Pricing a Remodel: It pays to do your budgeting before (not during,) the project

One of our goals is to save clients from rushing through Home Depot and settling for some product their contractor needs the next day.  With a little planning this is avoidable.

At New Avenue we focus on providing the best management system on earth. We found that budget clarity is the cornerstone of good management.  Many great projects with great clients, great designers and great contractors have confusing costs and that confusion causes fear and anxiety that destroys relationships.  This stress is completely avoidable.

Over the course of hundreds of projects we universal format for proposals, bids and budgets.  This is one format from start to finish and we put it all on one online page where the owner, architect and contractor can see it. We ten established a routine of quoting process first and only paying for work after it is completed.

I experimented on my own project.  I needed to update a little 900 square foot cottage.  The previous owner did a lot of work before deciding to retire, sell the cottage and move closer to a grandchild.  She had most of the hard work and we just had to finish it up. All we had to do was some fun, mostly cosmetic work such as:

• Refinish wood floors that we discovered under the 1/4″ plywood that was under the old carpets.
• Paint new drywall that was already installed
• Touch up the exterior paint
• Fix up some electrical and lighting
• Add new baseboards
• Rebuild a few closets that had damaged paneling

A local builder with a great reputation who is extremely detail oriented walked the house with me, we wrote down a quick list and he called back with a quote of:

“$4,000 – and I’ll keep it under that”

I wanted to do test to see if I had become too rigid with New Avenue’s fixed price only policy.  He was $30/hour.  The work was reasonably well defined and limited in scope.   I wanted to take a small job like this and gamble on a handshake deal to see what would happen.

The actual bill added up to almost $9,000.  More than double the original budget.  This was my fault.  I had not taken the time to specify all the work we ended up wanting to do. 

Moral to the story, even if you’ve managed hundreds of projects and you know costs cold, you have to have the discipline to walk through every single thing you want to do.  Or you have to be ready to double your budget.

There are two culprits for this over budget project:

1) I added work.  I could have been more detailed in the beginning to make sure this was all included.

2) This is what an invoice looks like when you don’t use New Avenue’s system: 

This is a $1,753 invoice and it requires a lot of time to make sense of what it was for. It doesn’t tell me what my budget was when I started either.

This is not the end of the world with a ~$1,700 invoice.  When it comes to dozens of invoices like this and your $100,000 or $1,000,000 project doubles in budget then you are in serious trouble.

That s why we start with the painful budgeting at the beginning, we record the budgeted items and we bill against that number as it is completed.  We don’t do the budgeting because accounting is fun. We do it because a little bit of work up front makes the entire project easier to manage, and a well managed project allows the contractor to save money by avoiding mistakes and working faster.  A fast, on budget project makes the owners and contractor happier, and you can put the money that would have been lost to mistakes towards making the nicest space possible.