Construction project cost overrun is a serious problem for every project owner. The problem is becoming more frequent with the growing number of construction projects. Nothing but proper strategies in place can stop the budget overrun. Construction project management can greatly help you avoid cost overrun.
The professionals having such skills know the strategy and tactics to control and prevent project mishaps and disputes in the construction. The most prominent one of these mishaps is a cost overrun that should be dealt with greatly.
Cost overrun is an unexpected increase in the project budget due to poor planning. Project costs are sometimes underestimated, which leads to project cost overrun.
What has included in cost overrun?
A cost overrun includes the following:
- Percentage of the amount exceeding the proposed budget
- Percentage of the difference between the actual and proposed budget
- Percentage of the total expenses
- Percentage of the total cost incurred
Cost overrun leads to project failure
Construction projects are rarely completed under the proposed budget. The sole cause of project failure is a cost overrun.
Do you know?
9 out of 10 construction projects fail due to project cost overrun.
Types of budget overrun:
Following are the types of project overrun:
- Technical cost overrun: it includes poor project estimation and planning.
- Psychological cost overrun: these cost overruns are caused due to commitment escalation. This overrun is often is referred to as optimism bias.
- Strategic cost overrun: it is the cost overrun caused by political or economic factors. Strategic misrepresentations cause this overrun.
- Administration cost overrun: poor administrative practices cause this type of cost overrun
Top strategies to avoid cost overrun
Cost overrun can be avoided using the following strategies:
- Proper project planning
- Informed project estimation
- Detailed Analysis of Construction Site
- Hire a construction project management company to look after the activities
- Establish a strong association with your suppliers
- Assign duties to the respective personnel
- The right person for the right job
- Close monitoring of the ongoing process
- Keep the involved parties updated
- Efficient management of change requests
- Ensure the use of construction project management tools
- Keep a fair record of all the transactions
Key takeaway:
Construction project cost overrun is the result of poor and inappropriate planning. The project planning and estimation process are crucial to avoid any cost overrun.
Learn More: Causes of Cost Overrun in Construction Projects
