Capital program managers often find themselves dealing with unforeseen challenges. One of the most common is cost overruns. Whether due to estimating errors, unidentified risks, scope creep, or communication breakdowns, blown budgets aren’t just another headache to be managed, they can be devastating to the success of the project.
Image source: Mastering the Risky Business of Public-Private Partnerships in Infrastructure, International Monetary Fund, May 10, 2021
For those managing large-scale public projects, the need to address cost overruns is even more urgent. It’s not unusual for road, railway, tunnel, and bridge projects to cost as much as 40% more than originally planned. Energy projects are even more troublesome, costing as much as 66% more than budgeted.
While it’s long been accepted that cost overruns are simply part and parcel of large construction projects, that thinking needs to change. Especially as public projects come under increasing pressure to be environmentally sustainable, owners must be invested in addressing this age-old problem. To do that, though, they must first acknowledge why the problem continues to persist.
So why do large-scale projects so often fail to come in on budget? Here are some of the most common reasons.
1. Outdated & inaccurate budgeting methods
To avoid cost overruns, you must have a reliable budget. But if the methods being used to produce estimates are outdated or insufficient, the budget will never be precise. Using generalized pricing metrics, underestimating the value of historical data, and failing to use technologies like predictive modeling are just a few of the missteps that can end up costing big time later on.
2. Insufficient risk management
Risk management is another critical area where capital program managers often fall short. Identifying potential risks early and developing strategies to mitigate them is essential for keeping projects on budget. Far from a one-time exercise, risk management of capital programs must also be ongoing throughout the entire lifecycle of the asset. However, many managers fail to identify risks, or fail to account for them adequately in their plans.
Design failures, inadequate project planning, and project scope changes are the most common causes of cost overruns on road projects.
Source: “Cost Overrun Causative Factors in Road Infrastructure Projects: A Frequency and Importance Analysis.” Applied Sciences, Aug 9, 2020.
3. Mismanagement of resources
Proper resource allocation is vital for the success of any capital program. Mismanagement of labor, materials, or equipment at the construction stage can lead to significant delays, which translate to increased costs. Insufficient allocation of resources during operation and management can have even more catastrophic outcomes, and require even costlier remedies.
4. Poor change management
If there’s one constant, it’s change, which makes strong change management essential. Yet, too many large-scale projects suffer from insufficient change management procedures. In the absence of rigorous processes for tracking, evaluating, and implementing changes across the asset lifecycle, even seemingly minor deviations from the plan can add up quickly, derailing the budget.
5. Lack of communication & collaboration
It may be difficult to quantify the impacts of poor communication and poor information sharing, but the costs associated with them can be significant nonetheless. When teams aren’t communicating and collaborating, misunderstandings, rework, duplicated efforts, and prolonged project timelines are much more likely, ultimately increasing labor, materials, and administrative expenses.
6. Fragmented data & information silos
Capital programs involve a number of stakeholders, each using their own systems. When the wealth of valuable data these systems contain remains siloed within different departments, teams are limited in their ability to identify both potential issues and opportunities for optimization. This lack of interoperability breeds inefficiencies and communication breakdowns, which typically lead to errors, delays, and increasing costs.
7. Resistance to change
The reality is that technology tools exist today that can help capital program managers minimize or avoid all of these risks. Yet, some continue to resist technology and, in doing so, are missing out on the benefits they provide. This reluctance hinders the implementation of more accurate and efficient systems, processes, and ways of working. It also perpetuates the outdated belief that over-budget capital programs are unavoidable.
Take the unpredictability out of capital program budget management with connected data
Jokes about construction projects always costing more than estimated have been around for decades. But when these hits to the budget involve taxpayer dollars, nobody is laughing.
To be good stewards of the citizens they serve, public infrastructure owners can no longer accept budget overages as the norm. Furthermore, to meet economic and environmental sustainability requirements, they have additional incentive to solve this age-old problem.
Empowering the right people with the right data at the right time is the way to deliver higher-performing assets at a lower total cost. You do that with connected data.
To learn more about how connected data is transforming capital program management, watch the webinar.
