Cost planning 101

budget craps

What was it?

Part two of an all-day seminar we attended late last month, presented by quantity surveyor Geoffrey Moyle. With the tagline, Under control or over budget?, the seminar provided strategies for effectively managing the cost planning of residential projects. In addition to broad commentary, Moyle discussed the results of analysis he undertook on eighteen recent projects he has costed for Melbourne architects (see below). We discussed part one of the seminar, Marketing 101 presented by marketing guru Winston Marsh, yesterday.

Despite having worked with Moyle on a number of projects, this was our first face-to-face meeting. With long hair, black T-shirt, jeans and boots, his appearance was more suited to a rock guitarist than a quantity surveyor. Perhaps we shouldn’t have been surprised though: in our dealings with him, he has always been self-aware, passionate about architecture, and interested in thinking outside the box. He is as far from a bean counter as one can get, which is why we like working with him.

What was discussed?

Moyle began his presentation by defining cost planning as “monitoring, managing and maintaining a project’s cost, relative to a budget.” This is a critical distinction, as it identifies a client’s budget and her project’s cost as two separate questions, a statement that pleasingly ratifies our article from last year, Why your budget is not your brief. It is also important to adhere to the first part of the definition: a cost plan is not something done once and forgotten, it is something to continue developing alongside design and documentation.

Moyle noted that fuzzy project cost planning is common but dangerous. He recommended instead beginning an objective and transparent planning process as early as possible. This is not as simple as it might sound though. Indeed, it’s an issue with which we have been grappling ever since we started our architecture practice. Like it or not, the early days of a new project are a delicate balance between the truth and trust: deliver a client bad news before trust is established and she might walk; wait too long to deliver it and she might feel feel betrayed.

Early on in our practice, we were honest and upfront with clients about their budgets even before they had formally engaged us. This regularly led to commissions going elsewhere, we imagine to architects more willing to delay the cost planning discussion until deeper into the project. So we changed our approach, accepting clients’ budgets at face value but designing to their briefs. We then used a professionally prepared cost estimate as a gauntlet through which we had to pass before submitting a town planning application. Unfortunately, this led to one notable disaster, where our and our clients’ budget expectations were revealed to be grossly out of sync with each other and we lost the commission.

When we raised this complex balancing act with Moyle, he introduced the analogy of the mechanic.

The analogy of the mechanic

engine block

A young mechanic discusses his new business with an older, more experienced colleague. He complains about the cost of training new staff, “Why should I waste time and money training my new staff, when most of them leave within twelve months?” His colleague considers for a moment, then answers, “You might waste money training staff that leave, but what if you don’t and they stay?”

In other words, while being upfront with a client about the cost of her project may risk losing it, avoiding the truth may result in an over-budget project proceeding far beyond where it should have.

So by trial and error, and reflecting on the ideas raised in Moyle’s seminar, we have arrived at our current strategy. We accept our client’s budget, but prior to starting sketch design we map out a number of rough layout options for comparison, each accompanied by a simple estimate of its cost. This is essentially a design-driven feasibility study, one with three key benefits:

  1. It involves our client in the design process from a very early stage, empowering her to choose her preferred design direction.
  2. It educates our client about the relationship between scope and cost.
  3. It allows us to interpret our client’s brief, often reducing it in size, prior to attaching costs.

Once we have balanced the budget and brief, often via compromise of both, we finalise the sketch design and obtain a professionally prepared cost estimate. Though retaining the services of a quantity surveyor for the duration of a project can get expensive (at least relative to the small renovations for which we are regularly approached), our preference is to do so up to and including a pre-tender estimate. Thus the cost plan develops alongside the design plan, always in sync.

rippleside house option 1Rippleside House option 1, 180sqm

rippleside house option 2Rippleside House option 2, 208sqm

rippleside house option 3Rippleside House option 3, 221sqm

rippleside house option 4
Rippleside House option 4, 221sqm

rippleside house option 5
Rippleside House option 5, 221sqm

rippleside house option 6Rippleside House option 6, 221sqm

What did we learn?

