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How can Construction Managers prevent cost overruns?

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Cost overruns are a common and costly problem in the construction industry, affecting both the profitability and reputation of construction managers and their clients. However, with proper planning, communication, and problem-solving skills, construction managers can prevent or minimize the impact of cost overruns on their projects. In this article, we will explore some of the main causes and solutions for cost overruns in construction management.

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Santosh Kumar Panda

PMP?I PMI-CP? I PMI-SCP? I Chartered Engineer I Delivering Efficient Buildings Through Expert Leadership I Construction…

1 Identify and manage risks

One of the first steps to prevent cost overruns is to identify and manage the potential risks that could affect the project scope, schedule, and budget. These risks could include design changes, unforeseen site conditions, material shortages, labor disputes, weather delays, and regulatory issues. Construction managers should conduct a thorough risk analysis and mitigation plan before starting the project, and update it regularly as the project progresses. They should also communicate the risks and their impact to the stakeholders, and allocate sufficient contingency funds to cover any unexpected costs.

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Santosh Kumar Panda

PMP?I PMI-CP? I PMI-SCP? I Chartered Engineer I Delivering Efficient Buildings Through Expert Leadership I Construction Project Management Expert
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One thing I understood from my past experience that if you identify the risk you will able to prepare for that. A construction manager is the key person who has the end to end visibility of the project. So he is better placed to identify the risks which will impact the cost of the project. Once it is identified it is time to manage it. To manage the risk it has to be monitored & proper risk response is applied at the correct time to avoid its impact. The CM is better placed to apply the risk response as he/she know the flow of the project & the correct time to apply the risk response.

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2 Track and control costs

Another key step to prevent cost overruns is to track and control the actual costs of the project against the estimated budget. Construction managers should use reliable and accurate cost accounting systems and tools to monitor the expenditures and revenues of the project, and compare them with the baseline budget. They should also review the cost performance reports and variances regularly, and identify and correct any deviations or errors. If the project is facing a cost overrun, construction managers should take corrective actions, such as negotiating with suppliers and subcontractors, reducing scope, or reallocating resources, to bring the project back on track.

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3 Manage changes and variations

A third step to prevent cost overruns is to manage the changes and variations that may occur during the project execution. Changes and variations are inevitable in any construction project, but they can also cause significant cost overruns if they are not properly managed and documented. Construction managers should establish a clear and formal change management process and procedure, and ensure that all changes and variations are approved by the authorized parties, recorded in the contract documents, and reflected in the budget and schedule. They should also communicate the changes and their impact to the stakeholders, and avoid unnecessary or excessive changes that could compromise the quality and feasibility of the project.

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Santosh Kumar Panda

PMP?I PMI-CP? I PMI-SCP? I Chartered Engineer I Delivering Efficient Buildings Through Expert Leadership I Construction Project Management Expert
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Variations are one of the important reasons for cost overrun. Variations are caused due to various factors. But the following can be easily managed by the CM 1. Variation due to non clarity in scope 2. Variation due to quality & safety issues If the CM review the scope before actual start of work, then the the scope creep/ variation can be avoided. This will help to avoid the quality issues & the cost of corrective action of the quality. The corrective action is a main cause of cost overrun.

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4 Improve communication and collaboration

A fourth step to prevent cost overruns is to improve the communication and collaboration among the project team and stakeholders. Poor communication and collaboration can lead to misunderstandings, conflicts, errors, rework, and delays, which can increase the project costs. Construction managers should foster a culture of trust, transparency, and teamwork among the project participants, and use effective communication tools and methods to share information and feedback. They should also involve the stakeholders in the project planning, decision making, and problem solving, and ensure that their expectations and requirements are aligned with the project objectives and deliverables.

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5 Learn from past projects

A fifth step to prevent cost overruns is to learn from the past projects and experiences of the construction manager and the organization. Learning from past projects can help construction managers avoid repeating the same mistakes, identify best practices, and improve their skills and knowledge. Construction managers should conduct a post-project review and evaluation at the end of each project, and document the lessons learned, the successes and failures, and the recommendations for improvement. They should also share and apply the lessons learned to the current and future projects, and update their processes and standards accordingly.

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Santosh Kumar Panda

PMP?I PMI-CP? I PMI-SCP? I Chartered Engineer I Delivering Efficient Buildings Through Expert Leadership I Construction Project Management Expert
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Lesson learnt is the experience the CM gets from the past experience. The experience can be utilized to overcome the similar mistakes & cost overrun in the current project.

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6 Enhance problem-solving skills

A sixth step to prevent cost overruns is to enhance the problem-solving skills of the construction manager and the project team. Problem-solving skills are essential for construction managers to deal with the complex and dynamic challenges and issues that may arise during the project lifecycle. Construction managers should develop and use a systematic and creative approach to problem solving, such as defining the problem, generating and evaluating alternatives, choosing and implementing the best solution, and monitoring and reviewing the results. They should also seek feedback and input from others, and use relevant tools and techniques, such as brainstorming, root cause analysis, and cost-benefit analysis, to support their problem-solving process.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can Construction Managers prevent cost overruns?

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3

4

5

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1 Identify and manage risks

2 Track and control costs

3 Manage changes and variations

4 Improve communication and collaboration

5 Learn from past projects

6 Enhance problem-solving skills

7 Here’s what else to consider

Construction Management

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