Studies have shown that only 31% of construction projects stay within 10% of their budget. By taking precautions, you can prevent projects from going over budget. Ensuring that everything is done correctly can be tricky, and there are many reasons why a construction project could go over budget.
Here are eight reasons why construction companies go over budget:
- Inadequate project design
- Inadequate management of construction site
- Lack of technology
- Issues with vendors
- Inaccurate project estimate
- Hiring inexperienced subcontractors
- Human error
- Environmental factors
Some elements that lead to cost overruns are impossible to control, while others can easily be prevented. Having extra padding in the budget for unexpected costs can help construction companies stay within budget. Read on for more information on how you can avoid cost overruns.
1. Inadequate Project Design
For a commercial construction project to stay within budget, an adequate project design must be used. If a construction project is poorly planned, it’s very possible that funds could run out before the project is finished.
It’s essential to be realistic with costs when planning a commercial construction project. Being prepared for all possible expenditures can prevent a construction company from going over budget on a project.
Inadequate project design is one of the top reasons for construction project overruns. This is something you should consider when doing pre-construction planning and forming a project design.
Inadequate project designs must be modified mid-project. This often means tearing out and replacing completed work and will run up your labor and materials costs.
Communicate with all contributors to the project to ensure that everybody is on the same page with the design. Miscommunications in the design process could be expensive later on.
If an architect does not represent all the needed construction within the design, this could result in the contractors requesting more money to complete the project. When unexpected construction additions are required for the project, this is called a change order.
It’s important to always add room in a construction budget for the possibility of changing orders. Most architects do not include 100% of the engineering into their designs, so these parts may not be included when a contractor does a bid estimate.
To get a more accurate estimate, it’s possible to request that the architect does a 100% complete project design. When doing this, the architect will include every detail involved in the construction. This will help bring a more precise bid from a contractor.
2. Inadequate Management of Construction Site
A poorly managed construction site cannot operate efficiently. Whether the site manager is inexperienced or just having a tough time with that specific project, having a mismanaged construction site can be disastrous.
Fundamental miscommunication can lead to unnecessary spending. It’s crucial to have a proactive site manager capable of handling the project at hand. Adequate management of a construction site can prevent construction companies from going over budget.
Cost overruns can be frequent if the finances of a commercial construction project are not properly managed. However, managing finances is not the only important aspect of construction site management.
Someone should be assigned to the task of managing each team. Disagreements and miscommunications between groups can lead to costly delays in construction. Delegating different sections and tasks to multiple managers can guarantee all bases of the project are being covered.
A practical method to prevent mismanagement of a construction site is to use management software. Contractor Foreman is designed for contractors to efficiently manage a construction site with the help of technology. Save time and money by using Contractor Foreman.
Lack of organization can lead to mismanaged money and spending over the budget limits. The Contractor Foreman software can help organize and supervise every aspect of a construction project, including finances.
Even the most organized manager can struggle to keep a project within budget. Using construction management software can help minimize human error and manage the budget accurately.
3. Lack of Technology
Staying up to date with technology can help avoid costly mistakes in commercial construction projects. Construction companies who choose to plan and organize projects manually on paper run the risk of experiencing delays and errors. This goes for tools, as well.
Updating old construction equipment and power tools is essential. Outdated equipment can operate more slowly and has a higher risk of malfunctioning. Properly maintained and newer equipment is more reliable and sturdy enough for construction projects.
As mentioned in the above section about site management, construction management software is valuable for keeping a construction project within the budget. Team leaders and contractors can collaborate using this software to ensure the project is done correctly.
Management software can help to keep everyone involved on the same page to prevent any miscommunication errors. Time and money management for a project are simplified using construction management software. Staying organized is easier than ever.
Construction software can also be used for designing projects and creating digital models. With hand-drawn blueprints, making changes can be time-consuming. Producing blueprints and models is much faster and more efficient with the use of construction software.
Digital models allow you to make changes immediately and easily share them with the crew involved. Lack of technology can lead to tedious planning and adjustments throughout the project. Construction software can help construction companies avoid going over budget.
By using technology to manage construction projects, contractors can avoid tedious redraws and changes to the plans. Any necessary changes can be made quickly and easily with the use of construction software.
4. Issues With Vendors
Issues with vendors can be unpredictable and difficult to avoid. Sometimes vendors run out of a particular product or cannot deliver the required goods on time. Many unexpected obstacles can interfere with you and your vendor’s agreement. Any cost overruns can cause issues with the vendor if they are unable to fill the change order.
Working with an inexperienced vendor can also cause overruns. If a vendor isn’t experienced or doesn’t offer high-quality services, you are at risk of wasting money with inaccurate estimates and unreliable materials.
Be sure to check a vendor’s reviews before working with them to ensure they have a good reputation. Online reviews from clients are typically a straightforward method of figuring out what quality service a company offers.
