine if specific projects need to start at a particular time of the year—perhaps due to weather or the geographic location of the job. Well-constructed cost estimates will guide you in making the best decisions for you, your clients and your employees.
Cash flows, not cash crunches
Very few construction jobs, especially for builders like you, give you an unlimited amount of money at your disposal. With real-time data, you can pinpoint potential budget blowouts quickly. By ensuring milestones are met, you can be sure projects proceed as plan and their associated revenues come in as they were planned. The last thing you need for proper cash flow is to have payments withheld from dissatisfied clients.
Digital forecasting for construction projects
By now, you probably understand why forecasting is important. Today, modern tools are making this critical step easier than ever before. Here are a few examples:
1. Let’s say you have an estimate for a small residential community. Because all 10 of the units are the same, you can prepare one detailed estimate and multiply that by 10 to calculate the overall cost. Today, you can use modern cloud-based software to help you create that estimate. The best software on the market integrates with your favorite material dealers who can assist you. Your dealer can ensure no critical items are missed because, in this case, mistakes are multiplied. Imagine having an estimate where you forgot to include interior doors. With five doors to each house, that is 50 doors that haven’t been budgeted. And because you missed the order, they may not be available when you need them. With modern software, you can avoid pitfalls like this.
2. At other times you will have a single job that actually repeats something you did months or years ago. With modern software, you can easily use historical data to quote for the new project because software allows you to create templates from past jobs. The templates save you time because you don’t have to build a forecast from lost notebooks or a faded memory. The templates also give you the flexibility to make adjustments based on current events. Say, you realize you hadn’t considered how higher fuel prices have impacted material delivery costs or that labor shortages require a shift in your material choices. With modern software, making those changes to your original template are no trouble.
With this mind, take a look at Buildxact. The software makes estimating quick, easy and accurate.
Construction management software eases cost estimating
A good platform like Buildxact offers many benefits for small builders, construction companies and contractors. In one place you can:
- Perform your cost estimation 80% faster and more accurately;
- Communicate and collaborate with dealers;
- Centrally store all project documents, information and change orders;
- Track job progression, subcontractors and laborers;
- Integrate your accounting software and manage project budgets;
- Access your projects from anywhere that internet connection is available.
With Buildxact, you will finish your construction cost forecasting much quicker. If you are not sure how the software can help you, why not try a 14-day free trial and see how Buildxact can help you develop better forecasts?
Good data, entered into good construction estimating and management software, propels your building business into the future. Don’t waste your precious time or money and get in contact with Buildxact today.