The Top Causes of Cost Overruns in Construction Projects

Written by Rose Morrison

The construction industry both costs and generates massive amounts of money. Construction represents 4.1% of the United States’ gross domestic product (GDP), costs more than $1,293 billion, and employs 11.2 million people around the country.

That looks like a substantial amount of money, and it is. So for Owners, it’s essential to stick closely to cost projections to ensure a profit. What are the top causes of overruns on construction projects, and what can we do to prevent them?

1. Poor Time Management

We all know how long it takes to finish a construction project. Managing time is one of the biggest challenges in these projects. If you’re spending more time managing paper than managing projects, there is a massive issue to consider.

Around 90% of construction workers call the industry as a whole unproductive. This lack of time management leads to missed deadlines and significant cost overruns.

Take the time to implement construction project management software to help with time management problems and project transparency. These platforms make it easier to keep track of the infinite number of variables that could throw a wrench into time management and productivity for your construction program.

2. Delays in Responses

If there are significant delays from stakeholder responses to RFIs or Submittals during a project, cost overruns are almost inevitable.

The easiest way to avoid this problem is to create automated workflows. Moving from a pen and paper process to a digital platform is the easiest way to reduce the time it takes to manage responses in a timely manner and ensure you’re not writing yourself into a cost overrun before the project even begins.

According to a study by Navigant Construction Forum, there is an average of 9.9 RFIs for each $1 million of construction and 9.7 days is the median timeframe for a response. That translated to an average project cost, one hours for review and response times were taken into account, is $859,680 dedicated solely to RFIs.

Imagine the cost savings to your project when you reduce the RFI response time by even a few days.

3. Unforeseen Design Errors

Blueprints are designed by humans. We try our best to create perfect projects and plans, but we’re only human. Unfortunately, a small mistake on a blueprint or CAD drawing can throw an enormous wrench into the works. Since it’s an error on your part or the part of the design team, you will find yourself on the hook for the costs of fixing the error.

AI and machine learning are becoming valuable tools to prevent this kind of cost overrun. A machine learning program can analyze designs in real-time before you ever break ground, pointing out errors that could jeopardize the project. The more data you feed these programs, the smarter they become and the better the chance they’ll be able to spot a costly problem before you have to pay through the nose to fix it.

4. On-Site Safety Issues

Despite improvements in construction safety, it’s still one of the most dangerous industries in the country. In 2018, OSHA reported 1,008 deaths in the construction industry. In addition to being an entirely avoidable tragedy, these safety issues can contribute to cost overruns in various ways.

Accidents and on-site fatalities cause production to grind to a halt while the incident gets investigated. If the site operator or business owner can be proven liable for the injury, they may end up incurring additional legal costs as well.

There’s a big difference between paying worker’s compensation insurance and being sued for liability or wrongful death, both of which can make it nearly impossible to stay profitable and under budget.

5. Growing Labor Shortages

The construction industry is one of many now facing a massive labor shortage. Veteran construction workers continuously reach retirement age and leave behind roles that there aren’t enough new skilled workers to fill. Upwards of 72% of general contractors believe that labor shortages are going to be their biggest challenge in 2021.

There are no easy ways to solve the labor shortage because it’s become a pervasive problem throughout the industry. The only way to overcome is to adopt new technologies and work to change the face of the industry.

Right now, people perceive construction as solely a male industry, and something that’s not as desirable as going to college. But that couldn’t be further from the truth. Help change those perceptions and make a career in construction as enticing and lucrative as one that requires a college degree.

6. Unplanned Costs

No one can tell the future, but not preparing for the unexpected could leave you facing expensive overruns.

Maybe a supplier sends a bad batch of materials and you now have to incur the cost to express-ship the proper ones. Maybe there’s a design problem and you end up going way over the deadline trying to fix it. Whatever the case, these unforeseen complications can lead to significant cost overruns.

The easiest way to manage these problems is to include a cushion in your cost estimates designated for these unexpected issues. Don’t earmark it for anything in particular. Just have it in place in case something goes wrong and you need to compensate. If you don’t end up using it, then it just goes back into your account. But if you need it, it can save you from going way over your budget.

Sticking to Cost Projections

Cost projections are never exact, but you want to try to get as close to them as possible so you have a good idea of anticipated costs and you can ensure proper project funding.

If you’re experiencing frequent cost overruns, take a closer look at your practices and see if any of these tips might help you reshape the way you approach your cost projections.

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