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October 13, 2021

In project management, you will encounter an array of adversities. One of the most common is when a project’s costs overrun the budget. Correcting inefficiencies is not the easiest task in the world. The challenge in keeping to your project budget stems from the fact that numerous factors can contribute to going over. More often than not, these are unforeseen events that are generally out of human control. However, sometimes they are avoidable consequences with no precautions taken against them. Whatever the reason, there are plenty of answers to the question, “why do projects go over budget?”

Manager inexperience

Sometimes it boils down to the project manager. When companies grow, they need more personnel to manage projects. Of course, no one becomes a good project manager without gaining the right amount of experience first. Nevertheless, a project with poor management can result in missed deadlines and inadequate budget management. Therefore, choosing the right manager/leader is on par with choosing the right builder.

A project leader lacking experience in the responsibilities of the position may encounter a lot of hurdles. More so than a leader who is familiar with overseeing a project from its inception to its completion. Like with hard or soft facility management, you want what’s best for your project and that means hiring the right individual for the job.

When employing someone to lead their first project, make sure to have someone there to provide guidance. Let your project manager learn from their mistakes, but have someone intervene if the project starts to go over budget.

Loss from malfunctions or damages

Essential equipment may break while on-site, suffer from damage during installation, or fail to properly operate. In these situations, it must be either replaced, reordered, or repaired for the project to continue. These situations can prove to be a fortuitous expense to the budget. A percentage of each project budget – roughly 30% – should be reserved to avoid diverting funds from budgeting needs.

More changes and no charges

As the project progresses, the client may request other additions, such as more features or better quality. Whatever they request, they will definitely require more time and work. With every change or extra hour you are not charging, you are basically eating away at your budget.

If you don’t start charging the client for the changes they request, you may be in trouble. There’s a chance that you won’t have room to maneuver later on. Worse still, you could lose a substantial amount of money.

The solution to this is to establish rules on how much you are willing to adjust during the project. Should the client request additional services, then don’t hesitate to ask for more money. It is better in the long run to lose a sale than to work in exchange for nothing.

Environmental conditions

There is little you can do in regards to nasty weather or natural disasters. A project can be halted unexpectedly – sometimes indefinitely – due to certain conditions. Ones that prevent workers from arriving on site or delay supply delivery. Additionally, they could result in partial or complete loss. Recovery from this setback is not easy, but allocating money to insurance during a project’s planning stages is smart.

Alterations in the project

Probably one of the most common reasons for a project to go over budget is spontaneous project changes. This can typically be connected to whenever someone makes alterations that the budget does not account for. These changes could derive from realizing that something is missing or the need to adapt to a lack of necessary materials. Alternatively, they could come from other issues that one cannot effectively plan for.

Be sure to walk through your project from beginning to end with multiple people. This way, you can identify problem areas much earlier.

Poor planning

Lack of foresight causes most budget shortfalls. To elaborate, when a project has fewer funds than it requires, more money will be needed to complete the project. Not understanding the financial requirements – such as salaries to overhead costs – can backfire on you. It could result in losing funds during the early stages.

How to ensure you don’t go over budget

Large projects require resource strain, which often causes them to go over budget. However, by taking the above factors into account, you can minimize the damage. In the end, you will find yourself remaining within projected budgets. For project consultation services, contact our Mississauga construction location. Moreover, if you want to learn about commercial management, check out our article What is Commercial Management in Construction.