How to identify and prevent cost overruns in construction

Project teams and stakeholders can be liable for cost overruns. Unfortunately, it’s more common that we would like. Flyvberg Bruzelius published a study that covered 258 transport projects in twenty-eight countries. 9 out of 10 had experienced cost overruns. Cost overruns can not only put projects at risk of defaulting but they can also be extremely stressful to manage. Let’s now talk about the most common causes of cost overruns in construction and what you can do about them.
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Top Reasons for Construction Cost Overruns
Inaccurate Estimates
Cost overruns are when the project’s actual cost exceeds its estimated completion costs. Incomprehensive estimates are the best way to cause a project to cost overrun.
There are many reasons teams might give incorrect estimates. These include the pressures of project bidding and the lack of information.
Poor Materials and Site Management
Materials management is the responsibility of ensuring that project teams receive high quality materials at a reasonable price and in a timely manner. This is vital because the largest chunk of a construction project budget is consumed by the cost of materials.
Poor materials management can lead to last-minute purchases and delays, which can force a team into paying rush fees. This can also lead to poor quality or shortages. This can lead to repurchases or additional unforeseen costs.
Scope Creep and Design Errors
Every construction project is unique, so the plan will be based on intelligent guesses as well as calculated speculation. It is rare to find construction projects that don’t need adjustments or changes. However, adding too many things to the original scope or too many iterations to a project can severely impact its budget.
Reworks can lead to delays and additional labor. It can also impact materials, equipment rentals, as well as many other expensive factors.
Late Payments
Contractors often rely on client payments to fulfil their duties. Contractors without sufficient cash reserves can be hampered by companies or project teams that have long payment processing times.
These delays can lead to lost work days and the need for schedule extensions or worse, overtime.
Insufficient Contractor or Team Experience
Construction projects are fraught with pressure. Construction projects are not only expensive but also require a lot of people who will be responsible for ensuring that the project gets done on time and with quality. Poor quality work can be caused by a contractor’s inexperience. This can lead to rework or major adjustments that increase the project’s overall cost.
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How to Avoid Construction Cost Overruns
Thorough research and estimates
To get the best estimates, do as much research about your site, location and business processes as possible. Meet with key experts and evaluate historical data. Talk to your stakeholders, architects, contractors, and ensure everyone is on the same page. Be sure your team is estimating realistic scenarios and not worst-case scenarios when collaborating with you. Be prepared for contingency planning and risk management.
Although it may take some time, the benefits of analyzing your requirements thoroughly can be huge during project execution.
Contractor Due Diligence
Your contractors’ ability to deliver on their promises will greatly impact the timeliness and quality your construction project. Before signing any contracts or agreements, put in a lot of effort. Do they keep their promises? Are they in good financial standing? What is their financial capacity?
Do extensive background research before you commit.