Q: How do you go about budgeting?
A: We really focus on preparing accurate land feasibilities, building plans with accurate specifications so that we can hold vendors and subcontractors accountable to provide accurate estimates. One constant over my career is that when there is a budget variance it usually can be traced to the accuracy of the feasibility analysis or ambiguity of the building plans and specifications. I spent about half of my time in this part of the business.
We have developed a very sophisticated estimating program (about 3 years in the making). We keep a database of all of our current and past new home construction job costs. In addition to our database, we work very closely with our vendors and subcontractors on their current pricing. Every three months we adjust our estimating program so that it reflects the current market. The accuracy of our system is incredible and it is fast (we can price about any home in about an hour).
I have found that a new home budget can be divided into two categories of costs: infrastructure and selections. Infrastructure costs are costs derived directly from land conditions, utilities, blue prints and permitting. Selection costs are those to where you might go to a showroom like picking out cabinets.
Our job cost database has shown that about 60% of our custom home’s budget is infrastructure and about 40% selections.
We have organized our business so that we have people focused on infrastructure and selections separately. This gives the required focused so that our budgets are accurate and timely. Every month our clients get a budget that shows costs to date and what the projected cost is to finish. We have found this is a difference maker. The ability to give our clients accurate and timely information really reduces stress by all parties. We take great pride in that.
Next week I will discuss maintaining the budget.
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