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Why Do Construction Projects Frequently Go Over Budget?

According to McKinsey’s Construction Productivity Imperative report, 98% of commercial contractors have reported that their projects experience delays or cost overruns. Even more worryingly, these projects go 80% over budget on average.

Cost overruns are so common, in fact, that a three year study by KPMG found that only one third of building contractors’ projects come within 10% of the original budget.

Staying on Budget: More Important Than Ever

It’s no secret that, right now, staying on budget is more important to businesses and investors than ever before. The ‘perfect storm’ of Brexit, COVID-19, and unusually warm weather across northern Europe has been driving construction costs up significantly.

It’s estimated that around 25% of all construction materials used in the UK are imported, making them more expensive to secure following the introduction of new trade tariffs as Britain left the European Union. Add in the temporary shutdown of manufacturing facilities in 2020 – particularly in China – that has affected supply chains, and reduced timber production in Scandinavia due to heat, and it’s clear we’re at breaking point.

Of course, there’s also the fact that demand is rising, too. With domestic construction projects on the rise as homeowners opt to renovate their properties as an alternative to summer getaways, construction costs are growing at an almost unprecedented rate.

But this doesn’t mean that now is a bad time to launch refurbishment projects or building projects. It simply means that staying on budget is more important than ever. Staying on budget requires an understanding of the most common reasons for cost overruns and then taking measures to minimise the risk.

So just why do construction projects go over budget? Let’s take a look…

Poor Decision Making

Choosing the wrong commercial contractors or fit out company for the task at hand is definitely one of the biggest reasons for cost overruns. Making the wrong decision at the outset shapes the course of the entire project. A common mistake is opting for the lowest price during the tendering process as a ‘too good to be true’ quotation can result in an increased risk of exceeding that estimate further down the line. It’s important to conduct full due diligence and ensure each project starts off on the right foot.

Too Many Cooks

While it sometimes can’t be avoided, having multiple contractors and subcontractors working on a project results in numerous different interfaces to be managed effectively. The more distinct contractors involved, the more fragmented a project can become as each entity will have their own processes, tools, and data that they’re using to shape decisions, potentially increasing the risk of conflict or delays. The number of cooks can be reduced by using associated commercial fit out and construction firms.

Inadequate Communications

Poor communications between stakeholders can easily result in cost overruns as a lack of communication can mean that there’s no single, agreed understanding of project status, or road to success. While communication is still problematic across the industry, it is becoming a less common reason for cost overruns amongst contractors adopting digital collaboration tools and other technologies such as IoT sensors or wearables as these tools enable data to be collected, analysed, and shared across all teams.

Insufficient Risk Management

While construction firms are accustomed to predicting and identifying risk, there are concerns that many have failed to incorporate the additional risks that have emerged from the COVID-19 outbreak into their risk management strategies. Many new risks are appearing today, including building contractor shortages due to illness or isolation, supply chain vulnerabilities, and additional time needed to implement COVID-secure safety measures. Considering all of these factors can help keep projects on budget.

Overlooking the Basics

As many new technologies are beginning to pop up across the construction sector, a common trend that’s being witnessed is that firms place their focus in these latest advancements, forgetting about some of the more basic aspects such as administration. Every successful project requires a solid, realistic, and well-structured foundation that’s achieved through good planning and scheduling processes. Schedules must be updated regularly, or they risk becoming disconnected from reality.

Poor Short-Term Planning

Right now especially, an inability to determine what’s required in the short term – over the next week or two – can be a major cause of delays and, subsequently, cost overruns. While many firms are good at determining long term needs, short term vision is often lacking, resulting in difficulties in ensuring the right equipment and resources are in place at the right time. With supply chain vulnerabilities and a growing skills gap, lengthy waits to get these aspects into place can cause costs to rack up rapidly.

On Time, On Budget

Looking for construction firms or fit out contractors dedicated to effective planning, enhanced risk management, strong communication, and an overall commitment to minimising design, construction, and commercial fit out costs? We can help.

At SCAPE we’re proud to deliver on time, and on budget, every time.

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