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Getting the best return for our hard
earned dollars is a major issue for most of us. If you're serious about
saving money, (and who isn't?) this introduction to Cost Control Strategies
will show you how to apply Cost Engineering methods to your project.
Cost Engineering combines a number of strategies to achieve
maximum cost savings without compromising quality. These methods can slice
your hard construction costs by as much as 40%. Before we look at practical
applications, let's define what we mean by this savings claim.
Consider a typical (fictitious) home improvement project:
you hire a designer or an architect to prepare plans. You get three bids
from different contractors, then choose the low bidder (and we'll assume
that contractor does a good job). When the project is complete, you've
paid out $49,350 for a kitchen and bath remodel/addition with an attached
deck. Now, let's take the same project and apply Cost Control Strategies
up front. How much could we expect to save?
From our consulting experience, ninety percent of homeowners,
for lack of basic cost control skills, will end up paying at least the
$49,350 price, when they could get that same project done for between
thirty-four and forty thousand dollars. That's a solid 20-30% reduction
in hard costs.
We define cost savings as the difference between what you
would normally expect to pay, using the standard three bid approach, compared
to the process we recommend. Savings usually increase as the project becomes
more complex, sometimes exceeding 40%. We've found that homeowners- even
without prior construction experience- can learn these methods and achieve
remarkable savings.
As much as we all grasp the need for shopping, most of us
feel out of our depth when it comes to home improvement and remodeling
projects. We're not just buying stereos, or cameras. Now we're looking
for a vast array of materials, labor and management skills purchased over
months- not hours. The process of "shopping" for construction
services is complex, so the place to start, to achieve mastery over your
project- and your budget- is with careful attention to plans and details.
The first major principle of effective Cost Control (after
developing your budget*) is this: Build it on paper first. You cannot
hope to obtain true "apples for apples" bids- and force contractors
to bid on a level playing field- until you have spelled out every detail.
Most homeowners assume all plans are the same; all
blueprints cover the essentials. In reality, this is rare. Although architects
are highly trained professionals, homeowners are hindered by inexperience,
budget constraints and indecisiveness. These all take their toll upon
an architect's best efforts. As a result, most plans cover 65% to 85%
of the entire project. Unresolved materials, trim details, plumbing fixtures
or utility connections are left for "later." That "later"
as we shall see, becomes very costly.
In consequence, the primary goal of true Cost Control- ruthless "assembly
line" definition - is never realized. Those missing details are not
only crucial- but expensive.
Consider this shocking, but little known fact of residential
construction. When contractors receive your plans with a request to bid,
they will all use similar bidding methods. As an example, let's review
labor costs on a typical remodel. Contractors figure how many man-hours
to completion. They use an hourly rate for their carpenters, which could
run anywhere from $15 to $35 per hour, depending on location. Let's say
they figure your project will require 400 man hours. The contractor calculates
$14,000 (figured at the highest rate), adds an overhead percentage, and
then includes this as part of his (or her) bid.
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Fast forward to construction time. You decide to add a closet
under the stairs. What does the contractor charge you? $35 per hour? Not
if that's his cost. Probably it's closer to $55. But does his carpenter
work at the same rate? No. He may take twice as long to frame that closet,
because now he's working on your time. You could get that work done for
ten hours at $35- or twenty hours at $55. As part of the bid it would
cost $350, but added later it now costs $1100. (Ouch!)
Every omission and misunderstanding you allow on your project
will shift your cost basis from bid to "Time and Material."
Those missing details can easily increase your costs (in those areas)
by 100%-300%.
When you understand the implications of these enormous cost
increases, you will also find the motivation to prevent them!
Even projects with ninety percent accuracy will still generate
significant cost overruns on that last ten percent. And ninety percent
is rare.
As we touched on earlier, most homeowners, for lack of
understanding this key principle, manage to detail around 75% of their
project with plans. The other 25% (the "later") ends up being
completed on a time and material basis. That, along with unanticipated
extras, adds an extra 35% to the final costs of a typical project. All
that additional work is at time and material rates. You (the homeowner),
have paid out $49,350, plus another ten thousand or so for "cost
overruns." I'm sure your contractor is happy, but are you?
Although this is a typical scenario for home improvements
and remodels, you can change it. Having seen how cost overruns germinate
from lack of details and specifications, you must go back to your plans.
Study them exhaustively. Walk through every room; look at every corner.
If you are confused about a detail, or an intersection, brainstorm with
your architect until you know exactly how it will look. Take your time
with this process and be willing to pay for it.
If you are still confused, find a retired contractor and
ask him to look over your plans with you. Are all the materials specified-
exactly? Species, finish, grade, kiln dried, dimensions, shingle molds,
vents, stub outs? Space does not allow a complete list, but you must be
ruthless. Do not, under any circumstances, ask for bids before you have
defined the entire project down to hinges, tiles and trash removal. Build
every detail on paper first. It sure beats paying fifty dollars per hour
to have a carpenter stand there while you try to make decisions...
Some of you may feel inept when faced with blueprints. Don't let a lack
of construction experience deter you from studying what your plans represent.
Everything you see in your house today needs to be detailed on that plan-
no exceptions. If you need more help, try inviting a contractor friend
for a free lunch. Then ask all those basic questions. But do it long before
you look for bids. You cannot achieve real cost efficiency unless you
start with that end in mind!
Copyright © C. S. McMinn 2003
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