Megaprojects - Top tips to avoid going over budget

Going over budget on a large project, especially in construction, is a dreaded situation for project managers and business owners alike.

Joel Dandrea, CEO at Specialized Carriers & Rigging Association

You likely know the story: a megaproject is sold to the public as a grand solution to a serious problem. Planning and design get underway, permits are issued, budgets allocated (which took longer than expected), construction starts … and then the problems begin. Work is delayed, expenses balloon and when the dust settles, it’s a lot less clear whether the project’s benefits were actually worth the costs.

On top of that mountain is the additional reality that major projects are often paid for with public funds, so it becomes even more vital to manage costs and time. And since the financial side of a large project is often observed through a finely tuned microscope, knowing exactly where each cost goes constitutes a massive part of its long-term success. Even still, according to a recent finding by Bent Flyvbjerg and Dan Gardner in their book How Big Things Get Done, a staggering 91.5 per cent of projects go over budget, over schedule or both. Worse, less than one per cent of projects are completed on time and on schedule, and actually deliver the promised benefits.

The question emerges: what is the combination of common factors that prompt projects to exceed their intended cost estimates? While many industry experts will argue that cost overruns are completely preventable as long as you’re mindful of their causes and diligent in their prevention – the numbers don’t lie. At the end of the day projects often go over budget due to a variety of factors, including but not limited to: inaccurate initial estimation, scope changes, unforeseen risks and challenges, inadequate risk management, poor project management, vendor or contractor issues and inflation and market fluctuations.

Plan with care

In their book, Flyvbjerg and Gardner offered up a handful of principles to focus on to avoid going over budget on a megaproject, but the takeaways can certainly be applied to projects of any scope and scale.

1. Know where you’re going: Think slow, act fast, they suggested. Start by examining your goal. Your aim is not really to build a train, for instance. It’s to get people or goods from point A to point B. And so, you have to ask if a train is even the best way to accomplish this goal.
2. Plan with ferocious rigour: Understand that almost no project is truly unique – find analogous projects and learn from them, and talk to those who were involved. Try out different versions of a project as well, and hire only people thoroughly experienced at your particular kind of project, no matter where they’re from – especially the person assigned with assembling a reliable, committed and qualified team.
3. Follow the Lego principle: Break big undertakings into small, repeatable ones. Each iteration will bring efficiency gains.
4. Beware the gravitational pull of sunk costs. It’s common to adopt wildly optimistic cost projections for big projects to overcome opposition – but this approach can lead to poor execution, massive overspending, scandal and a loss of credibility. Better to face costs honestly up front and plan with care before doing anything drastic. The longer the building portion takes, the more time there is for something unexpectedly bad to happen.

Ultimately, it may feel like out-of-control costs are unavoidable in construction and project management – especially when size and scope headline the day – but they don’t have to be.

By thoroughly preparing and understanding common issues that may arise, organisations can work to get ahead of the factors in their control, which gives them the upper hand when unforeseen budget-breakers inevitably emerge.