10 Reasons Why Projects Go Over Budget

At one point in time, you have either seen or experienced firsthand a project going over budget. Even after careful planning, you wonder to yourself, “how could we be ‘X’ amount over budget? ‘What did we miss?’. There are several reasons for this occurring and it is a wide range of causes that are interrelated with each other.

  1. Unrealistic Expectation of a Budget
    • When a project is proposed, the person proposing the project may have an unrealistic view of the potential costs. We say may because a PM may have experience in cost-estimation and understanding of the pricing in the market place.
    • The scenario of the PM unknowingly setting an unrealistic price is common, and it always becomes a difficult process in raising the overall budget for it to become feasible.
    • Budgets are created to protect the client and if the budget is unreasonably low the project will result in greater Variation Orders where costs become larger in the long-term resulting in breaking the budget set in the beginning.
  2. Lack of Understanding of the Project
    • Sometimes alterations in a projects plan may change due to new ideas or removal of features causing that area to be scrapped and redesigned. Once redesigned, costs will pile up to quickly make changes to the existing area to fit the design. The budget will now suffer due to the lack of communication during the beginning stage of the design process.
    • As a Quantity Surveyor, you must push for more specifics to better understand the scope of the project so that you may price accordingly. There will be times where even the client may not completely understand what they would like in the project. Times like these are crucial since it has the greatest impact on the overall budget.
  3. Plethora of Opinions on How a Project Should Be Handled
    • The head of the client proposing the project will have several goals he/she would like to achieve. This doesn’t take into the consideration those behind her sharing different opinions on what the project should encompasses. After the crucial planning phase is completed, major shareholders/stakeholders can change the client’s direction of the project causing major costs due to the change
  4. Multiple Teams instead of One Team
    • More often than not, there are many instances where there are more than one voice trying to direct a project. Typically, in a Governmental project you’ll see a hierarchical list of power starting the lead: Architectural, Civil & Structural, Mechanical & Electrical, Industrial Design, and lastly Quantity Surveying. Each team has their own goals and of course roles but sometimes they forget about staying within budget. Once the design is completed, and confirmed that it is constructible with safety measures in place, the Quantity Surveyor will overlook the cost and determine the total cost of the design which may result in being over budget.
  5. Incorrectly Assessing the Projects Schedule of Rates
    • The purpose of the Quantity Surveyor is to organize and assess the cost regarding the scope of the project. One of the major issues is that a Quantity Surveyor may incorrectly assess the cost of a certain material resulting in an underestimate/overestimate in terms of costs. It is highly important to find a Quantity Surveyor that is always involved in projects since they will have already known knowledge of the current market rate of materials. Helpful hint: Pricing of schedule of rates of past projects are only good for ~6 months. After the 6-month period, you must reevaluate the cost of majority of your materials.
  6. Variation Orders
    • If a plan is incorrectly designed or the design of the project changes, variation orders may occur. With multiple variation orders, it is very easy for a project to blow its budget. We can see these situations often when a lack of communication occurs between the client and its contractors.
  7. Maintenance Costs
    • The cheapest option might not be the best option in the short term. A lot of projects find themselves in a bad situation in a multiyear project. By picking the cheapest materials or cheapest option, you might be setting your project for failure or cost you more money by replacing the same materials that saved you costs in the short-term. If you are planning for sustainability, your budget must contain costs years after the project is finished for possible maintenance fees such as: Aircons, Plumbing, Elevators, system updates etc.
  8. Spending More on Exports; Not Focused on Local Solutions
    • The type of materials you have planned to use matters greatly. Budgets tend to be broken when importation of materials occurs and you have now paid 2-3 times more than the local solution. By being knowledgeable of the local materials you may avoid blowing the budget or save the project a pretty penny.
  9. Unforeseen Circumstances
    • Prepare for the worst-case scenario because Murphy’s law may be following close to your project. It is not unreasonable to have a backup plan in case the worst occurs. Projects have been completely shut down due to a miss measuring or mispricing. Project your company’s budget by preparing for a rainy day.
  10. The Three Constraints – Scope, Time, & Cost
    • The concept of the Three Constraints is very broad but it can be broken down into three simple categories: Cost, Time, and Scope. The concept states that you may only be able to achieve two of the three constraints always. It is not possible to keep all three without one of the areas budging. For instance, if you want to have a large scope with a low cost, the time frame of completion with grow. A lot of mistakes occur when a project tries to break this concept. Something always budges and typically it’s the cost. Ultimately leads the client to be over budget. A good example would be the green coal project in the United States. The project wanted to be completed quickly, within budget, and contain a large scope. The project started at $3.5B USD and ended at $8.0B USD when the project was cut. It is a perfect example of estimation gone wrong.
      Before you consider starting a project, follow some of the examples in this article to see if your project may be in danger of being over budget. Be reasonable with your planning, and always look for professional advice.