The Top Causes of Construction Cost Overruns

Going over budget is common in construction. Some studies show nine out of 10 projects face construction cost overruns. Some issues that cause overruns are more common than others. By knowing the main causes, companies can take steps to avoid them and keep costs under control.

How Common Are Cost Overruns in Construction?

Large projects are hit the hardest. According to McKinsey & Company, some projects run up to 80% over budget and take 20% longer than scheduled. Across all project sizes:

• Only about 31% finish within 10% of their budget.
• Just 25% finish within 10% of their deadline.  

These numbers highlight a major industry problem. But cost overruns aren’t guaranteed. With better planning, stronger communication and the right tools, companies can reduce their impact. The first step is understanding the most common causes.

Common Causes of Construction Cost Overruns

1. Bad Project Estimates

Poor estimates often start the chain reaction that leads to construction cost overruns. Common issues include:

• Scope gaps: Missing details in plans or site risks like weather delays can lead to underbudgeting. 
• Clerical errors: Math or data entry mistakes can add up quickly.
• Ignoring trends: Construction costs can rise much faster than general inflation. For example, in one year the consumer price index rose 5.4% while construction input costs rose 23%.

Solution: Estimators need full project information and must track current market prices.

2. Not Planning for Change Requests

Most projects face change requests, which alter scope, design or requirements after the budget has been already set. Almost every project sees them. 

Some change requests stem from bad estimates or miscommunication. Others come from client requests mid-project. Either way, they impact equipment schedules, contractor timing and budgets.

Solution: Plan ahead with contract clauses for extra funds and time. Or use software to model impacts to help reduce their effect. 

3. Inefficient Site Management

Poor on-site management wastes time and money. Common issues include misplaced equipment, lack of clear direction and worker fatigue.

Solution: Simple check-out systems and digital tools can help keep track of worker location and hours. Tools like underground lasers can also help improve accuracy in tasks like pipe laying. And lean construction methods can cut costs up to 15% and reduce project timelines by 30% with methods like better workflow alignment, just-in-time delivery and daily feedback loops.

4. Lack of Communication

Nearly half of projects with poor communication go over budget. Only 48% of companies with poor communication finish within budget.

Misunderstood goals or assumptions lead to rework and wasted effort. 

Solution: Clear and consistent communication between clients, estimators and teams reduces change orders and avoids wasted effort. 

5. Bad Scheduling

Time and money are lost when crews or equipment aren’t scheduled correctly. Renting equipment can save money, but only if schedules match project needs.

Solution: Use planning software to align and coordinate workers, subcontractors and rental equipment to reduce gaps and overlaps in project work.

6. Hidden Costs

Permits, delays and labor costs are often underestimated. For example:

• Permits: Should be built into budgets early.

• Unforeseen delays: Even with careful planning, surprises happen. For example, in 2021, some projects faced delays of six months for roofing materials and up to a year for steel.

• Labor: Worker shortages and rising wages add costs.

7. Poor Design

Design flaws can lead to compliance issues or missed components, requiring rework. Fixing these mistakes late in the process is expensive.

8. Lack of Flexibility

Unexpected issues like supply chain breakdowns or economic slowdowns demand flexibility. 

Solution: Just-in-time strategies and supplier partnerships help projects adapt to change.

9. Administrative Errors 

Paperwork mistakes or disputes can cause delays and rework. 

Solution: Digital platforms give stakeholders access to the same information.

10. Hiring the Wrong Workers

Hiring based solely on the lowest bid risks poor quality. 

Solution: Review subcontractor history and prioritize quality and safety.

11. Safety Incidents

Construction is hazardous. Safety incidents cause downtime and added costs. 

Solution: Training and safety tech, such as RFID sensors and fatigue bands can help reduce risks.

12. Time-Wasting Tasks

Workers can lose up to 14 hours a week on tasks not related to project progress.

Solution: Better communication and hiring quality subcontractors reduce wasted time and effort.

Control Costs With The Cat^® Rental Store

Unexpected changes will always happen on construction sites. Renting equipment gives you flexibility to respond quickly. The Cat^® Rental Store offers a wide selection of tools, attachments and heavy machines from over 70 trusted brands. Request a quick quote or find your local rental dealer to get started.

FAQs About Construction Cost Overruns

Q: What’s the most common cause of construction cost overruns?

A: Errors in project estimates are the most frequent cause, often tied to scope, clerical mistakes or pricing trends.

Q: How can companies avoid cost overruns? 

A: With better planning, stronger communication and flexible equipment rentals.

Q: Do equipment rentals help control costs?

A: Yes. Rentals can help by reducing upfront costs and giving companies access to the right machines at the right time.