Cost Overruns and Delays
How long will your project be delayed and what will it cost?
Written by Kenneth F. Wille, PE and Lucas Giacalone
Benjamin Franklin said, “If you fail to plan, you are planning to fail.” Those words are as true today as ever, and with New York City construction projects one can certainly see evidence of projects going off track due to poor planning. However, it is much deeper than that. Weather, utility connections, difficult neighbors, rock removal, surprise buried oil tanks… the list goes on. Maybe a more fitting saying for NYC would be from Mike Tyson who said, “Everybody has a plan until they get punched in the mouth.” Well put Iron Mike.
Analyzing 167 of our recently completed projects with two data points in mind – cost and schedule, we wanted to see if we could determine any logic or pattern about how and where projects were off the mark on original cost and schedule forecasts. We simply looked at original cost versus actual cost with an investigation to explain the difference, and then did the same for schedule delays. The following are the results with some possible explanations.
Over 25% of delays are caused in part by contractor errors which shows the importance of hiring the right contractor. Earthwork delays were 10% and weather 18% which is to be expected. Perhaps the most surprising was municipal/utility delays (gas room location change, electric service, etc.). The lesson learned is to communicate early and often with your professionals and municipal/utility offices!
Does Size Make a Difference?
Next, comparing the delays by number of apartments and the size of the project, we looked to find if bigger or smaller apartment buildings have more or less delays and if there was a pattern. What the data told us is that delays struck small projects, typically for 2-3 months. Based on the cases, delays were likely a surprise due to poor or uninformed scheduling. Larger projects typically encountered considerable delays, likely from a variety of factors. However, mid-size projects had the best schedule estimates which could be explained by qualified schedulers fit with more manageable and scaled projects.
Cost Overruns of a Project by Location
Adjusting for location in and outside NYC, It is not surprising that Manhattan projects have the highest cost overruns given logistics and complexity. Bronx projects had delays largely due to the removal of dense rock during excavation. To provide greater perspective to our study we also included projects that were located outside of NYC.
Our data gives a small glimpse into actual timelines and costs for construction projects, and should be considered by any developer, big or small. New, small developers should research and attempt to prevent potential delays, and not tackle something too big from the beginning. Larger developers have likely accounted for delays as a cost of doing business, but can utilize the information to make sure that any delay or cost overrun doesn’t leave you in a dire state with a worried banker on the other end of the phone. If anything else can be gleaned from this, it is likely start early, find the right team, communicate often…and pray for good weather!
Kenneth F. Wille, PE and Lucas Giacalone are with KOW Building Consultants. KOW provides building and construction consultation services to traditional banks, private lenders, mortgage lending institutions, state housing agencies, city housing agencies, mezzanine lenders, other financial institutions, as well as owners and developers. The firm was founded in 1978 by Kenneth O. Wille, P.E., who provided construction loan monitoring and property condition assessment services for New York City projects. The company has grown to employ technical plan reviewers and construction monitors from various backgrounds including civil engineering, electrical engineering, architecture, building code inspectors, construction management and construction lending.