“The vast majority of construction projects completed in twenty countries over the course of a 70-year period—85%, to be exact!—experienced cost overrun,” according to Propeller, a 3D data visualization and analytics platform.
And the cost overruns were significant. The average cost overrun is 28%, and “only 31% of all projects came within 10% of their budget,” Propellor says.
Why does the construction industry do such a poor job when it comes to meeting budgets? There are multiple issues, including the many moving parts that make up a project. This makes developing and maintaining a budget a huge challenge.
Can anything be done to help construction projects finish on budget? Read on to learn about the challenges faced in preparing a budget and suggested solutions for helping construction companies stay on budget.
For construction projects to stay on budget, a greater dependence on technology must be initiated.
A report from McKinsey says the construction industry “… has performed unsatisfactorily in many regards for an extended period of time,” and that “digitalization is lower than in nearly any other industry.”
American politician Rahm Emanuel famously said, “You never let a serious crisis go to waste.” McKinsey says the COVID-19 crisis on construction could “dramatically accelerate the ecosystem’s disruption that started well before the crisis.”
Part of the wide-ranging McKinsey report notes challenges and opportunities in the industry and sees “a changing market environment, technological progress, and disruptive new entrants will trigger industry overhaul.” The report states that one way the industry can evolve is through technology. “Digital technologies can enable better collaboration, greater control of the value chain, and a shift toward more data-driven decision making.”
A Change Won’t Do You Good
“The root cause of underperformance is the fact that project planners tend to systematically underestimate or even ignore risks of complexity, scope changes, etc. during project development and decision-making,” says Bent Flyvbjerg of the University of Oxford in The Oxford Handbook of Project Management.
A poorly designed project leads to change orders which delay the schedule and increase costs. In addition, Engineers Daily notes that design deficiency leads to approximately 38% of construction disputes between owners and designers.
In an Audodesk blog post, Grace Ellis defines design deficiency as “a poorly designed, inaccurate, or incomplete plan.” She also notes that problems with a poor design reverberate even further. “At the same time, incomplete or incorrect plans almost always result in substandard work from the contractors completing the work, which can result in legal battles down the line.”
Creating an accurate design is a team effort. While the latest and greatest in technology is a huge step in the right direction, other factors need to be considered. However, the only way to get good information is to ensure a technology/software/machine is fed accurate data. Therefore, the geologist who attests to the quality of the soil, to the engineer who confirms modern engineering principles are employed, to the building inspector who ensures everything will be up to code, and more, need to be part of the process and certify the validity of the design.
Good communication does not entirely eliminate issues and problems on a job site. The unexpected is inevitable on a complex project. Good communication, however, can be the difference between a small problem staying small rather than growing into something major that puts a significant crimp in the schedule and budget of a project.
A project manager who communicates well with the field personnel appreciates that communication does not only travel downward from themselves. They listen to the front-line workers. While those who review the work may sign off on something, the people who do the work may note something has not been considered as materials, construction methods or other issues. A project manager who communicates well empowers personnel to voice their concerns and gives them the tools to do so.
Again, software can help foster communication among the many people working a job site. Such tools prove their worth when used regularly by all personnel. Each team member can be kept up-to-date on their responsibilities and communicate their concerns.
Keeping a construction project on budget is a major challenge because there are many factors to consider as you develop a budget for a construction project.
Although nothing can guarantee a project will come in on budget, utilizing technology to develop a clean design that leads to few, if any, change orders that can be communicated easily is a great head start.
To read the full eBook on the keys to keeping a construction project on budget, head here.
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