OUR THOUGHTS ON:

More Construction Companies Exploring Long-Term Budgets

Construction

By Theodore Pettko

As we head into the fourth quarter, everyone will be working on their 2015 budgets soon, if they haven’t already started them.  Budgeting has historically been viewed as a short-term function, say 12 months.  However, the trend has become to implement long-range strategic plans.  Proper planning provides the direction, and more importantly, the accountability, to the performance of individuals within the company.

Doing a 12-month budget requires a lot of time and effort.  However, a longer-duration budget forces vision and leadership characteristics well beyond the numbers.  Granted, it does require more time and effort, but the rewards outweigh the effort.  Most construction contracts span multiple years and the organization needs to look beyond just 12 months.

 Common development issues in short-term budget items are as follows:

  • Revenue projections based on estimators’ forecast of upcoming projects combined with the projections of project managers
  • Gross margins on current work based on current job profitably forecasts from the responsible project managers
  • Senior management plans for growth and/or expense

Other items include:

  • Assumptions used in direct labor hours
  • Allocation of indirect costs
  • Capital expenditure, capacity and utilization

The objective of such a process and review is to develop and implement a realistic and accurate plan of future objectives against which subsequent performance and results may be reliably measured.  In addition, a long-term budget provides valuable insight for infrastructure needs as the organization evolves.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

 

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© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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