blowing the budget..
The main reasons projects go over budget
We're tackling a massive topic here today on Building with BuildHer, and a topic that is one of the most important aspects of any renovation. We're talking budgets!
We know your palms are probably starting to sweat just reading the word, "budget", but we're here to help you feel like you can tackle this head-on. We share three key areas where we think you need to focus to keep you sticking to your budget, and feeling good about the choices you're making.
Budgeting doesn't have to be a dirty word, you just need the right information and a solid plan.
If you have a topic or question you’d like us to cover, contact us here.
SOME TOPICS THAT WE COVER:
Working out your budget, and allowing for a contingency
Being clear with designers on both the scope of work and the budget
Factoring in your family or business values when planning your renovation
Do your research and obtain numerous quotes to ensure you're receiving the right product
Establishing your "cost buckets" and how much to allocate to each
Renovating in stages within your "master plan" if you don't have all the money you need all at once
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Read the Full Podcast Transcript Below:
Kribashini: Hi there, it's Kribashini from BuildHer Collective and thanks for listening to our podcast, Building With BuildHer. In this episode, we're talking about blowing the budget which is such a massive topic because, well, we all want to build on budget don’t we?
It’s super rewarding when we do.
Rebeka: Yes and it's one of the main key fear factors I find that people build. We're going to go over three key areas where we think you need to focus.
Kribashini: Stay tuned and we're going to jump into those in a second.
Rebeka: Hi, I'm Rebeka.
Kribashini: I'm Kribashini.
Rebeka: Welcome to Building with BuildHer.
Kribashini: Our Podcast, we believe that building is fun, super fun, so much fun.
Rebeka: BuildHer Collective was created to help women with building and renovating. We believe that with the right tools, everyone can build. For us, it's all about encouraging women to take back control of the building process and really achieve their dreams.
Kribashini: We are women in the building industry, and as developers, builders and project managers, it's our passion to share everything we know with other women doing the same. That's why we've created this podcast for you.
Rebeka: If you love all things building.
Kribashini: You're into design.
Rebeka: Keen on the numbers.
Kribashini: About to renovate.
Rebeka: Thinking and dreaming of that forever home of what it would look like.
Kribashini: Or even developing for profit.
Rebeka: Then you've found your family.
Kribashini: Subscribe to our podcast and follow our journey over at buildhercollective.com.au.
Kribashini: Welcome back. We know that budgeting is a massive issue for people and we thought that we should start off with a story. This story demonstrates really how a budget can change and migrate and move through different processes as we're building.
We have a story about Kate. Kate was one of our BuildHers and she came to us and she was in a bit of a pickle. What she’d done is she'd hired some designers to do some work for her so she'd gone out to tender. She knew her budget, her budget was 500 for argument sake. Her budget was 500 but because Kate was super clever. She was like, “Okay, I'm going 500 but I'm going to have a contingency. I reckon we'll get it done for 650.”
Kribashini: We love the word contingency.
Rebeka: Some of us more than others.
Rebeka: She went to these designers and they designed her plans and they were following her brief in terms of what she was visually showing them, so her visual cues. They delivered this project and when it went out for tender, it came back as a million-dollar build. That is problematic.
Kribashini: We may think that that's quite a lot over but we actually kind of commonly hear this story.
Rebeka: This happens all the time. Now, was it Kate’s issue or was it the designers’ issue? It's very easy to say, “Okay, well, the designers are 100% at blame because they were told that they had a budget of 500 and they moved the budget.” Now depending on who you're working with, what designer it is, so be clear or unclear about these. This is one of those hard lines. All the things that Kate was showing the designers were expensive items. I don't know that she knew that though.
Kribashini: No and I don't think that she realized that those are the visual cues that they were taking away from it because she'd given them their budget. We often just think because they know the budget, they'll inherently know what can go in and what can’t go in. Do you ever sign whenever you speak to a professional in the building industry? The first question they'll ask you is, “What's your budget?”
Rebeka: Yes. They want to know what your budget is, but then they won't stick to your budget.
Kribashini: That’s right.
Rebeka: Then, they'll be like, “Okay, great, but I don't know if I can do it for that budget, or I think I can do it for that budget but it's not that scientific.” We’ll explain why that is in a minute. Effectively, what had happened is Kate was like, “Okay, I'm clear, I've communicated my budget, I've got this great contingency.” The designers had basically gone, “You're showing me pretty pictures. That's a $12,000 bath, I'm going to put that in because that's what you want.”
Kribashini: Really what you're telling me you want to do the scope of what your project is, is going to be derived from the design. Sometimes I look at it as a bit of a chicken and the egg.
