Syllabus / Pricing 101
Why cost reports are better than ballparks
Ballpark figures are dangerous
The traditional approach to helping owners achieve some level of upfront cost-certainty is to provide them with a ballpark figure. This number is usually a "guesstimate" from a single professional (an architect of contractor) based upon their experience and any design information at hand.
The problem with this approach is the guesstimate often becomes the target for the project's costs. This in turn causes the tail to wag the dog with every professional and service provider trying to fulfill an arbitrarily produced top-down number.
Often the fear of "blowing the budget" and losing the project also means this number is adhered to at the expense of better materials, design and construction methods and even the contractor's overhead and profit, all of which create a recipe for a stressful renovation with substandard results.
Introducing the cost report
Rather than providing you with a single figure, the cost report provides you with a range of costs whose accuracy is inversely proportional to their precision (so it may say "we are 80% certain your project is between $225K and $275K and 90% certain your project is between $200K and $300K").
This trade off between accuracy and precision represents a fundamental limit in the level of cost precision anyone can give you (output) with the amount of design information they have at hand (input).
Typically, when a professional visits you for the first time there is very little design information at hand. As such, its simply impossible for them to provide you with cost information that is 100% precise.
Simply put: In order for costs to be accurate with 100% precision, the design information at hand needs to be 100% complete– and that takes time, effort and money.
The shift away from a single arbitrary number to a statistically accurate range of probable costs, has many benefits:
- It helps you understand the cost implications of quality and the scope of the work you want.
- It empowers you to make intelligent decisions about your project without items having been removed by others for fear of "blowing your budget".
- It allows everyone involved to provide design and construction information free from the pressures of arbitrary numbers.
How a cost report is generated
The report uses data specific to your property and project and several point estimates from all the professionals involved on your project and plugs the data into a proprietary algorithm.