The Challenge of Cost Estimating: Bringing the Project in on Budget

One of the greatest challenges of developing a new childcare facility or remodeling/expanding an existing one is to first accurately estimate the project's costs in order to create a realistic budget, and then to bring the project to completion on budget. Many centers get into difficulty when, for whatever reason, the project cannot be developed within the established budget. Usually by the time the problem is realized, it is too late to increase the budget as the capital campaign or grant writing process has been completed or the financing is in place. What happens at this stage of development is that the project will usually go through what is called the "value engineering." By definition, value engineering is a process to reduce costs while maintaining quality. Unfortunately, budgets are often established before the value engineering can take place, so by the time the cost overruns are discovered, it too late to turn back the clock and re-examine important design decisions. So the "value engineering" turns into engineering the value out of the project to reduce costs. Usually the first items to be compromised are the most important for early childhood facilities such as acoustics, ventilation, natural light and quality finishes; or certain elements of the building are eliminated such as staff lounges or parent resource rooms, which greatly affect the quality of services provided. If you must go through the value engineering process, be sure that you are at the table when the decisions are being made. What elements you feel are critical to the success of the project may be very different than those elements that others with less program experience feel are important. So let's talk about what you can do to prevent these problems from occurring on your project.

Cost overruns are often caused by the nature of the design process. Design proceeds from general to specific and from conceptual to detailed. Accordingly, there is limited ability to predict construction costs at the onset when initial planning takes place and accurate costs are needed as part of the business plan to secure funding.

Design goes through four basic stages of development:

  • Conceptual design
  • Schematic design
  • Design development
  • Construction documents and specifications

Each stage involves more and more detail as additional information is gained about the program and it's operation and more detailed design decisions are made.

Most center owners, directors or boards of directors try to minimize their upfront financial exposure on a project until full funding is in place, so they want to spend as little as possible (if anything) on actual design when developing the business plan. Often, they prepare a conceptual budget based more on what they think the project will cost rather than figuring out the true construction costs. Often times, construction costs are determined without any specific plan by using square footage estimates and guessing what size the center will be. Square foot estimates almost consistently guarantee inaccurate cost estimates, as each center and every project has unique characteristics that generalized square-foot costs cannot reflect. Without a plan, square foot estimates are also usually based on an underestimate of the required size building to accommodate the program. I once had the president of a hospital ask me how much it would cost to build a child care center. I answered with a question, "How much does it cost to build a hospital? Doesn't it depend on a myriad of decisions such as how many rooms, how many offices, how many emergency rooms, do you have a neo-natal center, a trauma center and on and on?" He immediately understood the complex question he was asking me.

The traditional design-bid-build process also causes cost overruns. First the project is designed and then a contractor is selected by either competitive bid or negotiation to build the project. This process precludes value engineering until the project is already designed. So by the time the bid comes in over budget, the only way to reduce costs it to make major compromises in the quality.

An alternative to the design-bid-build process is the design-build process. An architect does not design the building using this process since the general contractor or the builder controls the design of the building. This method is often used as a way of accurately estimating construction costs, yet the process does not work for early childhood facilities, which are very complex to design. Most general contractors have even less knowledge of how an early childhood center operates than architects, so as a result the building is not built to meet the needs of children, staff or parents. Just think, a toddler's sink that is too high is unusable and one that is too low easily becomes a bathtub! Early childhood centers have a myriad of design details. Without this knowledge, the general contractor's first cost estimate is too low, so quality is permanently compromised based upon the budget construction cost. And if the owner makes additional changes to the design of the center after the price has been determined, they will be paying the contractor for what are known as "extras."

In order to get a more accurate cost estimate, we suggest that you approach the process in a different manner. Our team has developed a process called producer-directed concurrent design, which addresses these problems for early childhood facilities. As producers, our Education & Child Development Director, Vicki Stoecklin, oversees the entire design and cost estimation process. First, to come up with a realistic construction budget, Vicki works with you to create a schematic design that can be given to the general contractor. This design, plus the details we provide, allows the general contractor to generate a much more accurate construction budget. Vicki prepares an accurate furniture, equipment, soft cost and start-up cost estimate to complete the budget. As a member of the design team, the general contractor gives valuable advice throughout the entire design process, re-estimating costs at each stage of design to make sure the project stays on budget. With the general contractor as an integral part of the design team from the very beginning, the most cost effective design solutions can be found while the center is being designed.

Likewise, our design team works concurrently instead of sequentially. Most architectural firms work sequentially. In sequential design the project is passed along in linear fashion to different people working on the project, so there is little opportunity for collaboration, teamwork and communication to come up with creative design solutions. Firms using this process allow little opportunity for individual members to affect the design process. In concurrent design, which is the process our team uses, we all jump into the sandbox together and work as a group at the same time to create design solutions. This means that the most creative and cost-effective solution can be found for your project from the very beginning.

Bringing projects in on a budget can be challenging, but it can be accomplished if you follow the right process.