Why Do So Many Construction Projects Go Over Budget?
Project managers and construction teams are all too familiar with ballooning costs, even to the point that cost overruns have become widely accepted and are sometimes even considered the status quo within the construction industry.
This does not need to be the case. Best-in-class construction management teams recognize the importance of doing everything to avoid cost overruns. By simply preparing and understanding common issues that may arise, organizations can work to get ahead of the factors in their control. The critical piece to avoiding cost overruns starts with understanding some of the most common reasons projects go over budget.
What Causes Construction Project and Capital Project Cost Overruns?
There are plenty of reasons for cost overruns, but there are five common and preventable reasons that you can tackle right away:
1. Unreliable Project Estimates
Cost overruns can creep in before a construction project even begins, starting your team and the project off on the wrong foot. The bidding process can be competitive, especially when new software vendors are involved, leading to potential misunderstanding of the full project scope and underestimating costs.
This problem is often exacerbated by limited means of tracking and handling the bidding process, including reliance on spreadsheets or a software solution that is not purpose built for construction management or outdated. Once a project begins, organizations find themselves tied to what they have in-house, and if the solutions they are using are not up to the full project management task, then they are quickly be left behind.
2. Time Management and Downtime
One of the biggest and most immediate reasons for cost overrun in your construction project is time management. Dividing up when and where workers are supposed to be and managing their time is one of the most challenging aspects of properly managing a construction project.
Once on-site, it is not unusual to find workers waiting around to get started, which leads to an excessive amount of downtime. Downtime can become a severe issue and be an unnecessary drain on your financial resources. If your workers are not busy and do not know where they are supposed to be, then you have a serious issue on your hands.
Accruent's Lx Projects solution manages the construction schedule and task dependencies, helping organizations understand what tasks need to be completed before another can start. With Lx Projects, you can get ahead of time management to alleviate downtime discrepancies before they occur.
The success of time management is determined by the construction team being aware of which projects they are supposed to be working on - thus, communication is key.
3. Communication Disparities
Project communication is critical to success. If construction teams cannot communicate effectively, projects end up hamstrung before they even begin.
Working with AutoCAD files and engineering drawings presents a unique challenge. Users generally need a separate viewer to open these documents, and inconsistencies in a file naming can throw off version control.
With Accruent's Lx Projects, you can open AutoCAD files directly from the system. Our construction project management tool allows users to edit, approve and manage document versions.
Collaboration is critical when it comes to construction projects and having a solution that can bridge information and communication gaps will lower budgets and prevent cost overruns.
4. Unplanned Costs
Unplanned costs are the bane of any construction project. Whether it is a delay in parts or labor, or an unforeseen crisis on a job site, unplanned costs can hit organizations at any time.
For many organizations, the high number of budget line items makes tracking these costs even more difficult. This requires regular digging and updates to systems. Tracking budgets vs. actuals simply becomes unmanageable. This is especially true when you are actively attempting to prevent cost overruns.
Accruent's Lx Projects solution automatically tracks the actuals as a percentage of the budget so that you know in real-time when you are going over budget. Additionally, you can set automatic notifications within the solution to alert you when you reach a cost threshold. Lx Projects can also integrate with accounting systems so that invoices post to your actuals as soon as they are processed.
By using a best-in-class software solution that is built to predict and forecast unplanned costs, organizations save time and money in both the short and long term.
5. Inefficient or Ineffective Project Management Processes
Perhaps the most significant cause of cost overruns are issues with the project management process, including those that are intended to prevent administrative errors. No matter how well-planned a construction project may be or how much budget is set aside, if your project managers are not up to speed on your project's process, then it is at risk of exceeding costs.
Well-equipped and well-prepared teams are key to minimizing wasteful spending. An effective construction project management system keeps your team in one system for major items like the scheduling, budgeting, bidding and reporting. A purpose-built system should also enable setting views and permissions by role, preventing room for errors and removing some unnecessary details. Improving these processes will equip your team to successfully complete even the most difficult project appear.
How Can We Solve Them?
Understanding why construction projects consistently go over budget is easier than understanding how to fix the problem. Many organizations will tell you why they are stuck, but they do not know what to do next.
The first step is a willingness to change course. Looking beyond in-house solutions and quick fixes may sound like the obvious first rung to climb. However, many organizations find themselves indebted to outdated or poor-performing solutions, while some are still stuck using the laborious process of working within spreadsheets.
By researching and implementing a purpose-built construction project management software solution, organizations can work within a system specifically designed to help teams manage against over-budgeting risks and within leading practices.
Raising Our Expectations for Construction Projects
For far too long, construction cost overruns have been treated as the norm. Too many organizations look at ballooning budgets as something non-negotiable - but it does not have to be anymore.
Accruent's construction project tracking software solution, Lx Projects, was crafted by industry professionals with years of experience dealing with these issues. Enough is enough - it is time to raise the bar for construction project management. Take the first step toward making project delays and cost overruns a thing of the past.
For further reading on how you can effectively complete projects on time and under budget, check out: