According to a 2019 study by KPMG, 66% of construction sites exceed their budget by more than 10%. In other words, barely a third of construction sites manage to stay more or less on budget! These cost overruns, running into millions of dollars($500 million between 2009 and 2013 alone), seem to affect all sectors of the construction industry, whatever the scale of the project. From simple residential renovations to major civil engineering projects(9 out of 10 mega-projects are reported to have significant cost overruns), cost overruns appear to be widespread. 

Yet it seems that most of these budget overruns could be avoided. But how? What are the most effective ways for companies and project managers to control costs and stay on budget? Our article takes a look!

Better understand the reasons and causes of cost overruns in Construction. 

It's difficult (and insulting!) to justify all these cost overruns by a lack of know-how or goodwill. Especially since, as we've seen, this is an extremely common problem, and one that applies to all companies. So what's causing these extra costs? Why is the construction industry so financially vulnerable? 

While the exact causes may vary from one project to another, certain factors are common. 

Poor planning and cost estimation.

If you never manage to meet your estimates, it's certainly in the first hours of life of your construction projects that your problems arise. And they can take many forms: 

• Lack of clear definition of project scope and objectives: Underestimating the workload required to complete a project can lead to additional work and unforeseen costs. 
• Insufficient planning: for lack of time and human resources, many companies don't devote enough time to detailed project planning. Unfortunately, the consequences can be disastrous!
• Inaccurate or insufficiently detailed cost estimates: a sloppy estimate will always end up costing you money. All essential factors must be taken into account, including materials, labor, overheads, quantities and so on.  
• Lack of risk analysis: The construction industry is highly vulnerable to risk. Identifying and anticipating these risks is therefore crucial to avoid cost overruns. 
• Ineffective or inadequate use of project management tools: Poor site monitoring can make it difficult to track progress, prevent expenses from being tracked and delay project delivery. 

Poor anticipation of unforeseen events.

The unexpected is an unavoidable fact of life in construction. Unfortunately, failure to anticipate these contingencies can lead to significant budget overruns. These contingencies can take the form of :

• Adverse weather conditions: Storms and extreme temperatures can delay work and thus increase costs. 
• Soil problems: A poor estimate of soil conditions may require additional foundation or soil stabilization work. 
• Design or construction errors: Errors are human, but unfortunately repair or reconstruction work has a cost! 
• Changing regulations: Construction regulations are strict and change regularly. They can lead to changes in construction plans and increase the final cost of completion. 
• Shortage of materials: A sudden shortage of building materials can lead to delays and budget overruns. 

Communication problems

Poor communication can lead to misunderstandings, mistakes and unplanned extra work, which can ultimately lead to budget overruns. Communication problems can occur with : 

• The customer: A misunderstanding of expectations and construction deadlines can lead to mistakes, extra delays, plan modifications and unforeseen work. 
• Subcontractors: Communication problems with subcontractors can lead to misunderstandings of varying degrees, from minor delays to design errors and payment problems. 
• Different teams in the field: Poor communication with your teams in the field can lead to poor coordination, lack of autonomy, inefficiencies and wastage of materials and time.  

How can you avoid cost overruns? 

Fortunately, cost overruns are not inevitable. By adopting a proactive approach and establishing rigorous work processes from the outset, you can significantly reduce budget overruns and bring your construction projects in on time and on budget.

Here are a few ways to make this easier: 

Establish a precise, detailed budget from the outset. 

As mentioned above, budget overruns are often the result of poor planning and/or inaccurate estimates. To avoid this, it's important to establish a precise, detailed budget right from the start of the project. This means : 

• Clearly define the project scope and objectives. That way, you'll be able to identify all the work and materials required, and avoid surprises later on. 
• Involve all stakeholders in the budgeting process. Ensure that all subcontractors involved provide accurate and detailed quotations. Make sure everyone is aware of expected costs, and avoid misunderstandings. 
• Use appropriate cost estimation methods. Parametric, detailed or analog - the choice is yours! But remember, while detailed estimating is the most expensive and time-consuming, it's also the most accurate, and perfectly suited to complex projects. There are solutions for obtaining good detailed estimates at lower cost. 
• Take all potential costs into account. This includes materials and labor, but also contingencies and financing costs. 
• Use a estimating software and project monitoring software. You'll get accurate, detailed estimates in record time. You'll be able to track your expenses in real time and quickly identify bottlenecks. 

Use effective project management methods. 

To keep your construction projects on track and avoid cost overruns, careful project management is essential. There are various project management methods you could use, for example:

• The Kanban method This method enables you to visualize your workflow at a glance and identify bottlenecks quickly. It is particularly useful for complex projects with many interdependent tasks. 
• The SMART objectives SMART objectives are clear, measurable, achievable and time-defined goals. They enable you to set clear, concrete objectives for your construction projects and monitor progress as you go along.
• Visit Gantt chart The Gantt chart is a visual tool for planning and tracking tasks and deadlines. It is particularly useful for projects with tight deadlines. 

Set up a rigorous site monitoring system. 

Keeping a close eye on the progress of your projects and expenses is essential to identify problems early and take corrective action before they lead to additional costs. We recommend that you : 

Establish regular checkpoints: Checkpoints are times when project progress is assessed against budget and schedule. They enable potential deviations to be identified and corrective action to be taken. 

Use a site tracking software In addition to automating a number of your processes, thus limiting errors and the time spent on repetitive, time-consuming tasks, tracking software will provide you with real-time data, reports and analysis to help you make informed decisions. 

Communicate effectively with all project stakeholders. 

Clear, open communication is essential to avoid misunderstandings and mistakes that lead to extra work and cost overruns. You can :

Establish clear, effective communication channels: Communication must be quick and easy. It must keep everyone involved informed of project progress, changes and potential problems. Avoid multiplying communication channels and centralize information as much as possible. 

Use appropriate communication tools: project management software often offers very complete and effective communication platforms. 

Define clear roles and responsibilities: Everyone needs to know to whom they can refer and to whom they can communicate a problem. 

Foster a culture of open and honest communication: It's important that all team members feel comfortable communicating their ideas and concerns.

Proactive risk management. 

As we've seen, risks are part of the job! It's important to identify risks that could lead to cost overruns, and put in place mitigation plans to manage them. To do this, you can : 

• Carry out a risk analysis: A risk analysis identifies potential risks and assesses their probability and impact. This analysis can be used to draw up mitigation plans. 
• Set up a risk register: Keep a document listing all the potential risks you have identified, their probability, their potential impact and the mitigation plans you have drawn up. 
• Tracking and monitoring risks: It's important to track and monitor potential risks so that corrective action can be taken if necessary.
• Opt for estimating software: Nowadays, good estimating software is able to take these risks into account in its calculations. They are an undeniable asset!

Although construction budget overruns are a common problem, they can be avoided with the help of a few effective strategies. By implementing rigorous, methodical work processes, companies in this sector can increase their chances of completing projects on time and on budget. 

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