Kribashini: Is there a scope that goes along with the budget or is there a budget and the scope needs to fit the budget?
Rebeka: Yes, that's the hard thing. If you don't understand the process and understand the kind of design flow, and it is a flow, it's not a linear process as we would expect it to be or as we're used to kind of things in normal life being. I do this and I do this and that equals this, that's not the way design and budgeting really works.
Rebeka: Her project came in at a million dollars. Now they went on a bit of a family journey, they had a-- Think about what was important to them, they re-assessed their values, and they came back and they'd used-- They didn't use the designers’-- What the designer came up with because a million dollars was way over it but what they did is they pulled out some key elements.
They were actually able to deliver that same project, create the same space. Instead of knocking down the back and re-building it, they were able to reconfigure a lot of the existing house and refurbish, slightly different look to what they were going to get but pulling those key values that were really important to them. They delivered that for $230,000.
Kribashini: That's a really interesting aspect, isn't it, because sometimes we get so tied into going down one path that we tell our design team, or we tell the people we're working with that we want to extend. We want to do all these things but actually what we want to do is get a sense of certain amount of space within the budget because we don't want to spend more than the budget. It comes down to what our values are but also our priorities and the waiting that we put on those priorities. If that makes sense. Kate could have tried to find more money.
Rebeka: Well, no, she had the money. It wasn't about not being able to spend the money. She could have spent the money if she wanted to but that wasn't their family value. They would have A) been overcapitalizing for that area and B) they wouldn't have gained much more space or functionality than what they did for the $230,000 innovation.
Obviously at the end of that process, she's like, “Well, I feel a bit upset that I've spent like $30,000 on design fees,” or whatever that design fee was but to me, it's a lesson and kind of really honing in the right value. Then, being able to deliver that project in a way that's fitting for you. I applaud Kate, I think she did an amazing job, she still used the BuildHer to build the project, just did it slightly differently.
Kribashini: I think you’re so right. We can look at spending the amount of fee we spent with the design team to get to this point but have we not spent that money, we wouldn't have got to this point of realization. Actually, she ended up saving $750,000 by having gone through the process-
Kribashini: -because there’s a process and not everyone understands that process because we're so used to going to the shop and buying what we want. It's priced, it's a product, it's there, we use it and the market is kind of dictating to us a lot of the time as well that we can just buy a house for X amount of dollars. We add in a few extras and we do a few things and when we’re building these custom builds and we're doing things like renovations and extensions. It's not one shoe fits all.
Rebeka: No, it's not and each little decision we make has a follow on effect and a flow-on effect and that's probably the key principle of budgeting, is knowing the budgets-- Well, you always say budgets are blown incrementally.
Kribashini: That's right.
Rebeka: They're also kept incrementally in that way, if you want to phrase it in a less negative way.
Rebeka: Budgets are really a combination of a series of costs that are put together to create the budget and become the project cost. What is a cost?
Kribashini: Well, we've got so many different costs. It starts off with professional fees, regulatory costs or planning permit fees and permits and things like that. We have our baseline construction costs, then we can often have our, what we call preliminary costs, but we can have our costs that we’re incurring while we're running that building site. There are so many cost buckets, for want of a better word. We need to know how much money to put into all the right buckets so that we get the right spread.
Rebeka: That's fine. If you've had a heap of experience in it, and you've seen a whole hyper phase come in and you've seen the way this all comes up. If you don't, then it’s very overwhelming, you might just be focusing on the construction budget. Which we say all the time and forget about the professional phase, or the holding costs or the rental costs if you've got to live somewhere else.
There are all these other costs that need to be factored into a project but there are costs to move and sell a house as well that people forget to factor in like stamp duty, and moving costs and selling costs.
Kribashini: Actually, that's a popular one that we often find people forget about, is that holding cost, but also the temporary accommodation or temporary rental costs while they're building.
Rebeka: Learning to cost. When I talk about cost in terms of the construction budget so I'm bringing it back to that and keeping to your construction budget. Costs are made up of materials and labor and if you can understand materials and if you can understand labor and how things go together, then you'll have a great handle on that.
Kribashini: We have different costs in different areas. I think an interesting story might be one of our BuildHers actually came to us with a bit of an interesting scenario. This is where costs and labor really plays a big part in blowing your budget and it can blow your budget early on in the process or it can blow your budget as you're already three-quarters of the way down. It's a really simple mistake to make.
