A closer look at construction soft costs and how they can impact your budget
Effectively managing the financial aspects of a construction project can ensure that it is completed on time and within budget.
Among these financial considerations are soft costs. But what are soft costs in construction?
Unlike the tangible materials and direct labor costs that immediately come to mind, construction soft costs include expenses not directly tied to physical construction activities. These costs, often underestimated, can significantly impact the overall budget and outcome of heavy, civil construction projects.
From administrative fees to design and permitting, soft costs cover a wide range of financial obligations that arise throughout the lifecycle of a construction project.
To help you understand the specifics of soft costs in construction, we’ve put together a guide that covers their integral role in project planning and execution. Equipped with this knowledge, you’ll be better position to lead your project toward financial efficiency and ultimate success.
Hard costs vs. soft costs
To fully grasp what construction soft costs are, it’s necessary to differentiate them from hard costs.
Hard costs in construction
Hard costs are tangible, direct expenses involved in the physical construction of a project, including materials and labor. Other hard costs include expenses for the purchase or rental of equipment, site work, and the installation of mechanical, electrical, plumbing, and HVAC systems.
These costs are easily quantifiable and form the bulk of a construction budget. In fact, The Constructor states that hard costs account for around 70% of a project’s total construction cost.
Soft costs in construction
Soft costs encompass numerous indirect expenses associated with a construction project. According to Northwestern University, the largest components of soft costs are typically fees for architects and engineers, as well as fees for other professional consultants. Soft costs can vary significantly, ranging from 5% to 50% of a project’s hard costs, depending on the nature of the project.
Breaking down construction soft costs
Soft costs in construction are diverse and cover a broad range of categories, each contributing uniquely to the overall project budget and success. Key categories include:
- Design and architectural services: Fees for architects, engineers, and designers who bring the project to life through detailed plans and specifications.
- Engineering fees: Expenses for structural, mechanical, electrical, and civil engineers who contribute to the design and ensure the project meets regulatory and safety standards.
- Legal fees: Costs related to legal consultations, contract reviews, and any litigation costs.
- Permits and approvals: Fees paid to obtain necessary permits and approvals from local authorities.
- Insurance: Costs for insurance policies required during construction, including general liability, builders' risk, and workers' compensation insurance.
- Financing costs: Interest payments and other fees related to construction loans or other forms of financing used to fund a construction project.
- Taxes: Property taxes and other tax-related expenses incurred during construction.
- Environmental assessments and surveys: Expenses for the environmental impact assessments, soil tests, and land surveys that are required before construction can start.
- Utilities for construction site: Costs for temporary utilities (e.g., electricity and water) used during construction.
It's important to note that this list is not exhaustive––the complexity of the project, its duration, and specific regulatory demands can significantly influence soft costs. These costs can make up a substantial portion of the overall budget, underscoring the importance of carefully planning for and managing them to keep a construction project within budget.
Soft costs in heavy construction
In heavy construction, soft costs extend beyond traditional project expenses, including environmental compliance, impact studies, infrastructure usage fees, and community engagement initiatives.
These projects, due to their scale and impact, require significant investment in regulatory compliance measures such as obtaining environmental permits and conducting site assessments.
Additionally, major projects, especially those involving infrastructure like roads, demand substantial efforts in community relations and public communication to ensure positive engagement with affected communities.
Effective management of these soft costs is essential for minimizing delays, ensuring regulatory compliance, and fostering community goodwill, which are all vital for the timely and successful completion of a heavy construction project.
Practical strategies for soft cost management in heavy construction projects
Imagine a heavy construction company embarking on a major infrastructure project, constrained by a tight budget and strict deadlines. The project team opts for a strategic approach to manage soft costs, emphasizing proactive planning, meticulous risk assessment, and leveraging technology for better project management and communication.
This strategy includes the early identification of potential soft costs, particularly those associated with obtaining necessary permits. For instance, securing environmental permits for water usage and land disturbance is prioritized, alongside conducting detailed environmental assessments. These assessments aim to identify and mitigate the project's impact on the local ecosystem, ensuring a balance between development and environmental conservation.
Moreover, the team focuses on community engagement, organizing town hall meetings and public forums to foster transparency regarding the project. These interactions allow the public to voice their concerns and suggestions, which could influence the project's scope, design, and timelines. Proactively addressing these concerns helps avert possible delays and additional expenses, demonstrating the value of open communication.
Additionally, the adoption of specialized software, similar to the solutions provided by TCLI, facilitates efficient cost tracking, resource allocation, and stakeholder collaboration. By integrating such technology, the team enhances its capability to manage project dynamics effectively.
This comprehensive approach to soft cost management underscores its important role in ensuring projects are completed on time and within budget. It highlights the profound effect that strategic management of these costs can have on the success of construction projects.
Achieving success through the effective management of construction soft costs
The impact of soft costs on construction project outcomes cannot be overstated. Properly handling these costs ensures accurate budgeting and financial health. For example, proactively allocating resources for legal fees and insurance can prevent unforeseen expenses that could otherwise derail a project’s finances.
Efficiently obtaining permits and approvals can also minimize delays, accelerating project timelines. Additionally, investing in community relations and communication strategies can reduce potential opposition to a construction project, creating an environment for the project to progress smoothly.
Leveraging technology is another key strategy for managing soft costs. Advanced software allows project managers to monitor expenses in real time, facilitating swift adjustments to any financial discrepancies. For instance, using project management software to streamline administrative tasks reduces overhead costs, while predictive analytics can forecast potential budget overruns, enabling preemptive adjustments.
This holistic approach to soft cost management—emphasizing budget efficiency, regulatory compliance, and community engagement—enables projects to meet financial targets and achieve greater stakeholder satisfaction and positive community outcomes.
Final insights into managing soft costs in construction
Planning for construction soft costs can be the difference between project success and going over budget. A thorough understanding and strategic management of these costs can often dictate a project's financial health and its broader community impact.
The U.S. Federal Transit Administration offers invaluable insights into estimating soft costs for major public transportation projects, showcasing strategies for handling the financial complexities of major construction endeavors. This guidance is beneficial for improving your budgeting and financial planning efforts.
Furthermore, our exploration of cost codes in heavy construction demonstrates the essential balance between tracking hard costs and carefully overseeing soft costs. This balance is vital for maintaining budget integrity and ensuring projects meet both their financial and timeline objectives.
TCLI is at the forefront of providing solutions and support for these challenges. Our expertise in leveraging technology to streamline project management and cost control offers a robust foundation for construction professionals aiming to master both the visible and hidden aspects of their projects.
We invite you to explore our resources further or contact us directly. Together, we can build a framework for success that encompasses every facet of your construction project, ensuring that nothing is left to chance.
