FMJ, the official magazine of the International Facility Management Association (IFMA), is written by and for workplace professionals and is published six times a year. FMJ is the only magazine that draws on the collective knowledge of IFMA’s global network of thought leaders to provide insights on current and upcoming FM trends. For more information on FMJ, visit

Control Your Budget Before it Controls You

by Richard W. Sievert — Originally published in the May/June 2015 issue of IFMA’s FMJ magazine.

Its typically not a good thing to exceed budgets. The ability to accurately estimate and control costs is critical to ensuring economic growth and survival of organizations as well as individuals. Facility managers must analyze financial needs and develop realistic budgets to successfully complete projects and maintain their operations within the fiscal expectations of senior management. Fulfilling these duties in a complex built environment of constant changes, budget cutbacks, restructuring programs and increasing compliance-related initiatives is a major challenge.

Higher standards and economic stakes plus a variety of other factors are raising the level of responsibility and financial accountability of facility managers. They must take time to carefully assess whether there are enough internal and external resources to adapt their facilities and operations to ensure the success of their organizations.

FMs must determine whether sufficient funds are budgeted or if additional funding will be needed to address issues such as:

  • Implementation of new technologies
  • Stricter codes and regulations
  • Tax and insurance increases
  • Energy conservation and sustainability mandates
  • Occupant health, safety, comfort and security concerns
  • Maintenance and repair backlogs
  • Building system renovation and construction projects
  • Space relocation and rearrangements

1. Realistic budget and costcontrol estimates are necessary for success

Essentially, a budget is a plan for the short-term future (generally monthly, yearly or an alternate time period tied to a specific project). Cost estimation (forecasting of future expenditures) is the basis of budgeting. These estimates are based on objectives the problem is, one never knows exactly what the future will hold.

Budgets are expressed in terms of numbers of dollars, hours, gallons, kilowatt hours and many other measures used for monitoring and managing utilization of important resources. A budget is the key part of a planning and control system for any program within an organization. Having a budget by which to direct management of the organizations facilities confirms the FMs position of real management responsibility. Controlling total building life cycle costs and keeping them within budget constraints are basic functions of a professional facility manager.

2. Good communication will help keep your budget out of the red

The amount of risk a facility manager encounters can be measured by a comparison of the amount of variance between agreed upon budget and actual cost. The risk can be reduced by proper budgeting procedures and communication with team members to identify and control risks before they become liabilities. Stakeholders need the right cost and budget data at the right time.

Proactive organizations have a robust system for alerting stakeholders about budget status. For example, a team could receive a yellow warning on routine status reports if the costs exceed budget by 5 to 10 percent. If they exceed budget by 10 percent or more, the team would get a red warning signal, or a green light if costs fall within the approved budget.

3. Learn to speak the language of your financial managers

FMs should work closely with the finance department and speak their language. To do so, they must communicate the value of their operations relative to financial justification (e.g., return on investment, payback period, life cycle costs) and impact on the organizations strategic plan. The FM team will be viewed as more valuable if it increases the organizations profits without sacrificing quality, health, safety and comfort.

Affordability is the biggest barrier to achieving objectives. It is important to have a clear understanding and team consensus regarding the objectives for each element in the budget. Since facilities are fixed assets they typically cannot be liquidated quickly to recover financial losses from bad investment decisions. Therefore, it is important to make wise decisions and not over-simplify the duties and risks associated with cost management.

4. Consider all types of costs

Bad budgets lead to bad decisions. Facility managers and their teams are tasked to complete projects of the highest technical quality on time and often within an unrealistic budget. Without sufficient funds, they will not be able to achieve the first two of those objectives.

Consider the various types of costs fixed, variable, direct and indirect when preparing budget estimates. Thoroughly evaluate factors that are likely to influence cost (e.g., personnel resources, time, methods, materials, location, equipment, facilities, designers, contractors, local economic conditions, codes and regulations, insurance, permits, etc.). In addition to initial costs (e.g., procurement, installation, construction), consider lifecycle costs, which include all costs over the useful life of an asset.

When there is not enough money, architects and engineers may not be able to justify spending the additional staff hours necessary for analyses and optimizing designs to meet the owners best interests. Adequate funds must be allocated for design in order to motivate engineers to provide the most cost-effective solutions for both current and future needs and complete detailed specifications.

