Why an agreed construction budget isn't always a reliable one and the importance of challenging costs before making a financial commitment.
A project can be on budget before anyone has established whether the budget is right.
An early estimate is prepared, funding is agreed and the project progresses against that financial expectation. As the design develops and the scope becomes clearer, however, the assumptions behind the original estimate aren't always revisited with the same rigour.
The result can be a budget that appears settled, even though the cost of delivering the project has changed.
This is where experienced commercial scrutiny matters. Before a client commits significant investment, someone needs to establish what the cost is based on, which assumptions remain untested and whether the budget is still a reliable basis for the decision.
Because managing a construction project against an agreed budget is only useful if that budget reflects what the project is actually likely to cost.
When an estimate becomes an expectation
Making assumptions during the early stages of a construction project is unavoidable.
Designs are developing, surveys may be incomplete and decisions about specification, procurement and programme are yet to be finalised. Cost plans are prepared using the information available, supported by appropriate allowances and professional judgement.
The important distinction is between an assumption that's understood and one that's simply carried forward.
Consider the refurbishment of an operational building. An initial estimate might assume that existing mechanical and electrical services can be retained, access will be available during normal working hours and the structure is in reasonable condition.
As surveys are completed and operational requirements become clearer, those assumptions may need to change. Additional services could be required, works may need to be phased or previously unidentified repairs may become necessary.
Each has potential implications for cost, programme and construction methodology.
The original estimate may have been entirely appropriate when prepared. But if the assumptions change, the cost position needs to change with them.
The difficulty arises when the original budget has already become an expectation. It may have informed a business case, secured funding or received formal approval. Revisiting it can be uncomfortable, particularly when a project has gathered momentum.
Yet continuing to work towards a figure that no longer reflects the scope or delivery requirements doesn't protect the budget. It delays the point at which the difference must be addressed.
Not all assumptions carry the same risk
One of the most important skills in cost consultancy is knowing where to direct scrutiny.
Every cost plan contains estimates, allowances and judgements. Examining each with equal intensity would be neither practical nor particularly useful.
The greater value comes from recognising which assumptions could materially affect affordability, procurement or delivery.
Take site access. A proposed construction programme may assume unrestricted access but if a building needs to remain operational, the contractor could be required to work in phases, introduce temporary arrangements or undertake certain activities outside normal working hours.
The consequences extend beyond access itself. Labour productivity, temporary works, preliminaries and the overall programme may all be affected.
Or consider a tender that appears competitive on price but includes qualifications or exclusions that leave the client exposed to additional costs.
Whether it represents good value depends on understanding what has actually been priced, what remains uncertain and where the financial risk sits.
In both situations, the useful question isn't simply whether an individual allowance is reasonable. It's whether the wider commercial implications have been properly considered.
At Shard Stone, our team's experience spans client organisations, main contractors and consultancies. We understand how construction costs are developed, challenged, negotiated and managed from different commercial perspectives.
That helps us recognise where an apparently straightforward assumption could have consequences elsewhere in the project, and where further investigation is likely to make a meaningful difference.
Good commercial scrutiny isn't about finding fault with every figure. It's about concentrating effort where the financial exposure is greatest.
The cost of challenging something too late
There is a substantial difference between identifying a commercial issue before a decision is made and discovering it after a contract has been awarded.
During feasibility and design development, clients may still have opportunities to review specifications, investigate risks, consider alternative procurement routes or adjust the programme.
Once contractual commitments have been made, those options can become more limited and more expensive to pursue.
A scope issue that could have been resolved during design may become a variation during construction. An unrealistic programme assumption may result in additional preliminaries or disruption. A risk that could have been investigated before tender may become a financial exposure the client has little choice but to manage.
This is why the timing of commercial advice matters.
A construction cost consultant should be involved in shaping decisions, not simply calculating their consequences.
Sometimes that means confirming that the proposed approach is commercially sound. At other times, it means advising that the available information doesn't yet support the level of financial commitment being considered.
That second conversation can be difficult when funding has been agreed, delivery dates announced and a project team has spent months developing a preferred solution.
But an agreed budget isn't necessarily a reliable budget.
If the evidence suggests that a proposed cost is insufficient, a significant risk hasn't been allowed for or the procurement approach could expose the client to unnecessary expenditure, those concerns need to be raised.
A useful challenge identifies the specific issue, explains the potential consequences and establishes what could be done to strengthen the commercial position.
It might mean recommending further surveys before a budget is approved, reviewing the scope of a tender package or advising that an allowance should be increased to reflect the evidence.
Sometimes the investigation will confirm the original position. Sometimes it will lead to a different decision.
Either outcome is valuable because the client can proceed with a clearer understanding of the cost and the risks involved.
At Shard Stone, two principles within our Standard are Evidence before opinion and Commercial courage before commitment.
They reflect a straightforward professional responsibility: establish what the evidence supports and be prepared to challenge a proposed course of action when it doesn't.
Good commercial advice isn't always the advice people were hoping to receive. Its value lies in helping clients make decisions with a clear understanding of their financial position.
What should be tested before a decision is made?
There isn't a single checklist that will identify every significant commercial risk. The questions depend on the project, its stage of development and the commitment being considered. But several areas deserve particular attention.
Is the scope sufficiently defined?
A budget may appear comprehensive while important elements remain provisional or excluded. Understanding what's included, what's outstanding and how those gaps could affect the overall cost is essential.
Are the allowances appropriate for this project?
Benchmark costs and standard rates provide useful reference points, but they need to reflect the particular site, specification, programme and delivery requirements.
Have the wider implications been considered?
Changes to access, sequencing, specification or procurement can affect costs elsewhere in the project.
Where does the financial risk sit?
Tender qualifications, contract provisions and procurement decisions can affect which party carries particular risks. A competitive price is less meaningful if the client hasn't understood its potential additional exposure.
What would change the current cost position?
Decision-makers should understand which assumptions remain uncertain, how significant the consequences could be and what further information would improve confidence in the budget.
The purpose isn't to remove every uncertainty before a project can progress. It's to distinguish between risks that are understood and can be managed, and assumptions that need further scrutiny before a significant commitment is made.
The cost of finding out too late
The real cost of an untested assumption isn't always the additional expenditure it creates. It's the decisions that might have been made differently had the information been available sooner.
A different specification. A revised programme. Another procurement approach. Even a decision to reconsider the investment altogether.
Those options are worth protecting because once a budget has been approved, a contract awarded or an investment committed, the opportunity to make a different decision may be considerably more limited.
The time to question an assumption is while there's still an opportunity to act on the answer.
Sharp facts. Solid ground.
Shard Stone | Chartered construction cost consultancy
