Cost overrun is a dirty word in the construction industry, for good reason—it has the potential to derail a project. The majority of construction projects experience an average cost overrun of 28%. Identifying the root causes of excess expenditure can help projects succeed and thrive.
The following are six common causes of construction cost overrun:
- Inaccurate Estimates
- Scope Creep
- Poor Communication
- Administrative Errors
- Inadequate Project Mgmt
- Delayed Decision Making
This blog will delve into these six common factors contributing to construction cost overruns and how they impact an organization’s profitability and growth opportunities.
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Inaccurate Estimates
One of the primary contributors to cost overruns is inaccurate estimates, which lead to budget shortfalls. There is always some uncertainty when estimating the cost of a project. Still, accuracy can be improved if the calculation is performed by experienced professionals using reliable data and aided by software to perform repetitive calculations accurately. Correct cost projections for materials, labor, and equipment will help ensure profitability.
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Scope Creep
Scope creep occurs when there are unplanned changes or additions to the project. While some changes are inevitable, unmanaged scope creep can significantly impact the budget and schedule. Defining the project scope clearly with the client and establishing change control procedures to evaluate and approve modifications will prevent unchecked expansions that can escalate expenses. When the project is complete, review and close the project formally to ensure that the project’s scope has been fulfilled successfully and satisfactorily.
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Communication
Communication is key! A Project Management Institute study found that poor communication leads to one-third of project failures. Any one person on the construction team having drawings that aren’t up-to-date can lead to miscommunications and disagreements. Using Smart Build design software to ensure everyone has the most updated information can reduce communication problems.
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Scheduling Errors
Construction projects have a lot of moving parts, making the management of project schedules tricky. Whether with equipment, subcontractors, or your employees, scheduling errors will lead to costly delays. Aligning rental equipment up when needed on the job site means keeping a tight schedule. Additionally, not having the right subcontractors or employee teams on-site at the right time can delay operations, decreasing productivity. By using SmartBuild Systems, this contractor team reduced the time spent on each sale by 60% and eliminated manhours spent doing takeoffs.
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Inadequate Project Management
Poor communication, lack of coordination, and ineffective risk management can contribute to cost overruns. Implementing robust project management practices, including regular progress monitoring, risk assessment, and client collaboration, can enhance overall project efficiency. Office workers, laborers, contractors, and clients don’t always see eye-to-eye, which is why companies need good job site management to bridge the gap and keep everyone happy.
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Delayed Decision-Making
Delays in decision-making processes, whether related to design approvals, material selection, or problem resolution, lead to project bottlenecks and increased costs. Establishing clear decision-making workflows and ensuring prompt client responses will help prevent unnecessary delays.
Comprehensive Software to Cut Down on Cost Overrun
Cost overruns are a challenge in the construction industry, but understanding their underlying cause can help minimize them. Manually entering data into spreadsheets has an inherently high error rate, which can result in costly mistakes like the delivery of incorrect materials or improper window sizing. Contractors using SmartBuild Systems software reduce error rates to less than 5%, keeping cost overrun down.
Call today for a free live demo and learn how SmartBuild Systems can elevate your business. We invite you to try SmartBuild for All Metal Buildings with a free trial you can start today!
