Proper planning will prevent many problems that can haunt a project all the way to completion.
Of course, this is the plan for almost all projects, but circumstances occur that cause some projects to go astray which make cost overruns inevitable. Key project members staying on top of a project by confronting problems at discovery and being attentive to avoid the problem from worsening is of the utmost importance.
One important step of a project is to compare the budgeted/estimated project compares with the completed actual project. Cost overruns need a constructive analysis. Once the project is completely finished, and the project costs are paid, a postmortem meeting with significant individuals of the project team to discuss what went right and what went wrong is highly recommended.
Cost overruns have a broad range across the company spectrum, and several reasons and solutions follow.
Reason: Errors in budgeting/estimating a project
- Mathematical errors-transcribing, pressing wrong keys, omissions and miscalculations
- Plans and specifications-errors, omissions, vague drawings and scope in the plans and specifications
- Estimators inexperienced in the field of expertise, estimating programs and unique bid requests by the client
- Lack of knowledge by the contractor in new locations
Solution: A conscientious estimator will double-check the estimate and includes suppliers' and subcontractors' pricing. A triple check by a competent person, preferably a manager, is necessary to prevent avoidable errors and to review estimates. Comparing the costs by the pound, cubic yard, ton, square feet, etc., by whatever appropriate practice is a useful indicator if the price is in the competitive range.
If the specifications lack the necessary information to perform an accurate estimate, a request to the client for the appropriate documentation should occur in text. Clarifications in the bid proposal are required if no response or an inadequate one is given. Be sure your proposal is part of the contract, if awarded, to ensure obligations.
Another major problem that often can bring about cost overruns is working in a new environment, whether it is in a nearby or a distant geographical region. Research is vital when venturing off in unknown areas. Consideration to resources (personnel, material and equipment), site conditions, weather, accommodations, and safety requirements is indispensable.
Reason: Costs required beyond the scope of work
- Conditions unknown to the contractor
- Requests by client clearly not within the scope of work
- Client failure to fulfill commitments according to specifications
Solution: A change order request can be difficult when conditions unaware to the contractor are lacking proper documentation. A client's practicality helps determine whether to grant a Change Order. If documentation does not exist of why overruns occurred, it would be reasonable to conclude that it was the contractor's liability.
For clarification purposes, a field order usually originates prior to performing any changes to the scope of work, while a change order comes from the client after completion of the required processing. The process and terminology can vary depending on the companies involved.
The client should sign the agreed upon field order prior to the contractor undertaking the additional costs beyond the scope of work. This will assist in the elimination of conflicts and even legal issues in the future regarding the field order. Whether the field order is on a time and material basis or a firm price, capture all costs that relates to the additional work including delays to other tasks. A systematic approach method can ensure the contractor's reimbursement to the amount entitled is legitimate.
When the client fails to uphold his/her side of the contract, a change order is a definite possibility. When this happens, much of it involves delays. For example, client-furnished equipment and material not delivered according to specifications-based either on scheduling or manufacturing. When it increases cost, whether through a late schedule delivery or a correction by the contractor for erroneous manufacturing or engineering, a systematic approach method is necessary to assess capital, personnel and equipment resources
