Despite some recent improvements and ongoing digitization, construction remains one of the least efficient industries in the world. Global labor-productivity growth in construction has averaged only 1 percent a year over the past two decades and was flat in most advanced economies. When the sector is underperforming, the waste can be enormous. A study conducted by KMPG found that only fewer than one in three construction projects comes within 10 percent of the budget. Likewise, other industry reports echo that the average project reaching completion 20 months behind schedule and 80 percent over budget.
While each project has unique needs and sensitivities to stay within the budget, the following three are some of the top reasons construction projects exceed their budgets.
Failing to Embrace Digitization
According to Steffen Fuchs, a Senior Partner at McKinsey focused on global work in capital productivity, there’s no doubt that failing to embrace digitization is a top reason construction projects to exceed their budgets.
Some overruns result from increased project complexity and scale, but another factor also looms large: all stakeholders in the capital-projects ecosystem—project owners, contractors, and subcontractors—have resisted adopting digital tools and platforms.Steffen Fuchs, Senior Partner at McKinsey
The digital room for growth in construction is a large one. As the appetite for ConTech is growing, digitization will likely be the single biggest push to drive efficiency in construction and ensure the projects will remain in budget.
Poor Planning and Communication
Better project management and communication can boost productivity in any sector. However, in large-scale projects, the stakes are even higher. In construction, a small miscommunication or a planning error can create a wasteful compound effect.
Poor planning and communication are a top reason construction projects exceed their budgets, as they might facilitate many issues such as scope creep or a disconnect between the site and headquarters.
The value of BIM alone is remarkable. One report by Autodesk found that BIM cut construction cost by 30 percent, as it dramatically reduced rework, document errors and omissions, as well as project duration.
Climate Change and Extreme Weather
The rise of climate change is increasingly more responsible for abandoned construction projects – whether temporarily or permanently – also higher costs.
Too much rain or heat, as well as sudden and unpredictable changes in weather patterns, leave construction projects significantly behind schedule.
In the event of unpredictable or extreme weather, expenses such as laborers’ fees or tools keep incurring. However, it’s not possible to continue the construction, which can cost extra days and weeks.
Furthermore, unusual weather conditions can damage the tools, and create a scarcity of materials as well as skilled labor, which may force construction projects to exceed their budgets.