In the construction industry project failure occurs through a series of mistakes that lead to catastrophic events writes the Exner Group’s Collette Burke.

What is the root cause of financial project failure? Why do budgets blow out by 10%, 20%, or even 100% for large complex infrastructure projects? The failure to cost a project properly can threaten the viability of not only the project’s success, but also a construction company’s operations and sustainability. Poor forecasting followed by budgetary mismanagement is a serious problem and usually occurs through a miscalculation of costs or the rise of unforeseen events. However budget failure is just one problem that arises in project execution.

An analysis of the root causes of financial project failure will also uncover unmet expectations of owners and the delivery, or failure thereof, to deliver on promises made by contractors.

This usually occurs because there is no clear link between an organisation’s key strategic priorities including agreed measures of success. And with no agreement in place, each stakeholder will work to their own agenda.

With that in mind, let’s have a look at some common problems faced by owners and project managers who fail to establish collaborative goals.

THE PROBLEMS FOR OWNERS
Failure to understand scope
If you are an owner you must be aware of scope requirements. Failure to understand the full project scope requirements is the first step toward project failure.

Inexperienced teams
The project will continue to descend to failure if you hire an inexperienced project team. One of the keys to project success is to match your project with suitably experienced people. A major success factor is the Project Manager, who has the skills and capability to match a specific project. The wrong selection can result in disaster.

Estimate don’t guesstimate
Poor estimating will leave you with holes in your initial budget, holes in your forecast and ultimately a lack of required resources. The key to estimating is to detail the assumptions and then undertake regular reviews as more information becomes available. If there is insufficient information to form the budget or forecast, you should still detail the assumptions, but also seek guidance from industry or colleagues.

Design completion
The next phase of a project that you need complete control of is design: starting a project when the design is incomplete will mean the job is in a constant state of flux with design issues frequently arising. Failure to design properly often results in cost blowouts. To avoid financial problems, ensure you have an advanced design at tender stage and allow adequate leeway for design growth.

Know your risks
If you don’t know your key risks and whole risk profile, you won’t be able to manage and react to these risks and other emerging issues. In fact you can’t even proactively prevent problems from arising. Understand your project risks and vet them prior to operations beginning. Review the changing risk profile as the project progresses, as it is dynamic and alters throughout the project.

Poor planning and scheduling
Schedule the project in the time it will take, including allowances for contingencies and changes to the timetable. Do not be swayed by the unrealistic timeframes set by other stakeholders. Listen to your project manager, as they are most able to accurately forecast the project timeframe. Trying to accelerate the project too quickly may result in project delays as compressed schedule milestones create unrealistic outcomes, as well as additional costs. Allow for sufficient contingencies, including downtime, access issues, inclement weather, coordination with other contractors and changes to the design or schedule.

Contracting relationships
Often clients and contractors face the same issues. Build great lines of communications and seek to understand and discuss issues on both sides. The key is to invest and share in each other’s success.

Poor estimating
It works both ways. Give the owner of a project a legitimate estimate, not an optimistic one and make sure it takes into account scope, data, regulatory issues, constructability and labour or material price fluctuations. Estimates and Contract Sums that are proven later to be inadequate put pressure on both parties.

Experience
Don’t bid for a job if you don’t have the experience. This includes on site labour, project managers, supervisors and other staff that are crucial to the successful completion of a project. Ensure there is senior support and expertise available to address any issues that may arise and manage key negotiations and communications with an owner. The vetting of suppliers and contractors is imperative to ensure that appropriate companies perform the work.

Equal opportunity contracts
Don’t sign a contract that will leave you out of pocket. The client wants things done as expeditiously and cost effectively as possible. The terms of the contract will try to reflect that. You need to ensure that payment terms, change order pricing and reimbursement of incendiary costs are all included. You also need to ensure the penalties for non-performance are kept to a minimum.

Silo management
This is not an effective way to deliver your project: don’t work in silos. Work collaboratively with all stakeholders involved in the efficient operations of the project.

Lack of communication
Key parties and stakeholders must communicate. When one member of the project team sees a potential problem arise, they must notify the project manager instead of leaving it to others to recognise or fix. Your best chance to maximise the outcome, and minimise losses, is dealing with issues at the earliest time possible.

The root cause of financial project failure is usually attributed to a combination of issues, not just one problem. The key to avoiding project catastrophe is to identify the areas of vulnerability and create a failsafe against them.