How we design to our client’s budget and why

Of the many things they do not teach young architectural and interior design students is how to design to a budget, or why this is important. We know the reasons for this, in design school, there is far too much material to cover. Teaching design research, concept design skills, and idea presentation skills are more interesting and fun subjects for everyone to focus on. As I recall, the few limits that were encouraged in design school, were basic code compliance, sometimes structural integrity, addressing the design prompt, respecting nature (the site) and really, really pushing all the boundaries. It is great fun to design in this environment!

In our 28-year-young practice of architecture and interior design the majority of our clients are hardnosed business people in corporate, healthcare, real estate and historical adaptive reuse market sectors. The designs that they are contracting for will be used to construct real estate. Real assets that will not only “house” their business but also serve as:

• an investment,
• a billboard
• a physical manifestation of their mission
• a tool for the efficient execution of the business model
• a good place to work for the staff and stage set for the outstanding customer experience that they hope to create.

A new or renovated facility will usually require a large capital outlay and or a mortgage. These large sums are budgeted for sometimes months or years ahead of the start of the design effort. This outflow of money must be properly offset by an (increased) revenue stream. In fact, one of the ways we think about space is revenue producing and non-revenue producing (support spaces) and the optimum ratio between them. For the design to be good, they must be in balance just like the income – expense balance that generates the profit of the business (in order to pay for expansions or new facilities!) Whenever there is an imbalance, profits tend to decrease and this is unsustainable for any business.

When design projects exceed their budgets, it means one of several things must happen. The design gets revised and right sized, the owner must come up with more money either out of pocket (owners don’t like this) or increasing the loan amount and thereby increasing the monthly mortgage payment (nobody likes this either!) Either scenario is an unexpected and unpleasant event in the life of the project and or business. Just think about the last time you had unexpected expenses and how that made you feel. That’s how owners feel, usually much worse due to the larger numbers.

Solutions

What are some of the ways we as designers, can work proactively from the start of the project to avoid unpleasant budget overruns or high bids?

• Ask for and insist on getting a budget from the owner, understand and test the budget against the current market conditions. If your owner does not have a budget, then work with them to create one.
• If the budget does exist, if may be months or years out of date and has not been adjusted for that time period. Work with the client to develop a realistic budget reflective of the current market pricing.
• Another common pitfall is to only budget for the construction costs. We develop and use a Total Project Cost Model. Our model has a line item for:
  • Land Cost
  • Exterior (shell) and Interior Construction Costs
  • Site Development Costs
  • Design and Engineering fees
  • Construction Contingency
  • Furniture, Fixture, and Equipment (FF&E)
  • Administrative Costs
  • Lastly, a projection of the Financing Costs.
  • A total figure expressed as a total cost per square foot.

The idea is to provide information on all the costs of the project to help minimize surprises as the project develops and a tool to help stay on budget.

• We like to develop these Total Project Cost Models (TPCM) early in the process so if the project has to reduce total square footage, it can happen sooner rather than later in the process.
• Be aware of the balance between revenue producing spaces (number of apartments) and non-revenue producing spaces (corridor, support, public spaces)
• Engage early with one of the firm’s trusted general contractor partners. Very often, they are keen to help you with pre-design estimating services in exchange for advanced knowledge of the project and a chance to be on the bid list.
• On larger projects, include in your fee the cost of hiring a Cost Consultant. Their preliminary estimates can be done at the beginning, middle, or end of the design/documentation process.
• As the design process gets started, be aware of your design scope of work. It is very easy to offer up or accept from the client, scope increases to the project. These can increase construction costs (and your work load!) and lead to cost overruns at bid time.
• Be aware of these scope and cost creep events so that you can keep the owner informed when you see that costs are going up.
• As designers, it is very smart to build in several design features that the project could live without.
• These can be priced separately by the general contractor as Add or Deduct alternates. That give you and the owner options at bid time for getting the project back on budget.
• As a designer, learn to think about spaces as either “On Stage” or “Off Stage”. Not every square foot of space needs the same level of design attention (costs) as the primary on stage areas do.
• As a design professional, learn what things cost in the construction world. You can glean a lot of good cost information by studying the AIA Pay Applications, a schedule of values and full estimates from past projects.

You can’t measure what you don’t keep track of, so we always start designing with a current, vetted budget. We all know it is more fun to design without limits but this can make for some very uncomfortable conversations at bid time. Our clients hire us to be the experts in our field, and they do expect that we know costs and how to design to a budget. At Cornerstone, we believe that good design has the power to change and uplift people, businesses and communities. We believe that delivering that design within the client’s budget is our responsibility. We also consider the budget’s limiting effect as a stimulus to our creative process, not a hinderance. Designing to the client’s budget actually helps our team deliver good design!