Construction is where most of a development budget is spent and where many projects lose money. Rising material prices, labor shortages, design changes, and weather delays can quickly erode returns. Active risk management is essential.
Choose the Right Delivery Method
- Lump-sum or fixed-price contracts give budget certainty but leave less flexibility for changes.
- Cost-plus contracts offer flexibility but shift cost risk to the owner, so they need a guaranteed maximum price.
- Design-build combines design and construction under one contract, speeding delivery and improving coordination.
- Construction management at risk brings the builder in early to advise on cost and constructability.
Build a Realistic Budget
Use detailed estimates rather than rough per-area figures once the design is advanced. Include a contingency, commonly five to ten percent of hard costs depending on project complexity, and keep it protected for genuine unknowns rather than upgrades.
Control the Schedule
Time costs money through interest, overhead, and delayed revenue. Order long-lead items such as elevators and electrical equipment early, create a master schedule with clear milestones, and review progress weekly.
Prevent Scope Creep
Lock key design decisions before construction starts. Establish a formal change-order process so every change is priced, approved, and documented before work proceeds.
Select and Monitor Contractors
- Check references, financial strength, and experience with similar projects.
- Require performance bonds or retainage where appropriate.
- Carry proper insurance, including builder’s risk coverage.
- Use independent inspections and monthly cost reports to catch problems early.
Key Takeaway
Most construction problems are visible early if someone is looking. Strong planning, clear contracts, protected contingency, and constant communication keep projects on time and on budget.