[Tutorial]: Importance Of Budgeting in Construction Practices

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Since ages, we all have been practicing making and implementing budgets at our homes and for related occasions, ceremonies, etc. So, what essentially is a budget? In simpler terms, a budget may be defined as a financial working, which may or may not include quantitative statements to support it; and which is prepared prior to a defined period of time, and which is essentially pursued during that period so as to attain a desired objective of achieving a set target of financial figures, or even preferably to complete the activity well within the planned final figure. In a nutshell, it includes certain planned income and the foreseen expenditure interwoven with the planning of employment of the capital for a desired work to be completed.

Budgeting Techniques in Construction Practices

A well-prepared budget can become an effective management control technique in more ways than one in any construction front, whether it be a pre-bid working, or a cost plan for an upcoming site, or even a small home renovation job.

The practice of budgeting control is basically the establishment of financial budgets relating to the responsibilities of the personnel who are required to execute the responsibilities up to the requirements of the pre-formulated policy, while maintaining the continuous comparison of the actual figures with those of the previously estimated and budgeted ones. Any major deviation of the former with respect to the latter should prompt for establishing a revision of the previous version of the budget.

Requirements of a Good Budgeting Control System

The following outlines the predominant requirements that a budget must incorporate to be effective and helpful enough for any enterprise, company or an individual:

·               The foremost of all requirements is to formulate a policy for a certain pre-defined period with the targets clearly chalked out in terms of the desired financial figures and/or the output over a clear period of time. This is important since unless a specific and target-oriented aim is there, a management or person in-charge will not be in a position to adopt the required preventive and/or corrective measures in case the desired programme is going out of track. This also helps if a programme is going well ahead the desired schedule and/or the cost pattern. The manager, in this case, may re-distribute the surplus of resources to fronts where they may be critically required.

·               The other predominant requirement is that of defining and allocating the responsibilities and accountabilities of executives at each important level of hierarchy. This helps in better coordination and the results are more likely to be in resonance with the drafted target policy.

·               Continual evaluation of the policy as well as the measured results from time-to-time and at regular intervals is another important requisite of an ideal budget.

·               Last, but definitely not the least, analyzing and rectifying the adverse factors, which tend to derail the planned targets is another positive requirement of good budgeting. Such negative factors must be pinpointed, analyzed and solved in no time when they do occur. As such, the divergences between the planned and the actual results should be used not only for control purpose, but also for policy revisions of the future.

Budgeting is an Effective Monitoring Tool

Budgeting is an important monitoring tool to carry out the following functions:

·               Conceiving business opportunities

·               Planning

·               Executing

·               Controlling, and

·               Coordinating the different functional activities of a construction programme

It not only enhances the grasp of the management over the project, but also helps to find out and correct the shortcomings that a programme might be proceeding to, endangering the profitability and/or timely completeness of a project. After all, which management does not want to complete a project on time, and with almost all financial as well as material targets being on course? A judgment easy to make even for a layman, isn’t it?

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