Quality, time, and cost are the 3 tenets of construction planning. Yet, the latter typically wields the most influence over a project throughout all its stages. Whether you’re a developer, homeowner, architect, engineer, or builder, a project’s cost will weigh over your shoulders from start to finish.
Cost control is used as a tool to manage and track a project’s construction costs. Many associate cost control with the field operations phase, believing that the contractor is solely responsible for its implementation. In reality, the design phase is the ideal time to assume control over future expenditures. By setting financial benchmarks, performing cost estimates that reflect the evolving design, and taking ownership of costs, the project team can maintain the construction expenditures in line with the budget.
1. Set a benchmark
To maintain control over a project’s costs, it’s important to establish an expenditure limit right away. There are three methods of doing so: via a prescribed cost limit, a unit cost limit, or a determined cost limit.
A prescribed cost limit is defined as the total maximum amount that the client can afford. A unit cost limit puts constraints on unit rates rather than the total cost and is frequently used in public procurement. The final approach is through determined cost limits, which are variable, and depend on the forecasted income generated by the project. Professional developers and real estate investors commonly adopt the latter method.
Regardless of the determination method, a client’s budget should be seen as an expenditure benchmark by the design team throughout the design process.
Before the design phase starts, the client must have an idea of how their intended building falls within their budgetary constraints. This vital objective is achieved through an Order of Magnitude (OME) estimate.
Performed to establish whether a building is affordable, an OME is typically calculated before any drawings are produced. Costing is generally based on the project size and historical costs per square foot taken from previous, similar projects in the same geographical area, then adjusted for inflation and other economic factors.
Apart from the direct construction costs, the OME also encompasses a projection of soft costs, such as insurance premiums, permitting and inspection fees, taxes, and design fees. This least reliable of all design-phase estimates still forms the basis of the client’s go/no-go decision. Further, the client will use the OME as a benchmark for all subsequent costing exercises. To this end, the design team should not downplay this initial figure lest the client proceeds with the project under erroneous presumptions, potentially leading to cost-driven decisions, compromised quality, and disappointment.
If the client’s vision does not align with the cost projections and the established budget, now’s a good chance to adjust the client’s expectations to the financial reality of the project. When working with a unit cost limit, quality may have to be sacrificed to reduce the project’s cost. If the client has prescribed a limit on total expenditures, there are 2 options: eliminating expensive elements, such as elaborate geometry or high-end finishes, or reducing the size of the building.
Typically, several solutions will be discussed with the client before a balance is attained between the design intent and the cost forecasts, after which the design process may begin.
2. Produce estimates to reflect the evolving design
With a viable solution on the table and design underway, it’s vital to remain mindful of the budget benchmarks set earlier. To this end, particularly on larger, complex projects, it’s wise for the client to retain an estimating consultant to continue costing the design as it evolves. Where a construction management company is hired, the latter may perform these estimates.
An estimate should be produced for the chosen architectural solution as soon as the schematic design is complete. This primary set of drawings is the architect’s first attempt to transcribe the client’s architectural vision and program requirements onto paper. The set typically includes a site plan, floor plans, and elevations. Because the design is still in its infancy and is open to substantial changes, few details are available at this stage.
While lacking precision, the estimate based on schematic drawings serves as an updated target for the design team and the client. It also forms the basis of the cost plan – a document used to allocate projected costs to various scopes and track subsequent estimates as the design advances.
The next estimate should be performed during Design Development (DD). This stage sees the building take shape, as elements like the exterior, interior layouts, structure, and MEP services make their way onto the drawings.
Technical specifications should accompany the DD drawings, giving estimators plenty of information to use in their quantity takeoffs and pricing. Certain specialty subcontractors may be asked for budget pricing for their respective scopes; using “live” pricing as opposed to historical rates further improves the accuracy of the cost estimates.
This DD cost estimate will show the client how the projected costs of the current design compare against the benchmark, better illustrate the financial implications of certain architectural features, and allow the client to request cost-driven adjustments.
The next design phase sees the issuance of construction documents – a complete set of drawings that will guide the General Contractor (GC) and their subcontractors to construct the building per the design requirements. The details and specifications included in drawings eliminate uncertainty, encouraging subcontractors to sharpen their pencils as they update the budget pricing. The final cost estimate will give the client and the entire project team a new costing standard against which to compare GCs’ quotes during bidding.
Despite a design team’s best efforts, the sharpest, most precise cost estimate is typically produced by the GC. This is why delivery methods that involve the builder in the design, such as Design-Build, Construction Manager at Risk, and Integrated Project Delivery, are better tailored to tracking projected costs before construction starts.
3. Get everyone on board
The client, the design team, and the builder have a shared responsibility for cost control. The client must adhere to their expenditure limits to ensure that their project remains profitable. This takes discipline and receptiveness to compromise. The client must also accept the inevitable unforeseen expenses and budget accordingly.
The design team must not mislead the client about their project’s estimated expenses. The architects and engineers must collaborate in their drive to achieving the client’s budgetary expectations by producing periodic estimates that reflect the design’s evolution.
As the project is handed over to the GC and construction begins, every contractor, subcontractor and other project stakeholders should remain mindful of cost control as they execute their duties.
How Design Everest Can help
At Design Everest, we get the importance of keeping the design in line with your budget. Our experienced engineers know what it takes to find efficiencies while delivering a building that works for you. Contact us at (888) 512-3152 or firstname.lastname@example.org to discuss your project and receive a quote today.