From tiny homes to massive commercial building jobs, construction projects are necessary and often expensive components of our housing and commercial infrastructure and economy. Their hefty price tags make cost management and savings essential.
Good project managers focus on preventing cost overruns, supply chain delays, and overtime labor costs. Commercial construction companies need to be able to bid competitively, while also remaining profitable. The key is to save on construction costs while delivering quality work on time and within budget.
What a construction project costs in Los Angeles is going to be different than the cost of building in Nashville. Weather considerations are typically particular to locations, varying from a shorter warm season in Minnesota to delays from tropical storms in Florida.
Labor costs vary across the country, but you can expect it to be on average about 20% of a project’s total overall cost. Indirect labor costs like insurance, payroll taxes, and sick pay bump that up to 40% of a project’s cost.
Regulatory requirements can add up in some parts of the country as well. The costs of building in a downtown urban area like Chicago is not the same as building in a suburb like The Woodlands area outside of Houston or in rural Oklahoma.
It’s obvious that the larger the scale, the more costs will add up. In most cases, renovations cost less than new construction. A small residential remodel job can run from a few thousand to tens of thousands of dollars, while a mega project like a stadium, power plant, or commercial use skyscraper can end up with billions of dollars of costs.
On average, over 72% of construction projects experience at least one delay resulting in an increase of 38% of the time needed for completion. About 63% of construction projects see cost overruns of an average of 24% of the original budgeted cost. These figures represent a significant impact on both a project’s timeline and budget.
No matter the size of the project, there are ways to keep costs down. As you look to maximize efficiency and reduce your overall budget, you’ll need some practical strategies to ensure a good outcome without sacrificing the quality of the work.
Every construction project starts with a plan. This is where you can do the most cost savings. Set realistic expectations based on the scope and design of the project, with a sharp eye on the available budget. Reduce project complexity and change materials to keep costs down.
There are so many choices to make in both interior and exterior plans and materials. Analyze the costs at each step of the planning process to make selections that are in line with both your vision and your budget.
Building materials make up a significant proportion of the cost of a construction project. Research and compare different materials so you can choose the most cost-effective ones. Consider factors such as availability, durability, longevity, and energy use.
When hiring contractors, put in place a robust competitive bidding process. A study published in the Journal of Construction Engineering and Management revealed that competitive bidding results in an 8% reduction in the “bid low price.” The more bidders you have, the more you can save.
You may have construction partners you know and have used for years. But this could cause you to fall behind the innovation and pricing curve. Using the same vendors and contractors can sometime result in complacency, higher prices, and slower work. While relationship building is very important in the construction industry, putting out a call for bids can give you new insights and save you money.
It can feel like a juggling act to effectively manage supplies, labor, equipment, and financing. You have to ensure that everything is available when you need it. There are strategies and tools to make this easier.
Good communication with your suppliers can help you weather supply chain slowdowns and material shortages. New technology like drone surveyors, construction management software, 3D modeling, and predictive analytics will help keep you on budget and on time.
Every construction project ends up with lots of trash. From demolition debris to bulky packing material to concrete disposal to wood scraps, handling it all is a major part of the operation. Improper waste disposal leads to increased costs down the road.
To cut down on waste and disposal costs, plan material purchases well from the get-go. Don’t overbuy or purchase things you don’t actually need. Separate waste and dispose of each type in the cheapest way possible, using recycling services if possible. Practice waste minimization by reusing materials and equipment, and buying in bulk to reduce packing. If possible, utilize recycled or repurposed materials.
Up to 30 percent of building materials on a typical construction site end up as waste. This is a significant cost. There are strategies you can use to get closer to a zero-waste model, including improvement in planning, starting with good measurements, using multi-purpose materials, and employee education.
Having the right team can make all the difference when trying to stay within your construction budget. Labor is a large part of your financial outlay, so it pays to have a good crew, excellent communication, and shared expectations.
You want to strike a balance between skill and affordability. If you have a working relationship with a contractor, but are unhappy with outcomes, don’t hesitate to switch to another or open up the job to bids.
Financial markets have their ups and downs, and it can feel challenging to keep up. The key to good financial planning is to be informed and adaptable.
When recessions hit, inflation soars, and interest rates spike, look for alternative methods of affordable financing for your construction project. Options include private lines of credit, equipment leasing rather than purchasing, or bringing in lending partners.
Ask for incentives from suppliers, seek out lower closing costs, and negotiate fees. When borrowing, a rate lock is essential, especially as many construction projects get hit with supply chain disruptions that delay project completion. Joining a group purchasing organization made up of builder, suppliers, and manufacturers allows you to leverage lower prices for materials.
There are lots of things that can go wrong on your construction site, and those mistakes could cost you. Strive to work safely to avoid unnecessary accidents and injury to your crew. By working safe, you’ll avoid the cost of insurance increases and lost time due to safety shutdowns and clean-up.
Project scope creep and change orders can blow your budget and your timeline. Both construction managers and clients should be clear on the procedure to discuss changes or additions. Consider banning mid-build changes outright unless they involve safety or code issues.
You should also take care when purchasing supplies and materials, especially for large construction projects. Ordering mistakes, unsuitable materials, or choosing scarce materials can delay work and run up costs.
There’s lots of competition in the construction industry, making it essential to control costs to remain economically viable. By utilizing smart planning and budgeting, construction companies and clients can optimize resources, reduce waste, and build efficient and beautiful buildings. Partner with experts in the industry to learn more about available strategies and new technologies that will save you money on your project costs.
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