How Many Construction Projects Fail? A Look at the Facts

Construction Project

Construction plays a vital role in our lives, making the construction industry one of the world’s largest economies. Trillions of dollars are spent on construction goods and services every year. While that may sound lucrative, the truth is many construction projects fail for all kinds of reasons.

Nearly a third of construction projects fail, underperform, or face budget and time shortcomings every year. This happens due to changing customer requirements, poor cost/time evaluation, labor inefficiency, and second-rate materials. But adequate project management can help reduce such failures.

The rest of the article will explore why many construction projects fail and what steps should construction project owners take to improve future projects. 

How Many Construction Projects Fail?

According to a 2015 survey by KPMG International, 53% of construction project owners experienced underperformance on at least one or more projects in the previous year. In addition, the survey respondents said only 31% of their projects in the past three years came within 10% of their budget. Meanwhile, only 25% of their projects were delivered within 10% of their original deadlines.

The study suggests that the chances of construction projects failing are high. Despite being one of the world’s largest industries, the construction sector still has a lot to improve on in terms of project planning and execution. Not completing a project on time or meeting the budgeted cost can result in project failure. 

Why Do Construction Projects Fail?

Construction projects fail due to many reasons. However, overruns are typically the main reason why a construction project fails. Usually, overruns are caused by poor project management.

Poor project management can lead to many problems, such as:

  • Frequent design changes.
  • Poor cost and time estimation.
  • Worker shortage.
  • Incomplete work.
  • Poor work quality and material management.
  • Payment delays.
  • Geopolitical factors.
  • Macroeconomic factors.
  • Effect of weather conditions.

Frequent Design Changes

Sometimes clients may request changes to the design, which may lead to project delays, particularly when done too often. Project delays can potentially cost a construction project more money – one of the main reasons that construction projects end up with overruns. Dealing with demanding customers is a reality both small and large companies may face.

Ideally, all design changes should occur prior to the start of construction. While not always feasible, engaging the construction team early in the design process can help to lessen the likelihood of this occurring as potential design issues can be flagged early on by the contractor.

Poor Cost and Time Estimation

Project overruns have always been a significant problem for construction projects. As a result, many construction project owners underestimate their budgets. For example, in 2019 material costs increased by 10%, which was more than the 1.8% inflation rate for that year.

In addition to macroeconomic or geopolitical issues, construction budgets can also be affected by other factors. Often the size and scope of a project can impact the total cost. The project type can also have an impact, as some types of construction are naturally more complex and often less predictable. Location can also play a significant role in cost, as some regions are more expensive or carry higher labor costs.

Many construction projects also fail when skilled laborers spend too much time fixing mistakes or managing conflicts. Distractions can significantly slow down the productivity of a construction project. For example, a McKinsey study found that large projects take 20% longer to finish.

The study also found that 80% of large construction projects are over budget. When a construction exceeds its budget, it automatically means it’s poorly managed, leading to the project failing. A construction project is considered a failure when its expenses exceed its returns.

Worker Shortage and Problems

Another thing jeopardizing a construction project is worker issues. Of course, it is in every business’s best interest to hire reliable workers for the job, but sometimes, issues with workers can happen. When workers don’t do a good job (like not paying their suppliers or producing messy work), that can quickly tarnish the project’s reputation.

It’s important to note that sometimes problems and delays are not the direct result of laborer mistakes, but rather of uncontrollable outside factors such as inclement weather or other working conditions which may impact the work of both skilled and non-skilled labor.

Incomplete Work

Financing issues can cause a construction project to have problems, or worse, fail. There have been many instances when the owner runs out of money. And when this happens, the construction gets delayed and sometimes stops operating altogether.

These situations oftentimes arise when payments to contractors or subcontractors are delayed or when they are not paid at all. This creates a situation where contractors or subcontractors need to pause due to financial constraints, or in some cases, have stop work altogether.

Poor Work Quality and Material Management

Failure in construction isn’t just about time and cost. Low-quality end-products that don’t last and are potentially dangerous to the public are also big-time failures. These buildings are dangerous, especially for those who will eventually live in them and nearby people.

Structural failures are also a common threat to construction workers. Buildings that are poorly built often result from unethical management, where building owners cut corners to reduce costs while disregarding the buildings’ safety.

Tips for Improving Construction Project Management

The construction business is a challenging one and, no doubt, needs a lot of improvement, especially in terms of project planning, risk management, and execution. In addition, project owners must invest in hiring or developing the best workers for their future projects. Construction workers are vital to a construction project’s success, after all.

Project owners must also have systematic real-time reporting, such as a fully integrated project management information system (PMIS). PMIS can help construction project owners better track their projects and inform their stakeholders about their current project status and cost. Furthermore, a proper project management system will help project owners in making faster decisions.

Establishing a healthy relationship with subcontractors is crucial. Working with familiar subcontractors will be beneficial because you likely already know their work ethics capabilities. If you’re working with a new subcontractor, however, check their past and present works, as well as the contractor’s license, to see if they’ll make a good fit for your project.

Final Thoughts

Despite being one of the world’s biggest industries, the construction sector still has a lot to improve in project planning, risk management, and execution. As a result, many construction projects fail due to poor project planning and management. A fully integrated project management information system (PMIS) can help project owners better manage their projects.

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