Cost Overruns in Construction Projects- Reasons you may Encounter them

Cost Overruns in Construction Projects- Reasons you may Encounter them

Construction projects are often complicated, and budgets are most likely to go haywire for a majority of them. Addressing cost overruns is possible only if you understand the root of the issue. While there may be uncontrollable factors like weather or forces beyond human control, leading to cost concerns, the problems could be avoidable as well. In fact, overruns are usually associated with deeper issues in project management, which aren’t visible on the surface. It makes sense to be aware of them and have the right strategies in mind to resolve them so that your project stays on track. Let us highlight some key reasons for cost overruns in construction projects.

Inaccurate project estimates

The stakeholders may be eager to get started, but faulty schedules and budgets in a hurry mean that you are headed for an overrun. Some projects go wrong because construction companies estimate them on a one size fits all model rather than consider individual needs. Although the problem seems to be tough to deal with, it can be handled by practising diligence in the preconstruction phase. Also, be realistic about project deadlines and costs and implement project management software to keep track of cost overruns right from when they are first visible. A solid planning phase before you start ensures a better process of documentation, a reliable project schedule and less confusion between administrators, which can all reduce future expenses effectively.

Serious design errors

Even as you nail an accurate budget and schedule estimates, a defective design can lead to cost overruns in the project. A design deficiency is related to poorly designed, incomplete or inaccurate plans, which not only delays projects and elevates cost but can also result in disputes with the client. Further, incomplete or incorrect plans lead to substandard work and compromise with quality down the line. Fortunately, the problem is entirely avoidable in a majority of situations. Leveraging construction software right from the design stage reduces the risk of errors by ensuring effective communication to keep everyone on the same page. Similarly, design changes can be executed quickly as and when there are changes in project scope. Further, it also keeps documentation on track, which minimises the chances of disputes.

Poor site management

Apart from incorrect estimates and design flaws, poor site management is another common reason that leads to cost overruns. Typically, a manager needs to streamline jobs and keep everything on the site on track, right from design integrity to quality control, equipment condition and labour adequacy. If you fail on one or more fronts, the impact will be visible directly in the form of cost overruns. The problem doesn’t end here as poor site management can cause a trust gap between owners and teams, which will have a far-reaching impact on the project’s momentum. Once again, construction software can come to your rescue and facilitate on-site communication and project management as a whole.

Not planning for change orders

Change orders can be another culprit for causing cost overruns in construction projects. As the name suggests, a change order occurs when the project demands or requires a change. This usually happens if the design is apparently not working or the client has new requirements or specifications after the initial models and budgets are done with. Clearly, the additional requirements can elevate costs for the project, which will disrupt the original budget. Consequently, it is best to address changes up front in the contract phase by having a Change Order Provision added to specify the procedures and budget required when it happens. If you fail to do so, there are chances of disputes when change orders subsequently come.

Administration errors

Cost overruns can happen even because of administrative errors, when everything else seems to be in good shape. Projects may suffer when the administrative team makes errors in the calculation of budget estimates. Similarly, issues like failing to maintain documents and not communicating with contractors and project managers can aggravate the problem. Generally, increasing the size of the administration team and onboarding efficient resources can help. Better still, empowering them with the right tools is a long term solution to cut down errors and drive accuracy in the processes, right from invoicing, accounting and delivery monitoring.

Being aware of these challenges and taking a systematic approach to overcome them can help you in managing cost overruns successfully. So there is a need to closely assess and evaluate the reasons causing them in your project and taking the right action to address them once and for all. It is always good to look for a long-term solution rather than just a quick fix so that you can avail the benefits project after project.

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