By Luis Gile
Developing a project budget is one of the most important early steps of any construction project. This will be a multi-part series that will give you the background and information you need to develop a budget for your project.
Taking the time to develop an accurate budget is an essential step prior to contracting an Architect or a General Contractor. This will ensure that you have the capital to complete your project and that you don't commit yourself to any contracts without knowing your spending limit.
Before you begin building your project budget, there are specific pieces of information that you need and some concepts you should understand. In this first article we will go over the basics so that you can have good foundation for starting your budget.
Project Program
Before we begin budgeting, we have to estimate how much space we need. We can do this by by developing a project program. Your project's program is a list of spaces with critical design information such as square footage, adjacencies, and other specific requirements. I will publish a more detailed article about how to develop a program in a future blog.
For now, to simply estimate your square footage, note down all of the spaces you want with an approximate width and length of each room. Multiply the width and length for each room to come up with the square footage for that space. Add up all of the square footages for all of the spaces you need to determine the total footprint of your new space.
The best way to estimate the size of a room is to consider the furniture you will be needing in each space and then adding an appropriate amount of space for circulation. For example a dining room should be large enough to accommodate a dining table, chairs, and at least one hutch or credenza. The clear space around the table should be no less than 4 feet, but if you want a more comfortable space, you may choose to add 5 feet or more. You may also want to add an additional 10% to 15% more square footage to the total to allow for structure and connecting space between multiple rooms.
Here is a sample list for reference:
Galley Kitchen........10 feet wide 15 feet long......150 square feet
Dining area............12 feet wide 18 feet long......216 square feet
TOTAL SQUARE FOOTAGE................................366 square feet
Circulation 15% of total.................................... 55 square feet
Total program..................................................421 square feet
Adjust the room names a sizes to suit your project. Once you are armed with this information, we can move on to the next concept.
Margin of Error
For now, to simply estimate your square footage, note down all of the spaces you want with an approximate width and length of each room. Multiply the width and length for each room to come up with the square footage for that space. Add up all of the square footages for all of the spaces you need to determine the total footprint of your new space.
The best way to estimate the size of a room is to consider the furniture you will be needing in each space and then adding an appropriate amount of space for circulation. For example a dining room should be large enough to accommodate a dining table, chairs, and at least one hutch or credenza. The clear space around the table should be no less than 4 feet, but if you want a more comfortable space, you may choose to add 5 feet or more. You may also want to add an additional 10% to 15% more square footage to the total to allow for structure and connecting space between multiple rooms.
Here is a sample list for reference:
Galley Kitchen........10 feet wide 15 feet long......150 square feet
Dining area............12 feet wide 18 feet long......216 square feet
TOTAL SQUARE FOOTAGE................................366 square feet
Circulation 15% of total.................................... 55 square feet
Total program..................................................421 square feet
Adjust the room names a sizes to suit your project. Once you are armed with this information, we can move on to the next concept.
Margin of Error
Margin of error refers to how much higher or lower your actual project costs will be from your budget. Margin of error is meant to account for fluctuations in cost and or square area. During early stages of a project it is common to assume that any cost estimate will have a 20% to 25% margin of error. To account for this margin of error, your budget should include a line item specifically called "Margin of Error".
As you get closer to the start of construction, your margin of error can be reduced. Keep in mind that an estimate is always just an estimate. There is no such thing as a 0% margin of error on an estimate, so no matter how accurate you think you are, always carry a margin of error in your estimate.
Contingency
As you get closer to the start of construction, your margin of error can be reduced. Keep in mind that an estimate is always just an estimate. There is no such thing as a 0% margin of error on an estimate, so no matter how accurate you think you are, always carry a margin of error in your estimate.
Contingency
Contingency is a word used to add monies to a project to cover the cost of unknowns. Contingency is different than margin of error in that contingency is meant to capture things your budget missed.
