How do you handle unexpected costs in construction?

1 Identify potential sources of unexpected costs

The first step to handle unexpected costs is to identify where they might come from. Common sources of unexpected costs in construction include design changes or errors, site conditions or environmental factors, material availability or price fluctuations, labor shortages or productivity issues, regulatory compliance or permits, weather delays or disruptions, and claims or disputes. To anticipate and mitigate potential unexpected costs and allocate sufficient funds for them, it is important to conduct a thorough risk assessment and contingency planning before starting your project and update it regularly as the project progresses.

2 Track and control your project costs

The second step to handle unexpected costs is to track and control your project costs throughout the project lifecycle. A reliable and accurate cost management system should be used in order to monitor actual costs against the budget and forecast, identify and analyze any cost variances or deviations, adjust the cost baseline and estimate at completion as needed, report on cost performance and status to stakeholders, and implement corrective actions or change orders to address any cost issues. Additionally, it is important to review and update your cost management plan and processes regularly, ensuring they are aligned with the project scope, schedule, and quality.

3 Communicate and negotiate with stakeholders

The third step to handle unexpected costs is to communicate and negotiate with your stakeholders, especially your clients, contractors, and suppliers. You should inform them of any unexpected costs as soon as possible, and explain the reasons and impacts. Additionally, providing them with clear and detailed documentation and evidence of the unexpected costs is essential. It is also important to seek their input and feedback on how to resolve the unexpected costs, and negotiate fair and reasonable compensation or adjustments for the unexpected costs. Maintaining a positive and collaborative relationship with them throughout the project is also key. Furthermore, you should document and record any agreements or changes related to the unexpected costs, and follow the contract terms and conditions.

4 Learn from your experience

The fourth step to handle unexpected costs is to learn from your experience and improve your future performance. This includes conducting a post-project review and evaluation of your cost management, identifying and documenting the lessons learned and best practices from the project, sharing and disseminating the knowledge and insights with your team and organization, applying the lessons learned and best practices to your next project, and seeking continuous improvement and innovation in your cost management. By doing this, you can handle unexpected costs in construction more effectively and efficiently, ultimately delivering successful projects that meet your objectives and expectations.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?