When you’re planning a development, one of your most important tasks early on is budgeting and working out what you can afford to do. This means making estimates regarding costs to make sure you can deliver a scheme that is completed within budget while also meeting quality and safety standards. In a challenging economic landscape, this is particularly important.

Key factors

One of the biggest factors in your estimates will be the site itself – specifically, where it is and what kind of condition it is in. Broadly speaking, urban areas will involve higher costs due to land value and logistical challenges, whereas rural areas will likely offer you lower land costs but mean higher expenses for transportation. The conditions on the site, such as soil quality, topography and existing structures, will also be important to consider here as you prepare and work out your estimates.

Next, labour costs. These can vary widely depending on where in the UK you are, but generally, you’ll be paying more in London or the south-east of England, and less in other parts of the country. This can also be impacted by the availability locally of skilled labour and the impact of regulations such as the National Living Wage and immigration changes related to Brexit, both of which may push your costs up.

Then you’ll need to think about materials. The cost of these has been rising over the past few years and the exact prices might still be fluctuating, depending on what you’re using. If you’re considering using sustainable or locally sourced materials, bear in mind that though they may offer cost benefits and help you align with environmental standards, you’ll need to consider things carefully at the planning stage to make sure you’re not stretching your budget too far. Try to think about economies of scale and plan ahead so you can make a few larger orders rather than a lot of smaller ones. This will also help you to project your costs more accurately.

The design and specifications of your project will also impact on your costs. Here you can repeat some of your thinking from when you were planning your materials. Standardised designs and materials can help keep costs down without compromising on quality. By contrast, while high-end finishes, bespoke designs and advanced technologies may be desirable, they can significantly increase expenses, and make it far more difficult to estimate your costs – so keep that in mind.

Finally, you need to factor in the costs of compliance with building regulations, health and safety standards and environmental laws, as well as seeking and gaining planning permission, arranging inspections and architectural drawings, securing any necessary reports or certifications, and any other paperwork that may be applicable depending on what and where you are building.

Estimation methods

In projects with a high level of standardisation and common elements, estimating costs for materials based on the numbers of units or the square metre size may be effective. Alternatively, if you have past data you can use as a reference, you may wish to use the costs of those previous projects as a guide for your new estimates – but be careful here, as the prices of various materials can fluctuate significantly.

As a rule of thumb, the most effective method is to estimate the costs for individual components and activities and then put them together to create an overall estimate. This can seem time-consuming but it will save you time and headaches in the long run. It will give you a higher degree of accuracy and make it easier for you to go back and revise your estimated costs as you go along.

Use the wisdom of crowds. If you get the opinions and estimates of several people and go with the average or middle way, you are likely to get the best or most accurate figures. You also minimise the risk of having your estimates contaminated by individuals’ potential biases or blind spots, or of having potential costs missed. Engage with quantity surveyors, project managers and other relevant experts early on and use their insights to give yourself the best possible idea of what you’re doing and how you’re going to do it.

Proper planning for peak performance

Remember that the cost estimations don’t end once the project starts. Construction projects are dynamic and you should be regularly reviewing your figures to ensure they are up to date and reflecting changes in scope, market conditions and unforeseen circumstances. Perhaps you plan your project using a particular material, but then it becomes far more expensive (or something else becomes far cheaper), so you realise you’ll be better off using an alternative. With the right planning and estimation approach, with reviews as you go along, you might identify such savings – and it might make all the difference for your project.

Also keep in mind that you need to plan for contingencies. Obviously, you want your project to stay totally on budget, and ideally it does, but to think you can absolutely guarantee this isn’t very realistic. The best-planned development in the world may still be forced over budget by factors beyond your control. So, including a contingency budget in your estimates for unforeseen expenses isn’t just prudent – it’s downright smart. Depending on the project, you should probably set aside a contingency of about five to 10 per cent of the total cost. After all, if you don’t end up using this extra money, what harm was done?

Building on solid foundations

Your cost estimates are the mental counterpart to the physical foundations of your development project. A developer who tries to get to work without sitting down and figuring out the estimated costs is like the foolish builder from the biblical parable who put up his house on sand. So don’t be slapdash about it. Be methodical and proactive in your estimates and projections, and you’ll be building on firm foundations in every sense of the phrase.

 

Dean Williamson

Dean Williamson MRICS