The Big Question
Why are you still feeling blindsided by price rises in your construction projects? The reality is these price hikes are not as mysterious as they might seem. They are driven by “known unknowns” – factors that are generally anticipated, but their specific impact can be difficult to measure in advance.
Known Unknowns in Project Pricing
- The Cost of Materials
Materials are one of the most prominent areas where price fluctuations occur. Global market changes, including supply chain disruptions, tariffs, or shortages, can cause significant price increases. However, these issues aren’t new – they’ve always existed, and industry professionals have witnessed their impact repeatedly.
- Example: In 2021, timber prices soared due to a combination of supply chain constraints and an increase in demand during the pandemic. Contractors who had not budgeted for this fluctuation faced serious price hikes.
- Labour Market Volatility
Labour costs can fluctuate based on a range of factors. The availability of skilled workers, especially in specific trades, can cause prices to rise unexpectedly. Unions, for instance, might demand higher wages, or government-mandated changes to labour laws could increase costs.
- Example: The ongoing shortage of skilled tradespeople in many regions has caused construction companies to raise their hourly rates in order to attract top talent.
- Government Regulations
New or changing regulations can drastically affect a project’s budget. Zoning laws, environmental guidelines, and construction codes may change midway through a project, forcing you to adjust to new requirements.
- Example: Changes in environmental regulations often mean that projects must incorporate more sustainable materials or use specific energy-efficient technologies, both of which can lead to higher costs.
How to Address These Challenges
- Stay Proactive
Proactivity is key to managing known unknowns. Keep an ear to the ground regarding material costs, labour market conditions, and government regulations. Attending industry conferences, joining trade associations, or working closely with consultants can help you stay ahead of the curve.
- Build in Flexibility
Budget flexibility is essential when dealing with known unknowns. While you can’t predict every price rise, you can set aside contingency funds. Aim for around 10% of your project’s budget to be allocated to unforeseen expenses. This buffer can absorb the impact of unexpected price increases.
- Communicate with Stakeholders
Transparency with clients, contractors, and suppliers can help mitigate the effects of price fluctuations. Discuss the possibility of price rises early in the project and establish strategies to handle them.
Conclusion
Price rises driven by known unknowns are an inevitable part of project management. By anticipating the common factors that cause price fluctuations and staying flexible, you can manage these increases more effectively and ensure that your project stays within budget.
By Kevin Knox