Mohammed Taher Netarwala • The commnest Attribute is scope creep. Doing things not under project scope leads to cost over run. Normally it starts with one small request. But this small small request add up.
Samer Zawaydeh, Msc, PMP, AVS, Mentor • Here is a quick list:
1. Poor Estimates
2. Not reading between the lines
3. Poor Project Management
4. Changes in management
5. Inefficient uses of material
6. Increased prices
7. Unforeseen Events
With kind regards,
Francis Moyalan Varghese,PMP • Scope creep shall not be a contributing factor for any cost over runs, if contract is administered professionally. The contract conditions should be checked initially to see whether it clearly stipulates the way forward for claiming any additional works beyond the main contract scope.
Diligent contract administration including timely notifications to the client for any Instructions and later claiming additional cost will prevent any cost overrun.
Hence in line with the above situation, I strongly believe lack of vigilant and apt contract administration can be a cause of cost over run.
Kul Uppal, PE, CEP • Major factors for cost over-run on any project are:
1. Scope of work not well defined
2. Basis of estimate is not available
3. Poor Cost Control
You can add lot more factors to this list but these three pretty much determine the outcome of the established bottom-line.
Ricardo Borges • Samer and Kul's list are good. I would like to add the following:
- Poor project team and lack of roles and responsibilities definition
- Management of changes (either scope or design changes)
- Lack of project controls
- Poor FEL
- Lack of PEP - Project Execution Plan
Alexia Nalewaik, CCE FRICS MSc • Here's a top ten.
1. have a risk mitigation strategy in place
2. forecast cost to complete
3. resolve change orders and prevent them from becoming claims
4. respond to and close audit findings
5. conduct diligent contract administration
6. generate timely, accurate and relevant cost reports
7. implement strong project controls and internal controls
8. establish and periodically review contingency and reserves
9. conduct periodic audits and risk assessment
10. include strong contract language that establishes the contract administration, change and claims processes, allowable & unallowable costs, and more...
Douglas W. Leo CCC CEP FRICS • good comments... put as a whole certainly covers a good overview of the problem. Let me add, lack of integrated project teams, teams that keep swapping out members, lack of any constructabilty reviews, teams too busy to meet at the front-end of the project cycle and teams who just throw info over walls at each other.......,
Ahmed Syed • From the perspective of developing institutions, there are other factors too such as government fiscal policy of changing the import tariff on certain capital goods (plant and machinery) and cost of capital the funds providers change during the disbursement period per monetary policy of the Central Bank. This is usual practice in case of developing world where the government run out of income and looking for further avenue to narrowing down the budget deficit. The victim of course, the project which are in progress of implementation, keep incurring this unforeseen cost.
Ty Keith • Procurement, procurement, procurement! I've been on many jobs that do not get key pieces of material on time. The contractor is forced to figure out a less than optimum work-around or postpone that work until the material/equipment arrives.
Without a good procurement department the project team can try having the project scheduler track material delivery but that often has it's challenges.
I've even seen instances where eveyone thought the material was ordered and on it's way, only to find out too late that the order was not placed or held up somewhere in route. And, I've seen wrong material/equipment arrive on site which forces a re-order resulting in more lost time.
Sometimes it is the contractor's fault and other times it is the project owner's fault. Irregardless; there needs to be a better way!
Glenn Counts, MBA, PMP, EVP • Kartik,
From my experience, the factors that contributed most to cost-overruns were 1) an unrealistic baseline (or no baseline), 2) incorrect tracking of cost (i.e. tracking actual vs. planned cost), and 3) inability or reluctance by the project team to enforce change control.
It all starts with number 1, a realistic baseline; the project team has only one opportunity to get this right - at the outset. It’s unfortunate to see so many projects fail just as they are getting off the ground….
Tony Barrett • In my experience, cost overruns are usually the direct result of top-level scope creep a/o schedule overruns. Whether the cost overrun is labeled as a scope or schedule issue is simply a result of the contracting mechanism employed. The root cause of either is generally attributable to a "ready-fire-aim" contract start with no realistic attempt to get a performance measurement baseline in place.
P. S. The corollary to this is: if there is a mutually agreed to performance measurement baseline in place, a later attempt by either party to enforce a cost overrun issue disappears.
Eric Jubert • Kartik, I couldn't come up with just one reason; in my humble opinion, its two top level ones. Initially, its the failure to plan all relevant work and account for all costs. Secondly, its a lack of true cost & schedule integration thereafter... One feeds off the other, even in fixed cost scenarios.
