Setting and managing a budget

Robert Francis MCIOB – Director at RF Construction Consultants Ltd

Setting and managing a budget Expert Opinion

“How much will my project cost?” The answer to this common question is nearly never straightforward as every project is individual but it is critical to have a clear understanding of cost long before work begins on site.

Once you have decided what you are trying to achieve and your priorities (see Getting Started: Planning Your Project) you will need to establish a budget. Your budget will ultimately depend on what you want and how much you have to spend on the project, which may mean that you need to revisit your original plans to suit your budget.

Underestimating what your project is going to cost is likely to end in disappointment or compromise – you’d be ill advised to start off with big dreams before you have consulted how much you have to spend and what can be achieved within that budget. The majority of projects that fail do so because the money runs out before construction is complete. What’s more, changing the plans or specification of your project once work commences can contribute to increased costs. It can’t be over stressed that the most successful projects are those that have been meticulously planned and budgeted for in advance.

If you are approaching your project using the traditional construction approach (via your chosen architect), then your appointed architect should be able to offer you a broad idea of costs. However, these costs are based on concept designs and can end up changing significantly during design development. The early stages are critical to ensure the design reflects not only your dreams but also the budget. It is not uncommon for clients to fall in love with initial designs but when it comes to seeking quotations the costs are far more than expected, leading to comprise and design delays.

It is at this early stage that I would recommended seeking the assistance of a quantity surveyor (QS) or cost consultant who can help you develop a suitable budget and provide a detailed cost plan based on your approved designs prior to seeking quotations. Once the cost plan is approved, I would also recommend requesting a bill of quantities from your QS for the tendering contractors and asking the QS to provide a detailed tender analysis service.

A popular alternative to the traditional approach is to appoint a design and build contractor, which will give you a much clearer idea of cost from the beginning. With the design and build option all the pre-construction experts including architects, engineers and surveyors are involved in the concept stage. This ensures buildability and that the project remains within budget under the responsibility of a design and build construction company.

Once the concept has been agreed and the technical design completed a design and build contractor will provide you with a fixed cost based on the agreed design (design and build contractor taking the risk). Using the design and build procurement route can lead to a quicker preconstruction period meaning projects can be completed earlier than using a traditional route. To ensure your contractual responsibilities are met we would recommend appointing a contract administration (CA) and cost consultant to act on your behalf to ensure all parties complete their contractual responsibilities and project budget is maintained in the event of design changes.

How to set a budget

Be realistic, put together a spreadsheet by listing each element of the project and put a figure to it. Set concrete budgets for big ticket items like kitchens and bathrooms and carry out detailed research about materials, fixtures and fittings costs. Consider all the costs, for instance if you are budgeting for your bathroom floor it isn’t just the tiles you need to include, what about the underfloor heating, adhesive, grout and labour?

The largest cost will be for the build costs but don’t forget to include professional fees for your architect, quantity surveyor, structural engineer, planning, building control and VAT if it’s not a new build. This build cost calculator (based upon South East England) can help give you a sense of budget, but this is just a starting point because as I’ve mentioned each project is different:

Floor area Average quality Good quality High quality
Build cost per square meter – multiplied by typical floor area *
Renovation (3-bedroom house) 100 £50,000 - £75,000 £70,000 - £110,000 £100,000 - £150,000
Single storey extension 40 £86,000 £94,000 £98,000
Two-storey extension 80 £156,000 £172,000 £188,000
3-bedroom new build 110 £176,000 £220,000 £275,000
4-bedroom new build 150 £210,000 - £232,500 £292,500 £371,250
5-bedroom new build 190 £275,500 £351,500 £456,000

*All costs exclude design & consultant fees, surveys, planning application fees, fixtures & fittings and VAT

Once you have a robust budget and detailed plan it is time to find your building contractor through a traditional competitive tendering process or using the design and build route.

My top 3 tips to help manage your budget

1. Appointing a contractor
Source competitive quotes for your contractor and ensure everything is included in the cost plans they provide. It is easy to overspend quickly if the contractor doesn’t have detailed drawings, specification and a schedule of works to work from – a cost consultant can arrange this for you and provide a tender analysis to ensure all received quotations are on a like for like basis.

When you have made a decision on the contractor you would like to appoint ensure the detailed specification, technical drawings and schedule of works form part of the contract between you. This means any changes in the design or specification can be easily tracked by all parties, reducing the risk of any costly surprises. One way to ensure even greater cost certainty is to appoint a ‘one stop shop’ design and build contractor as they will provide you with a fixed price contract to design and construct your project.

2. Sticking to your plan
To avoid increased costs during the construction stage of your project, I recommend having a finishes meeting with your design team. Often clients leave the required finishes such as type of floor until the construction stage has commenced, beware that this could result in increased costs. Alternatively, have your finishes meeting prior to agreement of contract which will result in reduced chance of variations and save money because the finishes will be priced within a competitive environment.

Every budget is challenged by the desire to do more and the temptation to alter your plans. Keeping to a budget requires focus and decisiveness, trust the decisions you have made and avoid impulsive last-minute changes to prevent costs creeping up.

3. Compromise isn’t a dirty word
If you do find yourself wanting to make changes to the plan or increasing the budget, then review your costings and see where you can make savings elsewhere. In most instances savings can be made in one area, to allow an increase in another, without any damage to the overall project. Consult with your design team during preconstruction stage to ensure their design is maximising your budget.

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