Responses

Michael Discussion:

Unplanned contingency costs in construction or renovation can be crippling to a capital budget.  When developing a budget for a project, the planner needs to take into account what type of construction or renovation it is and how what type of hidden obstacles that may include.  For example, in a renovation project, are there “as-built” plans from a previous construction?  Even though they may not be 100% accurate, they should at least give a broad view of what materials were used and what is to be expected.  If the most current set of as-builts were from the 1960s, the planner should estimate contingencies for upgrading mechanicals, and possibly other issues such as asbestos abatement.  In a new construction project, the planner should be aware to prepare contingencies for items in the ground unseen or obstacles with the work site such as multiple dumpsters or lifts to access spaces.

Compton construction in Columbus, Ohio estimates that 5%-10% of total construction budget should be set aside for contingencies (CC, 2020).  By incorporating this estimate into the capital budgeting plan, the goal is that all needs associated with the project are planned for.  If contingencies are not included in initial planning, the project may have to hold due to lack of funding, or other budget areas would need to be siphoned off to support the project.  This creates hardship and ill-will towards the project or possibly between departments.  Proper planning and management of the planning process are keys to having the right amount of contingency built into capital planning.

Reference

Compton Construction (CC). (2020). 7 things you need to know about contingency budgets. Retrieved from: http://comptonllc.com/contingency-budgets/#:~:text=Most%20construction%20projects%20use%20a,the%20scale%20of%20the%20project.

Faith discussion:

Hidden or Contingency Costs         

            When planning for capital budgets, the Budgeting Manager should consider contingency costs, such as building constructions and renovations. Failing to identify these potential contingencies can result in a major failure in the budget. Types of hidden or contingency costs the Budget Manager should be aware of include maintenance and equipment replacement. Buildings, materials, and equipment require constant maintenance and the Budget Manager should plan a list of items that might require refurbishment or repair routinely (McClellan, 2017). Other major infrastructures to consider include “roofs, plumbing, or electrical systems. These items do not need to be replaced with the same frequency as items such as carpet or departmental vehicles.” Failing to consider budgeting for these events will lead to issues in the future. The budget manager can ensure all of the contingency and hidden costs are incorporated into the budgeting process by careful planning. Considering all of the unit areas on campus and the equipment within and listing out each item will help the budgeting manager on track and carefully consider every necessary item to budget for. Inadequate planning can lead to an increase in costs and “capital budgets for major renovations can suffer because of a lack of accurate information regarding the condition of building infrastructure hidden behind walls, unanticipated asbestos abatement issues, or belated notification that the project will trigger the necessity to upgrade building features to bring them into code compliance.” Therefore, this planning process is an extremely important piece of the budget managers position.

 

 

Sources

McClellan, M.J.B.G. S. (2017). Budgets and Financial Management in Higher Education. [MBS Direct]. Retrieved from https://mbsdirect.vitalsource.com/#/books/9781119287766/