Cost uncertainty drivers

Why is it so difficult to budget for construction projects? External costs can fluctuate quickly, with volatile markets for materials like steel, concrete and timber – and inflation causing price increases across the board.

Internally, budget overruns can be a result of poor project estimates, caused by missing or inaccurate price data, poor project planning or simple human error. Inadequate risk management is another common issue – if there’s no plan in place to deal with weather changes, unexpected on-site conditions or a lack of subcontractors, these issues can have a real impact on project timelines and cost.

On the client side, scope creep is common. Changing flooring materials or extending floorspace by a couple of metres adds to the cost without altering the original budget. If there’s no change request plan in place, this can mean a clash between budget and end-cost.

Cost uncertainty can come from the client, the contractor or external factors that nobody can control. That’s what makes it challenging.

While cost certainty may be difficult to achieve, there are ways for contractors to minimise the risks. While they can’t control steel prices or weather conditions, it is possible to budget more accurately so final costs stay close to initial estimates.

At Expedite, strong client relationships are a significant part of our business – so we’ve always worked hard to deliver cost certainty.

ECI (Early Contractor Involvement)

Under the ECI model , clients engage a contractor at the earliest stage of project planning, instead of after the design phase. We prefer this approach, as it gives us more control and insight into project requirements and scope, which we use to inform our initial costing. It’s also a chance for our team to identify potential risks and cost-saving opportunities, reducing expenses over the life of the project.

Robust budgeting

Smart, robust budgeting is crucial for cost certainty. Our structured budgeting process involves a detailed breakdown of project stages and cost centres, along with projected costs for labour, materials, equipment, transport and subcontractors. All our project plans include contingency funds for unforeseen costs or cost changes, and a change control process to allow for scope changes.

BIM (Building Information Modelling)

BIM creates a 3D visual representation of a project plan. More than just a model, BIM plans integrate data from various sources to provide a full picture of the build – including details from architects, designers, managers and contractors. Models can also include budget details for different project elements, which can be tweaked and adjusted in real time by project stakeholders. At Expedite, we use BIM as a visual aid and shared record of planning progress.

Strong risk assessment processes

Risk assessment is about identifying potential issues and planning around them, minimising any impact on timelines or costs. We use a systematic risk assessment model that helps us scope, analyse and assess all types of risk – from cost increases and weather to unreliable subcontractors. Once we know the risks and their potential impact on the project, we can either change the project plan to avoid them, or put plans in place to deal with them if they arise.

Part of our risk management process involves leveraging industry data and forecasting, analysing the likely cost of a given material three or six months down the line and using that estimate in our budget. This data-led approach helps us mitigate some of the uncertainty that comes with cost fluctuations and volatility in the market.

Most construction companies want to deliver cost certainty – there’s no upside to losing client trust or eating into profits. However, thanks to steeply-rising costs and shifting demand, it has been difficult for contractors to budget accurately. The good news is that these challenges may be easing, with commentators seeing costs softening and confidence rising in the New Zealand market. 

At Expedite, we use the same processes and models no matter what’s happening in the industry. With long experience in project management and complex builds, we know how to use data, modelling and our own insight to create accurate project budgets. We prepare for risks and plan for cost changes, so external factors don’t blow the budget.

Find out more about working with the Expedite team.