Raphael M Dua,FAICD, MACS Snr, PCP, CP, GradDISC • Folks
My long time experience covers all of the above suggestions and what happened.
IMHO the basic reason for project failure on some projects and not on others is the quality of the Project Manager, The PM Capability maturity of the contractor itself, operating a "best for project attitude", keeping subbies on side by not only paying them on time, but listening (communication!) to them.
I have been saved on more than one occassion by a sub contractor spotting potential problems and getting them fixed before they cause the project to go pear shaped
Matthew Baker • Kartik,
All of these projects that go into cost overrun have a lot in common. They tend to get stunted in the beginning with a bad estimate. Then, mgmt arbitrarily leans on pre-conceived budget amounts and milestone dates that are unrealistic and have no quantifiable basis. The whole time this is going on, no one is really communicating reality. Changes are poorly tracked, if at all. Then when all the smoke clears, the project finishes up over budget and behind schedule and everybody's scratching their head saying 'How did this happen? Who's fault is it?'
When you fail to plan, you plan to fail!
Kul Uppal, PE, CEP • Matt,
You have hit the nail on the head - first bad estimate followed by pre-conceived budget amounts by management and poor to non-existing cost controls - you are set-up for failure because of no planning. Well said.
Nick Papadopoulos • Blow the estimate and no cost management, risk management or project management tools, processes or talent will save you. The estimate will set up the construction team for success or failure.
Elena Sandoval • The much common aspect that I have usually seen is lack of information concerns with the real cause of deviation so that management decisions are focused in errors mitigations actions which do no attack the real cause of problem. Other typical aspect and quite related with the first mentioned, it is a budget bad structured and planned with an unreal database. When I mention that the database is unreal is because again it does not reflect the resource performance of the company whom is going to develop the project. As a resulted, the figures are based on cost and productivity false indexes. As a consequence, the budget will never guarantee all main aspects concern with time, productivity and cost of the resources to allow that the project funds will cover all expenditures and provide profits.
Poor quality of budget structure is also critical, in order to get the cost driver to understand well the process and focus the control and decision management process in risky activities to be overrun generating a reduction of the profits.
Mitigation concerns with budget structure is to define the correct work breakdown structure and cost breakdown structure to permit determining the critical activities and cost element where control system should be focused, to implement efficient corrective actions. Once the cost drivers are defined, it is easy to detect the real cause of deviation to evaluate its impact using EVA and give to management tools and useful information to implement corrective actions that would solve the problems by reducing o eliminating the cost impact of been overrun.
The real cost and productivity indexes will give to company a database of own performance to address if it is competitive doing the benchmarking and take the actions for enhancing the profits.
Lawrence Reinhart • Everything is manageable but the one thing almost everyone is guilty of doing is not communicating with all parties dealing with the budget. How many times have you been notified of plan or specification change(s) through an informal conversation? Oh and by the way the change took effect 2 weeks ago.
It has been my experience that communication, or the lack thereof, leads to one of the largest reasons a budget will have a cost overrun. As an Estimator it is our prerogative and our duty to be the gate keepers of the budget. Estimators are the brain and heart of any company because we feed information to both project management and (in my case) construction management. If the Estimator is not told of potential changes then how can your company work properly? Project management needs us to provide an accurate budget they can plan to and construction management needs our estimates to perform all the tasks required in the project.
Communication even extends to the people performing the work. If a field change is made on a project due to field conditions or incorrectly drawn plans then the Estimator needs to know about these changes, so the budget can be tracked accordingly. Any deviations from the plans and the estimate will lead to a cost increase. Far too often the Estimator is overwhelmed with office work and they can not make it to the field to watch the progression of a construction project. However, this doesn’t mean the Estimator shouldn’t make time. In fact, any good management team would encourage the Estimator to go to the field and see how the project is progressing. This has a multitude of benefits for the Estimator. It allows the estimator to compare their estimate to the way it was executed which helps the Estimator understand how their estimate is an integral part of the construction phase. This also allows the Estimator to make changes the next time this same type of estimate is performed. If the estimator assumed one thing and another was performed then it’s a learning experience. The installation of a structural slab can be performed differently throughout a region or other countries. If the Estimator doesn’t take this into account when performing the estimate then there will cost issues. However, this could be alleviated by communication with the construction management department because they are the subject matter experts.
Once again, it all comes down to communication. If key personnel are not communicating then a project will have cost overruns because each department wants to think they are more important than the other(s). In all reality, every department relies on each other and too often department managers seem to forget this when a project is under way.