Why Do Construction Projects Go Over Budget?
To make profit, construction companies must carefully plan and schedule their projects. Materials, labor, equipment rentals, and all other expenses are calculated and added to the projected cost.
However, even with careful planning, complex jobs run significant risk of going over budget. It’s extremely difficult to predict every potential delay or change of scope when the work that’s being completed takes several phases, is spread out over a long period of time, and involves multiple crews and subcontractors.
Understanding the common reasons why construction projects frequently exceed budget helps project managers and other stakeholders prevent issues on their own jobsites. By keeping the following tips in mind, they can mitigate the risk of going over budget, increasing overall profitability and promoting good customer relations.
Common reasons construction projects exceed budget
Miscommunication and poor data management
Miscommunication and a lack of proper documentation frequently cause issues on construction sites. Good communication is essential throughout the entire construction process from design through implementation, and even a minor breakdown at any step of the way can lead to time-consuming, expensive rework down the line.
Many contractors still rely on pen and paper reporting and other old fashioned methods for tracking productivity and sharing progress updates. Unfortunately, with these outdated processes, stakeholders don’t always have clear visibility and may miss important opportunities to correct communication errors before they cause major delays.
Effectively allocating a company’s most valuable resource—its workers—is another vital aspect of keeping a project within budget. Scheduling either too many or too few workers each day are equally costly mistakes. A lack of understanding of a team’s capabilities tanks profitability from the project’s start.
If there aren’t enough workers available to get scheduled tasks done, the project will obviously run into delays. Likewise, if there are too many workers onsite some of them will experience excessive downtime. At best, these surplus workers won’t have any work to do, but they’ll still need to be paid fairly for their time. At worst, having too many people in the work zone will cause a safety hazard.
While some accidents are truly unavoidable, many can be prevented with proper safety and quality assurance procedures. Construction companies must enforce jobsite reporting and monitoring protocols, most importantly to protect their workers and secondarily to prevent construction errors and damage to materials or equipment.
When employees aren’t trained to catch and correct safety or quality concerns, or if they don’t have the tools they need to do so efficiently, accidents occur. Then, tasks are delayed as the company works to resolve them.
If design documents are missing important information or if specifications are calculated incorrectly, work may be delayed and will possibly go over budget as field crews wait for the design team to adjust. When there is little project oversight, this becomes an even larger problem, because sometimes incomplete design documentation leads to construction errors.
Designs should be completely and thoroughly reviewed before work is started, but this is not always the case on busy construction sites, especially when project managers are busy managing work across multiple jobsites.
Due to poor communication, extreme weather, improper handling, and other issues, materials, equipment, and existing structures may be damaged onsite. Materials will need to be replaced while equipment and structures must be repaired, adding significant unexpected costs to a project.
Construction companies may also spend valuable hours trying to determine the initial cause of the damage.
Supply chain issues
Contractors have little control over vendors. Unfortunately, sometimes a project’s budget is affected when vendors cannot deliver materials or supplies on time.
Supply chain issues, shipping delays, and surprise service charges add to project expenses. When creating bids, contractors should keep these possibilities in mind.
Inexperienced leadership and poor contract management
Strong leaders in the field keep work on schedule. Managing crews of multiple contractors who are all completing intricate tasks as a part of a larger project is challenging.
When minor issues occur, inexperienced leadership may make mistakes handling them, causing further delays or adding unexpected costs. They may make poor judgment calls when crew members have questions about specific tasks or procedures, which can lead to accidents or construction errors.
It is not always the individual employee’s fault when inexperience leads to mismanagement. It’s the construction company’s responsibility to hire or promote managers with the right level of experience and provide the training and tools they need to succeed.
On the office side, project stakeholders should not simply sign a contract and forget about a project until it's done. They should continuously monitor project progress and review contract terms to ensure work is completed on schedule.
When stakeholders don’t have clear visiblitiy into what’s happening on the job, or if they misinterpret a contract, the risk of going over budget will rise.
Tips for avoiding cost overrun
So, with all of these common issues happening on construction sites, how can contractors avoid exceeding budgets? Even though the reasons projects overspend vary far and wide, a few simple solutions can help reduce risk across the board.
Track labor and inventory digitally
Construction companies can do their part to help managers and crew members gain better visibility and reduce overspending by equipping them with helpful tools like digital production tracking software. Using mobile data capture, field crews are able to easily report from the field and share data with the office in real time. Stakeholders can assess progress and make accurate predictions about project budgets and schedules.
The ease of digital reporting over pen and paper and other outdated methods helps keep projects on budget in two major ways. For one, data is much more accurate. With standardized reporting templates and construction checklists that take the guesswork out of data collection, productivity and progress are tracked based on real facts from the josite rather than word of mouth. Secondly, visibility is enhanced. And with better visibility, project management teams can be more adaptive, immediately recognizing when and how budget concerns develop, correcting them early. They can also share this data with stakeholders in the event of an inevitable change of scope to identify the cause, which helps build better, more trusting business relationships.
Companies can also use a construction time tracking app to track time worked to custom categories defined by the business. Employees fill out digital time cards and log hours to tasks, which are assigned cost codes. This helps the management team granularly understand how costs are spent on labor.
Update your estimates with historical data
Construction budget tracking software is beneficial not just for current projects, but for future bids as well. Digital reports can be organized in a cloud-based storage system that allows for easy review. When budgeting new work, project managers can analyze previous similar jobs to make better, more accurate decisions in the initial planning process.
When a contract is created based on more realistic projections, the chances of a project going over budget are reduced from the start.
Provide adequate training
It’s important for construction companies to provide comprehensive training for their entire staff. This includes safety courses and training on using company tools and following procedures.
Education is not a once and done requirement for construction. Managers can cut down on costly mistakes by conducting regular toolbox talks or offering scheduled classes that address real concerns from the jobsite.
How Raken helps
Raken’s construction management app is a single, streamlined solution for daily reporting, time tracking, production tracking, toolbox talks, and more. Our interface is easy to use for both the field and office.
Using Raken, field crews can quickly and easily capture vital info from the jobsite and give project managers valuable real-time insight, allowing for informed decision making. Current projects stay on budget, and new bids are more accurate than ever before.