While there are plenty of educational materials and complete college courses that speak about the importance of budgets and costs in the construction industry, not all project managers are willing to learn from the theory – or other people's mistakes. Namely, there are lots of resources that study the matter of budget overruns and teach how to steer clear from them. If you are already in a bind with your current project, today we are going to reveal to you some of the most reliable tips and secrets to dealing with an overrun budget.
You cannot truly expect to be able to fix a problem unless you fully understand its extent and the reasons behind it. For more than one reason, you could end up with project expenses exceeding the initial costs you have planned and introduced to your clients:
Small requests for changes gone out of control.
Some of your customers will try their best to ask for small changes in terms of materials used or something similar. They will argue that it should be fairly easy for a reputable constructor like yourself to make these chances and promise, in turn, to hire you for bigger projects. They will refuse to pay for the changes, thus leading to the overrun costs. To avoid this, make sure you will agree on the scope and ask for payment for any other small tasks that are not part of the originally agreed scope.
You've done the wrong calculations.
It happens to the best of managers and it is usually a matter of underestimating the costs. Unless you can use change orders, it will be more difficult to turn things around. Carefully study your estimates and identify the error in them. At times, managers will intentionally underestimate the final costs of a project in hopes of being able to eventually turn the tables. Make sure you never do this again with any of your upcoming projects.
The effects of the economy on your project.
Lots of times, construction projects will be postponed for a period of time, especially during a difficult economic period, and resumed when the economy is on the up again. Make sure you add a special clause in your contract for these type of situations in particular. Ideally you should be able to review the budget with the help of your client.
Improper control of the costs.
Budget management practices that were not on par with the theory taught in construction or management classes will normally lead to a budget overrun situation. The problem is only usually revealed by the time the project is completed and you are left staring at the expenses, trying to understand what could have gone so terribly wrong. Sometimes, the problem might be your subcontractors overcharging you on your invoices without you realizing until it is too late.
Improper use or allocation of resources will most likely lead to the resources cutting on your margins and causing your budget to overrun. The issue might be with your employees and subcontractors who might be doing a lot of switching between different projects, leading to poor productivity and inability to finish your projects on time.
The slower your employees work, the more time they will waste, which will automatically translate to more overhead. Keep a closer eye on your staff and have clear forecasts and schedules, and stick to them.
Never avoid having conversations with your dissatisfied customers or subcontractors once you notice the problem with your budget. You might have a more difficult time figuring out exactly what to say to them at first, but it is critical to keep in touch with them. Be open and communicative, concise and professional and provide reasons and explanations for the problem, along with immediate solutions you plan on implementing.
Set up your new priorities and make sure your team knows all about the cost overrun as well. You might be surprised to listen to their excellent ideas to help you and the business out of the mess.