According to a study conducted in 2019 by KPMG, 66% of construction sites would exceed their budget by more than 10%. In other words, barely a third of construction sites would manage to meet their budget, more or less! These cost overruns, which represent millions of dollars (500 Million Between 2009 and 2013 Alone), seem to affect all Construction sectors, regardless of the size of the projects carried out. Thus, from simple residential renovation to major civil engineering projects (9 out of 10 megaprojects would face significant cost overruns), cost overruns seem to be widespread.

However, it seems that The majority of these budget overruns could be avoided. How? What effective ways can businesses and project managers use to control their costs and respect allocated budgets? Our article takes stock!

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

Difficult (and insulting!) To justify all of these cost overruns by a lack of know-how or goodwill. Especially since, as we have seen, it is an extremely common and widespread problem for all businesses. So what is causing these additional costs? Why is the Construction sector so seriously vulnerable?

While the exact causes may vary from one project to another, some factors come up frequently.

Poor planning and cost estimates.

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

• A lack of a clear definition of the scope of the project and its objectives: Underestimating the amount of work required to complete a job site can lead to additional work and unexpected costs.
• Insufficient planning: Due to lack of time and human resources, many companies do not devote enough time to the detailed planning of their projects. Unfortunately, the consequences can be disastrous!
• Exempt or insufficiently detailed cost estimates: A botched estimate will always end up costing you money. All essential factors need to be considered, including materials, labor, overhead, quantities, etc.
• A lack of risk analysis: The construction sector is very vulnerable to risks. Identifying and anticipating these risks is therefore crucial to avoid cost overruns.
• Inefficient or insufficient use of project management tools: Poor site monitoring can make it difficult to monitor the progress of work, prevent expenses from being monitored and delay the delivery of the project.

Poor forecasting of the unexpected.

Unexpected events are an unavoidable reality in Construction. Unfortunately, poor forecasting of these unexpected events can lead to significant budget overruns. These contingencies can take the form of:

• Adverse weather conditions: Storms and extreme temperatures can delay work and therefore increase costs.
• Soil problems: A poor estimate of ground condition may require additional foundation or soil stabilization work.
• Design or construction errors: Mistakes are human, unfortunately repair or reconstruction work comes at a cost!
• Regulatory change: In Construction, regulations are strict and change regularly. They can lead to changes to construction plans and increase the final construction cost.
• 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 unscheduled additional work, which can ultimately lead to budget overruns. Communication problems can occur with:

• The customer: A poor understanding of construction expectations and timelines can lead to errors, overtime, plan changes, and unexpected work.
• Subcontractors: Communication problems with subcontractors can cause more or less significant misunderstandings, ranging from slight delays to design errors, to payment problems.
• The various teams on the ground: Poor communication with your teams in the field can lead to poor coordination, lack of autonomy, inefficiencies, and waste of materials and time.

What are the solutions to avoid cost overruns?

Fortunately, cost overruns are not inevitable. By taking a proactive approach and establishing sustainable work processes from the start, you can significantly reduce budget overruns and successfully complete construction projects within time and on budget.

Here are some ways to explore in order to do this more easily:

Establish a precise and detailed budget from the start.

As mentioned above, budget overruns are often linked to poor planning and/or excessive estimates. To avoid this, it is important to establish a precise and detailed budget from the start of the project. This involves:

• Clearly define the scope of the project and its objectives. This way, you would be able to identify all the necessary works and materials and you will avoid surprises later.
• Involve all stakeholders in the budgeting process. Ensure that all the subcontractors involved make accurate and detailed quotations. Make sure everyone is aware of the expected costs to avoid misunderstandings.
• Use Appropriate Cost Estimation Methods. Parametric, detailed or analog, the choice is yours! But remember, while a detailed estimate is the most expensive and time consuming to complete, it is also the most accurate and is perfect for complex projects. There are solutions for Get Good Detailed Estimates at a Lower Cost.
• Consider all potential costs. This includes materials and labour, but also contingencies and financing costs.
• Use a Estimating Software And a software of Project monitoring. In this way, you will get accurate and detailed estimates in record time. You will 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, it is essential to take care of your project management. There are various project management methods you could use, for example:

• La Kanban method : This method allows you to visualize the workflow at a glance and identify bottlenecks quickly. It is especially useful for complex projects with a lot of interrelated tasks.
• Les SMART goals : SMART goals are clear, measurable, achievable, and time-bound goals. They allow you to set clear and concrete goals for your construction projects and to monitor progress as you go.
• The Gantt chart : The Gantt chart is a visual tool that allows you to plan and track tasks and deadlines. It is especially useful for projects with tight deadlines.

Set up a comprehensive site monitoring system.

Monitoring the progress of your projects and expenses closely is essential for quickly identifying problems and taking corrective action before they cause additional costs. We recommend that you:

Establish regular checkpoints: Checkpoints are times when the progress of the project is evaluated against the budget and schedule. They make it possible to identify potential discrepancies and to take the necessary corrective actions.

Use a Construction site monitoring software : In addition to automating a number of your processes, thus limiting errors and the time spent on repetitive and recurring tasks, monitoring software will allow you to obtain data, reports and analyses in real time to allow you to make informed decisions.

Communicate effectively with all the stakeholders in your project.

Clear and open communication is essential to avoid misunderstandings and errors that lead to additional work and cost overruns. You can:

Establishing clear and effective communication channels: Communication should be easy and fast. It should allow all those concerned to remain informed of the progress of the project, 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 should know who to refer to and to whom to communicate a problem.

Foster a culture of open and honest communication: It's important that everyone on the team feels comfortable sharing their ideas and concerns.

Manage risks proactively

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

• Conduct a risk analysis: Risk analysis makes it possible to identify potential risks, assess their probability and impact. This analysis makes it possible to build mitigation plans.
• Set up a risk register: Keep a document listing all of the potential risks you have identified, their probability, their potential impact, and the mitigation plans developed.
• Track and monitor risks: It is important to track and monitor potential risks so that corrective actions can be taken if necessary.
• Opt for an estimation software: Nowadays, Good estimation software is in a position to take these risks into account in their calculations. They represent an undeniable asset!

While construction budget overruns are common problems, they can definitely be avoided with a few effective strategies. By implementing efficient and methodical work processes, companies in the sector can increase their chances of successfully completing their projects within budget and on time.

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