Maintaining the Project Budget

In the early stages of a project, the architect is responsible for creating and implementing an accurate budget. It is also important for the owner to know what to expect from project costs and understand where those costs are going. Helping an owner set project expectations before the budget is created is a good way for the architect to ensure that those expectations can be met. It is also the architect’s responsibility to create and maintain budget estimates during each phase to ensure that the project runs smoothly and doesn’t exceed the overall budget. For the budget to remain accurate, there are a number of checks and balances the architect can put into place. When developed carefully and with great detail, an accurate budget can avoid schedule disruptions as the project progresses.

ELEMENTS OF THE PROJECT BUDGET

In order for the architect to develop and maintain the project budget, all of the elements must be considered. They are as follows:

• Gross fee

• Consultant fees

• Project contingency (used only when needed, not to be considered additional profit)

• Net service revenue

• Project labor budget by phase

• Non-reimbursable expense budget

• Current percent complete by the end of each phase

• Prediction of budget resources by the end of each phase

COST ESTIMATES

Cost estimates are useful throughout different phases of the project, but are especially beneficial during preliminary project budgeting. At the end of each phase, the architect or estimator (if someone outside of the firm is hired) should provide a cost estimate for the owner. The person who compiles the estimate should have prior experience with a similar type of construction and geographic area.

A good estimate is based on: similarly constructed projects, previously published cost data, construction participant input, current economic conditions, and contingencies for unknown factors. Estimations assist in keeping the design within the owner’s budget. If the design exceeds the owner’s budget, changes may be made to the design to bring the overall cost down. The earlier in the project that changes are made, the less disruption those changes will have over the schedule. Because a change in design will most likely mean a change in the budget, they should be determined in conjunction with each other.

SCHEMATIC DESIGN ESTIMATES

During schematic design, the general design requirements, site development needs, and basic facility type are identified. Based on the project’s requirements, a cost estimate is completed. First, cost comparisons should be made for major elements, including roofing systems, exterior closure, structural systems, optional site locations, and site improvements (parking, service roads, site utilities). Following the comparison, an estimate should be developed. Depending on what the estimate is, the preliminary budget will either be confirmed or adjusted accordingly.

DESIGN DEVELOPMENT ESTIMATES

During design development, product selection takes place, which introduces more exact cost information for the architect. At the end of this phase, an estimate should be completed to ensure the project is still in line with the budget. If there is any concern that a certain material, piece of equipment, product, or assembly may be atypical or have an affect on the budget, cost comparisons should also be performed. Cost estimates may occur more than once depending on the owner-architect agreement and design schedule.

COST ESTIMATION TECHNIQUES

When the architect (or estimator) is working on a cost estimate, there are a few different methods to consider: order of magnitude, unit of measure, assemblies/systems, and unit price.

Order of magnitude - This method of cost estimation is the fastest to arrive at, which also makes it the least accurate. The estimate uses per-unit costs, such as cost-per-bed for a hotel or hospital, or cost-per-seat for a restaurant. This estimation method is most efficient if used in the early stages of a project. These estimates yield results between 20-25% above or below the actual budget. They tend to rely on available historical cost information from cost proprietor databases, estimator databases, or data provided by the owner.

Unit of measure - In order to use this method, the size of the facility must be known and construction should already be outlined. Two unit costs for every square foot are usually used to determine the gross and net area/volume of the facility. Those two numbers are then added together to approximate the total cost of the project. This method yields an estimate between 15-20% above or below the actual budget. Typically, this method is applied during schematic design.

Assemblies/Systems - This method is applied using cost-per-unit of assembled construction. For example, costs for windows, doors, bathroom fixture groups, floor assembly, the roof, and the exterior wall are compiled. The costs of each are totaled and then added together to predict the overall cost. This method yields results of about 10% above or below the actual budget.

Unit price - In order for this method to be implemented, there must be a detailed list of all project materials, components, and any other cost items used. This method of cost estimation also requires a good deal of time and effort as well as complete construction documents. A survey is administered to determine the complete quantities of all units of work. Costs for materials, labor, and equipment are given to each unit of work based on the results of the survey. This method yields results between 3-5% above or below the actual budget. For this reason, unit-pricing is used to determine the final design estimate.

TYPES OF PROJECT BUDGETS

There are three different ways to organize the project budget: top-down, bottom-up, or both. Top-down budgeting starts with a gross fee and then breaks down the fee by phase. It’s difficult to know the overall cost at the beginning of a project, so it’s helpful if the budget is based on past data from a similar kind of project (regarding scope). This type of budgeting can’t be exact so it helps to implement it along with bottom-up budgeting.

Bottom-up budgeting is the opposite of top-down budgeting. Instead of starting with a gross fee, the architect will start with the planned hours for a particular task and build fee amounts by phase according to the firm’s hourly rates. This helps to establish more exact fees based on the project’s scope, schedule, and individual tasks.

