Project budget management is the process of managing the developing design against the project budget. It is part of the architect’s service to analyse the project brief in relation to the client’s budget, evaluate factors influencing project budget, and obtain approval of the project budget from the client.
The management of the project budget has a direct impact on the client. It may be determined by the amount that a client can borrow, or by the upper limit deemed to be justifiable in the project feasibility study. In government projects such as schools and hospitals, the budget is often a product of pre-determined rates for the various functional areas that are required. The focus should be on delivering to the client optimum value in the completed project for the available funds. This principle applies equally to a small project such as a house extension, as to a major public building or commercial development.
The construction cost represents the major component in most projects, hence following a logical process of establishing a target cost at the outset of any project is essential.
Cost planning and cost control should be integrated into the architectural intent, as a proactive process of directing project monies to the various project elements in a way that best meets the needs and aspirations of the client.
Project costs
It is helpful for the client to differentiate between different types of costs. The Cost of Works is the cost for the construction of the project. However, the Total Project Cost includes the architect’s and other consultants’ fees, authority charges, etc as described below. Hence the Total Project Cost is greater than the Cost of Works. The client will require enough funds to cover the Total Project Cost in order to complete the project.
a. Cost of Works
The Cost of Works is the cost of construction of the project. It includes all work designed, specified or scheduled by the architect, including all work designed and specialist consultants co-ordinated by the architect. It includes the builder’s fees and expenses. The Cost of Works can be calculated using the following methods:
- Cost per square metre rate: the area to be built multiplied by the current cost per square metre for the particular location, market and quality at the current time. It can be refined by adding specialist equipment, landscaping features etc. This provides a very preliminary or ‘ball park’ figure.
- Elemental rate: is generally calculated by a quantity surveyor. Each item in the construction is measured and priced individually. This is very detailed, requires clear documentation and specification and can run to many pages of information. It is strongly recommended that an external consultant such as a quantity surveyor prepare this type of estimate.
- Bill of Quantities: is prepared by a quantity surveyor for large or complex projects as a pre-tender cost estimate. It typically commences at the 90 to 95% completion of contract documentation stage.
b. Total Project Cost
The Total Project Cost is the Cost of Works (above), plus all other costs to the client to carry out the project, including but not limited to:
- land costs
- architectural, consultant and other professional fees
- authority fees and charges for Development Application and Construction Certificate fees
- council contribution, fees and levies
- infrastructure charges, eg Ausgrid etc
- GST on the Cost of Works
- legal fees
- loose or unaffixed furniture, fittings and equipment not specified
- landscaping
- design and construction contingencies, including escalation costs
- interest rate charges and financing costs
- marketing and promotional costs.
The Institute's Client Architect Agreement 2019 (CAA2019) defines ‘Cost of Works’ and ‘Total Project Cost’.
Establishing the budget
The responsibility for setting the budget rests with the client, while the architect’s responsibility is to ensure that the client understands what is in the budget and what is not. In the example below, the client may believe that the cost to build the project ($500,000) will be their sole outlay of funds, whereas the Total Project Cost can be around 50% more. On a small residential extension, a project budget may look similar to the table below:
| Cost of Works | $500,000 | |
| GST (10%) | ie 10% | $50,000 |
| Authority fees | ie 2% | $10,000 |
| Consultants' fees | ie 5% | $25,000 |
| Architect's fees | ie 10% | $50,000 |
| Design and construction contingencies | ie 20% | $100,000 |
| Total Cost of Works | $735,000 |
Note: These figures are estimates only and provide an indication. Hence the Total Project Budget required to construct works can be 50% higher than the Cost of Works.
At the outset the architect should ask clear and comprehensive questions to determine exactly what the client wants and how much they expect or are able to pay. The initial budget information should be tested to establish that it is realistic. Tell the client if their expectations are unreasonable as soon as possible, so that you do not waste time and the client does not waste fees on schemes or design options they cannot afford.
At each step of the design and documentation process, decisions will be made which affect the cost and the budget. The architect must be in a position to make informed decisions or provide informed advice to the client regarding the budget implications of design decisions.
Estimating the cost of the works
Once the budget is established and the initial designs have been prepared, the estimated cost of the building work must be assessed, to determine compliance with the client's budget.
Few architects are expert at cost estimating, but most clients will ask how much it will cost. At most meetings, especially at the early stages of the design process when the building is changing its size and shape, sometimes with alarming speed, this question will arise. It is part of the architect's professional role to be able to answer this vital question in such a way as to assist the client without compromising the architect's position.
Projects of a reasonable size will usually require the services of a quantity surveyor. The architect should advise the client if the services of a quantity surveyor are required. Sometimes the quantity surveyor is part of the architect's team, as a separate consultant, sometimes employed by the project manager or developer, and sometimes by the client. The services of a quantity surveyor will include cost advice during the design and documentation stages and, eventually, confirmation of the budget, prior to tendering.
Client liaison
At all stages of the project, it is vital to keep the client informed of decisions and the basis used to reach them, and to document the progress of the project in a methodical way. This is the duty of a professional. Architects will find that there is little to be gained by withholding information from clients. However difficult it may seem at the time, the sooner the client is informed, the better the final outcome is likely to be. The method and frequency of contact with the client will vary greatly from job to job, but some general principles apply.
Document in writing, even for the smallest project, including:
- mutually agreed budget and program
- selection of consultants and their method of payment
- agreement between architect and the client.
On larger projects, there will be numerous other items that should be set down in writing. The importance of written communication is twofold.
First is clarity: always ensure that information and thoughts are set out in comprehensible, plain English. Unlike a conversation, writing provides little room for misrepresentation and confusion.
Second is durability: months after a conversation or phone call is forgotten or only half remembered, a letter can serve as justification for a disputed action or assist in the resolution of a misunderstanding.
Many of the dealings with the client will be in the form of meetings or telephone calls. These are valuable forms of communication, but require care to avoid misunderstandings and misconceptions. Listen to what is said and ensure that all parties have the same understanding of what has been agreed. Confirm the discussions with a short memo or letter, if there is any doubt. Keep records of important phone calls as diary notes. Refer to the Acumen note Communications for more information about this.
Frequency of reviews of cost against budget
This will depend on the scale of the project. Small domestic projects, which change little in scope during the design process, may only need an estimate at the end of each design stage. Large projects will need more frequent, perhaps monthly reviews, with regular updating of an elemental cost analysis. The timing and frequency of reviews is a matter of judgement, based on experience and the advice of consultants and/or colleagues. Refer to your Client Architect Agreement for frequency of project budget estimates agreed to.
Insurance
Refer to your Professional Indemnity (PI) insurance policy as to whether your insurance covers you to provide a project budget estimate. Also refer to your PI insurance policy regarding the terms and conditions of providing cost advice to clients.
Further resources
- Refer to the National Standard of Competency for Architects for references to the project budget and cost control.
- Client note: Managing your project costs
Disclaimer
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