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Quantitative Budgeting – What It Is & Why It’s Important

Posted by 4 Forty Four

Author: Toma Fuller, Senior Project Manager

Executive Management & Chief Estimator at 4 Forty Four

toma@4fortyfour.com

 

It can be said that setting proper expectations and following through with them is the foundation of a successful construction project (and so much more in life of course). One of the most important aspects of this concept is creating an accurate budget that is easy to understand and has enough detail to empower the client to make educated decisions regarding the finishes and allowances for their project. As the Chief Estimator at 4 Forty Four, I can attest to the immense benefits of Quantitative Budgeting in setting proper expectations and empowering our clients. Let’s review and dig in to what Quantitative Budgeting is and why we feel it’s so important.

At its core, Quantitative Budgeting is the act of quantifying every aspect of a project and using this method to create the budget. These quantities could be anything from a square foot, lineal foot, simple count each, or hours/days/weeks in the case of labor. This may sound like a simple act and something that any reasonable builder would do, and to some degree this is true. If you spend any time talking with the general public about their past experiences with construction projects, you’ll find a common theme: lack of clarity and engagement with the budget. While the contractor might have quantified different aspects of the job and provided a “good budget,” the client often doesn’t understand or feel empowered to use their budget to make key decisions to keep the project on budget.

This can often be the case with standard “division” style budgeting with large headings tallying budget amounts. For example, a single division line such as “Appliances” may have a budget of $7,500. Upon a client’s first glance, it may seem that this is plenty of money to purchase the appliances that they desire. But how did the estimator come to this number? How many appliances did they allow for and what kind? How much did they budget for installation of these appliances? Does the allowance include tax? As you can see, a simple division line stating “Appliances” with a single number now leaves much to be desired.

It’s for this reason that we have embraced a fully transparent Quantitative Budget that is built in collaboration of the client and the Estimator. A set of plans is a critical and necessary part of budgeting a project, but a set of plans rarely speaks to the finish level of aspects such as Decorative Plumbing, Lighting, Flooring, Tile, Appliances, Bath Hardware, etc. The finish level of these aspects can often be the difference in making or breaking a budget. One of the first steps in creating a successful budget is to discuss and interpret the client’s desired finish level and how it may relate to their budget. In the interest of this, we have adapted an immensely thorough and detailed Quantitative Budget Spreadsheet with all of these aspects shown in Division and Detail. To use the Appliance example mentioned above, this method contrasts the Division Style Budget by having a full breakdown of each appliance. The allowance of each individual appliance takes into consideration any tax included, install costs, additional hookup materials such as hoses and plugs, and delivery costs. This same breakdown and presentation is applied to ALL aspects of the project from Foundation to Finish.

As you might imagine, this much detail can suddenly add up to a significant amount of information that can sometimes be pages and pages for a new build or large renovation. While this much detail may seem to lean towards minutiae, we have found that proper organization and presentation of data does the exact opposite. This method gives confidence to both the builder and the client that the construction methods and finish level have been thoroughly explored and thought out to allow for a realistic budget. With that in mind, we find that our bottom line budget isn’t always the cheapest price when compared to another budget. We do, however, feel confident that the numbers don’t lie, and the detail provided clearly shows how and where the money is allocated for the project.

In closing, we have found that with this level of detailed Quantitative Budgeting and presentation that the client 1) understands how and where costs are allocated as it is clearly shown in each line, thereby feeling a confidence that the number at the bottom truly represents the project per the plans and/or the way they envision it, 2) feels ownership of the aspects of the budget that they can easily change such as finish level and even square footage in some cases, and 3) can utilize the document to either value engineer or shop for their finishes and feel confident that the items they are selecting will relate to the budget in a clear and direct way. Furthermore, we have found that since we have adopted this method our original budgets are much more accurate to the final costs which of course always means happier clients and properly fulfilled expectations – and that’s something you can take to the bank!

 

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