There was strong agreement between attendees that Moyle’s recommendation of a staged strategy is the best way to approach cost planning. He advised we begin every project with a simple good egg / bad egg test to know whether or not its budget and cost are reconcilable. To do this, he armed us with construction cost averages based on eighteen recent projects on which he has worked:

  • The projects ranged in cost from $430,000 to $4,580,000.
  • They ranged in size from 130sqm to 540sqm.
  • They ranged in cost per square metre from $2,640/sqm to $7,420/sqm[1]. The lower end of the spectrum was still for architect-designed prototypes, but with simple forms, economic building components and basic finishes.

From his analysis, Moyle offered the following observations:

  • The size of a project is not necessarily tied to its construction rate. He had expected that larger projects would be slightly cheaper per square metre due to their economy of scale, but found no such indication. Indeed, the most expensive project per square metre was close to average in size.
  • The form of a project is also not necessarily tied to its construction rate. Most relevant is the complexity of its detailing: a rectilinear box might be simple in form but still have extremely fine detailing and be expensive metre by metre.
  • The average project cost was $1,790,000.
  • The average project size was 344sqm.
  • The average cost per square metre was $4,970/sqm.[2][3]

These were, for us, eye-opening figures. It was only recently that we were telling clients that $3,000/sqm is a generous construction rate at which to aim. But according to Moyle, this is only just over the minimum and will not allow for the design content we know from experience costs more. Yet, for a profession that has surrendered vast swathes of its responsibilities in recent decades (engineering, project management, environmental design etc.), Moyle’s figures are also empowering.

Construction rates are not our own, they are the construction industry’s: we can tweak but not reconfigure them. We need to be less emotionally encumbered by how much a building costs and more objective in communicating with our clients. If a client wants to add a roof deck to her project, it’s okay to be excited by the prospect of designing it while simultaneously informing her how much it’s going to cost. This dual perspective should not be alien to us: architects are, after all, jacks of all trades, skilled at synthesising conflicting agendas into cohesive outcomes.

If we are truly to monitor, manage and maintain a project’s cost, we must do so continuously, all the way up to (and during) construction. This is part of our role as architects, and by mastering this process we can only serve our clients better. No sheepishness, no discomfort, just integrity and hard numbers. There are too many stories of fanciful architects forgetting to check the budget, of projects that finish at twice the cost of where they started. It’s about time we get better at opening up the design process to acknowledge and incorporate cost. Understanding what it costs to build gives us a great deal of control over how a project proceeds or, to extend Moyle’s succinct analogy, whether the mechanic that stays is a joy or a burden.

We encourage you to attend the next instalment of Cost Planning 101 yourself, particularly if you’re interested in learning about the reams of additional advice not covered here. Moyle and Marsh are planning new seminars for 2014. They will repeat those discussed here, plus add Marketing 102 to continue the discussion and address topics not already covered. Once confirmed, details can be found on Moyle‘s website.


Footnotes:

[1] These figures are for new building works and include 15% external works, 5% contingency and 10% GST. The nett range of construction rates excluding these items is $2,030/sqm to $5,710/sqm.
[2] This figure is for new building works and includes external works, contingency and GST. The nett average construction rate is $3,820/sqm.
[3] For renovation works to existing buildings, Moyle suggested reducing the construction rate to 50 – 100% of the new building works rate depending on extent of renovation. For elevated decks, he suggested reducing the rate to 30 – 40%.

Image sources:

  1. Budget craps, Geoffrey Moyle, Cost Planner. Cartoon by John Allison.
  2. Engine block, Automotive Training Centre. Photographer unknown.
  3. Rippleside House option 1, Mihaly Slocombe. Author’s own image.
  4. Rippleside House option 2Mihaly Slocombe. Author’s own image.
  5. Rippleside House option 3Mihaly Slocombe. Author’s own image.
  6. Rippleside House option 4Mihaly Slocombe. Author’s own image.
  7. Rippleside House option 5Mihaly Slocombe. Author’s own image.
  8. Rippleside House option 6Mihaly Slocombe. Author’s own image.

Author: Warwick Mihaly

I am an architect, writer, teacher and father.

2 thoughts on “Cost planning 101”

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