5. Thorough designs are needed for accurate estimates and to prevent change orders

Detailed and complete drawings and specifications help prevent costly change orders and clearly show contractors their required scope of work. Some owners are too focused on shopping for low-cost design and engineering fees, which can result in higher construction and operating costs.

Owners often solicit quotations to use in developing the project budget without the benefit of a design. Without complete, detailed construction drawings and specifications that reflect project scope, quality and performance requirements, contractors may be inclined to submit low quotations to win the bid. This can, however, result in costly delays and change orders, which are usually set at a high profit margin for the contractors.

6. Prepare alternative design schemes, compare life-cycle costs and design to budget

Prior to design development, prepare sketches of alternative design schemes and life-cycle cost estimates for each to ensure selection of the most economical systems and components. Once the optimal design has been selected, the design professional can develop detailed construction drawings from which contractors can prepare detailed estimates and submit bids.

It is important that the design professional develop designs in accordance within the budget, known as the design to budget principle. This will help prevent contractor bids from exceeding budget.

7. Budget time to prepare program requirements for your projects

The ultimate success of a project depends on how well you do things in the beginning. Be sure to allow enough time to collect and analyze data in relation to project needs and objectives. It is the owners responsibility to prepare a good set of predesign performance criteria (program requirements) prior to contracting with architects/engineers to complete the final design documents and before committing full funds for construction of a project.

Programming is the first phase of the project life cycle. It defines performance requirements, such as functional, technical, financial and time, which serve as basis of the project design. These requirements are typically included in requests for proposals (RFPs) and are used to negotiate design contracts, guide design development and determine the feasibility of design alternatives.

Facility managers ability to control costs decreases over time. Typically, programming and design fees represent a small percentage of the overall life-cycle cost of a project. Yet, it is at these early stages of project development when there is the greatest ability to control the overall cost of a project.

The ability to control project costs diminishes from 100 percent at the start of the programming and conceptual design phases to roughly 5 percent at the start of construction. Once the construction phase begins, contractors merely follow the plans and specifications. Contracts have been let, material and equipment have been ordered and labor hours have been committed.

8. Use a phased gate approach to manage costs

A phased gate approach is highly recommended to control project financial and other risks. In this approach, the team presents deliverables at the completion of each phase in the project, and release of funds for subsequent phases is contingent on the prior phase remaining within budget.

Make sure the appropriate customers and stakeholders review and give their written approval of the deliverables at the end of each phase before proceeding with further development of the project. To keep the project within budget, you should prepare estimates as the project progresses. Always communicate and document the assumed accuracy of any estimates you give or receive. Add an appropriate contingency allowance (usually a percentage of the overall cost estimate) to cover the additional costs for unknowns that might surface.

When a project progresses, cost estimating accuracy increases proportionately as scope of work and unknowns are identified. The cost of preparing an estimate also rises in direct proportion to the degree of accuracy required.

There are generally three types of cost estimates:

  1. Order of magnitude
    • Approximate estimate made without detailed data
    • Typically based on historical cost figures, rule of thumb and square foot costs
    • Used during early planning and programming phase for initial project evaluation
    • Accuracy is usually low depending on how much information is available
    • Sometimes called rough, conceptual or ballpark estimate
  2. Budget
    • Used to establish the funds required and for obtaining approval for a project
    • Based on flow diagrams, layout, equipment details, preliminary drawings and specifications (generally include a design that is at least 30 percent complete)
    • Accuracy is greater than with order of magnitude estimates depending on policy and how much information is available
    • Sometimes called appropriation, design or control estimate
  3. Definitive
    • Used for bids/evaluations, contract changes, extra work and legal claims
    • Based on well-defined data, drawings, specifications, contractor and equipment quotations, site data and project schedule (generally includes completed design)
    • Accuracy is greater than with budget estimates depending on policy and how much information is available
    • Sometimes called construction estimate, lump sum or check

9. Assemble the right team

The development of accurate and reliable cost estimates requires special skills, including knowledge of design and engineering, construction methods and materials, costs and procedures. A major reason why owners sometimes underestimate the time and money required for new construction, alterations, major maintenance and repair projects is an inadequate understanding of the technical requirements and complex tasks required.

Do not underestimate the need for selecting the best team of design, construction, operation and maintenance personnel to plan, budget and carry out your projects. Use the appropriate types of contracts to allocate risks and responsibilities among team members.

