Budgeting Considerations

One of the most common questions we receive from clients—and a key factor that drives a project's success or failure—is budgeting. In other words, the budget can determine whether a project is completed on time and within budget or if it ends up over budget. Money and time are interrelated; if either is not managed well, it can lead to complications. Planning ahead is always advisable to prevent issues from arising. It is highly recommended to have at least a 15% allowance for contingency, as there will always be unexpected conditions.

Planning and budgeting should be done prior to construction

Contractor Selection

The cost of construction can significantly impact the overall project budget. When selecting a contractor, it’s highly recommended to obtain at least three bids from different contractors and to compare these bids using the same design and drawings package—this is known as "apples to apples" comparison. This approach will give you a general idea of what things will cost when you assess the bids side by side. When planning the construction schedule, the contractor should provide estimated milestone completion dates for the entire process, from start to finish. Ensure that these dates are documented in writing to hold the contractor accountable and keep them on schedule until the certificate of occupancy is obtained. This also helps ensure that subcontractors can adhere to the timeline and that materials and furnishings are available when needed. Another effective strategy for tracking the budget and keeping the project on schedule is to negotiate a "cost-plus" or "not to exceed" contract with the contractor. This type of contract can financially penalize the general contractor for exceeding the project schedule, often by a specified amount per day or week.

Due Diligence

Most of the time, the cause of schedule delays and cost increases is a misstep in due diligence. Due diligence is the first step in the entire project; obtaining a necessary site survey and thorough reports can save time and money down the road. A soil report, geotechnical report, and exterior/ interior site survey can reduce the risk of design changes due to existing conditions if issues are identified at the beginning of the project. Existing buildings or sites typically have more surprises. For instance, if you plan to add exterior patio dining as an extension for a restaurant remodel, a soil report and a site scan for any possible underground pipes and conduits can help identify factors that may increase construction costs, such as relocating pipes or altering the design. In hot and humid areas, high humidity levels can lead to mold and mildew inside existing walls. An infrared scan can help identify any potential issues, especially if you plan to reuse the building shell and existing walls. Additionally, checking the roof, load-bearing walls, plumbing, electrical systems, and HVAC conditions can help save time and costs by identifying problems early in the project, allowing for proactive planning. Although due diligence may take time, it is a worthwhile investment that pays off later. Another recommended step during the design phase is reviewing drawings prior to permitting. It’s always a good idea to have consultants, architects, and general contractors review the drawings and designs before permit submission to catch any errors or discrepancies. It’s generally cheaper to correct issues at this early stage than to resolve them during construction. This is why due diligence at the outset is a crucial step that should not be overlooked.

Reuse, Recycle, and Rethink

Reusing elements of an existing space, whether commercial or residential, can save both money and time. However, it’s important to consider the cost of refinishing versus purchasing new items. For example, if there is millwork in a remodeling project that can be kept and refinished, it can save anywhere from a few thousand to over ten thousand dollars. On the other hand, if an existing wall has mold or steel studs are rusted, it may be more time- and cost-effective to rebuild the wall rather than attempt to reuse it. Certain items, such as restaurant table bases, kitchen cabinets, restroom fixtures, and lighting fixtures, are typically reusable. Not only do they save on costs, but their lower visibility means that they won’t significantly affect the overall design. The savings from reusing these items can be allocated to other areas, such as seating furniture. Another way to save money while reusing a space is to maintain the same layout, particularly for kitchens and restrooms. These areas involve the most plumbing, electrical, and mechanical work compared to other parts of the space. Relocating plumbing fixtures and rerouting pipes for a new restroom location can be costly. The same principle applies to kitchens, especially commercial kitchens, where exhaust and hood systems are involved. By keeping the original layout, you could save anywhere from $20,000 to $50,000 or more. Additionally, considering the reuse or refinishing of wall tiles and floor coverings can lead to significant savings as well.

Consider Substitutions

Substitutions often occur during the procurement and construction phases. While they can save money and time, it's crucial to handle them appropriately. Certain areas are more suited for substitute materials that won’t significantly affect the overall design, appearance, or functionality. For example, items or finishes in behind-the-scenes areas such as commercial kitchens, restrooms, staff rooms, and break rooms can be substituted without impacting the customer or guest experience. Changing a ceiling fan to a different brand or color, for instance, typically won't detract from what guests perceive. However, when it comes to wall elements or light fixtures in the entry or lobby—the initial areas guests see—these are aspects you want to preserve in line with the original design or brand identity. In addition to saving costs, substitutions can also influence the project schedule. If you need to substitute a floor finish with a different brand due to stock availability but maintain the same color, this can help keep the work on track. Not only does this save time, but it also avoids delaying the project, which could postpone the occupancy of those spaces. For example, if the kitchen floor is delayed due to material shortages, it can prevent the timely installation of kitchen equipment and cabinets, leading to a cascade of delays for inspections and potentially rushing the work or delaying the opening. Sometimes, it’s worth spending a little extra to switch materials or brands rather than wait for a particular item. One important aspect to pay close attention to is items that have a long lead time. A common mistake that contractors make is delaying procurement, which can lead to submitting substitutions that may be cheaper than what was originally bid. To avoid this pitfall, it’s essential to keep track of the procurement list in alignment with the construction schedule. Additionally, request submissions for approval to ensure they meet the design intent and prevent change orders that could exceed the budget. After all, time is money. To stay on schedule and within budget, being open to substitutions can significantly impact the project's outcome, as long as the design intent and brand identity are maintained.

Be Diligent

Time management is crucial for leading a project to success. Losing time at the beginning can result in compounding delays later on. This principle has proven true time and again. Conversely, saving time early in the process can accelerate the project’s progress, providing extra room to address any unexpected problems that may arise. For certain projects, it can be beneficial to complete them in time for specific seasons, such as summer or winter holidays, especially for commercial ventures like restaurants. In such cases, it might be wise to invest a little extra in overtime to ensure the establishment is finished and operational ahead of the peak holiday season. Lead times significantly impact the procurement schedule and can lead to construction delays. Navigating these issues is particularly challenging in today’s supply chain landscape. While ordering materials in advance may not always be financially ideal, it is sensible for items with long lead times, typically over two months. Factor in weather conditions, which can often be overlooked. In certain regions, weather patterns and seasonal changes can greatly impact the construction schedule. For instance, snowstorms in winter can hinder construction, even for indoor residential work, while rainy and hurricane seasons in the South can pose similar challenges. It’s important to allow for additional time in your schedule and to collaborate with a reliable contractor network in your region to manage any unforeseen issues that may arise.

Be Prepare and Be Proactive

Budgeting is not an easy task, but it can be manageable with proper preparation and a proactive approach. Several factors, including current economic conditions and local market fluctuations, can significantly impact project costs. These factors can affect the cost of materials, labor based on the region, consultant fees, and local permit costs. These are just a few examples of soft costs that should be included in your calculations. There is no one-size-fits-all rule for running a project within budget; however, being well-prepared and proactive are definitely effective strategies.

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