3 Most Common Causes of Cost Overruns in Construction Projects

Updated: Sep 21

Cost overruns in building projects have been a common occurrence in the industry. In reality, according to a KPMG report, just 31% of all projects fell within 10% of the budget in the last three years. Construction workers, on the other hand, can't afford to accept the new standard, particularly when project budgets are scrutinized more than ever before and overall sector competitiveness remains a constant concern.

Construction projects usually span months or years, and there are a lot of moving parts during that period. It may be difficult to separate all of those parts to determine which will contribute to increased production and which will result in project delays.

It's crucial to consider the source of cost overruns in building projects before figuring out how to deal with them. Overruns also indicate broader problems with project management, as well as plans and budgets that were set incorrectly from the start.

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While extreme weather or factors beyond human control may have an effect on budgets, most project overruns are the product of poor preparation or preparation prior to construction. In addition to improved planning, technologies may assist in reducing the typical complications or factors that lead to cost overruns, meaning that production and profits are maximized.

What Is Cost Overrun in Construction?

Any unforeseen accrued cost(s) that allows a project to increase the total budget (terms) you've committed to with the customer is known as a cost overrun, also known as a cost overrun or budget overrun.

This can happen for a variety of causes (which we'll go through in the next section), but it's mostly due to an underestimation of the project's real expense at the budgeting and project scoping stages.

In light of this, Irvine Bookkeeping has prepared a list of 3 leading causes of unpredicted project costs and explained how you might deal with them.


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1. Not Have A Good Time Management

One of the most common drawbacks of a building project is time control. As employees spend a large amount of their day waiting to start running, the entire project breaks down and becomes incredibly expensive.

Nearly 90% of construction jobs, according to the USG + US Chamber of Commerce, consider the industry to be unproductive. Construction staff sometimes spend up to half of their day waiting to start their portion of the job. This downtime could be greatly decreased with proactive construction labor management, resulting in a substantial increase in worker morale on the job site.

2. Inaccurate Project Estimates

Although many project stakeholders are excited to begin construction, if the schedules and estimates are flawed, to begin with, the project is expected to overrun from the outset. Estimates may suffer from erroneous assumptions of the scope of work involved in the project due to the competitive nature of the bidding process. Any projects would be calculated on a one-size-fits-all basis in certain situations, with a strong probability of missing the original estimate.

As a result, it's important to do your research during the preconstruction process to be transparent and practical with architects and contractors about project schedules and costs. The RFP method can also be used to begin correctly estimating the project. This is the opportunity for planners, builders, and owners to discuss their concerns about the project's budget and deadlines. If one of the parties seems to be unrealistic with the project's timeline or budget, this should be a red flag that the project is on the verge of going over budget.

3. Not Take Control of Contractors’ Financing

Construction is not like other companies, such as a retail store or a repair shop, which organize a line of goods or provide a service in exchange for money.

Contractors who "receive payment by finishing part or more of a project" face a unique financial challenge: balancing multiple projects and budgets. They must be able to certify that sufficient funds are available to complete projects and pay employees, ensuring that construction does not halt and deadlines are met.

You have to be able to certify sufficient funds are available to undertake projects and make payroll, ensuring building doesn’t cease and timelines don’t erupt.

Irvine Bookkeeping has many years of accounting experience in the construction industry and we understand the problems you face in the estimate and planning each project. Contact us now to get an overview of your company's budget and your ability to complete your project without running into cost overruns.


If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.

Call Irvine Bookkeeping now for a Free Quote!

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