One of the most common problems I see on workplace projects happens before the design has really started.
Someone asks what the budget is and the answer comes back as something like £5m. Everybody then carries on as though they are talking about the same number, but quite often they are not.
For one person, £5m means the construction contract. For somebody else, it means the total capital approved by the business. Someone may have assumed furniture is included, IT may be sitting in another departmental budget, professional fees may have been allowed for separately, and risk may or may not be included at all.
Nothing has technically gone over budget at this point. The problem is that the budget was never properly defined in the first place.
From a quantity surveying perspective, this is one of the most important things to establish at the very beginning of a project: what does the approved number actually include?
Construction cost is not the same as project budget
The construction cost is obviously a major part of any fit-out budget, but it is only one part of the overall investment required to deliver an operational workplace.
Depending on the project, the total capital requirement may also include professional fees, surveys, furniture, AV, IT, security, move management, landlord interfaces, statutory costs, specialist consultants, client-side works, risk allowances and inflation.
RICS NRM 1 makes this distinction clearly by separating the works cost from project and design team fees, other project costs, risk allowances and inflation before arriving at the overall cost limit.
Commercially, that distinction is fundamental. If the board has approved £5m and the design team assumes that £5m is available for construction, when in reality the business expects everything to fit within that figure, then the project has effectively started with a budget problem before a drawing has been produced.
That is why I prefer to start with the all-in project budget and then work backwards.
What is the total amount the business is prepared to invest to get from where it is today to a fully operational workplace?
Only once that number is understood should it be broken down into its constituent parts.
Different budgets still need to reconcile
Not every organisation accounts for project costs in the same way, and there is nothing wrong with that. IT may hold the technology budget, Facilities may own furniture, Real Estate may hold the construction budget, and Finance may account for certain costs separately.
The problem comes when those separate budgets are not brought together.
A project can appear to be comfortably within budget from the perspective of one workstream while the business as a whole is spending materially more than originally approved.
That is why I think the cost plan should reconcile back to the business case throughout the project. The client should be able to see the construction cost, the other project costs, the risk allowance, the funding contributions and the total forecast investment in one place.
Without that, senior stakeholders are being asked to make decisions based on only part of the picture.
IT, AV and furniture are common gaps
Technology is one of the areas I see most frequently understated at the beginning of workplace projects.
There is sometimes an assumption that “IT is separate”, which may be true from an internal accounting perspective, but it does not make the cost disappear.
A modern workplace can require significant investment in meeting-room AV, room-booking technology, Wi-Fi, structured cabling, screens, collaboration systems and specialist equipment. There are also important interfaces with the construction works, with power and containment perhaps sitting in the contractor’s scope while the equipment itself sits elsewhere.
The same applies to furniture.
On some projects, furniture is a relatively modest part of the budget. On others, particularly where there is a strong hospitality, client-facing or brand element, it can become substantial.
There can also be assumptions around reuse. Existing furniture may have value, but the cost plan still needs to consider surveying, relocation, storage, refurbishment, adaptation and replacement of items that prove unsuitable.
These costs often develop later than the main construction design, which means they can become some of the last significant pieces of expenditure to be properly understood.
If they were never included in the original business case, that is normally when difficult conversations start.
Professional fees need more thought than a percentage
Professional fees are another area where early budgets can be too simplistic.
Applying a percentage at feasibility stage may be perfectly reasonable, but as the project develops the client should understand what advice is actually required and what sits within that allowance.
That could include project management, cost consultancy, architecture, MEP, structural engineering, fire consultancy, acoustics, sustainability, building control, planning, legal input and specialist technology advice.
The procurement route also changes the picture.
A project going directly to a design and build contractor with limited independent advice may appear to have a lower professional fee budget, but some of that design cost is simply embedded within the contractor’s price.
That is not necessarily a problem, but the client should understand where the cost sits and whether it still has the level of independent commercial and technical advice it needs.
The important point is transparency.
Moves, decant and operational costs still count
There is also a category of expenditure that often sits somewhere between property and operations.
How are people being moved? Is there temporary accommodation? Do teams need to be decanted while refurbishment works take place? Is furniture being stored? Are existing offices being decommissioned? Will weekend working or temporary services be required?
None of those items may appear in the main construction tender, but they are still part of the financial consequence of delivering the project.
This becomes particularly important on refurbishment projects in occupied buildings, where the cheapest construction option may not be the cheapest solution for the business once disruption, sequencing and operational impact are considered.