The word contingency may be used by contractors, estimators, or even architects. The use of the word has different implications depending on who is using it. I mention this only to convey that when we talk about contingency for your budget, we are talking about the "Owner's Contingency". Owner Contingency is meant to cover hidden conditions of the site or other unknown costs of the project. This is not a fund for making changes to the scope. This is your safety net for completing the work.
As the Owner, you have a responsibility to pay for the services, labor, materials, and equipment needed to complete the work. Failure to make payment to any service provider places you and your property at great financial risk. As such, you have an obligation to ensure that you have sufficient financing to cover all costs. You don't want to find yourself 3/4 of the way through construction only to realize you have run out of money. Make sure you carry 15% to 20% of Owner's contingency throughout the project. This is over and above any margin of error.
Also, please make sure that your contingency is fully funded. This means that you either have the capital or sufficient financing to cover the contingency. It's not enough to include the line item on your budget, you must also have the funds set aside and ready to use if needed.
Cost components
Your project budget will include a combination of estimates to cover hard and soft costs.
Hard costs refer to the cost of construction.
Hard costs include the following:
1. Trade labor such as masons, carpenters, plumbers, etc.
2. Material costs such as concrete, wood, light fixtures, etc.
3. Permanent equipment such as boilers, air conditioners, water heaters, etc.
4. Temporary equipment such as cranes, scaffolding, etc.
Soft costs refer to all of the other costs of the project.
Soft costs include:
1. Architectural fees,
2. Contractor fees,
3. General conditions costs,
4. legal fees,
5. real estate fees,
6. cost of land acquisition,
7. permit fees,
8. zoning fees,
9. filing fees.
We will begin our estimate with the hard costs first and then use the hard costs as a basis for estimating the soft costs.
With these basic concepts in mind we have set the stage for developing your project budget.
In my next entry, I will go over the various estimating methods that we have at our disposal and then go over a few examples of how we can apply these methods. Please join me again next month where we will continue to explore how to develop your budget.
The word contingency may be used by contractors, estimators, or even architects. The use of the word has different implications depending on who is using it. I mention this only to convey that when we talk about contingency for your budget, we are talking about the "Owner's Contingency". Owner Contingency is meant to cover hidden conditions of the site or other unknown costs of the project. This is not a fund for making changes to the scope. This is your safety net for completing the work.
As the Owner, you have a responsibility to pay for the services, labor, materials, and equipment needed to complete the work. Failure to make payment to any service provider places you and your property at great financial risk. As such, you have an obligation to ensure that you have sufficient financing to cover all costs. You don't want to find yourself 3/4 of the way through construction only to realize you have run out of money. Make sure you carry 15% to 20% of Owner's contingency throughout the project. This is over and above any margin of error.
Also, please make sure that your contingency is fully funded. This means that you either have the capital or sufficient financing to cover the contingency. It's not enough to include the line item on your budget, you must also have the funds set aside and ready to use if needed.
Cost components
Your project budget will include a combination of estimates to cover hard and soft costs.
Hard costs refer to the cost of construction.
Hard costs include the following:
1. Trade labor such as masons, carpenters, plumbers, etc.
2. Material costs such as concrete, wood, light fixtures, etc.
3. Permanent equipment such as boilers, air conditioners, water heaters, etc.
4. Temporary equipment such as cranes, scaffolding, etc.
Soft costs refer to all of the other costs of the project.
Soft costs include:
1. Architectural fees,
2. Contractor fees,
3. General conditions costs,
4. legal fees,
5. real estate fees,
6. cost of land acquisition,
7. permit fees,
8. zoning fees,
9. filing fees.
We will begin our estimate with the hard costs first and then use the hard costs as a basis for estimating the soft costs.
With these basic concepts in mind we have set the stage for developing your project budget.
In my next entry, I will go over the various estimating methods that we have at our disposal and then go over a few examples of how we can apply these methods. Please join me again next month where we will continue to explore how to develop your budget.
