The problem of increasing construction budget is one of the main challenges faced by the vast majority of constructors. Experts suggest not to blame inflation, rising prices or lack of workers. These factors are always present in the market. Instead it’s advised to manage the processes intelligently and transparently, responding to changing circumstances.
The faster the project is done, the more mistakes
The construction process can be divided into two parts. The preparation for construction or the planning and implementation of the construction process. “The more time and effort spent on planning, the shorter the construction period and the more the risks related to budget and deadlines are minimised,” says Renatas Viršilas, the CEO of Viconus.
He says that it is very common to see project developers trying to finish the design work as quickly as possible. They rush to get the building permit, and only then deal with any problems during construction. Generally, the faster the project is completed, the more likely it is to have more errors. Hence the unforeseen costs and time.
However, this is not the only reason why construction budgets inflate unexpectedly. If construction starts and then all the details of the project are worked out, then costs also increase. “This is why it is not advisable to launch a bidding until there is not only a technical design, but also a working project. These steps help to calculate future costs more accurately,” Viršilas emphasizes.
Of course, it is impossible to calculate the exact cost of a project. However, if the construction is planned properly, a reserve of about 10% should be sufficient. For those who want to calculate future costs as accurately as possible, Viršilas advises to do your homework and make sure that the project is supervised so that you don’t run into problems later.
“Perhaps it is worth taking a few months to really prepare for the construction phase, to develop a detailed design, and to get a real price during the bidding. In order to manage the scope, budget and timeframe of the project, everything needs to be assessed in detail at the planning stage,” advises the head of Viconus.
Construction work – a common secret
R.Viršilas points out a very important point. The size of the construction budget must be specified in the terms of reference before the design work starts.
“In reality, this parameter, which is probably the most important one, often becomes a mystery. Once the design work has been completed, the building permit has been obtained, and the designers have been paid, a tender for the construction work is launched. And then the bids received show that the client was not expecting the same thing. Then you have to repeat the process again. Going back to the design, changing some of the solutions to fit the client’s budget. However, going back means additional costs and lost time, and the project is then delayed,” he stresses.
According to Viršilas, there are usually two situations. “Some clients already know in advance what specific amount they want to fit into, while others ask us to give them an idea of what the budget for a specific project should be”.
If a budget is identified, then the qualitative and scope parameters are tailored to it. According to the interviewee, in this case, there is no uncertainty in the tendering process for the construction works. The prices obtained from the bids are usually very close to the budget that was planned.
If the budget is not specified, both the client and the designers usually opt for the highest level of materials and quality. They only find out the final price of the construction work after the tender has been issued, which is usually much higher than expected.
How to predict the size of the construction budget?
The price of construction is not determined by the funds available or planned to be spent, but by the actual market price of specific objects.
“We are often asked how much a certain type of project will cost. For example, a logistics warehouse of 10,000 square meters. We can usually answer such questions based on our experience. We have pricing for the latest completed and completed projects, and we do not forget to take inflation into account. However, each case needs to be assessed on a very individual basis,” says Viršilas.
He points out that there are cases where project promoters have gathered information but it is inaccurate. For example, the cost of a building rather than the whole project. Or a similar object is built on a site where all the necessary infrastructure and communications were in place. While in another case, all this still needs to be installed.
“It is very important to assess the whole project – both the buildings and the infrastructure that will need to be built. As well as all the future infrastructure charges, design work, project management and maintenance. All legal costs must also be included,” he says.
Expertise helps avoid mistakes
Technical audits are another safeguard to avoid unplanned increases in the construction budget.
“This is a very small investment that allows us to assess all the risks on site. For example, whether the necessary infrastructure and communications are in place. Whether they are sufficient for the project. Whether the site is contaminated, which is still the case in former industrial areas. And if so, whether it can be cleaned up and how much it will cost,” says Viršilas about another important task in the construction preparation.
Regarding the planning and management of the construction budget, Viršilas points out that some projects contain errors that are not immediately apparent.
“We try to eliminate uncertainties in every possible way. Whether it is in the drafting of the ToR, the budget calculation, the project checking, or the tendering process. So that there are as few uncertainties as possible when construction starts. It is really difficult to deal with extra money, mistakes or budget overruns during construction, especially if the project has to be completed on time,” says Viršilas.
War, pandemics or high inflation are not predictable and have created many challenges for everyone, both developers and contractors.
“In these situations, it is very important not to think about how to fit the budget, but simply how to manage it. This is possible if at least a few steps forward are planned in the construction process,” says Viršilas.
He says that such monitoring allows for the timely identification of price rises for relevant services or products, and for changes to be made to the construction project in response. So that the budget can be kept within the limits. For example, some of the more expensive but not critical solutions can be dropped or replaced with cheaper ones.
