How to Manage Cost Overrun on Construction Projects

Unfortunately, cost overrun in construction projects is typical, where expenses quickly exceed the original budget. This leads to delays, frustration, and even legal disputes between the involved parties. But by identifying the root causes of cost overruns before they happen, construction managers can take steps to avoid them.

What are the Factors Behind Cost Overrun?

Cost overrun in construction projects can be attributed to numerous factors, such as poor project planning, changes in schedule or unexpected construction delays. The good news is that you can effectively manage cost overruns with the right processes and software in place.

But before we dive into those, it’s essential to understand why cost overruns occur in the first place:

Errors in Initial Job Costing

Inaccurate job costing is one of the major causes of cost overruns in construction projects. From underestimating material costs and labour hours to failing to factor in the price of permits, early mistakes quickly accumulate and lead to cost overruns. This is often the result of an inexperienced estimator, lack of knowledge about the job, or underestimating the amount of work required.

Inaccurate job costing also occurs when using historical data from similar projects to calculate estimated expenses. Costs tend to fluctuate over time, whether it’d be your suppliers raising prices or the costs of materials going up due to global market conditions.

Bad Cost/Resource Management

You’re building a commercial building, managing the construction from start to finish. Partway through the project, you find out that your ordered steel costs 30% more than you budgeted. Furthermore, your staff are exhausted from the workload, making mistakes that lead to more ordered materials and rework.

In this example, the project manager has failed on two fronts. Firstly, they didn’t accurately forecast the costs of materials, and secondly, they underestimated the labour required to complete the project. Both of these factors have led to cost overruns.

Construction projects can quickly spiral out of control by failing to manage costs and resources properly. This is a common cause of cost overruns, particularly on larger projects with many moving parts.

Poor Scheduling and Time Tracking

Efficient job scheduling software is critical to minimising cost overrun in construction projects. If tasks are not adequately planned, sequenced, and given to the right workers, it can lead to delays, rework, and ultimately, cost overruns. 

Time tracking is also important, as it allows you to see where workers are spending their time and identify any bottlenecks in the construction process. If you have construction staff sitting idle for large portions of the day, it’s a clear sign that something is wrong with the schedule.

How to Manage Cost Overrun

Now that we’ve gone over some of the common causes of cost overruns in construction projects, let’s take a look at how you can manage them:

Improve the Accuracy of Your Job Costing

To improve job costing accuracy, it’s essential to have up-to-date knowledge of construction costs. For materials, this means knowing the going rates for things like lumber, steel, and concrete in your area. And for labour, it helps to be aware of the hourly rates for workers in different trades.

Additionally, having a job costing system in place offers enhanced visibility into project costs, which you can then feed into more detailed reports and invoices. This level of detail is essential for catching mistakes early and preventing them from snowballing into larger issues.

Joblogic job costing software provides an easy way to keep track of all your project costs in one place, automatically deducting materials and labour as they’re used. For purchase orders, invoices can be instantly matched to supplier costs, ensuring you get what you paid for.

Track Costs Against Your Budget

It’s easy to overlook project costs with so many tasks happening simultaneously. To avoid this, keeping track of all project costs is essential. This means monitoring employee hours via timesheets, calculating ongoing materials usage, and keeping tabs on unforeseen expenses.

With an efficient tracking system, managers can see at a glance their estimated costs vs actual costs. If specific materials or tasks are costing more than expected, it’s easier to make adjustments and keep the project on track. However, while a notepad or Excel spreadsheet to record expenses can work for smaller projects, it’s not practical for larger ones.

Joblogic job management software lets managers monitor all project costs in real-time, letting you track travel routes, employee hours, job materials, and more from one platform. You can then use this information to generate cost reports that show where money is being spent and identify potential areas of overspending.

Ensure Clear Communication with Your Entire Team

When everyone is on the same page, tasks are done faster, more efficiently, and with fewer mistakes. This is especially true in construction, where various jobs like plumbing, electrical, and carpentry must be coordinated to avoid potential conflicts.

To ensure clear communication, you must provide all parties with accurate and up-to-date information. This could be your electricians having access to current floor plans or your plumbers knowing the locations of all the pipes in the walls. Furthermore, all parties must promptly share all job updates with each other to avoid confusion or delays.

With the Joblogic app, all job information can be submitted and stored in one central location and accessed by personnel with the appropriate permissions. This includes project documents, job photos, customer information, and more. And with our real-time messaging system, team members can easily stay in touch and share any critical updates.

Track Time and Staff Hours 

Jobs completed on time are crucial for avoiding cost overruns, as any delays will add to the final bill. Furthermore, productive staff hours are essential for completing tasks efficiently. You must track both to avoid any potential issues.

By tracking job progress and employee hours, you can get a clear picture on job completion times and see any staff members who may be falling behind. This information is essential for taking corrective action, whether it’s reassigning staff, optimising travel routes to save time, or ordering more materials to avoid delays.

Joblogic’s mobile engineer tracking app lets you track employee hours and job progress in real-time. Managers can be notified of any delays and take immediate action to prevent them from affecting the project schedule. You can also use this information to generate productivity reports, helping you see top performers and problem areas.

Collect Payments and Invoice Quickly 

For an ongoing construction project, it’s pretty standard for the client to pay in instalments as each stage is completed. This arrangement gives them some financial flexibility and allows them to spread the project’s cost over time.

A system must be in place to track these payments and ensure that invoices are sent out promptly. Invoices sent with automated reminders for late payments help you get paid faster and avoid project delays due to a lack of funding. Receiving payments on time ensures that you have the money to buy materials, pay staff, and cover other project costs.

Joblogic’s invoicing module enables managers to send invoices as soon as a job is completed to your customer portal, providing clients immediate access to view and pay. You’ll also be able to track payments, send reminders for late fees, and generate financial reports.

Keep Your Costs Under Control with Joblogic

Book a free demo with Joblogic today to find out how we can help your business track its costs and ensure all projects remain on budget.