In this article, we provide you with a better understanding of the financial health of your home renovation by explaining various frameworks and definitions. Learning this vocabulary will help you understand and manage your expenditures for your home remodel. This is a companion article to How to Manage Your Renovation Costs.

What is a Budget?

A budget is a tool used for predicting cost. You imagine what you might want, your Scope of Work, and use fixed prices to estimate costs and determine what the renovation project is worth to you.  

What is YOUR budget?

You will define what it means for you to be on a budget. Your budget is a number that is either your “ceiling” or your “floor.” If it is your ceiling, you can not go over budget, and you will need enough money to address unexpected conditions (see contingencies below). If you can go over budget, the number is your floor. 

We have a way to understand your relationship to budget in this article, What is Your Gut-Renovation Budget Personality?

What is the difference between a renovation budget and an estimate?

A budget is an idealized number that represents an approximated cost. An estimate breaks the costs into categories by trade: walls, cabinets, doors, windows, floors, stone and tile, plumbing, and appliances. The estimate is created by a general contractor, and clearly articulates the various costs of your home renovation.

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What is an Estimate?

An estimate is a detailed list of prices attached to different components of your renovation project. An estimate helps you evaluate whether what you want to accomplish fits within your budget or not. Once you have an estimate, you have enough information to make substitutions and tradeoffs; now you can weigh the dollar value against your requirements and your pleasure.

Pro Tip: Smart clients will get more than one estimate at the beginning and another when you have finalized the project scope.

What is an allowance?

Allowances are specific amounts of money designated for particular elements of the work. An allowance is a placeholder for decisions you are not ready to make. A specific placeholder $ amount creates a more accurate estimate than $0. 

For example, when selecting tiles, an allowance of  $10/SF v. $20 clearly articulates the tile budget. The allowance will not mislead you by its absence into thinking your overall costs are lower. The more detailed an estimate you have, the better you will be able to manage your budget.

Pro Tip: You may decide that one area warrants a bigger $/SF budget because it is a showpiece, and an allowance is an excellent way to allocate funds.

A row of five, red-colored miniature houses against a wooden backdrop.

Field Conditions: Allow for the unexpected using contingencies

Field conditions refer to unforeseen conditions at the job site, aka: “in the field.” These are unintended changes to the Scope of Work. The biggest challenges in construction are the unknown and unexpected conditions. The type of problem and the cost of the solution are both unknown. 

How do you / should you budget for Field Conditions? We add a 10% contingency to your budget. If you have a budget ceiling, your bid should be 10% lower than your maximum amount; if you have a budget floor, you will be aware of your exposure. 10% works in most cases, but failing structures and weather protection like roofs, skylights, multiple windows, and exterior doors can add 100% to your costs! 

Pro Tip: Under no circumstances should the 10% contingency be applied to an optional change.     

Intentional changes to the Scope: 

Intentional changes to your scope occur when you add area or installations. For example, you may add square footage to the project when you add a space or a room. And, or you may add more individual things like lights, extra plumbing, more tile, more stone, even if it is just a little bit, it will increase your costs. Either way, you must get an estimate to evaluate whether the additional cost is of value to you.     

A Bid is the actual cost of the work  

The point at which an estimate becomes the actual price is when you receive a bid for the materials, labor, and supervision, and you sign the contract. Until then, the number is a generalization.    

A miniature house and a set of keys against a wooden tabletop.


The sequence of Budget, Estimate, and Bid articulate the trajectory from less to more precise pricing for your renovation process.

Budget — A ballpark figure for what you want to spend, frequently accompanied by what you think you can accomplish for that money.

Estimate — An approximated list of the materials and labor necessary for your project; connected to current costs.

Allowance — $ amounts as placeholders for estimating purposes; these are the known unknowns.

Field Conditions — Unknown unknowns for which we allow 10% unless the exterior envelope is part of the scope

Scope of Work — The work you plan to accomplish for your project.

Bid — The price you will pay for the work you value.

Moving Forward: Managing the budget that gets you what you want

Get estimates at the beginning of your design process to help you test whether your design goals align with your budget. As you further along in the design process, it is advisable to obtain another estimate. Value engineering and bidding are tools you can use to decide what you value so that when you sign a contract, the costs will meet your expectations.

Read our companion article, “How to Manage Your Renovation Costs.”

Are there construction-cost-management strategies you want to share? Add them in the comments below! Do you have other questions about how to manage your renovation budget? Contact us, and we may include the answer in a future article!

At AKA, we specialize in transforming homes to increase light views and space; we focus on our clients’ delight!


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Allegra Kochman

Allegra Kochman

About the Author

Allegra has a BA with Honors from Dartmouth College and a Master of Architecture from Columbia University. She aims to write straightforward and practical content for those who want to gut renovate their homes.