Avoiding issues with vendors can be tricky, but composing detailed contracts and communicating clearly can help prevent problems. Some issues are unavoidable, of course, but having a list of backup vendors handy can help avoid any delay in construction.
However, changing to a new vendor involves paying new contract fees, which can potentially overrun the construction budget. Researching vendors before working with them can help attempt to avoid this.
Forming strong relationships with vendors you can trust can help to avoid any issues with vendors. Work with vendors who are reliable, consistent, and easy to communicate with. Avoid vendors who miss deadlines or don’t deliver on time.
5. Inaccurate Project Estimate
Many construction companies that go over the budget do so because the project estimate was inaccurate. Vendors and contractors are not prepared for all of the expenses involved in the project because the estimate did not accurately reflect the project.
Project estimates can be wrong for various reasons, but a common factor is unrealistic expectations for the length of time. If contractors and architects are not given an appropriate amount of time to complete the construction project, the quality could be compromised.
Blueprints and project models that are lacking in detail can also lead to inaccurate project estimates. If contractors are not given 100% of the details involved in the construction, they cannot provide an accurate project estimate.
Construction project management involves verifying that all blueprints created by the architect reflect the desired outcome of the construction project. Failure to convey all the necessary work to the construction team can result in costly change orders.
Inaccurate project estimates can be avoided if everyone involved in the project is on the same page regarding the process and the desired outcome. Construction management software is a tool that can also be effective for guaranteeing that the project estimate is accurate.
Avoid extra additional costs by using construction software to ensure that every aspect of the project is covered within the estimate. Precise project estimates can help construction companies stay within the desired budget.
6. Hiring Inexperienced Subcontractors
Subcontractors perform all of the necessary labor for a construction project. Inexperienced subcontractors can slow down the construction process, causing labor costs to increase if the project is extended.
Experienced professionals can get a job done correctly and on time. With inexperienced subcontractors, there is the risk of the task being completed incorrectly. They also usually do not complete the task as quickly as an experienced professional.
Even if the plans for the project are 100% accurate and thoroughly detailed, an unqualified team of subcontractors can cause costly mistakes during construction if they are not adequately supervised.
Errors and delays caused by inexperienced subcontractors can cause construction companies to go over budget. Take precautions to prevent hiring inexperienced subcontractors for the project.
Prevent strain on the budget by hiring experienced subcontractors and getting the jobs done correctly. If construction is done correctly, it only needs to be done once and will not have errors needing to be fixed.
There are applications contractors can use to analyze the subcontractor risk, such as TradeTapp. You can use TradeTapp by clicking this link.
Ensuring that the entire team of subcontractors is experienced and low-risk will protect the project budget and get the job done efficiently. Working with a team that knows what they are doing will allow the project to be completed correctly.
7. Human Error
Sometimes, as careful as we may be, we make errors that have a significant impact. In commercial construction, human error has the potential to be highly damaging to the budget.
Minor mistakes can be catastrophic if they are not addressed early on. Errors can also have minimal impact on the project. Leaving extra room in the budget to cover mistakes made by human error can help prevent construction companies from going over the budget.
Errors such as forgetting a decimal when making orders or ordering the wrong type of wood can be expensive. Be on the lookout for human errors like these. Double-check all orders and verify all purchases with the project manager.
Miscalculations can cause massive issues with construction, so every calculation involved should be double-checked, as well. Human error can also lead to the accidental damaging of equipment, leading to costly replacements not included in the budget.
Human error should always be included in a construction project budget to cover any accidents. Using construction software is another method to double-check numbers and construction models to ensure everything is accurate. Technology can help prevent human error to a certain extent.
8. Environmental Factors
Some factors that cause a construction company to go over budget are out of everyone’s control. Environmental factors, such as bad weather or power outages, are not preventable. Bad weather can interfere with construction and create hazardous working conditions.
Unexpected storms can delay construction projects for up to several days, putting a strain on the project budget. Natural disasters have the potential to halt construction completely for extended amounts of time.
It’s possible to prepare for environmental factors to a certain extent, but in reality, there is no way to prepare for unknown events fully. For example, you can prepare a construction site for rain, but you can’t prepare for material deliveries running late due to a violent storm.
However, extra money within the budget to act as padding to prevent cost overruns can help balance any adverse effects caused by environmental factors. Even if no environmental incidents occur and the money doesn’t get spent, there is no harm in being prepared for the unexpected.
Insurance is another method to prevent financial impacts from environmental factors out of your control. Typically, insurance is required for construction projects, but not all insurance plans cover environmental factors such as natural disasters.
Be prepared for any unexpected incidents by ensuring your construction insurance covers anything that could risk overrunning the budget.
Sources
- KPMG: Global Construction Survey 2019
- Engineers Daily: Causes of Disputes in the Construction Industry
- Field Wire: How to Deal with a Project Overrun
- Contractor Foreman: Home Page
