Before undertaking a major home improvement, it is wise to establish a budget. It should apply not only to the total project, but to each category of work electrical, plumbing, heating, rough carpentry, appliances, door hardware, flooring, etc. as well. If you aren't familiar with the categories, visit a bank that deals in construction loans and ask for a copy of their standard construction cost-breakdown form.

In addition to all the regular categories of work such as plumbing and heating, the form will include a place for a category called "contingency," which is used to cover unforeseen expenses. With large home improvements such as bath or kitchen remodels or room additions, it is easy to overlook the cost of an item. For example, under door hardware, you might remember to include doorknobs, but forget door bumpers.

Contingency should be about 10 percent of constriction cost. If the work is to be done by a contractor, the contingency is figured into the cost of the project before the contractor's overhead and profit is added.

A computer is the best tool for a construction budget, but if you don't have one, you can get by with a paper spreadsheet. With a kitchen remodel, for example, there could be dozens of decisions to be made within each category of work. All could affect cost. Each plumbing fixture comes in a different size, shape, brand, color and texture, so, in this area alone, many budget decisions have to be made.

On your spreadsheet, record the category of work and then, below it, list each item in the category that you will need for your project. For example, for a kitchen remodel, under plumbing fixtures, you might list sink, drain and faucet. To establish a budget, you should price each item, listing a category subtotal such as, "plumbing fixtures $425." Each category subtotal is then added to establish the project subtotal. It is important to plan and organize as many details as possible in advance. Failure to do so could leave you with an incomplete project and without funds to finish.

Once the budget has been established and the job begins, money management is important. A small project can soar over budget during construction if a close eye is not kept on spending. Each purchase should be assigned to the category of work to which it was originally budgeted. A running total of "funds remaining" should also be kept.

Sophisticated contractors perform job-cost accounting on every project. They compare their estimated prices (a guess) to actual costs (reality). The percentage of difference between estimated and actual costs is then used to revise estimate prices. If a contractor's estimated prices are too high, it could result in jobs lost to bad pricing. If prices are too low, it could spell bankruptcy for the contractor.

If you have a computer and plan a large home improvement, consider setting your budget up with an electronic job-cost accounting program. Although it could be done on a spreadsheet program, the accounting program sets everything up for you in advance and provides custom-made job-cost reports, as well. Quick Books by Intuit has the largest accounting user base in the country and offers job-cost accounting. The job-cost upgrade is available for $50, the stand-alone program for under $200.