Navigating Budget Overruns: A Trade Contractor’s Guide to Profitability in Commercial Construction

Budget overruns are a common issue in the construction industry. 

John McConville, owner and operations director of cost estimating, procurement, consulting and publishing firm Compass International, notes that “as many as 6 out of every 10 major construction projects fail to meet their established cost and schedule goals.” That failure can lead to much bigger problems. 

“Budget overruns can be detrimental, causing delays, strained client relationships and financial losses for contractors,” writes Karl Silverberg at the New York-based construction law firm Silverberg P.C. Quite simply, it is nearly impossible to make a profit when projects continuously go over budget.

That’s why it’s so important for trade contractors to investigate the root causes of cost overruns and fix those problems. Here are some of the most common causes for budget overruns and how construction project management software, like eSUB, can mitigate their impact to your bottom line. 

Inaccurate Project Estimates Inevitably Lead to Cost Overruns

One of the biggest contributors to cost overruns is inaccurate project bids. In fact, research by Compass International shows 27 percent of cost overruns are due to flawed estimates. While this happens for a variety of reasons, including erroneous project assumptions and one-size-fits-all bidding approaches, the main culprit behind most inaccurate estimates is bad data.

If the data used for bids is incomplete, outdated, or missing, it’s impossible to accurately estimate job costs and create realistic bids. This is an issue that companies still using binder and spreadsheets suffer because their data remains siloed. When data is decentralized, you can’t access the most recent project data meaning you can’t build accurate estimates for new jobs. 

You also can’t build accurate bids if you don’t have access to historical data. You need historical data, explains Baldwin CPAs, “to bid in a way that more accurately reflects how profitable [the job] will be for your company.” The team adds: “You’ll also be able to submit a bid that is more realistic for the customer which in and of itself may be the most important benefit of all.”

In order to do any of this you need instant access to real-time and historical data, which means you need to centralize that data. Construction project management software does that for you. It collects and stores all project data in a central repository so you can be sure the information you use in bids is accurate.

This is critical to your profitability. “Profits are won or lost based on how accurate your construction estimates are and how closely they match your final project costs,” writes Kaiya Barrett at ConstructConnect.

Inefficient Labor Allocation Wastes Money

How you allocate your labor impacts whether or not your projects are profitable. If your labor isn’t allocated to maximize productivity, your projects are more likely to fall behind schedule and go over budget. 

“One of the most common causes of cost overruns in construction projects is inefficient resource allocation,” notes the constructBalances team, which includes labor. When you put the wrong people on the job or when your workers accumulate too many lost hours sitting idle on a project, you lose money due higher labor costs, project delays, and missed deadlines. 

Contractors lost between $30 billion and $40 billion to labor inefficiencies, according to data from a 2023 FMI Labor Productivity Study. The study also finds that 60 percent of contractors surveyed “believe 11% to 15% of field labor costs are wasted or unproductive.”

The only way to solve that problem is to put people where they can be the most productive, which means you need access to real-time project labor data. If your data isn’t centralized, it’s difficult, if not impossible, to see that information. That’s why you need construction project management software.

The technology stores all labor data in one location so you can easily ascertain where you are experiencing labor waste and how you can better allocate those resources.

Change Order Mismanagement Disrupts Project Timelines and Budgets

Change orders often improve project outcomes and therefore increase profits and revenues. The problem with change orders is they are usually unexpected and often mismanaged, resulting in project delays and increasing project costs. 

While there’s little you can do to completely avoid change orders, you can manage them more efficiently to lessen their impact on your budget. Things stall when change order requirements aren’t accessible to everyone. When the back office isn’t made aware of the change order, they can’t charge for the extra labor, equipment and materials involved. What’s most critical in the successful implementation of change orders is real-time communication and detailed documentation. 

“Being able to effectively manage change orders doesn’t have to be difficult,”writes Kendall Jones, editor-in-chief at ConstructConnect. “All it takes is a little preparation, understanding, and lots of communication with all parties involved with the project.” The right technology — construction project management software — allows you to move through the change order process more efficiently. 

This is important, because the more quickly you can assess their impacts, the faster you can implement new project plans incorporating those changes. With the right tech, you can see pending or approved change orders and proactively plan your resources accordingly. The software also automates and accelerates the approval process to minimize project delays. 

Manual Document Submission Leads to Costly Mistakes and Delays

When your teams can focus on completing their project-specific work, they are more likely to stick to project timelines and stay on budget. Unfortunately, as Kenny Ingram, VP of engineering, construction and infrastructure at IFS writes, “a recent study on construction productivity stated that about 40 percent of a construction worker’s time is non-productive.”

A key contributor to this lack of productivity is manual documentation. Productivity problems arise when workers have to spend hours a day manually submitting field notes, daily reports, and time sheets, along with any other necessary project documents. 

At the end of a long day, workers may decide they don’t feel like spending more time filling out paperwork, so they leave it for another day. Or, they are so tired they don’t pay close attention to the information they put in documents. These common circumstances lead to missing or bad data. 

The solution to this problem is digitizing document submission with construction project management software so that everyone can submit documents quickly and all that data is centralized. With the mobile capabilities of the software, workers can easily fill out documents from anywhere, whether at the job site, in the office, or even at home. 

Since some of the submission process is automated, there’s less risk of human errors and workers have more time to spend on project-related work. As a result, your profits are protected.

Poor Communication Dooms Construction Projects

Communication is critical to construction project success and profitability, but it’s one of the first things to fall apart on projects that don’t have streamlined processes and centralized data. This causes a number of problems throughout a project.  

“Poor communication slows down production schedules, causing project delays and making it difficult for team members to work together efficiently,” explains Catalyst Construction President Adam Arndt. “Poor communication costs you time and money, which can add up to a considerable sum over the lifetime of your project.”

There are many reasons for miscommunication, one of them being the sheer number of communication channels available. Emails, text messages, phone calls, meetings and project documents are just some of the ways project team members collaborate and share project information. With so many different means of communicating, it’s easy to see how poor communication happens. Information that should be accessible to all can easily be siloed and lost in translation as everyone moves between these different modes. 

To solve this problem, you need a single source of truth for every project — a place where communication is streamlined and simple and data is centralized for everyone to access. The chances of miscommunication are greatly reduced with construction project management software because the tech makes it easy to share data and collaborate. 

As a result, communication is improved and you lessen the risk of project delays and problems that can lead to profit loss. 

The common thread running through all of these solutions is centralized data. The simple act of storing project information in one location that is accessible to all project stakeholders greatly reduces the chances of these issues negatively impacting your projects and profitability.  

Schedule a demo of eSUB Cloud today to learn more about how this software helps you avoid budget overruns so your business remains profitable.

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