Sisty is right about the seam allowance. And, typically blocks don't finish at 8.5. The finished would normally be a whole number. If I divide 12 (what I want) by 8 (what I have), I get 1.5 which would be 150% upsize to go from 8 to 12. This is the size of the finished pieces. Then add your 1/4" seam back to all the sides before cutting. The seam itself stays the same. It is never upsized.
It does get more complicated to do a block with a lot of pieces. It is still the same process. What I would do is draw what you have calculated the piece size to be with no seam allowance added, on paper. Cut those out. Put them in place & measure. Did you get the finished size block you wanted? If not, fix it with the paper before wasting any fabric. Then, make sure you add your seam allowance on all sides of each piece of the block, before you cut into your fabric.
This lady explains it a whole lot better than I could.
http://blog.shopmartingale.com/quilt...-quilt-blocks/
Isn't quilting fun???