Let’s face it: price rises in construction projects are hardly new, and yet they continue to surprise project managers. They shouldn't. These increases are often driven by "known unknowns"—factors that are, in theory, predictable but still tend to catch us off guard when they materialize. So, why are we still surprised?
1. The Nature of Known Unknowns
In simple terms, known unknowns are factors that we know could cause price fluctuations, but we can’t foresee exactly how or when they’ll happen. These factors aren’t exactly a surprise; they’re more like a looming storm cloud—visible, yet unpredictable.
Think about it: the construction industry has a history of price volatility. It’s almost as though we expect every project to sail through without encountering these common challenges. But as history shows, this optimism rarely plays out.
2. Material Price Increases: A Consistent Headache
The first known unknown that can cause price hikes is material cost increases. Raw materials like steel, timber, and concrete can fluctuate in price due to multiple, well-known causes:
- Global supply and demand issues: These are often exacerbated by natural disasters, pandemics, or political instability. They’re known to happen, but their timing remains unknown.
- Currency fluctuations: If your materials are sourced internationally, currency changes can drastically affect prices.
- Transportation disruptions: Shipping delays or increased fuel prices also contribute to the rising costs of materials.
Yet, for some reason, project teams often fail to account for these price changes, leading to budget overruns that could have been avoided with foresight.
3. Labour Costs: A Delicate Balancing Act
Labour is another cost component influenced by known unknowns. With the construction industry facing a skilled labour shortage, it’s no secret that labour costs have been climbing steadily for years. However, specific variables—such as union negotiations, seasonal demand, or unexpected strikes—remain unpredictable.
Labour costs might also rise due to increased health and safety standards, especially in the wake of the pandemic. These regulatory changes, while necessary, come with their own hidden costs—ones that could be difficult to predict unless you’re closely following changes in the legal landscape.
4. Regulatory Changes: A Constant Tug-of-War
Government regulations are another known unknown. Zoning laws, environmental guidelines, and building codes can shift unexpectedly, leading to increased project costs. For example, changes in sustainability standards could force a project to use more expensive materials or technologies to meet these new requirements.
5. Why Don’t We See These Coming?
The main reason these known unknowns still catch us by surprise is because they’re difficult to predict in detail. We know there could be price rises, but we can’t always pinpoint the specific causes or their timing.
Furthermore, human nature tends to focus on the present and ignore potential future risks. Budget planning may focus on immediate needs without accounting for external factors that could push costs higher.
6. Preparing for Known Unknowns
So, how do you prepare for these price increases that you know are coming but can’t fully predict? The answer lies in flexibility and foresight:
- Contingency budgets: Ensure you’ve allocated extra funds for unforeseen cost hikes.
- Frequent supplier communication: Keep in touch with your suppliers and contractors to stay on top of market trends.
- Scenario planning: Anticipate potential price rises and prepare multiple solutions for different scenarios.
Conclusion
While project price rises may be frustrating, they don’t have to be a surprise. By recognizing known unknowns and planning accordingly, you can stay ahead of the curve and prevent these rising costs from derailing your project.
By Kevin Knox