What had happened was, she had some cracking around the house and it was some significant cracking and she had a friend who was a builder. He'd recommended that she got a price from a colleague that he knew of. It all sounds pretty innocent and really everyone was doing their best to really help her. She contacted that person, he came out and gave her a quote. Unfortunately, there was a disparity in what was actually wrong with the house and what needed to be done to repair it and his product. He was using a high-end sort of epoxy underpinning solution, which she didn't really need, but unfortunately was really, really cost-prohibitive.
Rebeka: It's basically underpinning so the project there that he was costing was probably something that you'd use more in a commercial job. It wouldn't be something that you'd use domestically very often, but because these builders did it and he'd used it before on another project. He was like, "Oh, you know what, I've got someone who's really professional that can help you.
Kribashini: That's right.
Rebeka: Stepped in, gave the contact. Her project was pretty-- I think she had about 200 grand or something to do what she needed to do on that house. These came in at 45 grand. You can imagine she almost fell off her chair, wept a few tears.
Rebeka: -she had a few glasses of wine. [laughs]
Kribashini: She came along to one of our Q&A's and she was just really like, "Is this how much I have to spend on my substructure? If I do, I really don't have enough money to finish the home and then what are we going to do?" That's a position a lot people find themselves in. When they don't have the support or they don't have other avenues to go down to see if that's really the
right price for what she needs to do, we can get stuck.
Rebeka: The real issue there was the methodology that he was undertaking was not correct for the solution she required. The price wasn't a problem for what he was proposing. It was actually probably a good price for what he was proposing, he does. But she didn't need that service. She needed a different type of underpinning more suited to the domestic market. We referred her on to a couple of people. She got a quote from one of the BuildHer's group, I think.
Kribashini: I believe she did, she got a contact through there for underpinning.
Rebeka: I think that came in instead of 45 grand and came in at $4000? $3900?
Kribashini: It was $5000, but we also recommend that she had an engineer come out and give her methodology, a simpler methodology, which means she has a hierarchy. She has a document from an engineer that says, "This is what you need to do." She could go out and she could get quotes from three or four people and it was all for the same thing. In her case, she was able to just go ahead with the content from the group and make that project viable.
Rebeka: She had budgeted money for underpinning, she hadn't budgeted that money for underpinning.
Kribashini: That's because it can really be blowing incrementally, as we say, and it can be blown at any part of the project.
Rebeka: The key things here we need to be thinking about when we're thinking about budgets and cost is a moving circle. We need to understand what people are doing, how they're doing it, and if there are any other ways that we can achieve the same solution with different money. That might come back to in Kate's situation, "What are my values? How do I achieve my values or core needs?" Is the core need more space or is it a better functioning room or a better flow?
What is the core thing I'm trying to solve or if you've solved that value situation, and it's about delivering that project, is this the only way I can deliver that or can I deliver it in a different way? You could use a simple way of saying that is a timber substructure is cheaper than a concrete substructure, right? You could use either. If money is really important to you, and you need to put on an extension, and it doesn't make any difference to you, whether it's timber or concrete, then maybe that's a solution you can take up. You could use timber substrate instead of a concrete substrate.
Kribashini: That's true. If you have other important values like you want to use concrete to be more sustainable, you want to use recycled concrete, you want to try-- They have passive solar gain, or you want to have a solid sort of feeling or you want to have exposed concrete foundation. Those are the questions that you might be asking yourself, and you might say, "Well, actually, based on those sets of principles, I would like to spend more on this area."
That's why budgeting and cost control, we say, cost control and design go hand in hand, it's not one after the other and it's not linear. It's kind of the circular questioning that we have to go through with nearly every decision that we make.
Rebeka: What we actually have is a downloadable that you can have a look at and just see what we mean by the process of design and budget and how that goes in a not quite linear process because you've got to go, "Okay, well, here's my idea world. Can I afford that?" We rough that based out on some square meter rights and our design principles, but then we need to come back, "Can I achieve what I need to achieve in that budget or do I need to make some design changes?"
Then we might go back a few steps and go, "Okay, well, I can't afford a $12,000 bath, or I can't afford a concrete slab or I need to change the process throw a few things here." It may be that you need to be starting to ask some key questions to get that budget in line.
Kribashini: Sometimes the right answer is actually that we don't have enough money right now to do our project. If you get to that answer early on before you've submitted lots of funds, that's a good answer to have because it gives you a plan and it gives you something to work towards and it gives you a time parameter where you say, "Well, how long do I need to save this much money? Or how am I going to get that extra funding?"
Rebeka: "Or am I going to stagger the project? Am I going to instead of building 100 square meters? Am I going to do a 50 square meter? Can I reconfigure space? Do I really need that upstairs three bedrooms if we're a couple with one child?" There is so many ways to come at these but budget is I guess, one of those key areas that is daunting because it's not straight forward.
