Anticipate Actual Costs
Church leaders must anticipate the actual costs they will see at the time the building is constructed. This is a difficult achievement, since things change from the time the plans are approved. Unpredictable events like Hurricane Katrina and rising interest rates put many churches in a bind—the cost to finish the project will be significantly more than they anticipated. Their choices are to either raise more money or go through the additional time and expense of revising downward their building plans. At worst, the project won't be completed.

Since costs have been rising steadily for some time now, it's a little easier to predict a rise in costs today than it was two or three years ago. Lyndon Johnson, president and owner of Johnson Mortgage Services, Inc., based in Cincinnati, Ohio, says lenders are aware of this trend so they are likely to consider the potential cost increase when evaluating a loan.

Johnson also warns that church leaders can find themselves in economic trouble after a building project because they miss some of the "hidden" costs of a building. If in fact construction costs significantly exceed the original budget, the new building will have an increased appraisal value, leading to potentially higher insurance premiums.

Another huge factor is the cost of energy for heating, air conditioning, and lighting. With rising energy prices, zone-controlled heating and air conditioning is important to minimize energy costs. High-use zones such as office areas require temperature control all day, while the sanctuary and class rooms can be set at energy-saving temperatures most of the time. When faced with cutbacks in the design and construction budgets, keep in mind the long-term financial impact of your decisions.

Related: • "How much will it cost?" table and graph

Plan Conservatively
Perhaps the first step in offsetting rising construction costs is to keep building plans conservative. Financially, it's usually best to build an economical structure while maintaining the architectural look of other buildings on the campus. If an extravagant look is desired or needed for some ministry goals, then implement it as economically as possible. For example, you can put extra resources into the look of the sanctuary, if this is important, and be as basic as possible in other spaces, like the office and education area.

But Johnson is quick to warn churches to never skimp on lighting and sound—these are critical elements and should receive high attention and full funding. "When people can't see or hear clearly, they tend not to come back," he says.

Related: • "Initial Budget Allowances" table

Start Right
"Ninety-five percent of churches start out wrong," says Johnson. Most churches are eager to get design plans from an architect, but what they really need is help in determining how much building they can afford. Although they will need to work with an architect, Johnson urges church leaders to involve a general building contractor very early in the planning stages of the project.

You can pay an architect $250,000 to $300,000 to design a church, only to find out from your general contractor that you can't afford to build it. Then you'll pay another $75,000 to $100,000 to revise the architectural plans, and maybe a second downsizing in the plan costs yet another $95,000. A general contractor is much more in tune with actual material costs, inflation, and the impact of things like change orders, alternate pricing, and local building codes. So involving a good, experienced general contractor early in the process will help guide the architect in designing a building you can afford.

In a real-life example, Johnson saw an architect propose a 58,000 square-foot project to meet a church's building needs. The cost to build the design was estimated at $15 million ($259 per square foot). Too much, said the congregation, so the architect revised the plan to $9 million. "It should have been $5 million," Johnson says. He describes another project that was initially quoted at $12 million. The design was revised and the cost came down to $7 million. In Johnson's opinion, the project should have been limited to $2.4 million. By working with the architect and a construction expert—the general planner—you can avoid these costly revisions.

Also, don't expect the lender to guide the architect. "Most lenders just go with the flow," Johnson says. "The bigger the loan—if the church revenues can support it—the more money the lender makes." The key is to find a lending partner that shares the church's vision and understands the need for prudent stewardship.

The key is to find a lending partner that shares the church's vision and understands the need for prudent stewardship.

Keep Your Congregation Involved
The entire congregation funds the building project, so the entire congregation needs to know it has full say in the decisions of what to build and how to build it. Johnson gives this example: Suppose you want 400 additional seats in your sanctuary and 12 new classrooms, and plan a 30,000-square foot addition. The contractor estimates $140 per square foot, or $4,200,000. You have $500,000 in the bank and can borrow up to $3 million. So $3.5 million of the $4.2 million is covered, leaving you $700,000 short.

You ask church members if they want to raise this $700,000. If the answer is yes, great. But they might want to change the plans to add 200 seats in the sanctuary instead of 400, or to add only another six classrooms. Either way, the congregation's input into the actual cost of the project is vital.

A major facility expansion project is an exciting challenge for a church. By anticipating actual costs, planning conservatively, starting right, and keeping your congregation involved, you will keep your project on focus and on budget.

Thomas G. Dolan is a freelance writer who writes on a variety of business topics. Send questions or comments to yceditor@yourchurch.net