There are many reasons that construction projects go over budget, and it’s a widespread problem throughout the industry.
Construction budgeting is becoming increasingly complex due to the ever-evolving nature of the way construction is done. Not just this, but due to material costs and inflation, profit margins are tighter than ever.
Project delays caused by factors like staff shortages and slow delivery of results also contribute to higher expenditure.
Although these are big contributors to budget overrun, even companies that are meeting all their targets can still find themselves overbudget, without a clear reason why. In fact, a recent study found that 9 out of ten construction projects exceed. This is because of several causes that aren’t immediately obvious.
These causes build silently as the project progresses, and some occur before a project even starts. Here are 4 hidden causes that make your budget overrun.
Poor Early-Stage Assumptions
When first establishing a budget, it is common for them to be made individually for each new client. Based on current market costs and winning a client with lower bids than might be realistically deliverable. Although predictive analytics is growing in popularity, companies still find themselves basing future budgets on incomplete or irrelevant data.
Using incomplete data and overly optimistic forecasting both mean that keeping within a budget starts hard and only gets harder, setting up construction projects for failure.
It is important for forecasts to be made realistically and based on a solid foundation of past projects, as well as current market information. By combining both foresight and hindsight, a company has a better chance at making better plans and staying on budget.
Fragmented Cost Visibility
Since construction projects are constantly changing, exceeding a budget happens when management isn’t aware of where their money is being spent on an ongoing basis. Although all companies collect data, it isn’t enough to store the data and not use it.
Storing data across multiple systems without a way to collate and contain the data in a centralized place means that vital information is difficult to find and difficult to act on. Because of this, those in charge of the budget never truly realize they are in trouble till it’s too late.
Companies should try to actively make use of incoming project data and store it in a way that it can be of use when it’s needed. Helping management understand what is going on within their project makes sure they are up to date with where the money is.
Poor Scope Tracking
Throughout a project, when a small change is made, logging it can be skipped, or it could be ignored. Many companies still rely on informal and casual logging of small-scale changes. But as time passes, these small changes add up, and scope creep becomes a real risk.
Due to the effect that scope creep has on meeting a budget, failure to correctly track what is going on means it can happen at any stage of the project. Informal practices also mean that it can be hard to track what exactly has caused the increase in costs, which means that it is hard to prevent it from happening again.
By encouraging a culture of clear accountability and continuing to log small changes as they happen, project managers have an easier time tracking scope creep. By being aware of what is happening, they will be better placed to make decisions and ensure the budget is staying on track.
Reactive Decision-Making
Many project managers are still expected to work with flawless execution of each of their teams, and only minor delays. Because of this, they can find themselves having to react to problems as they appear.
The risk of reactive decision-making is high. Solutions that are found when rushed might work for the short-term, but may create more problems further along. Each rushed decision and immediate reaction make the budget tighter, and future problems become even more dangerous.
Although this can be more difficult to mitigate, it’s important for project managers to be able to have access to the information that keeps them informed. If they are kept informed, they have more chance to see early warning signs. These early warning sings means more time can be taken to find a solution that is both effective and budget-friendly.
Although harder to spot, small systemic issues throughout the way projects are managed drastically affect how well they can stay on budget. Focusing on the more obvious causes, whilst ignoring data and practices within the company, can mean that, no matter what is done, businesses still miss their targets.
But operating with these hidden causes in mind gives your company a better chance at consistently delivering results, on time and on budget.
