The aim of the dissertation is to identify and explore the various causes of cost overrun associated with construction projects.
* Identifying the main causes of the cost overrun in the construction projects through literature review.
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* To identify the various measures of cost overrun in construction projects.
* To examine the affects of the cost overrun by analysing the case of a construction industry.
* Analysing the information from the literature review and case studies to provide further recommendation and suggestions to overcome the cost overrun effect.
To achieve the above aims discussed above it is very important to do extensive research by studying books, journals, articles on internet. Qualitative method is the research method that will be the main research method used incorporating
Present dissertation the author has used two main research methods questionnaire survey, case studies. The author has prepared questionnaire with 18 questions and forwarded to 10 companies. The questionnaire survey provided valuable data that can analyse, useful for outcome of the research. The author has studied different case studies from India to identify various causes for failure of the project. Analysis on the case studies gives the idea of various measures to overcome cost overrun.
Constructions are full of risks and include those that may relate to cost overrun, external commercial factors, design, construction and operation. In any construction projects the three primary factors that is time, cost and quality will be likely to subject to risk and uncertainty. This cost overrun can be minimised by the realistic estimation which can be anticipated from the experience and foresight. Managing project costs accurately and responsively is a challenging task for the design team, construction manager, builders and consultant. Effective cost management is dependent on following a consistent methodology, utilizing appropriate standards, concentrating efforts for maximum effectiveness and utilizing all the tools available. The major problem that arises in construction projects is that projects often overrun their cost estimate. This risk of the overrun of cost estimate occurs even with the projects where carefully constructed bottom up cost estimates completed to a very detailed level. In every construction projects the main problem where cost of the entire project is not getting most likely, is because of the usual way of constructing a project estimate at completion is that adding the estimates for all work breakdown structure components (WBS). By conducting a cost risk analysis provides a more accurate and realistic estimates of project costs.
The process of project of an infrastructure project when planned is the sponsoring department prepares estimates of time and costs or funds needed to complete the project. The expected date of the completion is also announced. But there will arise some different between the actual date of completion from the expected date. We define “time overrun” as the time difference between the initially planned i.e. expected dates of completion. Therefore, for each project we can define percentage time overrun as the ratio of time overrun and the implementation phase of the project. The implementation of the project is defined as the duration in which project is completed, i.e. the time between the date of approval of the project and the expected date of completion of the project. Similarly cost overrun is defined as the difference between the actual cost and the expected cost of the project. The actual cost is the cost that can be calculated only at the end of the project and the estimated cost is the estimated when the project is planned. The percentage of cost overrun is defined as the ratio of the cost overrun and the initially anticipated cost of the project (Ram Singh, 2009).
According to Lewis and Atherly 1996 a delay may have the direct cost implications in terms of an extended construction period. In other words delay leads to the cost overrun and the extended time will have extra expenses or loses by both parties of the project. When a delay can increase cost and reduce profits then organizations will have more considerations on bottom line (Lewis and Atherly 1996)
The survey conducted by Iyer and Jha (2005), on the factors affecting the cost performance of Indian construction projects, including the extent of adverse climatic and economic conditions; unfavorable project specific attributes; top management support; monitoring; feedback, coordination, conflict and knowledge of the project participants; and reluctance to make timely decisions. Of these, coordination among project participants was found to be the most significant of all factors, having a maximum positive influence on the cost performance.
Semple et al. (1994), examined causes of claims, delays and cost overrun on twenty four projects in western Canada. The study identified the following as critical factors that lead to cost overruns are (1) contract variations and extras, (2) disputes, (3) soil and site conditions, and (4) delays. The author stressed the need by the industry practitioners (clients, contractors, professionals) to pay maximum attention to the critical factors in order to minimize cost overrun risks.
Chan et al. (1997), examined the principal and common causes of delays which leads to cost overrun in Hong Kong construction projects. The study identified the following factors (1) Poor site management and supervision, (2) unforeseen ground conditions, (3) low speed of decision making by project teams, (4) client-initiated variations and (5)necessary variations of work, as major cause of delay.
Flybjerg et.al. (2003), pointed out to cost estimates as highly, systematically and significantly misleading. According to Flybjerg et al. (2004), the causes for the cost overrun in the construction projects is as follows (1) The length of the project in the implementation phase, (2) the size of the project and (3) the type of project ownership.
According investigation carried by Assaf et al. (1995), on causes of delay in high rise building construction projects in Saudi Arabia, the most important causes are found to be as follows (1) Inadequate designs, (2) slow work progress on site, (3) late payment for completed works and (5) design changes by owners. Here from the above investigation it is proven that all these factors are caused by the lapses in human input factor.
