Zero Base Budget Cost and Profitability Analysis For Construction Project

Zero Base Budget Cost and Profitability Analysis For Construction Project
In construction industry any project starts with making budget for it, the preliminary budget prepared is made as per the previous experience and consider cost incur roughly and in most of the time the cost in budget are very arbitrary taken as per previous experience.
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The Initial budget prepared is having high potential to vary in total cost by up to 20% if made by highly experienced professional. It directly means if things goes wrong in budget, it directly impact the profitability of the Project.

Zero Base Budget Cost is something which is made from a scratch and not by doing many assumptions. to prepare a zero budget for construction project following need to be first available in place;
BOQ prepared as per the final drawings and specification for Project.
Rate Analysis for each and every activity from scratch i.e. - no assumption.
Complete detailing of Overhead costs which will incur during project till completion.
Staff Salaries- base on exact figures of payment.
Material Rates.

In zero base budget there are no cost are added directly without back calculations of it. All cost need to be justified in order to added into budget.

In Zero Base Budget when every expenses added together in summary sheet, we can make a profitability analysis for the construction project.
Zero Base Budget Cost will also help in cutting down the costs by changing specifications for particular items and provide a budgeted products for buyers / clients.
It also helps in tracking project and ensuring cost of construction never exceed the budgeted amount.

Benefits of Zero Based Budgeting for Construction Companies
The final cost is well justified and is as per companies specifications and standards.
It helps in increasing strong communication in all department due to finalization of everything at the start.
Improves performance and operating efficiency by challenging assumptions and examining expenditures
By doing Zero Base Budget and not relying on traditional budgeting percentage increases, we can significantly reduce the cost and make Project successful.

The example Zero base budget and Profitability analysis for a construction project is attached below, you can modify the data as per your project requirement and specified standards.

Zero Base Budget have complete analysis of rates for all construction items involve in that project, rates of materials, salaries of staff, overheads, Bill of Quantities of all construction items and finally the summary sheet of the same.
 

Attachments

  • zero base budjetting.xls
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