What is failure cost in construction?

Failure cost is all the additional cost in a construction project caused by errors, rework, delays or poor coordination between parties. Across the European construction sector, an estimated 8 to 15 percent of project value is lost to failure costs — a figure measured in billions of euros each year.

Types of failure costs

Failure costs arise at many points in the process:

Design errors

Execution errors

Logistics errors

Communication errors

Application

Failure-cost reduction is increasingly important. Methods include:

Lean construction

Building Information Modelling (BIM)

BIM helps by:

Supply-chain collaboration

Common causes

The top 5 causes of failure costs:

  1. Insufficient preparation — rushing into execution
  2. Poor communication — parties talking past each other
  3. Changes during execution — variations and rework
  4. Time pressure — mistakes due to haste
  5. Skill shortages — lack of trade knowledge

Example calculation

A construction project budgeted at €5 million typically loses:

Failure cost on a € 5 million projectLow (5%)Low (5%): 250,000€ € 250,000Average (10%)Average (10%): 500,000€ € 500,000High (15%)High (15%): 750,000€ € 750,000
Failure costs on a € 5 million construction budget at low, average and high rates.

Reducing this by 5% already saves €250,000.

Related terms

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