N R Mansfield et al. (1994), investigated and examined the causes of delay and cost overrun in Nigerian projects. The investigation identified the following factors that are attributed to the overrun are finance and payments arrangements, poor or in experience contracting management, material shortages or excess of the materials, inaccurate estimating, and overall price fluctuations
The analysis according to Ram Singh (2009), has shown that there has been significant decline in the time and cost since from early 1980s in India. The investigation shows that major causes for the delays and cost overruns observed in India are deficient project planning process, use of inappropriate procurement contracts and faulty contract management. In regards to project type, the bigger projects are much more vulnerable to cost overruns. Ram Singh also stated that several kinds of organisational-cum-institutional failure also affect greatly to time and cost overruns.
The studies conducted by Elinwa et al. (2001) on the relative contribution of human personnel parties to the projects time overruns and cost overruns in Nigerian Construction industry states that the contribution of clients, contractors and others were 62%, 32% and 6%. The study stated that on the government or private sector projects the delays were at 89% with irrespective of project size. The study also identified the important factors of cost overrun and time overrun are mode of financing, payment delays for the completed works, improper planning and project time and cost underestimation.
Kaming et al. (1997), examined factors influencing constriction delays (time overrun) and cost escalations, in Indonesian cities. They identified project cost underestimation and project complexity as the main causes of project delays and cost overruns.
Chan and KumaraSwamy had conducted a survey on the factors causing the delays in Hong Kong construction projects and had classified them into two groups: (1) the role of the parties in the local construction industry (whether client, consultant or contractor) and (2) the type of projects. The result shows that five major causes for the delays and cost overrun were poor site management and supervision, unforeseen ground condition, low speed of decision making involving all project teams, client initiated variations and necessary variation of work.
Cost underestimation is the one of the main factors for the cost overrun in construction projects. According to the Flyvbjerg, (2003), the cost underestimation exists across 2 nations and 5 continents and it is global phenomenon. The explanation for the cost underestimation is in four types.
Most studies in infrastructure projects that compare actual cost at the completion of the project and estimated cost at the initial contract explain as Forecasting Error in technical terms such as imperfect techniques, inadequate data, honest mistakes, inherent problems in predicting the future, lack of experience on the part of forecast, etc,. [Flyvbjerg, 2003].
Psychological explanations attempts to explain biases in forecasts by a bias in the mental makeup of the project promoters and forecasters. Politicians may have a Monument Complex engineers like build things, and local transportation officials sometimes have the mentality of empire builders in building roads, railways and bridges. The most common psychological explanation is probably “appraisal optimism”. According to this explanation, promoters and forecasters are held to be overly optimistic about the project outcomes in the appraisal phase, when the projects are planned and decided. [coated in Flyvbjerg, 2003].
Political explanations construe cost underestimation in terms of interests and power (Flyvbjerg, 1998). According to Flyvbjerg, 2003, one of the key questions for political explanations is whether forecasts are intentionally biased to serve the interests of project promoters in getting projects started. Cost estimation cannot be explained by the errors and seems to best explained by strategic misrepresentation i.e., lying. These questions of lying are notoriously hard to answer. For legal, economic, moral and other reasons, if promoters and forecasters have intentionally fabricated a deceptive cost estimate for a project to get it started, they are unlikely to tell the researchers and others that this is the case.
Economic explanations say that cost underestimation in terms of economic rationality. Flyvbjerg, 2003, in his journal stated that there exist two types of economic explanation. One explains in terms of economic self-interest, the other in terms of public interest. In case of the economic self -interest, during the process of the project it creates the work for the engineers and construction firms, and many stakeholders who are directly or indirectly attached with the project make money. These stakeholders in directly involved in would influence the forecasting process of the project, which in turn influence the outcomes the ways that make it more likely that the project will be built. Stakeholders would likely increase in their revenues and profit by having the cost underestimation and benefits over estimation which would be economically rational for such type of stake holders. In case of the second term public interest, project promoters and forecasters may intensively underestimate cost in order to provide public officials with an incentive to cut costs and thereby to save the public’s money. According to this type of explanation, the more cost estimate is the incentive of the wasteful contracts to spend more of the tax payer’s money.
Hence the both types of the economic explanation account well for the systematic underestimation of the costs.
Several researchers on the subject of construction cost overruns have come out with significant findings that factors that leads to time overrun (construction delays), will eventually leads to cost overrun. From the above literature it is also found that the size of the construction project is also one of the main reasons which influence the cost overrun. The researchers stated that the main factor leading to delays have been always studied alongside those leading to cost overrun.
