Insights July 14, 2013

How much will this renovation cost me?

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There is allure to the potential of how things could be. Imagining your home transformed in some way, whether through paint or extension, the vision of a better condition is a powerful force.

Very quickly, the cost of enacting the change may offer a counterposing one.

How much will this renovation cost me? Coming to accurate terms with the expense of a renovation project, particularly a small one as in the case for most homes, is a challenging feat. Turning to a builder isn’t a particularly bad place to start as they have a wealth of experience to go by. However, there are certainly caveats which should be considered. While their figure might represent an estimate of construction cost, is there a necessary cost for design professionals such as architects and engineers? Does their figure include VAT? Do they or you really know what is behind the paint on your walls or are there a high degree of unknowns in carrying out the work?

But a starting point is necessary, one way or another. If your project can be completed straight away by a competent builder, Alison Phillips has written a useful article worth considering in order to be wary of cost overruns. She points out that three reasons particularly inflate initial costs:

  1. unclear brief from the homeowner which can lead to an incomplete cost estimate by the builder
  2. scope creep which is when the homeowner adds additional items of work once construction has begun
  3. unforeseen circumstances

In other cases, projects will require professional input before construction can begin. If that is the case, then engage an architect that will work in stages. Both the RIBA Plan of Work and the AIA Phases of Design Services offer break points where you can limit your cost of design fees and only proceed once you are ready. The types of stages you can expect, in brief are:

  • Feasbility: a quick assessment of your brief outlining the implications in order to achieve it
  • Scheme Design: developing a proposal based on a refined brief, having preliminary conversations with Planners, and involving other professionals as necessary
  • Developed Design: a more time-involved stage where information is prepared in detail for a contractor to offer the best cost estimates possible
  • Construction: ensuring that the design is built according to the contract documents

As these stages progress, there should be more and more certainty about the design and consequently about the cost associated with the work. However, it is always advisable to plan for the unknown, which is what contingency is all about. A definition for contingency offered in a paper by David Baccarini involves three elements:

  1. tolerance in specification (or Quality)
  2. float in programme (or Time)
  3. money in budget (or Cost)

The quality-time-cost relationship about which I have previously written identifies a key challenge to understanding how much a project will cost as well as how much contingency to allow: it is personal for each individual owner. Baccarini goes on to cite Anghel Patrascu in saying: “Contingency is probably the most misunderstood, misinterpreted and misapplied word in project execution. Contingency can and does mean different things to different people”. Just as it is the homeowner’s prerogative to emphasise a quality outcome versus a timely one, so it is also their attitude towards accepting the risks of uncertainty on the project.

Calculating contingency costs is a much debated topic. Techniques vary from various forms of statistical analyses to simulations. However, unfortunately for anyone undertaking a small project, there seems to be a consensus among the debaters that the traditional percentage-of-construction-cost approach is highly unreliable. In my reading on this subject, I have seen estimates vary from 5-30%. One source, alone, suggests a 5-25% contingency without offering much in the way of an explanation.

So where does that leave a homeowner in their search for pinning down cost? Results from a multiple linear regression analysis on the estimation of contingency funds suggest a figure of 12%, yet this surely cannot encapsulate the personal attitudes of individual homeowners. Before picking a number out of the air, there are a number of questions that you can ask if you find yourself in this situation:
To what extent do I want a particular result? And how certain am I about what needs to be done to achieve it?
Engaging design professionals to provide detailed information to a builder might be a necessary step to reduce the unknowns as well as to ensure that the level of quality you target is achieved.

How long am I willing to wait for the construction to be completed?
A builder may suggest ten days for which you might allow two days away from work to manage things on site. Would you be able to take six days off if the build lasted thirty days? The cost of a project manager or contract administrator might be worth considering if time is critical.

How much money am I willing to spend? Can I spend 10% over my starting budget? What about 30%?
Limiting the risk of the unknown will help keep your contingency cost lower. However, a degree of uncertainty will always remain and this should be accounted for with some money-in-the-bank. Ensuring your risk is kept as low as possible may require commissioning a builder to do exploratory works and/or to engage designers to think through problems that might arise.

Costs are a reality of the construction process.  In spite of the complexities associated with construction projects and the consequent difficulties of pinning down prices, small and large projects are regularly pursued.  In my mind this points to the remarkable power of the idea of better spaces and the potential they offer.

Let’s have a chat about your vision and
how we can help you realise it.

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