How Much Will Your Holiday Home Cost?

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Introduction 

Estimating the cost of a self-build project is one of the most challenging and often underestimated aspects of the construction journey. Surprisingly, arriving at a more accurate estimate is simpler than you might think, provided you adopt the right methodology.

In How Big Things Get Done, Professor Bent Flyvbjerg and Dan Gardner introduce the concept of benchmarking as a more reliable method for predicting costs. Benchmarking involves comparing your project to similar projects completed in recent years, providing a baseline for more realistic expectations. This approach contrasts sharply with the conventional method of estimating based on materials, labour, and project size alone—a method that often fails to account for what Flyvbjerg calls the "unknown unknowns."

The Danger of Over-Optimism

The reality is that most traditional estimation models are overly optimistic. They ignore the multitude of unforeseeable events that can disrupt timelines and inflate budgets—what Flyvbjerg refers to as the "planning fallacy." This explains why fewer than 1% of building projects are delivered on time and within budget. Adding a standard 5–10% contingency is similarly ineffective because it rarely captures the scale of potential discrepancies.

Consider this: over the past two decades, significant global events such as the 9/11 attacks, the 2008 financial crisis, Brexit, the COVID-19 pandemic, and the war in Ukraine have introduced unforeseen costs and complexities into countless projects. These are not outliers; they are part of a recurring pattern that makes relying solely on initial cost calculations inherently flawed.

Benchmarking: A More Reliable Path

By benchmarking your self-build against similar projects, you account for these unknowns in a way that standard calculations cannot. This method leverages the historical data of completed projects to reflect real-world complexities, including delays, material shortages, or unexpected regulatory changes.

It’s best to benchmark against three comparable projects, ideally built under similar conditions, to triangulate a more accurate estimate. Remember, the closer the comparables are in terms of scale, location, and timeframe, the more reliable your cost projection will be.

The Ostrich Effect

Another challenge to accurate cost estimation is what psychologists call the "ostrich effect." This cognitive bias leads people to ignore inconvenient truths, such as the full cost of past projects. It’s not uncommon for project managers or clients to underreport final costs, often because acknowledging budget overruns can feel like admitting failure. This distortion can skew benchmarking data, so it's essential to seek reliable and transparent case studies for comparison.

Think Slow, Act Fast

Flyvbjerg and Gardner's advice to "Think Slow, Act Fast" is especially relevant here. Spend more time upfront analyzing data, identifying benchmarks, and planning thoroughly. This methodical approach allows for faster, more confident decision-making during the build itself, reducing the likelihood of costly missteps.

In conclusion, achieving a realistic cost estimate for your self-build requires moving beyond surface-level calculations. Embrace the rigour of benchmarking, recognize the influence of unforeseen events, and counteract cognitive biases like the ostrich effect. By doing so, you’ll be far better equipped to navigate the financial challenges of your project with clarity and confidence.