When planning a construction project, it’s easy to overlook costs that you can’t directly see or touch. Your mind might tend to gravitate toward the costs of physical project elements, forgetting the layers of invisible, intangible costs necessary to reach the end goal. But projects rarely only consist of costs for physical materials, labor, and equipment. There’s another important category of costs that’s often overlooked: soft costs.
Soft costs include expenses like planning, permits, architectural design, and other administrative tasks. In many cases, soft costs can actually make up a larger portion of the total project cost than hard costs do. For example, the cost of designing a new office building can easily exceed the cost of construction. That’s why it’s important for project managers to account for both hard and soft costs when estimating the total cost of a project. By doing so, they can ensure that their projects are completed on time and within budget, with a minimal number of unpleasant surprises.
Let’s take a deeper dive into what exactly soft costs are, how they differ from hard costs, and how you can properly plan for them to avoid cost surprises or delays.
What are soft costs?
The term “soft costs” refers to any costs that are not directly related to the physical construction of the project. These can include things like feasibility studies, environmental impact assessments, design work, and project management fees.
Soft costs typically make up a significant portion of the overall budget for a construction project, and they can have a major impact on the timeline and completion of the project.
Soft costs can and tend to occur the entire way through the lifecycle of a construction project. And unless you’ve explicitly prepared for them, they may catch you off guard. That’s why thorough budget planning is important — especially in the construction industry.
To be able to accurately estimate project costs, you have to be able to look past the simple costs of physical construction like labor and materials. To help you, we’ve outlined the differences between hard and soft costs in construction.
“Soft costs” is a part of our Project Management Glossary — check out the full list of terms and definitions!
Soft costs vs. hard costs — what is the difference?
When it comes to project management, there are two types of costs: hard costs and soft costs. Hard costs, also referred to as brick-and-mortar costs are the physical, tangible costs associated with a project. They include materials, labor, and equipment, and being the most obvious, they’re typically the first costs written into a project budget.
Soft costs, on the other hand, are intangible, non-physical costs. But they’re just as crucial for ensuring final project delivery, and, unfortunately, cannot be ignored. These costs can include permits, design fees, professional liability insurance, engineering fees, legal fees, and taxes. There may also be a number of post-construction soft costs, such as health and safety checks.
While hard costs are typically easy to quantify, soft costs can often be more difficult to estimate.Hard costs are typically easy to quantify, but soft costs can be more difficult to estimate. As a result, they can often represent a significant portion of the total cost of a project. That’s why it’s important for project managers to consider both hard and soft costs when developing a construction budget. Let’s explore the soft construction costs in a bit more detail.
Soft costs when creating a budget: construction example
Suppose you’re creating a budget for a construction project. While hard costs would include so-called brick-and-mortar costs — the actual physical labor and materials that go into developing a property and building a structure, such as cement, drywall, and lumber — soft costs are less tangible items related to completion of a construction project. Here’s a more detailed overview of some soft cost examples to consider in a construction project budget:
- Architectural design fees: Architecture fees generally cost up to 10% of the entire construction cost. As such, it’s important not to overlook these fees when calculating your budget.
- Planning permission: First, you’ll need to pay the application fee. If permission is granted, you’ll also have to pay the cost of the permit itself before starting to build.
- Legal fees: Construction project managers often require legal assistance for applying for planning permission and dealing with state law regarding construction. Seeing as most lawyers charge hourly fees, this can add up to quite a sum over the course of the entire project.
- Engineering fees: Most construction projects require the consultation and help of a structural engineer to ensure that the building is being built safely, congruent with the architectural blueprint.
- Professional liability insurance: This protects you against loss from claims made by clients or third parties about negligent advice or services.
- Loan interest: If you’ve had to take out a loan to complete the construction of a building, this should be added to the overall construction budget.
- Marketing fees: Unless you’re working on a commission from an existing client, you might need to spend money on marketing to sell your property after construction is complete.
- Project administration: Considering how administration-heavy the process can be, you’ll probably want to hire an administrative professional to help oversee those processes. This soft cost should be added to the budget.
- Taxes: Every region has different tax laws, and how much tax you’ll need to pay can vary greatly depending on where you are. You can ask your legal consultant to assist you with this and have your administrative worker add it to your overall budget.
To prevent unexpected costs from adding up, it can be helpful to use monday.com to budget and take soft costs into proper consideration.
Examples of soft costs in project management
Every project has unique needs, and while soft costs can vary between projects, general construction project management soft costs may include:
- Hiring freelance workers
- Paying specialized consultants
- Project administration fees
- Taxes
- Product or property development
- Legal fees
- Insurances fees
- Marketing
- Market analysis fees
How to use monday.com to plan for and identify soft costs
Project managers have to keep an eye on soft costs to prevent them from piling up too quickly. From permits and fees to marketing and sales, a lot of potential costs need to be considered. monday.com is a great tool for managing the entire budget of a project and lets you factor in both hard and soft costs. monday.com’s Budget Tracker Template lets you input your estimated costs for each category and monitor spending throughout the project’s duration.
Using a Budget Planning Template can help you avoid cost overruns and keep your project on track. In addition to project management costs, monday.com offers a variety of features that can help you to manage other project aspects, such as task management, communications, and document management. The Budget Tracker Template also includes a built-in approval process for obtaining sign-offs from your team on proposed expenses. When you use monday.com to plan for soft costs, you can help ensure that your projects stay on budget.
Frequently asked questions
What are soft costs?
Soft costs are the intangible costs necessary to complete a project. These can include permits, various fees for professional services, administrative costs, and taxes.
What are soft costs in construction?
Soft costs in construction include architectural design and engineering fees, planning permits, legal fees, loan interest (if applicable), professional liability insurance, projects administration, and taxes.
Effectively manage soft costs with monday.com
Many projects run over budget due to unanticipated soft costs, such as permits, fees, inspections, and other intangible costs. While these costs are essential for the completion of a project, they can also be difficult to manage and control without proper planning and foresight. monday.com helps you plan for soft costs, no matter what industry you work in.
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