Kribashini: It can move. Sometimes we want to compromise and we say, "Okay, we'll spend a little bit more because we're making a lifetime investment or sometimes we'll say, "Hang on, let's wait because we're not ready to commit this much money." Those are all okay, answers. Sometimes it's a bit scary to get on the train and then get off the train, but it's okay.
Rebeka: I mean, I've done projects where I've done massive amounts of spending very quickly. I know.
Rebeka: Where I'm building and I've got the budget to do it and I'm rolling that out. I've done other projects, especially when I was starting where I didn't have the funds. I would do it as I got the money, so I would get the space done. I had a temporary kitchen, I had my gas cooktop, and I just had some benches set up in the kitchen. That's what I had until I could afford my kitchen. The space was really important to me, and I knew I'd get there but I wanted the space before I had a baby. Why do we always renovate when we’re about to have babies?
Kribashini: Highly relatable.
Rebeka: I didn't have the funds to complete that. I knew that it would be an easy process to do it. We can upgrade on the way, we can stagger, we can do master plans, often people do their garden area last, that type of thing.
Kribashini: Actually, that's such a good point the master plan. If that is you and you are in the boat where you're going to be doing a stage plan or stage projects over many years. Having a master plan over the master vision of the home and how it's all going to function is really going to set you in the right stage going forward and it's really going to help you prioritize which spaces to do first and how much money to allocate each particular stage.
Rebeka: A really funny story, super quickly about that master plan. One of the houses we did but-- One of the things I like to do first is I like to do the front garden that is established, and I like to do the front facade. We were living in this house and obviously, we'd renovated the front facade and we've done the front garden and in this house, all the materials could come through the back so it wasn't a problem, we were doing the extension.
Obviously, the real estate agents had been kind of sussing it] out and they'd seen that we'd done this beautiful renovation from the front so when I came home, I felt good about myself because I live in this really pretty house
Kribashini: From the front?
Rebeka: They're knocking on the door and they're like, "Yes, we've got someone to buy." Ever heard that one before? "We've got someone to buy this house”. I'm like, "Sure, sure, come in." As they walked through the house, I could just see their smile meltdown to this like, "What is going on here?" The front and the back did not match at all, master plan. It was a master and it was all designed around making me happy.
Kribashini: Another good point. Sometimes we should spend in an area where we're going to see it every day that makes us feel good about ourselves.
Rebeka: Yes. [laughs] I spend on the things that I can touch and feel.
Kribashini: Budgeting is such a big topic. We've only really just touched on some really important processes and areas that we think you'd love to know about. Really, if you take nothing else away from today, but take away the fact that budgeting and cost control go hand in hand. Cost control and design go hand in hand and that it's not a linear process. It's actually a circular process.
We have to evaluate our costs based on our needs and our wants and that cost is also brought up over different cost areas, and when we’re in construction, we're really talking about labor and materials and complexity of what we're asking a person to quote.
Rebeka: I think that's really important. Look, to be honest, budget is one of those hard things for people to place. We offer a free 20-minute consult. If you want to have a chat to about your budget and what you can achieve and how to go about it, and you've downloaded the freebie and you just want a little bit of a chat about it, feel free to book on to one of our free 20-minute consults, they are online.
It's really a way where you can talk to a builder, you can talk to Kribashini or I, you can talk to one of our style consultants and just have a chat about your budget, what's achievable when it's achievable, and maybe what you should do for that, or if we can see some glaring ways to improve that.
Kribashini: We like to call it a little bit of building gold.
Rebeka: We do. Well, we hope you've enjoyed our chat on budgeting. In the future episodes, I'm sure we will delve deeper into the time and cost quality triangle and all things budgeting because really, budget is the broadest topic, but if you can understand the overview and you can understand the process and you don't get hung up on the fact that because you said this it should happen and then that should happen. We need to be flexible, then I think you'll win.
Kribashini: Then, if there are any areas you want us to explore in deeper just send us an email and we'll put it on the list of podcasts for the future.
Rebeka: Thanks for listening to Building with BuildHer, we'd love for you to spread the word.
Kribashini: For show notes, links and downloads and other awesome resources and freebies, head to BuildHerCollective.com.au. Don't forget, that's BuildHer with an H-E-R.
Rebeka: If you enjoyed this episode, it would mean so much to both of us if you could take a minute or two to leave a review.
Kribashini: Don't forget to subscribe, so you can listen next time as we talk all things building and women making their mark in the building industry.