Upgrades are no friend to Budget Management

At Trilogy Partners, my brother and I and everyone who works here goes to great lengths to satisfy our clients. We feel that the best way to honor and respect our clients is to build fantastic high quality homes. And if for an instance we feel that our clients aren’t completely happy, we have trouble sleeping at night. We are in fact a bit compulsive in how much we care about how our clients feel about us. The clients might not always be right, but we certainly treat every issue as though client satisfaction is the utmost priority.

Sometimes, however, as hard as we try, our clients feel let down. They become overwhelmed by the homebuilding process and though this period of confusion and doubt generally passes as the project nears completion, it is a difficult time for client and all of us at Trilogy. And the usual cause of disappointment or friction is a project that exceeds its budgeted amount.

The Budget. I’ve certainly written about how important an accurate construction budget is. And how important it is to stick to that budget. At Trilogy every financial transaction is calculated and compared to the budgeted amount, virtually in real time. We pride outselves in providing accurate and timely financial analysis during the building process. We feel that it is essential for the builder and the client to know at all times the true financial circumstances of the project. Given accurate reporting and a high level of costing accuracy, why should the client ever become disappointed by the finances of the project? Well, just because we have an accurate budget and just because we feed cost information to the client constantly and just because we warn the client that additional expenditures will put the project over budget does not mean that the client will listen to any of this.

Even if we at Trilogy bring in all costs at the budgeted amount, projects generally go over budget. How is this possible? Well, very few clients don’t feel an almost irrestistable need to upgrade their homes during the construction process. A small upgrade in flooring here. A little upgrade in appliances there. A few thousand more for doors or trim details or a room full of bookcases and the project is suddenly tens of thousands of dollars or more over budget. And who has the wonderful task of delivering this news to the client? The builder does. Our accounting department does in the form of a cost report. And it is seldom if ever that the client is joyous over the results of a cost report if it includes the clients most recent spending spree.

We have all heard the expression, “don’t shoot the messenger.” Or most of us have. There are certain people, apparently, who have not because on more than one occassion we’ve had to duck under the table as the client fires away over budgetary issues.

What I love about a Cost Plus contract is that the client must approve all costs before they are paid. In other words, the client is in charge of how much money is spent. How is it then, after the client goes on a spending spree, that they can be so disapointed and confused that they blame the builder and the budget for their financial overages? I don’t know. But it certainly seems like every time we have a client who decides to significantly upgrade during construction we end up with a disapointed client. The more upgrades, the more disapointment.

The message here is simple. If you are a going to be building a home, build a good, accurate budget first. Figure out your upgrades and fit them into the budget before construction begins. Give yourself a line in the budget, call it UPGRADES, and put a good healthy number in that line item. And choose to use it, or not use it. And if you are a client, remember this: your relationship with your builder is not only dependent on the actions the builder takes, but also on the actions that the client takes. We recommend our clients take an active roll in the finances of each project. And remember that ultimately, how much the home costs is as much the responsibility of the client as it is the builder.

Here’s a question for you: what’s the most important element of a successful homebuilding project? Is it the lot? Architect? Builder, materials? Contractors?  Nope, none of these things are the MOST important element of the project. If you’re about to hire a builder or architect, ask them this question and then hope for this answer: Nothing is more important than a good budget. A good budget is the roadmap to success… a bad budget a sure course to failure.  A budget is more important to the project than the skill of the architect or builder, or the beauty of the design, or the building site. Let me say that again. Nothing is more important to the successful outcome of a project than a properly prepared, accurate budget.

The Good Budget

What is a home building budget? It’s the A to Z dollar amount of everything, and I mean every thing, that will go into the production of the home. It starts with Architecture and Design.  The final line item might be the cost of the construction clean. Or, depending on the project, it may also include stereo equipment for the media room, or the costs of furnishing the house. But the budget always considers the costs of design and construction.

Budgeting the costs of the home MUST begin during the design process. Unfortunately, because it is not their job nor their experience to build homes, the project architect is not a reliable source of costs and should not prepare the construction budget. It takes years of experience dealing with project costs and conditions to have the background necessary to prepare a project budget. So if not the architect, who should begin the budget during the design phase? One of the biggest mistakes home owners make is to wait to hire a builder until after the home is designed. Why? Because a builder should be aboard during the design phase so as to advise the architect and the client as to the projected costs of the project.  One advantage of the Design and Build approach to project management is that because the Design Builder hires all members of the design and build team, including the architect, the Design Builder is intimate with all costs.  At Trilogy Partners we operate as a Design and Build constructor. On every project we supervise every line item in every project budget. After having done this for more than a decade, we are better qualified than most to assemble and monitor a project budget. In fact, one of the most heard compliments from our clients is how accurate and detailed our budgets are. Before contracting, we furnish sample budgets to every potential client so they know just how serious we are about project numbers.

Bad Budget, Bad!

So, what are the consequences of a bad budget. Well, cost overruns will very likely strain the relationship between Owner, Architect and Builder. But worse still, cost overruns could financially imperil the owner, and thus the project.  Can you imagine thinking it would cost X to build your house, only to find out as the project went along that it was going to cost X plus 50%? It happens more frequently than the industry would like to admit. The biggest complaint heard in the construction industry doesn’t concern construction quality but rather, poor cost estimating and financial management. So let me ask again, “What’s the most important element of a successful project?” It’s the budget. And a good budget is the best friend, the closest buddy, you will have on any project. So make sure that who ever you hire to supervise your project prepares a project friendly budget. Or else.