Budget Blunders

Budget Shock is when project costs dramatically exceed your expectations. Casting a wider view on our work is a simple solution that takes some skill and a little forward planning.

I will put my hand up and say we often get excited with our designs and overshoot the budget. This is part of a good design process and in the end, helps you get more bang for your buck (assuming you haven’t been watching too much of ‘The Block’ where supplier discounts and owner building seem like normal parts of the process).

When the building cost expectation is reasonable, budget shock has a tell-tale 10% to 25% budget overshoot when tenders come back from builders. The first assumption is that the builder has overpriced the project but after much head scratching and a few conversations with Clients and Builders it turns out that more often the issue is rather more simple and obvious.

Natural assumption – you will get the building/fit-out/refurbishment for the price you are quoted.

In the building industry, we estimate the price of the building works. This sounds ok until we realise that we aren’t the only ones that reach into your pockets during the development process. The experienced developers and facility managers seem to have budgets that are more resilient to budget shock, why is this?

Put simply, their budgets cover a much wider scope than building works taking into account:

  • Property Costs – Rates, Borrowing etc.

  • Consultant Fees – Designers, Project Managers, Engineers etc.

  • Authority Fees – DA fees, Section 94 contributions etc.

  • Development Borrowing Costs – Cost for funding the works

  • Cost of the Building – This is the cost for the building elements themselves

  • Construction Costs – Preliminaries, Builder’s Margins

  • And the most obvious cost that is not considered GST

We have a responsibility to guide you through the development process. While our job is not to give pricing advice it is crucial that we do assist in guiding you towards getting the best design for your actual budget.

On our first meeting, if you ask “How much do you think it will cost?” the answer needs to be about 25% more than what the work will cost. Conversely if you tell me you have $600K I need to design to a maximum of $450K.

Here is the obvious expectation setting statement - a project will cost more than the building work.

Knowing this, your budget will be more resilient; you will be in a stronger tender negotiating position and; you will be more likely to get what you want.

Written by Chris Bombardiere
Director

Liquid Design