Managing construction projects is being on the lookout 24/7 for unexpected challenges; some say that this is why the industry has the brightest minds of the generation. While risks and hurdles are exciting, they can have a big impact on the project’s outcome and affect the construction team’s efficiency. Some of the losses in the business are easy to pinpoint – such as poor planning, miscommunication, and improper inventory management – however, money issues are not so easy to identify.
No matter the scale, every construction has experienced bloated costs and overruns at one point in the project lifecycle. This is not a new problem, as unforeseen and hidden cost in the business has been considered a norm, even if it’s an issue that can be fixed with the right strategies and tools.
So, what are the causes of the unaccounted-for cost in construction, how can this impact your overall project, and what project management tips can you implement to stay on budget?
Let’s dive right in.
What are the Causes of Cost Overruns in Construction?
Before we can avoid the unforeseen costs in managing construction projects, we must be aware of what causes them in the first place.
1. Poor Project Management
Poor scheduling and project management can lead to a domino of unexpected costs in construction projects. Some bad practices that can be seen on-site are poor worker coordination, compromised work quality, and substandard building materials. Inadequate communication can lead to errors and costly revisions, while infrequent inspections allow unnoticed poor performance and low-quality workmanship, resulting in expensive reworks.
2. Project Design Mistakes
Miscommunication can lead to project design deficiencies in the long run. These are to blame for almost half of the disputes that happen in the industry, which can lead to cost overruns, low-grade work, and even legal cases.
3. Communication Errors
Without a single platform where all parties can communicate, it is nearly impossible to finish a construction project within the agreed timeline and budget and to meet a project owner’s expectations.
4. Administration Oversight
One more common cause of cost overruns in construction is administration errors. Even the slightest mistakes can snowball into massive expenses. For instance, miscommunication concerning crew schedule management, document management, and unsuitable micromanagement can all add up to cost overruns of your project.
5. Incorrect Estimates
In the race to win tight project bids, construction companies may rush when preparing proposals to submit them on time. This could cause imprecise project estimates, including inexact schedules and budgets. Some companies may base their estimates on a one-size-fits-all template, increasing their risk of an incorrect budget for the project.
Whatever the cause of cost overrun, budget creep can lead to poor operational efficiencies as deadlines are missed, resources are depleted, debts are increasing, clients and team members are unhappy, expectations are not met, the company brand is tarnished, or legal troubles are seen in the horizon.
To manage cost overruns, contractors must establish strategies to better understand their construction budget breakdown, improve communication, and identify potential problems to avoid unexpected costs.
How Does Cost Overruns Affect a Construction Project?
Hidden and unforeseen costs in construction projects can have considerable operational and financial consequences, including:
1. Construction Delay
Unexpected costs often lead to project delays, which also impact the project’s overall schedule. Rework, change orders, and inefficient resource dispatching can prolong project timelines, resulting in increased overhead costs and possible penalties for missed deadlines. Construction delays can also affect a project’s later phases, disrupting the overall construction schedule.
2. Damaged Company Reputation
There can be major effects on your company’s reputation and relationship with your clients. When projects experience completion delays, cost overruns, or quality issues due to cost overruns, clients will become disappointed — leading to dissatisfied word-of-mouth, lower chances of repeat business, and difficulty in winning future contracts.
3. Reduced Revenue
Ultimately, profitability is a sure hit for general contractors. All the lapses that can happen on-site, whether planned or not, directly impact a contractor’s financial bottom line. Profit margins are eroded, and the financial viability of a construction project or the company may be at risk if cost overruns are not effectively managed.
4. Safety Risks
Unexpected construction project costs can affect site safety by compromising structures and workflows. Budget constraints can not only cause schedule delays. Still, they could lead to structure collapse, incorrect installations, and faulty safety measures. Low budgets may discourage proper quality control and inspections, allowing non-compliance and hazards to be rampant on-site.
5. Low-Quality Construction Work
Budget cuts can compromise construction quality, whether that is productivity or output. Unaddressed issues can result in poor workmanship, mistakes, or deviations from agreed design specifications. Low-quality work affects the immediate project and can cause long-term longevity and maintenance issues, leading to a damaged and tarnished reputation of a contractor.
6. Decreased Productivity Levels
Hidden costs can have a major impact on the productivity levels of construction sites. Wasted time due to inefficient workflows and poor on-site implementation can hit the morale of workers and then snowball into wasted money. Workers may spend too much time addressing avoidable problems instead of focusing on unaccounted activities, leading to low output and decreased efficiency.
What are the Strategies and Practices that can be Implemented to Avoid Cost Overruns in Managing Construction Projects?
By establishing proactive construction project management strategies, you can develop a culture of continuous upgrading and minimize cost overruns. By leveraging digital technology tools, such as construction scheduling software, these strategies can be further simplified and automated, eliminating hidden costs and enabling improved project management, data-driven decision-making, and better project outcomes for years to come. Below, we’ll discuss some proven tactics to help maximize your company’s efficiency and limit the risk of cost overruns.
1. Utilize Tools that Prioritize Collaboration and Communication
Effective collaboration and communication are critical to the success of construction projects. Pro Crew Schedule is a construction project management software that offers collaboration tools and a centralized platform that facilitates seamless communication with all project stakeholders. By enabling real-time communication, field office communication, document sharing, and crew worker schedule has never been easier.
Pro Crew Schedule enhances collaboration, ensures transparency, and offers a single source platform for your team. By fostering a collaborative culture, mistakes and discrepancies can be significantly reduced, reducing the risk of cost overruns in your business.
2. Project Cost Budgeting and Tracking
Effective cost budgeting and tracking in construction is crucial to avoid cost overruns. Specialized software allows teams to track and control costs throughout the project lifecycle. These digital solutions provide real-time visibility into project expenses, enabling accurate tracking of resources, labor, equipment, and other costs.
Detailed insights help project managers identify any unexpected cost and budget discrepancies early, enabling proactive parameters to be in place. Implementing solid cost-tracking practices through construction scheduling software mitigates risk, ensuring that projects stay on budget, advocating financial transparency, and minimizing structural and safety issues.
Construction management software helps project managers make informed decisions, improve resource allocation, and ensure project plans are efficient and aligned with risk mitigation strategies. Using construction scheduling software, you can minimize the likelihood of cost overruns by proactively addressing potential issues before they escalate.
3. Implement Real-time Construction Updates and Site Analysis
The importance of real-time monitoring and site analysis cannot be overstated in identifying and preventing hidden costs. Pro Crew Schedule is a construction management software that can provide you with real-time updates regarding your project anywhere you are, which enables you to monitor project performance and quickly identify any activities that can cause overruns in the budget.
Prevention is better than solution, and with a feature that enables you to see the value-adding activity as it happens, you have the power to manage your operations and finances even better than before.
Our human minds can only process so much information. Likewise, pen and paper have limited effectiveness when dealing with overly complicated projects. There are hundreds of moving parts in construction at any given time, and software will give you the upper hand by utilizing automation. Calculation errors and missed deadlines are very expensive mistakes we want to avoid.
Reducing a project manager’s cognitive load and having real-time project information at any given moment is critical in protecting a construction budget and keeping cost overruns at bay. A construction project is a difficult business to manage. Small mistakes like a missed order or a wrong hire can throw a wrench into a carefully crafted project plan. Understanding common causes, implementing strategies to avoid them, and integrating construction management software into your workflow will certainly set your construction project for success.