In this article, we help you understand the terminology and the strategies when your home renovation costs are above your budget. We have a companion article, “How to Manage Your Renovation Budget.”
What is the difference between cost and budget?
A budget is an ideal amount you want to spend for the results you hope to achieve. The cost of your project reflects the market value for labor and materials in the location, and time of your construction. There is optimism in your budget and reality in your costs.
Why do (your) costs usually exceed your budget?
Construction costs exceed renovation budgets because the values are generated in two different ways, times, and for two different purposes.
|When||Budgets are created when forming ideas about your project; you are defining the work you plan to accomplish.||Costs are known closer to the time of construction when your designs become associated with specific materials and dimensions.|
|What||Because you are making guesses about what you want, the values you will be able to associate with the work are approximate.||Because many more, or all, of your decisions have been made, the values assigned to the part of your design are much more accurate.|
|Source||The source of your numbers will be based on what people, or the internet, think you want at a location different from the prices you will receive in the future.||The source of your numbers will be an estimate or a bid from a GC (general contractor) who is interested in undertaking your project. They are accountable for the specifics if you sign a contract with them.|
|Summary||Content, location, and date are part of the unpredictable variable.||The uncertainty is removed.|
An estimate can reduce uncertainty about construction costs
Your understanding of your budget will increase once you receive an estimate. As we note in our article, How to Manage Your Renovation Budget, “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 cost of the different parts of your home renovation.”
Pro tip: An estimate precedes the bid that can become the contract with your GC.
An estimate is an opportunity to manage your costs
During the design process, you may have added more rooms and / or upgraded finishes. Any additions will increase the estimate. This is your opportunity to return to the original scope and budget to determine that you value the expanded design and wish to increase your budget, as described in our article, “Which Budget Personality are you?”
How to use value engineering and bidding to manage your costs:
Value engineering and bidding are ways to address costs that are too high.
Value engineering allows you to remove features that do not have value to your project. The most effective way to achieve significant change is to look for large numbers of 5-10% of the total budget. There are two main places to look:
- Consolidate big-ticket items within individual trades (decorative moldings, custom cabinetry, slabs of stone).
- Eliminate scope with multiple trades adding to a large number, for example, a suite of rooms.
Pro Tip: Congratulate yourself on your ability to discern what you value, whether or not your costs and your budget reach their starting point.
Competitive bidding provides accountability through comparison so you can move forward confidently with your choice. When you bid out a project, you get prices from multiple subcontractors; you will learn the high, low, and precise cost for a particular labor or material. Once you have comparative prices, you can choose the quality of the work that you desire. For example, many of our clients find that a B+ paint job is sufficient, as the A+ paint job with a more expensive brand can be reserved for special rooms. One client wisely pointed out that bidding allows you to see how another GC or Sub-Contractor might build in a more cost-effective manner.
Pro Tip: A low bid can be a distraction now and a liability later.
Summary: Informed decisions make managing your renovation costs easy(ier)
Managing your costs means making decisions that are right for you. During your design process, you may add a few elements, areas, or embellishments because you want to see the costs, and that’s a great way of testing what you value.
Moving Forward: Getting the cost 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.
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 construction costs? Contact us, and we may include the answer in a future article!
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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.