WHAT IS A CONTINGENCY BUDGET?
A contingency budget consists of a fraction of money that you, as the home owner, has set aside in preparation to pay for unforeseen costs that come up once the renovation project has already began. The amount included in the contingency budget is there in case unexpected costs arise in any area of the renovation, and not specific to any certain spot.
Planning Your Renovation
When you begin planning for a renovation project, knowing your budget will help you be successful in the planning process. Budgeting basically includes knowing how much money you are willing to spend and where that money will be spent. In order to create your budget, you need to look at the project as a whole and ensure you are considering each and every detail. Nonetheless, there is always the possibility of unforeseen circumstances that may arise where additional work or money will be required. If or when this occurs, it is imperative to have a contingency budget.
HOW MUCH CONTINGENCY WILL I NEED?
The amount of contingency budget you should incorporate is usually suggested to be around 5 – 10 per cent of the entire, overall budget. Keep in mind, this should be seen as a minimum amount. This rate may also vary depending on the extent and type of project you’re undergoing. If an issue comes up and something needs to be taken care of before moving on with the renovation, not having a contingency budget might delay or cause the job to be at a stand still.
IDENTIFYING POTENTIAL RISKS IN THE PROJECT
When determining your contingency budget, identifying potential risks will help be more accurate with your amount. Risks such as scheduling and weather might be contributing factors as to where your contingency budget will be allocated. In turn, this will help to determine the exact amount you should have ready.
AM I ABLE TO MINIMIZE RISKS?
In order to minimize risks included in a renovation project, there are a few steps that can be taken before construction even begins. Exploring the space and performing a physical walk through of the property with specialized people such as your general contractor, engineers and designers is likely to bring forward any obvious or less obvious concerns with the space. Additionally, obtaining finalized plans will help everyone performing work on the job familiar with what is to be done, so it can be done right. This could be considered the pre construction phase. If your contractor has a heavy contingency in mind this is done to suite the complexity of the project.
ADDITIONAL CONTINGENCY ALLOCATION
Changes From the Property Owner:
As renovation phases continue on, there might be opportunities that arise where a change to the plan or design can provide a greater benefit to the property owner. Typically, the earlier these changes are recognized and communicated, the easier (and possibly cheaper) they will be to implement.
Modifying the Design:
Modifying the design of the space once construction has began is common for home owners. This often comes at a cost, especially when home owners decide on higher end materials instead of what was originally planned. Sometimes it’s a good idea to allocate the remaining of the contingency budget towards higher end finishings, along as you’re certain that the remainder of the project will not throw any surprises your way. This could give you a nicer and more valuable result.
DO I REALLY NEED A CONTINGENCY?
The short answer here is, yes. A contingency budget is highly recommended. Without giving an allowance for any unforeseen circumstances where extra money is needed, the only option left is paying out of your pocket, which might not even be an option for you. Lowering or scraping your contingency budget should be seen as an absolute worst case scenario, and still not overly recommended. It’s also not uncommon for the person doing the work to put the project on a halt until a contingency budget is verified.
WHAT IF I DON’T USE ALL MY CONTINGENCY BUDGET?
Right on! This means your planning efforts have paid off and you can now allocate those funds elsewhere!