Being a developer is a heavy task. There is the matter of technical capacity which you have to build, the bureaucratic and expensive permit seeking processes, the rigors of raising capital, labour overheads to deal with, deadlines to beat, and the sales and marketing process just to mention a few areas where little unpredictable twists usually arise, with the potential to frustrate the project. And then there is the issue of managing costs.
If not well-managed, cost overruns could put the completion of a construction project in jeopardy while resulting in conflicts between all other parties and the developer. In fact, you’ve got all the guns trained at you. The financial institutions, for servicing of the loan, workers for wages and salary, hired machinery too will be pulling heavy on your wallet not to forge the expense of government permits, lawyers and other independent experts.
In the midst of these pressures, sometimes it’s easy to lose track of costs and tip over the budget. A study by RS means found that only 31 percent of construction projects came within 10 percent of their budgets. At a time when construction risks for projects have increased significantly, it is easy to overestimate or underestimate (the more risky) the cost of a project.
According to a UK initiative dubbed Getting it Right Initiative (GIRI), most of the losses in the construction industry were as a result of avoidable errors. The research found that in the UK 10% to 25% of project costs are lost through errors in direct and indirect costs plus unmeasured costs. It also found that unrecorded process waste accounts for 6% of all construction costs, latent defects account for 3% while undocumented direct and indirect costs account for 5% and 7% respectively.
Further, the study determined that the top ten causes of errors include inadequate planning, late design changes, miscommunication of design information, a culture of poor quality, inadequate coordination of design information, and failure to pay attention to design details. Others include excessive pressure on time and finances, poor interface management and design, ineffective communication between team members and inadequate supervisory skills.
On solutions, experts believe that the project planning and design phases are pivotal in combating error as later changes in the plan or design which may seem insignificant have the potential to significantly raise the projects overall cost. The objective at this stage should be to avoid at all costs, the unintended mistakes that may come to haunt the project later on.
One way of preventing errors is by being realistic. That means minimizing the use worst case scenarios and best case scenarios which overstretched timelines or blown up expectations. The best way is to find the most accurate mix of data sources and use it.
Getting the required permits in time will also do much to avoid the wastage of more time and money at later stages of the project. This is especially important when entering new and unfamiliar markets, which can be costly enough, to avoid construction coming to a standstill due to a deadlock with authorities.
In general, the budget is as good as the data used for the estimates.