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How to Control Cost Overruns and Change Orders with Accurate Allowances

How to Create Accurate Allowances

Hey Brian Freeman here from Freeman’s Construction. Hey today I wanna talk to you about something that is a big concern for a lot of people when they’re building a custom home or doing a big whole-house remodel project. And that’s, you always hear about the nightmare overrun. So, oh my gosh we just ran $100,000 over budget. We run $50,000 over budget and nobody’s happy. Homeowner’s not happy, contractor’s not happy.

Tracking Budget During the Design Phase

There’s a lot of going on during the process of the build. That is something that we absolutely make sure that we avoid during the build of your home or your remodel. And the one way that you can do that and make sure, is a lot better planning on the front end during the design phase. So a lot of times we start our project, custom home, whole-house remodel and we don’t have all the selections made. So you don’t know exactly which plumbing fixtures are gonna be. You don’t know the exact selection of your countertops. You don’t know your exact selection of your electrical fixtures. You may not know exactly what you’re gonna put on a particular wall. It could be wood, it might even be drywall. We don’t know a lot of different parts of the puzzle, right? As far as what we’re gonna put together. So even tile, maybe in the bathrooms you don’t have that selected out.

Previously Completed Home Projects

So when we don’t know that, you can’t price a very specific product per se, to nail the cost. So what we do instead is during the design phase, is we take the customer through homes that we finished and built. As well as show them pictures and then we can establish if the level of finish, what that is, that they’re wanting to do. So if it’s like an average level of finish or if it’s a custom level of finish or even luxury grade finish. And once we have that information from them then we can take and create an accurate allowance amount that we put in for that particular line item. 

Avoiding Costly Change Orders 

So say it’s plumbing fixtures and it’s gonna be a custom level of finish, we’re gonna go and we’re gonna count the plumbing fixtures in that home, look at them very specifically and talk in detail with the customer. What they’re looking to get. And then we’ll put a dollar amount per fixture, each individual fixture for that, to cover the plumbing fixtures. At the end of the day, when we put that line item that’s for plumbing fixtures, say it’s got 15 or $20,000 in it, or it could be 10. Depending on the level obviously but whatever we plug in there when you actually go to make the selection to purchase those plumbing fixtures it’s right inline with what we budgeted. So you don’t have a change order, cost change order at that point. Going, “Oh my gosh, I just spent an extra five “or $10,000 on plumbing fixtures.” You’re gonna spend that amount, and our goal is that it’s very, very close. We’re not way high and we’re not low. Everybody ends up happy and at the end, you’re on budget with your project. Very, very close to what the original plan was.

Avoid Cost Overruns for Your Home Project

So that’s a great way to keep from having overruns in your project. Just making sure that the allowances are accurate for each of the selections that still have to be made which we would plug in as allowances whenever we’re initially going through the building agreement to on the front of the project. Okay, so great talking to you today. Hope that helps out and we will talk to you again soon. Have a great week.

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