Cost overrun is becoming common in infrastructure projects. Through the various analyses it is found that the time delay and the cost overrun are the main reasons for the poor project performance. Morris and Hough found 63% of 1778 different types of projects funded by the World Bank between 1974 and 1988, experienced significant cost overrun. kamrul Ahsan and Indra Gunawan, (2008), in studies conducted on the time and cost performances in Asian countries had found out only few projects i.e. 13% are completed within time and budgeted cost. In contrast more projects are time delay and cost over run on an average amount of over spending U.S. $73million, i.e. 22% average planned cost. The case study conducted by the Standish group (2004) for IT projects the has found that the average cost overrun was 43%, 71% of projects were over budget, over time and under scope and the total waste was estimated at U.S. $5 billion per year in U.S.A alone. In-accuracy in cost estimates is also one of the main factors for the cost overrun in the construction projects. According Flyvbjerg (2002), the under estimation of costs in construction were almost 9 out 10 projects. For randomly selected projects, the likelihood of actual costs being larger than estimated cost is 86%. The likelihood of the actual costs for the construction projects is being lower than or equal to estimated cost is 14%. The actual cost of the projects on average is 28% higher than the estimated cost. The best example for the above case is Suez Canal was constructed at costs three times of the estimated cost with 1,900 percent (Flyvbjerg et al, 2002). The Kakkad hydro -electric projct could be commissioned in time in 1986 itself, 8 years after its construction started. Accounting for general price inflation during this period , thecapital cost of this project by 1986 would be atmost only rs 39.66 crores, savings as much as Rs. 113.86 crores, almost enough to construct 3 more similar plant, or to add to the system capacity y another 140 MW at the nominal cost of Kakkad project in Kerala (Kannan and pillai 2001).
The ultimate motive in undertaking the project is to make profit. These profits may be measured in different ways and the most familiar profit is money. The goals of the others in making the project may be to make work, to improve living standards, in produce of the products to the others who require it or in scarce, to obtain votes for the political carrier and many others. The ultimate result should be the positive outcome during the construction of the project or in the life of the project.
Every project has to undergo several stages starting from the planning of the project, approval, awarding the project to the actual construction and so on. The project life cycle has been divided into three phases they are development phase, construction phase, and operation and maintenance phase. For every project during the development phase the project authority will approves the time and funds needed for the completion of the project. Then after the approval of the project the construction phase will start with the signing of a contract between the sponsoring department and the contractor. Generally the contractor of the project will be selected through the tender or bidding process. For some projects contractor will be for only procurement process. During the construction phase it is very important for the timely completion of the project, so there should be the active cooperation between the sponsoring authority, the contractor and other departments. The project success i.e. whether the project can be delivered on time and on cost depends on how well all the activities of the projects, departments of the projects and individuals concerned are coordinated. The failures among the contractor activities will cause delays in the project and cost overruns. For the ease of exposition, it is helpful to divide the set of possible causes in the following subgroups (Ram Sing, 2009).
It is a complex problem for the estimation of the time and cost for an infrastructure projects, though the techniques for the estimation have been sophisticated there are many imperfect estimations. The contractors and the authorities of the project will better understand about the materials requirement and the necessary changes in the project as the work on the project starts. For example, during the construction phase of the road project, an unexpectedly poor quality of soil may make the changes in the design and quality of the bitumen, from what was initially planned. Because such changes the project may require extra time as well as funds. But in some cases the sudden changes may turn in favor of the project and the parties may find the excessive funds and time. Similarly natural factors like floods and so on also impact the cost and time and as well as destroy the project assets. The natural factors also make favorable conditions in saving the construction time and cost. However, one would expect the effects of the technical and natural factors to be random without any bias. Also form the above discussions the time delay and cost overrun is expected to come down over the years. Therefore if the decline in the time delay and cost overrun is expected to be statistically significant, we attribute the decline to the technical and natural constraints. Time and cost overrun. Hence, the Design changes, unforeseen geological and weather condition during the construction phase are the major causes of the cost overrun. (Ram Singh, 2009)
As explained earlier the contractor enters the project mostly through bidding in implementation or construction phase by signing the contract with the sponsoring department. Thus for a project to be successful, mostly depends on the implementation of the activities by contractor and the joint and timely efforts of the sponsoring authority and the contractor(s). The actual initial construction or procurement contract is signed between the employer and the contractor is on a particular date. The contract agreement specifies the activities that are performed and delivery of the goods at the project execution by the contractor. In general, contract known as “complete-contingent-contracts which can ensure that the project is completed on time and within budget. These types of contracts are assumed to give the each and every detail of the activities that are performed by the contractor in each possible case during the construction phase. But in real case scenario, however, this is difficult to explain the every work which unfolds in construction phase during the initial phase of the contract. Moreover it does not explain the complete every relevant aspect of the project activities. The bounded relationship of the parties along with the technological constraints makes the contract very difficult in specifying the every aspect of the project till last detail, this is because of the nature of different states require different modifications in the assets to be built. This happens commonly for the contracts of the infrastructure projects because of its complex