Why construction projects go over their budget
What research says
Everyone talks about efficiency: productions are getting better every year, one-day deliveries are becoming the new normal and 60 inch TVs are breaking records for selling as cheaply as possible. But why does nothing of this happen in construction? According to McKinsey research, 98% of projects incur cost overruns or delays; the average cost increase is 80% of the original value, and the average slippage is 20 months behind the original schedule. Basically, every contractor is facing issues.
Production vs. construction
If we compare construction with production, then we can see that production has nearly doubled its productivity while construction has done nothing.
While 98% of construction projects face overruns or delays, delivery companies manage 95% + delivery success rates.
So let’s take a look at why construction projects go over budget.
Lack of adoption of new innovations
Did you know that the biggest construction software companies only have around 14K customers? That’s nothing. And potentially only 100,000 contractors are using construction software, which is not spreadsheets or MS Project. Worldwide, there are millions of contractors, investors, general contractors, and subcontractors.
Just look at what the statistics say: most projects are facing overruns or delays, but only few use construction software. Luckily, this is slowly changing, and there have been significant improvements. For example, 10 years ago, you could enter any job site and take away everyone’s laptop, and work wouldn’t stop. Today, if everyone’s laptops were removed, the work would stop. And this was only 10 years ago, when there was already BIM, AutoCAD, and the first construction management software was in its development phase. Nowadays there already are many construction software programs and apps like PlanUpPro, which are designed by people who are working in the construction industry and who know what contractors need.
Choosing the wrong subcontractors and vendors
You have to stay competitive, and usually contractors will favor tenders with the lowest prices. Of course, they review the risks before signing contracts, but they still make mistakes very often. And even if you skip the lowest-priced contractor and go with a tested subcontractor, you still can end up having trouble with them. The reasons for that may vary; sometimes your subcontractors were lacking experience, they created a new team, they had too many ongoing projects, or there was simply a cash flow issue. Do your homework well before choosing the right subcontractor; don’t follow the lowest price or the company’s history or trust old relationships. Instead, ask the right questions and seek proof that work can be delivered.
Lack of communication
Usually, there are many parties involved in the construction industry: a client, an architect, subcontractors, vendors, and more. Then each of those parties can have many contacts. Projects very often get derailed by poor communication flow, and important messages and changes can be lost. Thus creating rework and rescheduling between all subcontractors, which adds additional costs to every single subcontractor and starts to create a chain reaction with cost overruns. This happens also inside the company when there are many departments and people involved in a project and information can get lost.
Lack of planning
You have to be prepared for anything when starting a project. If you are a carpenter, then this would be your potential list of work to be done before you can hit the first nail on site:
- Agree on contract,
- Assign your team,
- Find tools,
- Find materials,
- Purchase tools and materials,
- Deliver everything to the site,
- Agree and use the right drawings,
- Schedule site work so that it does not overlap with other projects,
- Review potential risks,
- Eliminate potential risks,
- Communicate with other subcontractors,
- And more.
So the list of tasks to do is pretty long, and each one of them requires a lot of planning.
The lack of right software and adaptation of new trends is the main reason why the construction industry falls behind when it comes to development. There are many reasons why construction projects overrun budgets and schedules, for example, lack of communication, lack of planning, lack of risk analysis, and more. Most construction software, like PlanUpPro, is designed to eliminate all of those risks. While the industry will stick with old spreadsheets and Gantt charts, projects will continue to face overruns and delays. Why can’t the construction industry be productive and have an impact if other industries can? Pioneer the change and have an impact on how we build.