Cost overruns on construction projects are unfortunately a common thing and result in the waste of time and money. Many construction projects, particularly in the construction industry, fail to meet the expected cost and schedule goals.
Simply, cost overruns can eat away at your project budget and towards the end of the project, you can be left without any profit. Some people call this “profit fade”. This is when the cost at the end of the project exceeds the initial budget. This happens for several reasons but almost always is a consequence of mismanaged job sites on many levels, often due to inaccurate project estimates.
So, construction companies eventually fail to fulfill the total requirements of the project’s scope and don’t deliver desirable results to the owners. When this happens repeatedly, it puts the entire company at risk because the company is not operating profitably, affecting the project’s success.
There are several common causes for cost overruns in construction.
Construction Project Design Errors
The project’s scope, often outlined in the Scope of Work (SOW), is determined during the contract negotiations and needs to be accurate to execute the project on time and on budget. Estimators then build the estimate based on the project design and scope of work. An experienced estimator can catch a lot of errors in the design. This avoids future problems and prevent cost overages. Flawed estimates that have incorrect quantities of raw materials, equipment costs, labor hours and rates, increase the risk right from the beginning of running an unprofitable job.
Ineffective On-site Management
During construction, the Project Manager needs to keep track of materials, scheduling, safety, equipment condition, quality control, and many other aspects of running a job site. Effective project management software can be an invaluable tool for keeping everything organized.
If PMs are not onsite to evaluate the work done, they will lose control of the project. A competent and trained labor force is key to running a profitable job site and achieving project success. Project Managers and others create policies for each construction site to ensure project objectives are achieved. A poorly trained or mismanaged workforce that doesn’t align with those policies is another way to waste time and money.
Ineffective on-site management includes a breakdown in communications as well. This is a big problem for General Contractors and the Trades (Subcontractors). Poor scheduling and lack of communications between different entities on the job site results in more wasted time and money.
Ghost Employees
Three out of five construction business owners struggle with this problem, contributing to construction cost overruns.
Ghost employees are construction workers who don’t exist but surprisingly appear on the payroll. It is challenging to manage remote construction sites that have hundreds of workers. Fake IDs are used to create employees who do not exist but get a paycheck. This kind of scam usually happens with the consent of the Superintendent, the PM or both because they are “in” on the scheme.
Sometimes not just Ghost employees are used to steal time. There are Buddy Punchers as well. For instance, the construction crew may have workers that are related to each other or are friends. One worker doesn’t feel like working that day so he has his buddy punch in for him. This is a VERY common way for workers to steal time. Systems that use fingerprints and pin numbers easily lend themselves to this kind of fraud.
In the end, Ghost employees and Buddy Punchers create labor fraud and inflated labor costs. If this practice becomes common on the jobsite, it can cost companies thousands of dollars in any given month.
Poor Communication
Poor communication on construction projects occurs in many ways, affecting both the project budget and project success. One very significant problem is getting labor hours in the field correctly to HR for payroll.
Inadequate communication between the field and the office leads to convoluted and inaccurate information. Time and attendance systems are usually at the heart of having an effective strategy for keeping track of labor costs. Using paper timesheets or poor timekeeping systems leads to inflated labor costs.
Collecting accurate labor hours worked and cost coding that time is key to getting any good analytical data from management reports. Understanding how many workers are doing what tasks on a daily basis is fundamental to running a profitable job site. Being able to track your budgeted labor hours vs. your actual hours daily is crucial and can mean the difference between profit and loss.
Among many great features, MobiClocks provides an Internal Chat feature that helps the field and HR communicate very easily. And, it has a labor budget planner feature to help you avoid labor cost overruns.
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