Many components in a facility construction project can be easily overlooked. For example, installation of new production equipment, changing the use of a space or increasing the amount of people occupying a space may produce enough heat to require additional air conditioning and ventilation capacity. If an additional air conditioner is ordered, there must be enough power to run it and adequate space for the associated equipment, power distribution and support systems. It may also be necessary to complete an engineering evaluation to determine if the structure can support the weight of the equipment and related systems or if framing modifications are required.

In addition, the FM team should evaluate associated fire protection needs and sprinkler capacity. New employees associated with expansion, consolidation or remodeling projects may require additional space and facilities such as rest rooms.

These changes must all comply with building codes, regulations and insurance requirements.

It is imperative that construction drawings and specifications be prepared by appropriate design and engineering professionals. FMs should provide suitable documentation to ensure compliance with codes and regulations, procurement of permits and that contractors properly perform construction and equipment installations within the pre-established budget.

10. Use the value engineering method to analyze and develop budgets

Perform value engineering studies during the programming and early design phases when the opportunity to control project costs is greatest. Value engineering is a vital project programming and preconstruction cost management method which involves careful analysis of initial and operating costs of materials, systems and equipment. It is a function-oriented, systematic multi-disciplinary team approach to eliminate and prevent unnecessary costs while retaining high quality.

The value management methodology is a powerful way to plan project budgets, identify user needs and priorities and expedite consensus decisions regarding the lowest-cost way to achieve project objectives without sacrificing quality and performance. It is also a great way for FMs to demonstrate cost avoidance efforts to senior management and optimize the relationship between cost and worth of facility functions. The FM team should perform a value engineering study at the beginning of each new financial planning life cycle.

FMs can apply value engineering to manage growth-oriented facility projects and cost reduction initiatives. Analysis of the functions that make a project, product or service successful differentiates value engineering from traditional cost reduction. Value engineering helps teams understand what functions the customer needs and is willing to pay for and then generates lower-cost alternatives to satisfy those requirements.

A value engineering job plan is a systematic procedure for accomplishing a value study and includes the following stages:

  • Phase 1: Information gathering
  • Phase 2: Function analysis
  • Phase 3: Creativity
  • Phase 4: Evaluation
  • Phase 5: Development
  • Phase 6: Recommendations

Make a case for your budget and document everything

Monitor actual versus budgeted costs and make adjustments before it is too late to prevent major problems from occurring. Document all important communications to protect your own assets. You need an audit trail to justify decisions made and financial expenditures if problems arise in the future.

When presenting your budget results, communicate the impact on your overall organizations strategic plan and financial performance. State the financial benefits versus costs, resources required and technological constraints. Allocate sufficient time and funds to develop the optimal design and cost-control procedures for your project and facility operations.


Sievert, Richard. 1998. Total Productive Facility Management. R.S. Means. Kingston, Massachusetts, USA.

Richard W. Sievert, Jr., Ph.D., CFM, PMP, CVS, CCP is a professor in the Construction Management Program in the College of Engineering at Drexel University. He teaches courses in facility management, project management and value engineering. He also facilitates value engineering workshops and conducts applied research to help owners and managers of facilities meet demanding budgets and customer requirements.

Prior to joining the faculty at Drexel, Sievert was president of The Sievert Group of engineering, construction and mechanical services companies for nearly 30 years.

FMJ, the official magazine of the International Facility Management Association (IFMA), is written by and for workplace professionals and is published six times a year. FMJ is the only magazine that draws on the collective knowledge of IFMA’s global network of thought leaders to provide insights on current and upcoming FM trends. For more information on FMJ, visit

Articles in FMJ are the exclusive property of IFMA and are subject to all applicable copyright provisions. To view abstracts and articles not shown here, subscribe or order individual issues at Direct questions on contributing, as well as on permission to reprint, reproduce or use FMJ materials, to Editor-in-Chief Bobby Vasquez at

IFMA, founded in 1980, is the world’s largest and most widely recognized association for facility management professionals, supporting 24,000 members in more than 100 countries. IFMA advances collective knowledge, value and growth for Facility Management professionals. IFMA certifies professionals in facility management, conducts research, provides educational programs, content and resources, and produces World Workplace, the largest series of facility management conferences and expositions. To join and follow IFMA’s social media outlets online, visit the association’s LinkedIn, Facebook, YouTube and Twitter pages. For more information, visit