The true extent of cost overruns in large projects
The figures on cost overruns for public construction projects in Germany are alarming. An analysis of 170 large projects revealed that total costs rose from an initially planned 141 billion euros to 200 billion euros. This corresponds to an average cost increase of over 40%. Public buildings are particularly affected, with an average cost overrun of 44%, and transport projects at 33%. A well-known example is the Stuttgart 21 railway project, whose costs skyrocketed from originally 2.5 billion euros to over 9.7 billion euros. These figures show that inadequate cost control is not an isolated case, but rather a systemic problem. Die Risks in the construction industry are hardly manageable without precise control. This development highlights the urgent need to understand the underlying causes of such deviations.
Psychology and planning: The hidden drivers of costs
The causes of exploding budgets often lie deeper than technical issues. According to a study by TU Darmstadt, cognitive biases in decision-makers lead to fatal misjudgments. A staggering 98% of surveyed managers stated that they continued to support a project they were responsible for, even if it was already in deficit, by providing additional capital. Another significant factor is the so-called “scope creep,” the gradual expansion of the project scope. According to a report from the Project Management Institute (PMI), 52% of all projects are affected by this, which directly leads to incalculable additional costs. Often, risks in the early phase are consciously ignored to secure approval for a prestige project. Ein Guide for large projects must therefore start with human decision-making. These initial misjudgments form the basis for later financing models.
Overview of classic and innovative financing models
Various models have been established for financing large projects. One central approach is project financing, in which the loan repayment is primarily generated from the future revenues (cash flow) of the project itself. Banks such as KfW IPEX-Bank and financial service providers like DAL, which invests over a billion euros in such projects each year, are leaders in this area. This model requires an extremely accurate forecast of profitability. Another pillar is the procurement of equity and debt capital, where a construction company’s equity ratio often determines the credit conditions. The complexity of these structures requires precise Financial accounting in the construction company. However, even the best models are vulnerable when the data basis is unreliable, paving the way for alternative approaches.
PPP models: Partnerships for greater efficiency and cost certainty
Public-Private Partnerships (PPP), known internationally as PPP, offer a solution to the typical problems associated with financing large projects. The core idea is to bundle planning, construction, financing, and operation over the entire lifecycle of a project in one hand. This creates incentives for high-quality and timely completion, as the private partner is responsible for maintenance and operating costs in the long term. The state of Hesse has already successfully implemented over 10 projects with this model, including administrative buildings and police stations. The advantages include:
- Optimization of life cycle costs: Operating costs are already taken into account in the planning phase.
- Improved risk management: Risks are contractually clearly allocated between the public sector and the private partner.
- Efficiency increase: Interfaces between planning, construction, and operation are minimized.
- Budget compliance: Total costs are determined and fixed through a competitive procedure.
The success of PPP projects largely depends on transparent and comprehensive control.
Digital control as the key to financial control
Regardless of the chosen financing model, thorough and legally secure documentation is the foundation for any successful project management. Many large projects fail here because information from the construction site reaches the office too slowly, incompletely, or unstructured. Communication chaos via WhatsApp leads to missing evidence and complicates controlling. Valoon addresses this directly and transforms everyday communication into a structured and evidential data basis. Every photo, every message, and every document is automatically assigned to the correct construction project and securely stored in the construction journal. This real-time transparency allows project managers to compare construction progress with financial plans and to take corrective action immediately in case of deviations. Die Financing the construction phase becomes a transparent process instead of a black box. Thus, simple documentation turns into a powerful tool for the financial stability of your projects.
Your advantage with Valoon: Simplicity meets legal certainty
The key advantage of Valoon lies in the combination of maximum simplicity for the employees on the construction site and comprehensive, legally secure control for the office. Since Valoon is integrated directly into WhatsApp, any training effort is eliminated – a hurdle that many other software solutions with an acceptance rate of below 30% fail to overcome. With functions such as automatic construction reports, digital defect management, and a live translation for international teams, you reduce administrative effort by up to 80%. You get the data basis you need for precise control of large projects without disrupting workflows on the construction site. Secure your financing through comprehensive evidence and transparent processes. Book your free demo now and see how Valoon revolutionizes communication and documentation in your next large project.
More Links
Das Federal Ministry of Transport and Digital Infrastructure provides insights into measures for improving project implementation with the action plan of the reform commission for large projects.
Statista visualizes in an infographic the largest cost increases in large projects and their impact.
Das Federal Statistical Office (Destatis) provides comprehensive information and data on the topic of construction in Germany.
Der The Taxpayers’ Association states its position on curbing cost explosions, especially in construction projects.
Das The Federal Ministry of Transport informs about the financing of infrastructure projects and relevant framework conditions.
A press release from the Federal Ministry of Finance informs about current cabinet resolutions on draft laws.
Die The Deutsche Bundesbank addresses the financing of sustainable public infrastructures in a speech.
PwC provides information on project risk management to successfully design infrastructure projects and minimize risks.
FAQ
What is project financing?
Project financing is a form of financing for capital-intensive ventures, where interest and repayment payments are primarily generated from the cash flow of the project itself. The financing is tied to a specially created purpose company for the project.
Why is controlling life cycle costs so important?
Controlling life cycle costs is crucial, as operating, maintenance, and repair costs over the entire service life of a building often multiply the pure construction costs. Early optimization significantly reduces total costs.
What role does construction documentation play in financing?
Thorough and legally secure construction documentation serves as evidence of the performance level delivered and the quality. It is the basis for the release of financing tranches, defending against unjustified claims, and managing changes, making it a central element of financial control.
How does Valoon help minimize risks in financing large projects?
Valoon minimizes risks by transforming unstructured communication from the construction site into a proof-secure, chronological, and project-related database. This real-time transparency enables proactive controlling and prevents small issues from escalating into large financial risks.
Is the implementation of Valoon complicated for employees on the construction site?
No, the implementation is extremely uncomplicated. Valoon works directly via WhatsApp, an application already used by over 90% of construction professionals. No new app or training effort is required, ensuring immediate and high acceptance on the construction site.
Can defects and construction progress also be documented with Valoon?
Yes, this is a core function. Photos, videos, and text messages about defects or construction progress are sent directly from the construction site and are automatically recorded by Valoon as legally secure entries in the construction journal or in the defect report, including timestamps and assignment to the exact project.
