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What causes overruns in construction project budgets?

On Behalf of | Apr 22, 2022 | Construction Law

It is not uncommon for a construction project to exceed its set budget. In fact, KPMG reports that nearly 70% of construction projects go over their projected budgets. This makes budget overrun one of the major causes of conflicts in the construction industry.

Cost overrun, or budget overrun, refers to unanticipated expenses that result in the cost of the construction project exceeding the original budget. There are several reasons why a construction project can exceed its set budget. Here are some of them:

Poor project estimations

Sometimes, cost overruns happen even before the actual construction project even begins. A publicized tender, for instance, may attract a very high number of bids, each with their specific quotation. Consequently, you might end up settling for the lowest bidder who may have provided gross underestimation to win the tender. This problem can be overcome through proper tracking and screening different bids before appointing a contractor.

Poor time management and downtimes

Time is money and proper time management is critical for the success of any undertaking, including construction projects. Assigning roles to construction site workers and managing their time and performance is one of the most important yet challenging aspects of the construction project. If the workers on the construction site do not know where to be or what to do, then you clearly have a serious problem to deal with.

Poor communication

Communication is the oil that keeps any project on course. If the teams working on a construction project cannot have clear and effective lines of communication, then the entire project is likely to run into trouble even before starting. As a result, the project is likely to stall or take longer than anticipated to compete.

A construction project can be very capital intensive. Find out how you address issues regarding construction cost management with a watertight contract.