1. Understand What a Budget is For
For construction purposes, a budget is an expression of desire, governed by practicalities — how much we want to spend, controlled by how much we have set aside or borrowed. This goes wrong when little or no development of this initial figure is carried out until it is painfully apparent that we don’t have enough in the pot to finish our build.
I would always promote the idea that the budget is an evolving cost control and forecasting tool, and is never static. Don’t write a number on a sheet of paper and then put it away whilst you embark on site work — a fully interactive, live budget should be your focus throughout the build, and you need to own it.
2. Get a Strong High-Level Guide
The first figure you consider will, in many cases, be based on a simple benchmarking exercise carried out by you, based on the size of house you wish to build, and comparing costs with similar builds. You can use our Build Cost Calculator to roughly establish your first working budget.
I would also strongly advise that you make a list of must-haves, nice-to-haves and luxuries for your scheme.
3. Get a Cost Plan
You need to create a bespoke finance tool for your scheme, and this is often referred to as a cost plan. Put simply, this is a purpose-written expense breakdown for your project — split into specific elements or areas of work.
The ability to measure the scheme, understand the component parts of the build and the potential hidden labour costs is desirable, but the plan can be sketched out initially and then firmed up as your understanding increases.
Your design will be evolving simultaneously with your cost plan, and you can use the cost plan to examine and challenge the design.
4. Keep it Real
The main way of attaining accuracy and effectiveness in your cost planning is by achieving ‘design lockdown’ (also known as ‘design freeze’) as early as possible, and having a good source of input data for costs.
Changes to the design impact on cost; even a 300mm increase in the size of a room will change the costs in terms of physical materials to build it, heat output to warm the space, as well as possible planning issues related to the footprint. This is not to suggest you can’t change your design — rather that your budget can’t be set until you know what you’re building.
As the design firms up, components can be priced by the marketplace, giving you a contemporary and reliable number to input into your cost plan and replacing your earlier figures if necessary. If you see that the design is going to cost too much, then you have a choice of two routes to take: trim the design to meet the costs, or juggle the costs to meet the design.
5. External Help
The development of your budget can often be assisted greatly by using an external consultant or estimating service.
The cost of engaging a quantity surveyor, estimating service or a development consultant is, in most cases, recovered by the savings and valuable advice that they can bring to the project. Use your advisor as and when you need them. Many offer a ‘shopping list’ of fees or day rates, rather than monthly retainer-type appointments, and the former may well suit you and your project best.
6. Ensuring Robustness
The more comprehensive your specification, drawings and technical information, the more accurate your costings will be. Every time you change your mind or assume something, the accuracy of your cost plan will be under threat.
Try to estimate provisional sums for those items which you have not finalised yet, but don’t think of them as guesses. They are informed allowances for ‘known unknowns’. Therefore, if you have not yet chosen your sanitaryware, you can research, price and make a provisional allowance which is sensible, rather than an unhelpful quick guess.
The idea of contingency is often misconstrued too. It is for known items of work, of which we do not know the extent or cost. If you do not need to spend this money in practice, then your finished fund has just gone up, but if you do spend it then you haven’t just broken your overall budget.
7. Clawing Back Budget
Let’s assume that overspends have occurred early on in the scheme. Your cost plan (which has evolved into your main cost control tool) will have been updated to reflect actual costs. You can now use the cost plan to drill into later items of work yet to be procured to understand where you can save money.
Keep your list of must-haves at the forefront, and consider not making anything cheaper, but rather value engineering it. Look at the items which you are not overly worried about, such as cabinetry in utility rooms, or the extent of tiling, and consider alternative products too — or, reducing the quantity whilst retaining the desired product.
By focusing on those things that really make the scheme work for you, you’ll ensure that you do not trim back on the wrong elements and end up with a compromise — rather than your dream new home.