Budgeting (Shallow Dive)

I was asked recently to write about budgeting and what should go into a project's budget. Great topic! I would like to answer this from the perspective of what's meaning for the work in progress (WIP) report.

Start with direct costs and costs necessary to complete the project such as:

• Material

• Labor

• Labor burden

• Subcontractor costs

• Equipment rental

• General direct costs (ex. bonds, insurance specific to the project, etc.)

All these costs should show up in your total estimated cost on the project as they are likely to provide a reasonable basis for percent complete (costs incurred divided by total estimated cost) once you start incurring costs on the project. We have an idea of what specific costs remain to complete the project and set future expectations.

Indirect costs such as general liability insurance, fuel (not tracked by job), depreciation, repairs and maintenance, etc., should be considered in the price of the contract to cover "overhead" but I would exclude this from the total estimated cost by project to keep it simple. I would however classify such costs under cost of revenues on the income statement.

Hope that helps!

Ara