Here's a word from my better and more mathematical half, Rob, on managing tight build budgets. It's long, but trust me, it's a good read all the way to the end!
At its simplest managing a budget is about ensuring you have sufficient funding to cover your project expenditure.
Your funding is usually straightforward to work out and this will create the limit for your project expenditure. It will come from cash and investments you have available plus borrowing from mortgages or banks (begging is allowed, however stealing is not!).
Your expenditure on the other hand is the tricky bit, this is all about getting cost certainty about how much your project will cost and level of certainty that you can gain. It’s also about understanding where the risks of cost escalation are and having a mitigation plan if, for whatever reason, costs rise – because guaranteed they will.
There are two elements to this;
1) Completeness, which is about ensuring you have a full list of line items in your expenditure budget and no missing ones and
2) Accuracy, which is about the quality of your estimations of each of those line items.
Completeness is more important since if you have a missing line you will be 100% wrong (guaranteed!) whereas if you have the line item then on accuracy at least you will be less than 100% wrong. Don’t be in denial (i.e. “it’ll be ok” cos it won’t!) about either completeness or accuracy, ensure your estimates are good and add some slush since there is always scope creep. Even if your expenditure budget is complete and accurate scope creep can still occur because of the list of products on the market and their range of prices and the fact we always want the best and most expensive stuff!. It’s easy to get sucked into wanting the higher spec product but if you spend more on one line item, remember you need to save it on another.
Fixed price jobs and quotes are very helpful in providing cost certainty if funding is tight however be sure you understand the scope of a fixed price job. If in doubt ask your main contractor to indicate what’s not included.
Your contingency is essential since even for valid reasons a project will cost more than expected, that, unfortunately, seems to be life. The uncomplicated advice here would be to make contingency as large as possible. As a guide 20% should be more than sufficient provided you have good completeness and accuracy in the first place and are running with fixed price jobs.
Ideally contingency should be being used for accuracy and specification changes and not completeness since if it relates to completeness then this indicates the budget was missing stuff in the first place.
Your project people are crucial to managing a budget. Ensure your architect, project manager and main contractor builder are people who you know and trust will help you manage your budget. Be up front with them about your funding versus expenditure and how you need them to help you successfully manage your budget. If you have any significant doubts consider changing them. If you are getting quotes from suppliers such as windows, kitchens, electricians and plumbers get to know and understand the products and quotes, asking for them to be detailed.
For example, understand that expensive German window manufacturers provide as standard marine grade paint and maximum glass thickness since they assume everyone in the UK lives on the Atlantic Coast in Lands End, yet you live in leafy Surrey! There are good and cheaper alternatives on the markets so go and seek them out.
Main contractors will have industry contacts, take recommendations from friends, family and colleagues and go and try out the products at trade fairs and suppliers places.
Discounts are available and can be significant. Use trade accounts via your main contractor to gain competitive pricing where you can. Be open and honest and provide supplier quotes between them to see if they can price match or do better. Be bold ask for discounts, suppliers want your business just as much as we want their products. Remember if you don’t ask you don’t get!
Finally have a vision of what successfully managing and delivering a budget looks and feels like. The chances are the final delivered project will be different to the initial budget and that’s ok provided you have spent only what you can afford and that the quality and specification of the final product is one you are happy and can live with.
Cheers
Rob
