Ibex Supplies, construction and traffic management product supplier, provides a rundown of UK construction projects that have far exceeded their initial budgets.
A survey conducted by KPMG found 69% of construction projects were over budget by more than 10%. This is often due to unforeseen events beyond control when the initial plan and strategy took place. It is useful to distinguish between “causes” and “root causes” in explaining cost overruns, benefit shortfalls, and delays in major projects. Conventionally, the following are listed as the most common reasons that budgets are likely to soar:
- Poor allocation of time and resources;
- Environmental factors;
- Lack of foresight;
- Employee absenteeism;
- Poor communication / opposing stakeholder & competitor views;
- Loss through damage or technological failure;
- The scope of the project takes a different path;
- Materials and equipment overspend /failure.
Most projects do exceed the budget to an extent, however, there are still frequent factors for project costs to shoot dramatically over budget. Some are unavoidable, and some like in the list above could be down to a lack of action taken by the project managers and other members of the workforce. If construction project managers and leaders fail to create appropriate budget allocation and job specification, there is a risk of mistakes and confusion, especially with the inevitable ever-changing circumstances over the duration of the project. Here’s a look at some of the UK’s most over-budget projects:
The Holyrood Project
One example of a construction company in the UK that went tremendously over budget, was the Scottish Parliament Building in 1999, ‘The Holyrood Project’. The government informed the new parliament building could cost as little as £10m-£40m, but the actual cost ending up reaching an extortionate £414m. This eye-watering soar in over budget meant calls were made for an inquiry. Factors which hampered the project included ever-increasing length of time in each stage of the project including the design of the building itself, to appointing the correct project manager that the BBC described “total lack of leadership”. The full report can be found here.
The Millennium Dome
Similarly, The Millennium Dome was also another government construction project that went over budget, maybe not as grand as The Holyrood fiasco, but still a substantial £60m over budget. The lack of public attendance continued, and The Dome fell way below its projected break-even figure, costing a further £170m to remain open. £88m was set aside (and spent) to cover overspend eventualities; none of which were the resulting factor. Disagreements and confusion on what was wanted and plans that had started were terminated and changed seeing creative director, Stephen Baily resigning from the project. The Millennium Dome was already in debt before it opened, and the prediction of ticket prices fell beyond the anticipated 12m visitors. Opening on 1st January 2000, it closed later that year on 31st December after seeing just 6m visitors.
The Channel Tunnel
Connecting England to France, The Channel Tunnel known as The Chunnel are a trio of 31-mile-long tunnels carrying Eurostar and freight trains underneath the English Channel. This project ran over a colossal 80% more than projected and a year later than the expected date, totalling £21bn becoming one of the most expensive construction projects in history. One of the biggest issues that caused delay was a lack of communications between the two sides who were ideally, building from each side of the channel and meeting in the middle. The specifications were changed for the tunnel, halfway though such as the need for air conditioning, that was not included in the initial budget and design.
Lincoln Eastern Bypass
Under-planning on projects for environmental issues are surprisingly forgotten about in early budgeting for construction plans. As seen most recently in the new £120m Lincoln Eastern Bypass, an ongoing project which has suffered heavy flooding and will most likely delay the expected completion date of May 2020, therefore possibly going over budget. Generally, environmental factors are forgotten about until it’s too late. The Lincoln Bypass project was side-lined until recently due to conditions that prevented team members arriving to the site. The unexpected flooding in Lincoln has caused not only high-level floods but uneven, boggy grounds.
And finally, we couldn’t cover over-budget construction projects without at least mentioning HS2. At the time of writing, the future of the project is still in flux. In 2015 the project was projected to cost £56bn and the most recent estimate is now reported as £106bn, £50bn over budget!
While little can be done about inclement weather and natural disasters, forewarned is forearmed; dealing with unforeseen weathers at the outset, within the contractual documentation will offer the best protection. By leaving room in your budget for the unpredicted surprises and developing a contingency plan, you can lessen the likelihood of running out of capital.
Going over budget isn’t the end of the world, but it is a serious problem for the economy and the sources funding these projects. Project managers need to understand why this happens, how to prevent it, and how to compensate for it if does happen.