The most efficient form way of budgeting a project is to use the top-down and bottom-up approaches together. Top-down is effective in looking at the bigger picture, but it tends to assume a great deal of information. Bottom-up is much more calculated, but sometimes the initial budgets for each task of each phase are unrealistic regarding the market value of different fees. Together, they form a more cohesive plan with enough task detail without neglecting the overall scope. Several versions may be required to ensure the budget plan as accurate as possible.

ELEMENTS OF THE CONSTRUCTION BUDGET

Although the project budget encompasses all costs, including the cost of construction, the architect must also create a separate construction budget, which breaks down each individual element of construction. The construction budget exists within the overall budget to make sure that it is accurate and reasonable to maintain. Elements of a construction budget are as follows:

• Preliminary planning

• Site-related costs

-Site acquisition

-Site rehabilitation

-Necessary utilities

-Topographic surveys

-Geological surveys

-Reconciling environmental issues (wetlands, etc.)

-Applications and appeals

-Site preparation (demolition, etc.)

• Project design costs (architects, engineers, and consultants)

• Commissioning costs

• Jurisdiction fees (zoning)

• Construction cost

• Furniture

• Relocation (if existing facility requires renovation)

• Terminating leases on existing facilities

The construction budget makes up the highest percentage of all the costs because it includes the products, systems, and labor for construction, as well as necessary materials, testing, and inspection. It is important that while the architect is creating an initial project budget, a construction budget within he overall budget is created as well. Keeping these two budget plans in communication with each other helps to keep costs as close to the intended budget as possible.

PREPARING CONSTRUCTION BUDGETS

When the architect begins to create the construction budget, the way in which costs will be broken up (much like in the overall budget) must be determined first. There are three different approaches that can be used when preparing a budget: cost-per-measure, component cost, and systems.

Cost-per-measure - The total number of units that are measured for a project is then multiplied by an already determined cost per measured unit. Sometimes estimating guides are available and provide average unit costs for different project types (art museums, retail facilities, restaurants). This kind of budgeting is used early in the project because cost-per-measure budgets don’t take local market conditions into account and tend not to be site specific.

Component cost - If the facility is made up of several components (hotel or storage facility), then the architect can estimate cost-per-room or storage unit, and then multiply that number by the total number of components. Component costs include a percentage of support functions. For a hotel, that would be the lobbies, corridors, elevators, and common areas.

Systems - A cost guide breaks down a site into systems such as substructure, shell, interiors, services, equipment, furnishings, demolition of special construction, site work, and other general costs. The Construction Specifications Institute (CSI) and Construction Specifications Canada (CSC) are most commonly implemented to serve as example guides. Each individual system is priced, which helps determine the cost for the facility overall.

Each of these budgeting approaches enables the architect to gather cost information for all portions of construction. In addition to cost breakdown, there are other aspects to take into account. Contingencies should also be included so that unforeseeable costs may be accounted for early. When additional costs arise, contingencies help prevent schedule and budget disruptions.

OWNER’S EXPECTATIONS/REQUIREMENTS

Adhering to the project schedule is one way to ensure the project budget is met. It is the responsibility of the architect to manage the project schedule as well as how it addresses the owner’s needs. When the project runs smoothly, costs won’t need to be adjusted in order to meet schedule changes. This means that the overall budget is likely to be met. There are several ways for the architect to keep the schedule in line with the owner’s expectations and/or requirements. They are:

• The architect must organize the schedule so that it’s easy to read and be understood by all parties (the owner is less likely to understand complicated terminology).

• The schedule can best reflect the owner’s desires by highlighting project milestones (estimated times required to complete preliminary studies, site acquisition, design, project marketing, commissioning process, bidding/negotiating, construction, and occupancy), and indicating potential ramifications if those milestones aren’t met in the allotted time.

• When the architect, contractor, and construction managers work with the owner during the different stages of each phase, the architect can more easily refine the schedule when necessary.

• Include broad time blocks. Exact dates may not be known at the start of a project. Dates tend to become more concrete as tasks are completed. An initial schedule should include the time it takes to 1) complete contract documents, 2) complete labor, and 3) obtain resources.

• The owner’s responsibilities (decisions, approvals, etc.) should be identified along with how much time the owner has to respond.

• Most importantly, the schedule should be as detailed as possible. The more detailed a schedule is the more likely it is to unfold as planned.

CONCLUSION

Maintaining the project budget is all about checking and rechecking information. The architect must sustain healthy communication with the owner to ensure that the owner’s needs are met while costs remain reasonable. Cost estimates during each phase are a great way to keep the budget in line with the design. Implementing a construction budget in addition to the overall project budget is also necessary to ensure that the project runs smoothly. Early estimates combined with frequent milestone checks help the architect to address both owner requirements and design elements, which leads to a construction process with minimal disruptions.