Key Budget Factor for a Construction Company

1. Introduction

Budget is very comprehensive; it is a formal plan that estimates the likely revenues and expenses for a company in a particular period. Budget preparation explains the whole process and use the budget more effectively. Budget management is very important especially for construction companies to ensure that projects run smoothly implemented in line with the company’s capital.

According to Chan and Chan (2004), the construction industry is dynamic in nature and its environment has become more dynamic due to increasing uncertainties in technology, budgets and development process. Besides that, according to Churchill (1997) accentuates the fact that businesses must understand the pressure to grow so that they can plan and prepare for it, choose the right timing for expected major changes in size and control the speed of growth.

2. Key Budget Factor for a Construction company throughout Malaysia

The budget is used in construction work to determine the amount of liquid cash that will be required over the various periods of a contract, as a measurement against which actual progress can be measured. The budget is a financial forecast and important tool of management, in as much as trading position of a construction company can be establish by having budgets for all of the work on hand.

According to FOA Corporate (1997), key budget factor also known as principal budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output such as sales, material or labour. Among the key factors for the company’s construction budget is as follows:

i. Sales budgetThis involves a realistic sales forecast. This is prepared in units of each product and also in sales value. Methods of sales forecasting include sales force opinions, market research, and statistical methods (correlation analysis and examination of trends) mathematical models. Sales budget includes company’s pricing policy, general economic and political conditions, changes in the population, competition, consumers’ income and tastes, advertising and other sales promotion techniques, after sales service, and credit terms offered.

ii. Production budgetExpressed in quantitative terms only and is geared to the sales budget. The production manager’s duties include two things which are analysis of plant utilization and work-in-progress budgets. If requirements exceed capacity the production manager may subcontract, plan for overtime, introduce shift work, hire or buy additional machinery and the materials purchases budget’s both quantitative and financial.

iii. Raw materials and purchasing budgetThis factor includes the materials usage budget is in quantities and the materials purchases budget is both quantitative and financial. Factors influencing included production requirements, planning stock levels, storage space, and trends of material prices.

iv. Labour budget:Labour budget is both quantitative and financial. This is influenced by production requirements, man-hours available, grades of labour required, wage rates (union agreements), and the need for incentives.

v. Cash budgetA cash plan is to defined period of time. It cans summaries monthly receipts and payments. Besides that, it highlights monthly surpluses and deficits of actual cash. Its main uses are to maintain control over a firm’s cash requirements such as stock and debtors, to enable a firm to take precautionary measures and arrange in advance for investment and loan facilities whenever cash surpluses or deficits arises, to show the feasibility of management’s plans in cash terms, to illustrate the financial impact of changes in management policy, e.g. change of credit terms offered to customers.

REFERENCE1. Agriculture and consumer Protection by FAO CORPORATE DOCUMENT REPOSITORY 2. Chan APC, Chan APL (2004). Key performance indicators for measuring construction success, Benchmark. Int. J., 11(2): 203-221. 3. Churchill CF (1997). Managing Growth: The Organizational Architecture of Microfinance Institutions. ACCI on International.http://www.ebook-search-engine.com/organization-growth-ebook-all.html.