Building is a verb before it becomes a noun.
Let’s look at the cost of construction for a typical residential project, where is the money? The process begins with design, Architects, engineers, consultants all need to bring your idea to life. 100% of the cost associated with the design is labor. The business will have overhead expenses but what is being paid for is labor the result is a design completely unique to one project and will essentially be a graphic representation of what is to be built. This cost will typically represent 12-15% of the project cost So for a $1M job $150,000 is allocated to engineering and design. All falling in the labor column.
The balance, $850,000 is allocated for construction of which 1/3rd is for management fees, this will vary based on project size and scope, again not all of this goes into the builder’s pocket there is overhead which will include project management time, supervision, accountants and support staff and normal business overhead which will account for approximately 90%towards direct project cost allowing for a 10% profit towards company growth and warranty expenses. Therefore, of the $850,000 there is a balance of $570,000 available for the purchase of material and subcontractors for the construction of the home.
The general rule for a subcontracting business is 1/3rd labor, 1/3rd material and 1/3rd for OH&P, this will vary amongst the trades as some equipment cost will far outweigh the cost for installation but other items such as windows will be a pure material cost with installation in the carpentry line item. The manufacturing of the windows and delivery to the site will carry roughly the same construction breakdown so we can use the rule as a standard. Other trades such as painting are heavy on labor compared to the cost of material. Using this basis, of the $570,000 we now see that $190,000 is the actual cost of the materials or roughly 19% the balance of the cost is in the act of building. Roughly 81% of the cost of construction is the verb to create the noun.
“The driving cost is labor and controlling that comes down to process.”
For the full-service architect, a project that drags on for months longer than projected, more time will be required, meetings will continue, job site visits and field reports are required for an extended period and an inefficient completion process can drain the profit right out of a good project.
For the builder process is everything, Means and methods are their responsibility. Something simple as being short one $10 sheet of drywall can easily cost $100 in downtime and the labor to run out and pick it up. Multiply that by thousands of opportunities for mistakes and real money is lost. Again, an inefficient project completion process can be a profit killer. Completion and the “punch-list” are almost 100% labor costs, list to be made, work to be completed and then checked.
For the client, as we can see time is truly money, 81% of the project cost is labor or better stated time, and time is managed by a process. Selecting a less expensive paint will save money but not labor. What to save money, look at the process, how long will the activity take, who is managing it and how effective is the work expected to be completed. Most clients will shrug, this is out of my control but as the client it is the one thing you are expected to control, you are the ultimate manager of the project, schedule review, billing and change order management, time allocation between the design and construction teams. These can and must be managed if a cost-efficient and organized process to be expected.
“Managing the process is managing over 80% of the construction cost.”
If you do not understand the process, then a Construction Manager (Owner Representative) is the answer. The Construction Manager acts on the owner’s behalf for project and process oversite, An experienced professional in all matters of Construction Management. The process is really where your money is being spent and managing the process is essential.
“The Client with the architect’s assistance only mange about 19%-25% of a project cost through material selection, typically the balance goes unmanaged.”