While multi-family housing development is a booming industry, when these projects are not managed properly, construction costs can quickly spiral out of control, leading to significant cost overruns. Unfortunately, cost overruns can have serious consequences for developers including reduced profitability, damaged reputation, and even legal disputes. To help protect your multi-family development project from budget overruns, keep reading as we explore common causes and tips for how you can prevent this from happening in the future.
Common Causes of Budget Overruns WIthin Multi-Family Housing Developments
So why exactly do multi-family housing development projects go over budget in the first place? Knowing why overrun occurs can help you take proactive measures to ensure your project stays within budget. Some of the most common causes of budget overruns include…
Estimating Errors
Perhaps the most common cause of cost overrun is inaccurate cost estimations at the start of the project. Unfortunately, errors in budgeting do happen, as estimating is not an exact science. Unrealistic assumptions about productivity and insufficient research on market prices can lead to estimating errors. You may also end up with an erroneous estimate if a construction company underbids to try to secure a contract.
Unexpected Material Costs
Unexpected material costs, usually due to fluctuating market prices, can also lead to cost overruns. Even if you did your research, a sudden demand surge or reduced supply can cause prices to skyrocket. This is why it is important to factor potential market volatility into your budget.
Design Changes
As a build progresses, it is common for the design to change or expand beyond its originally designed scope. This is often referred to as scope creep. As a project evolves, the scope may grow, or new features may be added, making it difficult to control expenses and meet deadlines. While design changes are often an inevitable part of the construction process, it is important to keep an eye on these reworks to make sure that they are not severely impacting your budget.
Tips to Prevent Cost Overrun
While cost overrun can be a significant problem within multi-family development, taking proper precautions can help you stay within budget, ensuring successful and cost-effective project completion. Follow these tips to prevent cost overrun from eating into your bottom line…
Plan Projects Carefully
Accurate project planning is one of the best things that you can do to prevent cost overrun and ensure your project’s success. The more precise you are when estimating project costs, the more likely your project is to stay within budget. Make sure to factor in potential added costs such as market volatility and scope creep. Include a contingency so that there is room in your budget for these potential added costs.
Take Time to Vet Vendors
You will likely be working with a number of third-party vendors and contractors to help complete your multi-family development project. Unfortunately, these vendors can be a significant cause of cost overruns if they make mistakes or are unable to finish their work on time. Before hiring outside contractors, take the time to research these vendors to see if they have a proven track record of completing projects on time and within budget.
Manage Risks
While accidents happen on construction sites, they can also result in delays and added expenses. One way to prevent cost overrun would then be to take steps to manage risks, such as by obtaining adequate insurance coverage. Having the right insurance will ensure that your bottom line is protected in the event of unforeseen circumstances such as natural disasters, construction accidents, or legal disputes. You can also help prevent accidents and injuries by implementing robust safety protocols, which can reduce your potential liability and keep your project on schedule.
While cost overrun can eat into your bottom line, the right precautions can help ensure you stay within budget. Feel free to contact us, Ted Trout Architect and Associates, to learn more.
