Capital projects: Overcoming cost overruns through improved monitoring

For many organizations across industries, the justifications behind capital project cost overruns have become all too predictable: supply chain disruptions, resource limitations, challenging contractors or a relentless focus on the project schedule. These explanations are repeated so frequently on failed projects that they have lost their clout. The real issue often lies elsewhere. Specifically, in the failure to track and manage project costs early and consistently. This realization leads us to explore why cost management should take center stage in capital project delivery and how organizations can shift from reactive rationalization to proactive financial discipline.

At the heart of the issue is the reality that monitoring project cost performance is often ignored or relegated to a “check-the-box” exercise rather than treated as a strategic priority. This lack of oversight is like refusing to acknowledge your fuel gauge until your car sputters to a stop. By the time the warning signs are undeniable, the damage is already done. The result? Project costs spiral out of control, unmitigated until it’s too late to course-correct.

Furthermore, proper financial oversight is too often sidelined in favor of hitting schedule milestones – which is understandable due to the pressure of bringing large projects online or getting products to market. However, this can leave a mountain of unreconciled expenses and unexplained variances by the end of the project and potentially lead to significant audit findings or even litigation.

Turning perceived problems into solutions

When organizations occasionally point to external pressures like resource scarcity or supply chain delays, the bigger picture is often missed. These challenges are very real and felt across many industries, but they are rarely the root cause of cost overruns. Here are three main reasons why:

1. Resource limitations are predictable. Workforce shortages and material delays are well-known risks in modern project delivery. Anticipating these challenges through robust planning and thoughtful contingency strategies reduces their impact.
2. Supply chain disruptions can be mitigated. Overreliance on a single vendor or region is a choice, but not the end-all, be-all. Diversifying your supplier list when possible and adopting agile procurement practices if reasonable can help minimize exposure to bottlenecks.
3. Contractor oversight is non-negotiable. Contractor performance issues often stem from passive oversight. Establishing clear expectations upfront and implementing more rigorous monitoring systems can avoid surprises later.

Start with a disciplined approach

Not sure where to start? Organizations should start by adopting a disciplined approach to cost management to avoid the pitfalls previously mentioned. Effective cost management is about focus and discipline, not complexity. Commitments include:

• Creating early and frequent cost visibility. Track actual costs against budgets and forecasts from day one in real-time. Integrate cost control into every project meeting, ensuring that overruns are identified and addressed immediately.
• Designing simple, transparent processes. Implement straightforward tools and procedures that everyone can understand, from site managers to corporate executives. Overly complex systems lead to confusion and delays.
• Generating ownership of financial outcomes. Everyone on the project team, from the project manager to the procurement lead, must share responsibility for cost performance. Building accountability into the culture creates a shared commitment to budget discipline.

Leveraging insights for success

Now that you have the fundamentals down, it’s time to turn insights into action. Remember, effective cost management is not about adding complexity, it is simply about enforcing focus and commitment. Here’s how organizations can do that.

• Real-time cost reporting. Equip teams with live (or as close-to-live) dashboards that reflect the latest insights into financial performance. Empower decision-makers to act quickly based on accurate data.
• Data-driven accountability. Use consistent, project-specific data to identify trends and patterns in cost overruns. Make this information central to project planning and team discussions.
• Cross-team collaboration. Break down silos between the project stakeholders. Work to align and unify efforts across the organization around cost performance goals to eliminate finger-pointing.

Take the next step

If you are consistently running over budget, the problem is not necessarily the market. The justifications have all been heard before, but they rarely hold up under scrutiny. More often than not, successful capital projects depend on a relentless focus on costs from day one, paired with a willingness to confront issues head-on before they spiral out of control.

Organizations that take full ownership of cost management and refuse to accept external challenges as a rationale, set their organizations apart as leaders in project delivery. Capital projects are complex, but managing costs does not have to be. With proactive discipline, organizations can deliver projects on time, on budget and with confidence.

For more information on this topic, or to learn how Baker Tilly construction and real estate advisory specialists can help reduce or eliminate your capital project cost overruns, contact our team.