Cost Overrun In Construction – Meaning, Causes, Effect, & How to Prevent

Blog, Construction

Navigating through the complexities of a construction project is not easy; a common stumbling block is a cost overrun. In construction, cost overrun occurs when the amount planned or budgeted is insufficient for a project. This means that the amount spent has exceeded the intended amount for the project.

This is a minor issue actually, but it can cause a ripple effect and reshape the entire project. Cost overruns are common in construction. Projects of all sizes and nature are affected by cost overruns, and the impacts are far-reaching.

Understanding the issue, that is, cost overrun, is crucial for all parties involved in construction. In this article, I will write about the common causes of cost overrun, their impact, as well as strategies to prevent them.

What is cost overrun in construction?

The term cost overrun in construction describes an event where the cost of a project exceeds the expected or budgeted cost. This event is particularly common in construction and can wreak havoc on the financial health and the timeline of a project.

Common causes of cost overrun in construction

Cost overrun can be caused by various factors throughout the construction lifecycle. In this section, we will explore some of these causes.

1. Cost escalation

Cost or price escalation means an increase in cost well beyond the original or budgeted price. This can be caused by a number of factors such as inflation, changes in material prices, unforeseen market conditions, and a hike in labor costs.

2. Scope creep

Scope creep occurs when the project’s scope is not properly defined and expands beyond its original boundaries. In simple terms, it means that various unexpected tasks continue to pop up during the project. These tasks increase cost, making it very likely to exceed the project’s budget, hence causing cost overrun.

3. Inaccurate estimates

One of the core factors of successful projects is accurate estimation. If estimates fall short of the actual price, the project’s success can face significant financial challenges. This can cause delays in completion and worst-case scenarios, the project is halted.

4. Poor risk management

All projects are hit with one or two potential risks, and it is the responsibility of the project manager to describe potential risks and strategies to implement if needed. When risk management and strategy are not planned on, you leave the project open to many risks that can delay the project, bring costs up, and cause an overrun.

What is the impact of cost overrun in construction?

The impact of cost overrun extends far beyond just costs; the ripple effect it has on a construction project can further threaten the success of that project. This section will explore the impact cost overrun has on projects.

1. Project delays and disruption

The first and most common impact of overrun in construction is delays and disruption. Resource allocation and workflow are disrupted, raising the need to reevaluate and revise the project scope to fit the budget. This automatically affects the timeline of the project.

2. Compromises project quality and safety

Cost overrun can make clients and project managers compromise just to complete a project. To cut costs, cheaper materials or less skilled workers may be brought in to complete the project. This can negatively affect the durability and functionality of the finished structure, additionally, safety standards are jeopardized as a result.

3. Legal implication

When a building fails or does not meet regulatory standards and compliance requirements, there are legal implications. Legal ramifications can lead to fines or the need for costly modification after the project has been completed (post-modification).

4. Brand Impact

For construction companies, cost overrun can severely tarnish the company’s reputation, particularly among clients. This makes it harder for them to secure new contracts as they have lost the trust and credibility they spoke highly of.


Is cost overrun a risk?

Yes, it is. It does not only strain financial resources but also affects the quality of the project.

Can cost overrun be solved?

The best way to handle cost overrun is to understand and prepare adequately for any risk that might affect the project financially.

In conclusion – How to prevent cost overrun in construction

In the end, the best way to prevent cost overrun is to plan adequately before the project commences. This means thorough and accurate estimates must be made so the project costs stay within budget. It also means that potential risks are accounted for with an adequate risk management plan.

Additionally, there should be effective communication between the project manager, client, or stakeholder. This should keep everyone in the loop as the construction progresses and make handling issues and decision-making fast and effective.

I hope you enjoyed reading this article. You might also find this article on how To Fix Ceiling Cracks interesting.

Thanks for reading.

About Samkins

Samkins Construction Inc specializes in custom home building, general contracting, design-build, architectural design, construction management, and real estate services.


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