Aligning Your Scope and Budget for Your Home

Ecological House, Oxford

Introduction

The commonly used proverbs “what gets measured, gets managed” and “measure what matters” are both attributed to famous management experts, and are helpful reminders of the importance of keeping the costs of your project under constant review.

Unlike most other large purchases where the product (a car or existing house) has already been created and its costs of manufacture and value in the market can be easily understood, a building project has not yet been designed or developed when it is commissioned, and so a significant level of cost uncertainty can be expected.

It can also be quite difficult to accurately predict the costs of construction until a scheme has been designed in detail, as there are many variables and different factors to consider. These include: the scale and complexity of the core scope of work, the quantity of any ancillary work required, the specific structural and services works required to realise the design, the level of specification of the project, any associated costs for consultants and specialists, market conditions, how well the project is managed, and the choice of building Contractor.

However, with good project management, skilled design, and careful use of cost estimating techniques at key stages of the project’s development, it should be possible to maintain a reasonable degree of alignment between the scope of work and the available budget.

The Dangers of Uncosted Design

If a cost management strategy is not adopted, then the default would be to design to a ‘wish list’ for the desired project. While this should provide a desirable design solution, the project costs associated may well prove to be significantly higher than expected and potentially prohibitive depending on the level of budget available. Dealing with excessive costs can result in additional costs for redesign and delay to the project programme, so this approach is not recommended for the vast majority of projects where budget is finite or there is a desire to control expenditure.

Step One, Explain Your Budget

In the early stages of the design project, it is very important to notify your design team of your available budget, and also any preferred levels of expenditure within that available budget. While it is not possible for an architect to design to a specific budget (largely due to the reasons listed above), or to know the precise cost level of any given design, sharing and discussing your budget should help to steer the design and the project management process in the right general direction (using the techniques listed below).

In Situ House, Neil Kahawatte Architects

Informal Estimates

Homeowners will often have preliminary conversations with Architects, Contractors, and other professionals and trades when considering a project for their home. While this is not a problem in itself, it is important to note that any discussion of cost at this stage is likely to be inaccurate, and should not be used as a substitute for a professional cost estimate by a Quantity Surveyor.

Even with the best intentions, it is likely that they will not be able to account for all works required and will have to make numerous assumptions and generalisations that may not be appropriate for your project.

A Contractor who is keen to win the project may consider that there is a disincentive to illustrate the full costs fearing that this may lead to them being excluded from tendering in future.

An Architect or Contractor may be able to compare your project to other similar projects they have worked on, in order to give an approximate indication of cost levels. When comparing projects however, it is very important to consider when they were carried out, their location, and the true extent of works included within a given figure.

Professional Estimate by a Quantity Surveyor

This is the most rigorous method of understanding cost, and is highly recommended for any project.

A Quantity Surveyor (QS) can be commissioned to provide a cost estimate for your scheme. This generally involves ‘taking-off’ measurements from architectural drawings, referring to any notes or specifications provided, and costing each element using standard industry rates.

A cost estimate can be carried out at any stage of the design process: at the outset based on initial sketches, once the preferred scheme has been developed ready for planning, during detailed design or on completion of that process, or even in parallel with a tender process (see below). The greater the detail of the design information provided, the more accurate the QS can estimate the costs, but this benefit needs to be balanced with the need to understand likely costs earlier in the project. As a default it can be very helpful to have a cost estimate carried out during the feasibility stage and/or once the planning stage drawings are complete and prior to advancing with detailed design.

Detailed Design & Competitive Tender

The best way to receive a precise costing of the works is to have the works designed in detail and to run a competitive tender process. The detailed design process allows for the vast majority of design and specification decisions to be taken, and the tender helps you to check whether the costs that you are receiving from builders are competitive or not.

By including all elements that may potentially be required within a tender package the Contractor will be incentivised to provide competitive prices for all works, rather than adding ‘extras’ during the build which may not lead to the same levels of cost efficiency.

Because the detailed design process is a very thorough and extensive piece of work to carry out, it is often sensible to undertake a QS cost estimate prior to embarking on it; usually around the time of a feasibility study and/or a planning submission. If used well, this combined process helps to reduce the chances of cost and time increases associated with redesign post tender.

In Situ House, Neil Kahawatte Architects

Phasing The Works

This method of cost strategy may be appropriate for projects where the full scope and quality of work is ultimately required, but the necessary budget may take time to accrue, and timeframe is less key. By phasing the works a portion of a project can be implemented sooner, while one or more later phases can be implemented when budget allows in future.

By commissioning a QS cost estimate relatively early in the design process the work undertaken during detailed design can easily be packaged into phases of work.

While this method may allow for an increased scale and specification of project to be competed in the long run, it is important to note that having a full package of works carried out concurrently under a single contract, rather than a phased build, will generally present some efficiency for the contractor and hence result in a cheaper overall build. Likewise, the period of disruption for occupants and the costs of surveys and professional fees associated with the project may increase if the project is phased.

Construction Contract

By appointing your chosen contractor with a properly structured building contract, you gain a robust mechanism to request quotations for any variations which may be required to the scope of work. This allows a degree of flexibility and helps to maintain control of Cost, Programme and Quality.

A properly structured building contract will usually include the provision of a Contract Administrator (typically your Project Manager/Architect) to oversee the process of any variations to the contract, and includes provision such as payment in arrears and a retention sum to help to incentivise the contractor to complete the work to a good quality and within an agreed timescale.

Construction Costs in the Media

It is worth pointing out that depictions of project costs in popular TV programmes and press articles are routinely misleading and inaccurate. This can be due to the point in time when the information was compiled (i.e. repeats on TV that may be a decade or more out of date), or due to certain costs such as land purchase, design, project management and even building works being carried out at the cost of producers/publishers or on a pro-bono basis.

Construction Costs vs Project Costs

This article is focussed on the cost of undertaking the building works themselves, including labour, materials, fixtures, fittings, finishes, Contractor’s overheads & profit, etc. While the Construction Cost is normally by far the largest single element of a project budget and well worth focussing on, it is important to also understand the other costs that will make up your total Project Cost: professional fees, surveys and specialists, statutory approvals, VAT, etc.

You will also need to allow a suitable contingency sum, and may need to factor in other associated costs such as temporary accommodation, storage, removals, financing, etc.

You can read more about the relationship between Project Costs & Construction Costs and how both can be estimated in our article ‘Estimating Construction & Project Costs for Your Home’.

Value Added Tax

The construction industry tends to discuss project costs exclusive of VAT. For this reason it is always wise to check whether any figures being discussed by Architects, Quantity Surveyors, Suppliers and Contractors etc are inclusive or exclusive of VAT, and add this accordingly if necessary.