According to the International Journal of Innovation, Management, and Technology, nine out of ten construction projects go over budget—and the average construction project costs 28% more than estimated. Project overruns can cut into your profit, and clients aren’t too happy about them either. What’s the solution?
By better controlling your labor and supply costs (and avoiding costly mistakes and reworks), you can avoid the most common budget pitfalls. Today, we’re going to take a look at three of the major reasons why construction projects go over budget—and what you can do about them.
Why Construction Projects Go Over Budget
There’s a push-and-pull to construction budgeting. To win the business, you need to be competitive. But be realistic enough to preserve your profit margin—winning projects that result in losses could sink your business.
The three most common issues construction projects face today are the miscalculation of labor, steeply rising supply costs, and mistakes and reworks.
1. Miscalculation of Labor
Most employers aren’t correctly calculating their labor costs. Even if they know exactly how long a job should take, their calculations can be off because:
- Time is lost due to scheduling mistakes and general confusion.
- Employees are either overbilling or underbilling project-related time.
- Administrative overhead, such as meetings, are not accounted for properly in labor burden calculations.
In an ideal world, all the labor that is both directly and indirectly related to the project should be billed out to the client.
Solution: Calculate and schedule your labor correctly by using an automated, GPS-driven solution like Workyard.
2. Rising Supply Costs
Building costs are set to rise 12% in the first half of 2022. They have already risen nearly 20% year-over-year. A decade ago, building costs were relatively static. Now, though, supplies are both expensive and unpredictable. Your supply estimates can cause a job to go over budget by:
- Requiring more supplies than you thought would be necessary.
- Failing to account for the rapidly increasing costs of materials.
- Being unable to procure the materials that you wanted.
Today more than ever, customers need to be aware that supply costs are estimated rather than static.
Solution: Provide your clients with an estimated range of supply costs and let them know that rising supply costs may affect their budget.
3. Mistakes and Reworks
Mistakes usually result from unclear communication—either between the client and the business or the business and its employees. Problems arise when:
- The client fails to properly express their expectations.
- Workers misunderstand the tasks given to them.
- The client realizes that they want something different.
Better documentation and improved communication can help clear up misunderstandings before they become costly reworks.
Solution: Organize work more effectively by consolidating all communication in a scheduling and task management app like Workyard.
It’s in the stats: projects are going to go over budget. While you may not be able to stop your next project from going over budget, you can make sure that the overage is billable.
What To Do if You’re Already Over Budget
A construction parable goes: “I once met a contractor who said he always quoted his projects at cost. But he made millions. I asked him how that could be. He said, ‘Reworks!’”
If you’ve crossed your t’s and dotted your i’s and your construction project is still going over budget, take a look at what costs can be passed to the client. Is the project going over budget because of poor planning? Or have there been changes to the project scope that fall on the owner?
Increase your chances of billing additional costs to the client by:
- Making sure your labor is tracked effectively.
- Clearly communicating the scope of a project.
- Documenting the project thoroughly as it unfolds.
Some budget overruns are acts of God. If your job is rained out and you need to redo concrete work, maybe it’s a cost your company must absorb. But if the owner changes their mind about what they actually want, that can be additional profit for your company.
Of course, if you simply didn’t calculate your labor and your supplies correctly—that’s going to be on you.
If your construction project is over budget due to miscalculated costs, labor costs are likely your biggest concern. With Workyard, you can track your labor costs down to the minute. Check out a free trial of Workyard today to find out how it can help you manage your workforce better, or contact us at 650-332-8623 to learn more.