Understanding the finances of your project and having financial visibility is one of the most important things on a building project. Quite simply it can make the difference between finishing it and not finishing it.
If you are just about to start work on a building project you are probably wondering if you will be able to finish it within budget or not. Building projects are notorious for going over budget. However, with careful planning and management from the start, you can make sure you can stick to your budget.
Here are a few things to think about.
Firstly, a simple question.
When you say you have a budget, where has that budget come from? In our experience, when people say they have a budget they mean one of two things.
The first thing people mean by budget is the amount of money that is available to spend. When this money is spent, there is no more money. If this is you, you need to be sure that this is sufficient money. If it isn’t sufficient, don’t go any further because doing so will only cause heartache.
The second thing people mean by budget is the amount of money they think something will cost. If this is you, you need to make sure you’ve costed the project properly so you know the figure you have in mind is broadly accurate, not just a feeling.
Here’s what one recent client of ours had to say about budget:
“We went through a very painful learning process, the build cost at any level would be much more than we had expected. We were arbitrarily setting our own expectation on price for work to be done based on the money available, not the reality of known costs.”
The further a project commences, the further our tried and tested process gains control of costs for our clients.
When we first meet our clients we use our experience to give them a ballpark figure for the cost of their proposed project. It is a figure that is generally only accurate to the tens of thousands, but it provides a useful starting point for our discussions and helps to set expectations. We call this the Test the Principle Stage and it’s Stage Zero of our five stage process. It involves trying to develop a vision for your space and the budget you have and then ensuring that they are both consistent. If they are not, we look to address one or the other.
Getting an idea of cost at Stage One
Stage One of our process, we draw up ideas and plans. These are used to gain planning permission (if planning permission is needed). They are also used to get a more accurate ballpark figure for the cost of the build.
When we have undertaken the site survey and put together an initial design, we can give you our first informed thoughts on the budget that will be needed. By the end of the second design meeting we will have a design we can issue to a Quantity Surveyor who can provide a more detailed budget. The budget provided at this stage is usually pretty accurate when compared to the final price of the build. If the budget the Quantity Surveyor gives and the budget you have are too far apart, it is possible to adjust the design accordingly: because we have got more cost information than we had when we started work, it is not a question of starting from scratch, more of refining what we already have.
Gaining control of costs at Stage Two
In Stage Two of the process we develop the design in much more detail. We specify every element of the build from floor to ceiling and everything in between. We then ask five experienced building contractors to quote for the work based on the details we provide with the intention of getting three quotes. Doing this gives us two things. It gives us peace of mind we have got the best market price for the work because it has been competitively tendered. And because we also know the price for every element in the build we can be fairly confident (barring anything unexpected when we start work on site) that the price given at this stage is the price that will be paid at the end.
We estimate that by the end of Stage Two, our clients will have spent 7-8% of the final budget for their project. This relatively low investment has given them an extraordinary amount.
It has delivered a design that is completely unique to them, gained valuable planning consent, all the technical details they need to build their project, a fixed price gained at competitive tender and a building contractor who will complete it at the agreed price.
Protecting your budget during Stage Three
Stage Three is when the value ascertained at tender is protected by legal force. This ensures the original agreements hold and that the works are carried out, correctly, in the agreed timeframe, to the quality and prices agreed.
There will always be some unexpected events, but even these are not outside our control. They are usually paid for out of an agreed contingency figure, which is typically equal to around 3-5% of the overall project. Even with these ‘unexpected’ events, before any contingency monies are spent, any changes that are required are costed before they are agreed, so that we can ensure that the overall budget can be held to.
The success of keeping to this cost plan at Stage Three is the strength and completeness of the detailed designs provided in Stage Two. It often is incredible to think that all the hours, days, weeks and months of work on site are controlled by the conversations held, and the drawings, schedules and specifications that we provide for our client at Stage Two.
Generally, the only change to the agreed prices comes down to additional client request: that is to say, “Well, while you are there can you just…”. When this happens we ensure that before any work is carried out a complete price is provided. This ensures that the all-important budget for the project is carefully maintained. This additional work doesn’t affect the price agreed for the work at Stage Two; instead, a new budget is created that covers this separate and new piece of work.
Before you start work, ensure your budget and your vision align
Understanding the cost involved of a project is vital because unless you have complete clarity you start, there’s a danger it won’t be finished. It’s so vital that we won’t start work on a project unless we feel that the budget and vision align.
However, vital as it is, we also recognise that cost is only one element of a building project. There are many more things that are important factors. After all the pain of understanding the costs involved, here’s the client we quoted above speaking after the project was completed:
“I love, love, love my house.”
“We come in from the garden, sit at the kitchen island with all the beautiful sunlight and watch the sun setting through the windows over an uninterrupted view. When people come they say: ‘This is amazing’.”