Editors note: this article is the first of an occasional series which will explore the important topic of construction cost management from one architect’s perspective.
If you are a residential homeowner looking to build a bathroom or kitchen remodel, an addition to your home, an ADU (*accessory dwelling unit) or seeking to build an entirely new home your first step is financial planning, identifying: 1). your project budget: how much money are you prepared to expend on the project?, and, 2). within that budget, do you choose to allocate your money?
Discussion of how much money you should expend on your project is beyond the scope of this article. Suffice to say, the amount one chooses to allocate is contingent upon many factors. For some, the driver is simply a cost-benefits analysis. For example, if we outlay “X” dollars to build an A.D.U. (accessory dwelling unit) in order to obtain rental income, the functional driver is, “how long will it take for us to get a return on our investment”?
For others, the decision-making is less objective, less goal-oriented, and simply related to improving one’s lifestyle. An example of this modality is the case, say, of adding a master bedroom addition. While objective factors such as resale value come into play, the decision as to how much to expend on the project in this case essentially comes down to choices made as to quality of life. Placing quality-of-life factors over costs-benefits factors is not unusual. For example key U.S. findings from the 2015 Houzz & Home Survey indicates that, at least for home renovations, improving the design/look and feel of the home and improving it’s functionality were the two most important overriding factors, with increased resale value factoring only third overall.
Once one crosses the decision fork as to how much to spend, one’s next task is to create a project budget, an overall projection of how the designated funds will be allocated. The overarching purpose of the project budgeting exercise is to prudently identify and assign dollar amounts to all of the major costs going into your residential project. An overview of project budgeting will be the subject of the next edition in this occasional series.