Building on a Budget: 5 Proven Methods to Reduce Construction Costs

As a domestic or owner builder, you would know that your build costs are hard to keep under budget. Construction costs including excavation, labour and equipment hire seem to have a habit of costing more than you are quoted for. Here are 5 simple things to keep in mind to reduce your construction costs.

1. Control your variable costs

It’s best to identify and be aware of your variable costs in your project before putting them out to the tendering process. Variable costs are those that varies over the project and include items such as labour hour rates, equipment hire (especially scaffolding) and excavation. This is opposed to fixed costs, which never change throughout the project.

To ensure you have your variables under control, check your allowances, run them over a time-line construction schedule and reduce the opportunity for them to explode. If anything is going to come and bite you in the ass, it will be your variable costs, especially if there is no process for controlling these items in the first place. It’s always best to consider fixed costs when possible.

2. Apply the 80/20 rule

Also known as the Pareto Principle, the 80/20 rule is a very useful principle that can be applied not only to business but to your everyday life. The main concept behind Pareto’s Principle is that 80 per cent of outcomes comes from 20 per cent of inputs. When it comes to build costs, we could say that 80 per cent of construction costs come from 20 per cent of your items.

If you are going to have any real effect on reducing the build costs, no matter what type of building you are constructing, look at those vital 20 per cent of items. Dependent on the build type this could be glazing, external wall, roof construction, concrete supply and placements, cabinetry or Prime Cost items. Make sure those items go out to a cross section of tenderers and nail down the basic 80 per cent of your build cost to a fixed amount.

3. Be wary of site costs

Site and excavation costs are regularly put out as a Provisional Sum meaning that you have only budgeted a set allowance for the works. Any more costs incurred past that set allowance is covered by the owner. But what if the owner runs out of money or flat out refuses to pay? VCAT tends to point the finger at the builder in this scenario, as it was the builder who provided the provisional sum in the first place.

The best way around this is to prepare for the unexpected. Have your client pay for some preliminary costs which include soil tests and surveying in the form of a deposit. If the reports produce any outstanding results, you can be sure to allow a higher provisional sum for excavation costs and avoid any pitfalls.

4. Consider alternative products

Your supplier might be your best friend, but how do you know he is giving you the best deal? There may be alternatives to the products you are used to building with that are more cost effective. For instance, have you considered comparing the costs of stick frames and labour against prefabricated frames? Although the costs for prefabricated frames are more expensive, you tend to save on discounted labour. You could also compare the differences between metal roofing and concrete tiles. Metal roofing involves less trusses, less maintenance and less load.

Be aware of any alternative methods to building you could benefit from. Just make sure you get a quote beforehand and compare what products suit your project.

5. Create a project plan

The most effective way to managing cost spending is managing a project plan. There are hundreds of ways you can create a Project Plan whether it be in your site diary or using software such as Microsoft Excel or Project. While there is a bit of extra work involved, you may find that laying out the entire project visually may help you identify any problems before they arise. You can find a good 10 step guide to creating an effective project plan here.

Now that you are aware of what to look for – the next step is to take action. Just remember to gather and compare quotes and be open to any alternative methods there are to what you are used to. There are plenty of savings to be had in residential construction, and they are mainly made from precise planning and forward thinking!    

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