ARE Project Management Subject: Compliance with a Construction Budget
Creating estimates of the cost of the work, known as total project cost, is an important part of an architect's service offerings because they help determine a project's feasibility. Most owners insist on linking the approval of total project cost estimates along with the design deliverables at each phase of a project. Owners need to understand project costs at each phase of the project so they, along with the architect, can guide the design process and improve the likelihood that the project will align with the overall project budget. The term construction budget can mean different things depending on the circumstance. In this blog article, I will break the concept of total project cost down to explain the broader range of components, including the construction budget, that can be part of an owner's total project budget.
Total project costs, or overall project costs, are an important part of project feasibility analysis because total project costs include all anticipated costs associated with the project and are critical when determining project funding and anticipated ROI. Generally, total project costs can be broken into two main categories: hard costs and soft costs. It is important to understand the differences in these two categories, because a lack of understanding can cause confusion during the project.
Hard costs normally include elements such as construction costs, escalators, fees, bonds, insurance, taxes, and construction contingency. These are considered hard costs because they are the costs of construction and construction related practices and processes that lead to the physical building of the project. In practice, the term hard cost normally translates to construction cost. Construction costs are compared to and tracked against construction budgets.
Soft costs normally include elements such as professional design fees, specialty consultant fees, furniture costs, permit costs, taxes, and contingency. These are called soft costs because, while they are necessary components of overall project costs, they do not relate directly to the physical construction costs or processes. Both hard and soft project costs are compared and tracked against the total project budget.
If a client gives you a budget and calls it a construction budget but really means total project budget, you will likely find yourself in a position of designing a project destined for an over-budget status. In my experience, I have found it useful during the exchange of initial project information to clarify with the client what their total project budget is, and work with them to divide that into a hard cost and soft cost budget. With this course of action, you will improve your chances of successfully navigating the design process so that the project as designed meets the construction budget.