Article
Capital projects: Overcoming cost overruns through improved monitoring
Dec. 9, 2024 · Authored by Heath Whitaker
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:
- 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.
- 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.
- Contractor oversight is non-negotiable.
