Cost overruns are all too common in large-scale projects, with data showing that 91.5% of projects run over budget, schedule or both. Fortunately, proactive project management allows for accurate predictions on spending, tracking of expenses, and maintaining fiscal discipline.
In this article, we explore the common cost overruns in large-scale projects and their causes. We also provide valuable project management advice to help mitigate the risks and keep your project within the planned scope.
What causes cost overruns?
A project cost overrun, commonly referred to as a budget overrun, occurs when the final expenses of a project exceed the initially estimated budget. This phenomenon may be attributed to various factors, including scope creep, inadequate planning, or external variables such as unforeseen inflation. The primary contributors to a budget overrun typically involve unanticipated events, unforeseen circumstances, or mismanagement of costs. In the event of these occurrences, additional hours and resources are required. This initiates a domino effect, whether it be delays in shipping or miscalculations in measurements; any mishap adds both time and costs to the project, underscoring the critical relationship between time and financial resources in project management.
How to calculate cost overruns
To calculate your cost overruns, add up all of the costs associated with the project, including salaries, materials, subcontracts, and related expenses. Then, compare this figure to the original budget to identify any costs that are not included. These are considered to be cost overruns.
How to avoid cost overruns
Construction projects are highly structured and complex. Whether your project consists of building a shopping mall or a single-dwelling residence, there will be many moving parts that require careful organisation and well-timed coordination. From designing to planning to scheduling to the construction itself, each phase must be executed with precision.
Here are our tips to keep project cost overruns to a minimum while keeping your client and team happy:
- Prioritise clear communication.
- Perform a thorough cost analysis.
- Set clear expectations.
- Never underestimate the amount of work involved.
- Create a resource management plan.
- Build buffers into your estimates.
- Divide the project into phases.
- Work with skilled teams and contractors.
- Give your team sufficient support and training.
- Plan and track your projects and resources.
- Keep track of the actual cost of your project.
- Have a cost/schedule variance reporting system in place.
- Anticipate change.
Unfortunately, cost overruns are often unavoidable and the more complex the project, the harder it is to account for potential problems. The best course of action is to work closely with all key stakeholders and keep your finger on the pulse throughout the project.
To ensure your project is successful and maintain alignment with your initial budgetary constraints, we recommend working with our team of project managers. By entrusting us with the responsibility, we assume all financial risk from the construction phase onward, thereby relieving you of this burden. Our commitment extends to assuming financial liability for any projects exceeding established budgets.
Our 4-step solution
At Expedite, we ensure all clients, suppliers, and stakeholders work together to mitigate risk and achieve maximum success. We partner with the best people in the industry, with everyone contributing unique skills and strengths.
As your single point of accountability and contact, we manage everything from start to finish, guaranteeing a seamless project timeline and harmonious collaboration. To provide you with the results you need every time, our process is divided into four key steps:
1. Listen
We start every project with a meaningful consultation to learn everything we can about your objectives. We’ll ask questions and listen closely to gain a clear understanding of your success factors, values, risks, financial constraints, governance structures, and procurement methodology.
Deliverables include:
- Collating, quantifying, and succinctly reporting on our findings
- Concepts
- Feasibility budgets
- High-level schedules
2. Understand
Before launching the project, we take the time to carefully select the best-in-class partners for design, engineering, cultural advisors, and sustainable advisors. This allows us to interrogate the details of every facet of the project, including the key interests of all project stakeholders
Deliverables include:
- Detailed quantity and risk reports
- Cost reports
- Time schedules with staging planning
- Detailed design
- Change management planning
- Sustainability and cultural strategies
- A comprehensive plan encompassing all related workstreams
3. Innovate
We are constantly striving to be at the forefront of innovation and looking for new ways to improve our processes. We always think outside the box, use the most up-to-date techniques, and develop solutions that are tailored to your specific needs. During this stage, we simulate, iterate, test, and finalise your project plans to ensure the solutions are both effective and efficient.
Deliverables include:
- Using tested methods to ensure effective and efficient results
- Always seeking further information, never settling
- Demographic analysis to develop creative solutions tailored to individual projects
- Using an evidence-based approach
- User-centred design
4. Deliver
The final delivery of your project is the tangible expression of all our underpinning principles. By putting the effort in early, we reduce critical and complex projects to a single simplified delivery solution. We measure our success in tangible KPIs, including 100% defect-free handover, 100% adherence to the agreed schedule, and client satisfaction.
Deliverables include:
- Namely 100% adherence to agreed schedule
- 100% defect-free handover
- Simplified delivery solution
- Lean methodology
Expedite project management
In New Zealand and Australia, the Expedite project management team has worked across an impressive range of projects. We have experience in later living (or retirement), healthcare, hotels, infrastructure, laboratories, asset upgrades and commercial and tertiary.
We are well-positioned to move quickly and with agility, mitigating risk as we go. By incorporating global best practices, we offer a better way to complete your project when faced with fluctuating logistics issues, escalating costs, and a shortage of resources.
Our single-source collaboration model with strategy and design professionals allows us to co-create your desired outcome and manage the full process through to completion. Our pillars of trust include:
1. Owning the risk
Our approach to documenting Risk Assessment and Safety in Design processes is to take full ownership of risk. In short, you are safeguarded throughout the project.
2. Partnering with the best
We make a point to bring work with the best people in their respective fields. This way, we can be confident in their workmanship and the outcome.
3. Ensuring value
In line with our Whole Cost of Life Matrix, we take into account the total lifetime cost of owning and operating your asset. This way we can ensure maximum value and return on investment.
4. Delivering smoother and faster
Our collaborative expertise allows us to continually improve our project delivery process. We constantly strive to improve efficiency and streamline your experience.
5. Keeping our promises
Our tried and tested formula ensures every commitment we make is achievable. With expedite, every guarantee is not just a promise but a steadfast assurance that can be relied upon with unwavering confidence.
6. Putting effort in early
We are actively engaged at every step of the project lifecycle, from scoping to delivery. Our process is defined by consistency, efficiency, and complete ownership.
