FACT: Cost overruns in construction projects are expensive. Simple. Three explanations which lead to cost overrun exist: technical, psychological and political-economic.
Technical aspects are the largest contributing factor to a project exceeding its budget. This is caused by original square metre calculations, survey information, specifications and materials costs being sourced incorrectly or inadequately and/or data not being fully considered within the framework of a financial critical path which leads to the ‘critical motorway’ the place where developers and investors alike are forced to drive faster and harder .
The second factor, psychological, accounts for the biased budget forecasting. Experienced developers appreciate the need and long-term benefits of conducting feasibility studies in order to define a clear project strategy, cost frameworks, investment plans and critical paths. However, the problems occur when poor or misleading studies (often worse than having no study at all) are produced by undertaking the task in-house or by contracting a third party subject internal bias).
The third factor is political-economic. This can be explained simply as lack of forecasting. Correct current data is essential, however a lack of knowledge when interpreting this data and intelligently predicting future political and economic trends is equally crucial to budget success. Insufficient forecasting if not identified quickly, can lead to spiraling material costs, on site delays and unexpected design fees to compensate for these trends. In addition to this, where construction loans and/or external investments exist, this automatically results in further additional costs such as interest charges and penalty fines.
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