Why do construction projects frequently go over budget?

Published: June 28, 2021
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Too many construction projects end up going over budget. In fact, 69% of construction projects go over budget by more than 10% and only 31% come within 10% of their original plan. This can drastically affect the profitability of a project, as well as cause issues with delivery..

Going over budget is often caused by a lack of foresight and insufficient care when preparing the budget, setting out a project procurement strategy and the preparation of contract documents. All of this can be avoided in the early stages of a project, helping ensure you’re better placed to deliver on time and on budget.

To ensure you’re as close to your budget as possible by the time your construction project is completed, you need to be prepared for anything. This means understanding the key reasons why construction projects go over budget and doing what you can to avoid or plan for them.

Poor Quality Tender Information

Having incorrect or poor quality tender information is a major problem and can set you up for going over budget.

Tenders need to be concise and relevant to allow the procurement team to get to the key information required. Tenders that include irrelevant information or lack the required detail can be problematic, as well as making it harder to spot any mistakes. It is also important not to adopt a ‘one size fits all approach’ to tender and contract documents, as this can lead to inaccuracies.

Inaccurate tender documents can mean the required information is not provided, risks have not been accurately assessed and costings are wrong. This can result in inaccurate estimates that don’t correctly set expectations in terms of the scope of a project. All of this means a project is almost guaranteed to go over budget.

To remove the risk of poor estimating and potential claims for extra payments, you must prepare tender and contract documents to the required standards. Doing so helps ensure more accurate estimates that cover all foreseeable costs. Overall, this will make sure your project is more profitable, ensuring your returns are as expected.

Communication Issues

Communication errors can easily cause avoidable delays and mistakes, which can lead to overspending. Incorrect information, wrong deadlines and the relevant teams not being involved at the right time can all result in situations that require costly fixes, which is far from ideal for your budget.

While improving communication is key to ensuring the project runs on time without added costs, it is equally important to remember that the appropriate channels are used for communication. Information should be provided in accordance with the contract and in the right format to ensure it is not missed and nothing is left out.

Having strict processes in place can ensure that everyone has the required information at the right time to keep things moving. This also means that contract management is key so you have visibility of information release schedules and can deal with information requests in good time.

Factors Beyond Your Control

There are a number of situations that can result in delayed projects even if all documents and plans are correct. Unavoidable issues caused by weather, natural disasters and, as we’ve seen in the last year, pandemics, can all shut down a project for an unknown amount of time.

This can result in delays and increased costs. However, you can mitigate these costs to some extent with the right planning.

Detailed insurance that is included in your estimates at the planning stage can allow you to mitigate your losses and recoup some of your budget if the project does have to shut down for a time. Insurance should be included in your tender documents to cover as many unavoidable circumstances as possible, just in case.

While you won’t be able to make up for the time you’ve lost as a result of one of these delays, you can ensure your costs aren’t drastically affected. This will ultimately mean that your project delivers the expected profits.

Get Help From Professionals

With many projects doomed to go over budget from the planning stages, it pays to ensure that your tender documents, contracts and information release schedules are as accurate as possible. Construction cost consultant services can help make sure this is the case.

Employing a consultant can provide you with clarity on cost at the inception stage of your project. This will provide you with correct insights on the feasibility and cost of each individual project, setting you up to deliver on budget right from the start.

In addition, consultant services can provide expert contract management, from producing detailed documents to managing information release schedules and requests. This ensures that communication isn’t a reason for late completion and an increase in costs.

All of this means greater profitability and allows you to focus on what you do best.