Words by Megan Avard
Budget blowouts seem to be the norm when it comes to delivering major projects. Time and time again, projects cross the finish line in the red. It’s predictable – but it’s also very avoidable.
Whether it’s due to inadequate planning prior to the start of the project or unforeseen variations during the project, overspending on budgets can be devastating to the overall outcome.
Large-scale projects, which inherently include more moving pieces and more complexity, are increasingly likely to fall prey to this problem. It has been found within the construction industry that billion-dollar projects have cost blowouts 28 percent of the time during the construction phase, and the typical size of that blowout is more than $600 million.
But the reality is that all projects are at risk of budget blowouts – and no matter the size of your project, there are steps you can take to stay on target.
Common reasons for budget blowouts
Planning a project can be tedious, but it’s also necessary. A lack of planning can result in ill-informed judgements made about how long a project will take, even when we have data available to use from previous and comparable projects.
Delays are costly. When projects run over their timelines, it can create a snowball effect due to changes in things like the rise of materials and labour costs. The bigger the delay, the bigger risk that costs will quickly skyrocket and initial budget estimates are thrown out the window.
Pushing an estimated delivery date back further and further is a slippery slope that should be avoided at all costs.
Accessibility of information
The data required to make informed budget forecasts is usually hidden within a variety of unwieldy spreadsheets and emails, making it easy for important information to slip through the cracks.
Without easy access to all available information in one place, things can get missed and budgets can be part of the fallout.
Failing to properly collect and aggregate information about past projects to make accurate estimations on what the current project will cost can have a huge impact on initial budgets and can result in underestimations.
If the initial budget hasn’t been prepared based on all available information, it is going to be tough for a project to remain in line with the estimations.
When budget numbers are provided to try and win a project or contract, they are not necessarily realistic. Watch out for falsified information, information that doesn’t account for all factors and ‘one size fits all’ methods of estimating costs. You need to ensure that the quoting process leaves no room for errors and cost inaccuracies.
It is also important not to just seek out the most attractive price, because it usually comes at the expense of quality. With larger contracts in particular, competition tends to thin out with less businesses able to meet the requirements. It is crucial to do your own due diligence to research each offer that is put forward.
You want the budget to have some breathing space for unexpected costs, so keep this in mind before accepting a quote.
Size of the project
Bigger projects, while not only more at risk of overrunning budgets, are also more likely to go over by a bigger percentage of the budget. This can be especially problematic when the scope of the work hasn’t been adequately established or catered to.
Even when contracts have been signed, there is no guarantee that a budget blowout will not happen during the actual construction phase.
While large projects can be big and impressive, they should be the last resort for government bodies. Investments should be made in current infrastructure and utilising existing resources to avoid overspending on taxpayer dollars. Extensive projects should only be taken on when absolutely necessary.
Lack of communication
With every project, communication is key to ensure a successful outcome. Transparency and accessibility to information is a critical part of this. When communication occurs over various lengthy email chains, through multiple channels and across a range of parties, it is easy for miscommunication to occur and for information to be missed.
All the information should be in one, easily accessible place for key stakeholders to access at all times of the project.
Choice of team
Poor site management, selection of team members for the projects and a lack of skilled personnel can all result in budgets blowing out and major problems occurring within the delivery of the project.
Building a strong team of experienced members with skill sets that are required for the job will help the project to progress smoothly. When projects are being delivered, you want to do it once and do it right the first time. The time and resources it takes to fix mistakes or have to redeliver elements can be costly and can set the overall project back.
How to avoid budget blowouts
It is a lengthy process to get a project off the ground, and it can be tempting to cut corners. But the ramifications of such actions can be serious.
Budget blowouts are such a common problem that some Project Managers might think they have no choice but to struggle through them. But with solutions like SurePact, these blowouts are less likely to occur in the first place.
Here are our top tips for avoiding blowouts and staying on budget.
Be transparent about variations
It’s always best to stick as close to the original timeline as you can, but when variations and deviations from budgets and forecasted spending are needed, it’s important to discuss them before going ahead, and then readjust your budget accordingly where necessary.
Our clients have reported that prior to using SurePact and taking advantage of the transparency it provides, poor variation management resulted in budgets not aligning at the completion of the project. Subcontractors on site would make decisions directly with the building supervisor, without alerting Council, to avoid the lengthy process involved in Council approvals. The result? Time saved on site, but unforeseen invoices adding to the original costs.
Variation management through SurePact allows for variations to happen on-site within minutes, helping to limit cost and time overruns. Master variation registers in our Contract Delivery module track performance metrics and governance; measure actual spend against budget; and calculate funding and procurement savings. You can reduce risk by avoiding scope, time and cost blowouts, as internal and external delivery teams have the opportunity to track variations as they occur, compress timelines and optimise budgets.
Refer to a single source of truth
SurePact does away with spreadsheets and the need to refer back to lengthy email trails by acting as a single source of information for everything related to a project. Internal and external stakeholders can be given permission to access the appropriate information and create budget forecasts that are not only accurate, but can be tracked and monitored throughout the project delivery. Transparency, visibility and accountability is ensured. Communication is seamless and a repository of information is always accessible.
Track meaningful metrics
Don’t just hope that a project will be completed by the deadline, or put blind faith in external contractors to deliver on time and under budget. To avoid blowouts, you need to be able to track a project’s progress in real-time.
With built-in analytics and real-time reporting dashboards, SurePact’s Project Management capability gives teams the data they need to reduce risks and allocate the right resources at the right times, driving efficiency in project coordination, cost management, document management and field management.
Budget blowouts can be an overwhelming part of projects and a concern for all stakeholders involved. To begin managing your costs and avoiding cost blowouts, visit surepact.com.