Successful pricing for budgets can sometimes seem like an impossible task. This is because there are so many moving variables for an architectural firm to factor in that coming up with a profitable yet realistic price for a project takes real skill as well as current market knowledge.
Why is budgeting so important?
People study architecture because they want to design beautiful and functional buildings that enhance the built environment for everyone. They often graduate inspired by high ideals, with concerns about making a living as an afterthought. While having a grand vision and clear-cut ideals is great, learning how to budget projects effectively is critical and will underpin your success.
If you hope to establish a viable and ultimately profitable practice, then you need to be able to budget as accurately as possible. Your ability to turn ideas into practical and financially feasible projects is what will allow you to flourish as an architect. In addition, being able to budget effectively will enable you to achieve your goals and plan effectively for the future growth of your practice.
Budgeting for each project is crucial because it allows you to assess how feasible your project really is. It’s at the budgeting stage that you can take a close look at the project and which elements are proving costly. No matter how attached you are to a project, if the budget doesn’t indicate that it’s feasible in its current configuration, it’s essential to either change the plans until they become realistic or drop the project altogether.
If you’ve established that the project is, at the very least, financially feasible, it’s then important to find out how profitable it will be. This is vital because although some projects may break even, a practice that isn’t profitable doesn’t have a long-term future.
While you may be able to absorb some projects that offer minimum profit from time to time, particularly if they are projects that you are passionate about and which might enhance your reputation, this isn’t a realistic approach in the long term.
Accurate budgeting underpins the success of any project and your business.
Budgeting and the RIBA plan of work
The RIBA Plan of Work is widely considered to be the definitive answer to how a construction project should be organised from start to finish. The plan organises the process of briefing, designing, constructing, and operating building projects into eight stages and explains the stage outcomes, core tasks and information exchanges required at each stage.
Budgeting is a crucial part of any project, and regarding the RIBA Plan of Work falls into Stage 1: Preparation & Briefing. This is the project’s official start, following on from a creative, free-thinking approach at Stage 0. This is where the plans and ideas are developed, fleshed out and made into something concrete and achievable.
At this stage, you create a framework for the ultimate project completion. You will also pin down what exactly it is you want to achieve. This will include project outcomes, sustainability outcomes, quality aspirations and spatial requirements. This stage also includes feasibility studies and agreeing on the project budget to make these goals practical.
Effective budgeting reflects the goals that have been set for the project and provides a realistic financial underpinning of the project.
Budgeting from the bottom up
A project budget is the total estimated cost of completing each individual activity over each phase of a project. It will be a dynamic budget and one that is monitored and reviewed, and updated throughout the duration of the project.
When potential jobs are being evaluated, architects need to establish the scope of services and the associated cost budget to deliver them. Try to quantify the value you can bring to the project in financial terms. You will need to set out the scope of services to deliver on that value promise. It may help to have a standard checklist of services that can be included or excluded on each project so you can effectively manage scope creep if it starts to cause problems.
You then need to estimate what it is going to cost to deliver the scope of services that have been set out. This will include labour costs, which are worked out by multiplying the hours per person by their cost rate. It’s important when making this calculation that you include overheads and non-productive time. Other costs you might want to consider are sub-consultants, prints and plots, travel and other miscellaneous charges.
If the cost to deliver on the project is more than the value add, you may wish to consider if you want to continue with the project. These can often be problematic projects, with clients believing that they may be paying too much or feeling that you are doing more than what you are being paid for. You can then calculate your fee, which at the very least should cover your costs.
Establish the timeline
Trying to manage complex projects with multiple moving parts is like spinning plates. A project timeline helps you keep track of these parts while moving you towards delivering your project. The timeline is an overview of the project’s deliverables that are laid out in chronological order. It maps out what tasks need to be completed before you move on to the next task and keeps everything moving in the right direction.
The project timeline will usually be presented in a visual format, allowing team members and stakeholders to gain a quick overview. It acts as a roadmap that includes the key milestones, managing individual tasks that have to be completed and delivery dates.
Fresh Projects software includes a drag and drop Gantt chart to help plan your resources
The economics of the construction market
One key variable in project budgeting is the fluctuating costs of manpower. Labour costs are rising as a shortage of skilled professionals is creating wage inflation. There is some unpredictability in market, making it difficult to plan. That said, it’s important to try to make as accurate a calculation as possible.
How to create a successful budget for your architectural projects
So how exactly do you create a successful budget?
A good starting point is to look at your previous jobs (ie historic timesheets) and compare how they reflected the actual income earned. Examine if they were broadly correct and you received the kind of income you expected or if you needed to make any adjustments. If you received more revenue than expected, could you realistically lower your cost estimates to become more competitive without impacting your income?
A number of templates are available that can make budgeting tasks easier, but bear in mind that not all templates include everything you need. There are a number of different pricing methods for architects that can be used to arrive at accurate estimates, so study these and make sure that you have everything covered.
Your budget should include a list of all the services you will provide. Standard RIBA contracts are a good place to start when pulling this together.
A comprehensive view of your project
Fresh Projects project management software for architects gives you the project financial management tools you need to maximise the profitability of your projects.
To find out more about how Fresh Projects can help you budget successfully and handle other project challenges, book a 30-minute demo today.