A good project budget needs to reflect that broader commercial reality.
Landlord contributions should not mask the true cost
Landlord contributions and incentives can also distort the picture if they are not shown clearly.
If the landlord is undertaking works or contributing capital towards the fit-out, I would want to see the gross project cost, the landlord contribution and the resulting net cost to the client separately.
That becomes particularly important when comparing property options.
A building with a larger landlord contribution may appear more attractive, while another may simply have a lower underlying fit-out requirement.
Both figures are useful, but they answer different questions.
For proper investment appraisal, the client needs to understand the true project cost as well as the net cash requirement after incentives.
Risk should be visible, not buried
The other major component is risk.
Early budgets will usually contain a contingency or risk allowance, but that does not automatically mean the project is adequately protected.
The client should understand what the allowance is covering.
Is it design development? Existing-building uncertainty? Client change? Market movement? Programme risk? Landlord interfaces?
RICS NRM 1 separates risk allowances from the base cost estimate and distinguishes different categories of risk, which is a useful discipline because it makes the uncertainty visible.
As the project develops, those risks should then be investigated, managed and progressively reduced.
A project does not become more certain simply because somebody has added 10% to the bottom of the spreadsheet.
The objective should be to understand why the allowance exists and what needs to happen for it to reduce.
Inflation and timing need a clear basis
The timing of the expenditure also matters.
A budget prepared today is not necessarily the amount the client will pay when tenders are received or when the works are carried out.
The cost plan should therefore have a clear base date and explain what inflation has been allowed for.
This is particularly important on projects with a long design period, phased delivery or a business case approved well in advance of construction.
If inflation is not treated properly, a budget can look robust when it is approved but become outdated before procurement is complete.
The same principle applies to VAT. I would not expect the QS to provide tax advice, but the cost report should clearly state whether VAT is included or excluded and recommend that the client confirms the appropriate treatment with its tax advisers.
Again, it comes back to making sure everyone understands what the headline number actually means.
The cost plan should reconcile back to the business case
For me, one of the most useful disciplines throughout the project is maintaining a clear reconciliation between the latest cost plan and the original approved budget.
If the business approved £5m, the project team should be able to explain how that £5m has been allocated and how the current forecast compares with it.
If something has increased, what caused the increase? If money has moved between budgets, where did it move from? If risk has reduced, what risk has actually been closed out? If construction is under budget but furniture and technology have increased, what does that mean for the overall capital position?
That is what good cost reporting should help the client understand.
The purpose is not simply to say whether the construction contract is on budget. It is to give senior stakeholders a clear view of the total investment they are committing to.
Final thought
A lot of projects that appear to go over budget do not necessarily start with poor cost control.
Sometimes they started with the wrong definition of the budget.
If one team thinks £5m means construction and another thinks it means everything required to occupy the building, no amount of detailed reporting later will solve the original misunderstanding.
That is why I think the all-in project budget should be established before the design develops too far.
It should clearly identify what is included, what is excluded, which costs sit in other departmental budgets, what risk and inflation allowances have been made and how landlord contributions affect the client’s net investment.
The construction cost is important, but it is not usually the number the board ultimately cares about.
The real question is:
How much is this decision going to cost the business?
The sooner that question is answered properly, the better the decisions that follow.
How we help
At EthosEQ, we establish the overall project budget alongside the construction cost so the client has a clear view of the total capital requirement.
That means identifying the principal costs, allowances, assumptions and risks at the outset and keeping them reconciled as the design develops.
The aim is simple: everyone should understand what the budget includes and where the money is being spent before significant commitments are made.
Want a simple checklist?
We’ve also put together a one-page Office Fit-Out Budget Checklist covering the main cost categories, allowances and questions to confirm before a project budget is approved.
If you’d like a copy, email us at info@ethoseq.co.uk and we’ll send it over.
Links
RICS NRM: New Rules of Measurement
Cost Monitoring vs Cost Management Explained – EthosEQ
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Disclaimer: This article is provided for general information only and does not constitute cost, tax, legal, contractual or investment advice. Project budgets will vary depending on scope, specification, programme, procurement strategy, technology requirements, furniture, professional services, risk, inflation and other project-specific factors. VAT and accounting treatment should be confirmed with appropriately qualified advisers. Project-specific professional advice should be obtained before approving or committing capital expenditure.