nature of the activities. Therefore the procurement contracts of the infrastructure projects will be incomplete nature. The need for the future works arises once when the contractors starts the work. For example, on a railway project it may be necessary to have more of manned-crossings or railway-over-bridges than were planned initially. These unplanned additional works requires more funds and also in some cases it takes more time. Therefore, from the above discussion the contract incompleteness is also a cause of the cost overrun in some cases. This contractual incompleteness increases with the increase in the project size. Bigger the project size the complexity also increases. As the complexity of the project increases it is very difficult to provide the each every detail in the initial contract. However the initial contract should be kept with less incomplete. A proper planning for the technical, materials and the activities aspects of the project can enable the parties involved in the project to make the detail initial contract properly and once the proper detailed initial contract is made the contractor may have the scope to make some allowance for the future works by keeping the initial contract with less incomplete. In contrast, the poor planning may lead to the bad estimation of the time and cost and so will be the initial contract. The process of project planning in India is infamous for its ad-hoc and lackadaisical approach. The detailed project reports and feasibility are prepared for the formality purpose and hence they are sloppy. This leads to the incomplete initial contract for the infrastructure projects. Thus this leads to sever problems for the complex projects, because, a lackadaisical planning will produces only sketchy estimates of time and cost. So, in these cases the initial contracts for the complex projects will inevitably omit many more detailed works of the project, which leads in cost overrun in the construction phase of the project. Neither the contractors nor the officials find these contracts are lack of details. From this the major cause which is leading to cost overrun in India is because of the contractual failures caused by the poor contracting processes and inferior project planning (Ram Singh, 2009). The example for the faulty planning techniques and construction made the cost and time overrun of the project in the Kerala state hydro project in kakkad where the leakage in the tunnel had costs the project extra 15 Lacks to repair the damage.( Kannan and pillai 2001).
As discussed from the above literature, for the successful completion of the infrastructure i.e. timely and efficient execution the project should have active participation of the all parties involved in the projects and as well as among various ministries. However, the government sector projects are inherently weak in the desired efforts from the people involved in the projects. There will be conflicts at each and every stage of the project with the individual and the social objectives. The wages and rewards given by the government for the working organization are not as effective from the view point as a motivation. Therefore, the government infrastructure projects have to face many sources of failures within the organization. These projects mostly in need of the several other organizations joint effort. In India different departments are responsible for different projects. For example, project implementation of power lines, water lines, sewer lines and environmental clearances and other such activities are performed by the different departments. Execution of the activities is highly dependent on the timely and joint efforts of the department. However the interdependence of efforts is that it will be easy for one department to pass the blame on others. So the infrastructure projects particularly India is vulnerable to these inter-organizational failures. In the project implementation stage as explained earlier several departments were involved in performing there concerned role. After all, the activities like land acquisition, shifting of utilities, etc., are performed by the state government. This says that if the project is span across more than one state, the project has deal with particular department in each state. Therefore the project which is spanning more than one state will have more chances to inter-organizational failures. If these projects are statistically causes the delay in time and cost overrun, then the project which are spanning across multiple states should experience the cost overrun and time delay. Most construction projects in government sector are Roads, Rail ways and urban development sector. The projects should need permission from the central and state government for the environmental clearance. When compared other sectors, these projects require more active cooperation of the several departments such as land acquisition, shifting of power lines, water lines, sewer lines etc. Hence the projects in these sectors are having more chances of the organizational failure. Thus projects in road, rail ways and urban development sectors will exhibits more time delays and cost overrun (Ram Singh, 2009). Kannan and Pillai 2001, in their studies on the cost and time overrun in Kerala Projects suggested that main cause of the cost overrun is due to the human resource management and labours strike.
According to the Auti, et,al. (2008), there has been several changes which should be made to the quality and standards, personal interests, low transparency and corruption . This also suggests that changes should be made in government policy and the way public sector projects are carried out.
In India the projects are located in some states and the economy of the state also impacts the cost overrun of the projects. That is the states having the good transportation facilities, power and telecommunication infrastructure to easily execute the project. This shows that project with more economic factors like good infrastructure will face less cost overrun and time delays and vice versa. The income level of the state will also affect the project cost and time (Ram Singh, 2009).
The inflation is defined as the rate of increase in the price level of the materials than they are in an economy (Adamson, 1996). Thus because of the inflation the materials cost will be increased than they during the initial contract, thus increases the estimated cost of the project. The affect inflation may cause the loss in profit to the contractor and project overrun cost to the project sponsor by the nature of process and the return of the work undertaken during the construction process. For example the kakkad(Kerala, India), hydro electric plant which has the time overrun 13 years as in 1999, when it was finally commissioned, the cost escalation of this project was 725 percent over the above estimates i.e. 8 times more than the actual cost the author says the cost escalation of this project is because of the price inflation(Kannan and pillai 2001 ).
The low quality materials cause higher construction costs than expected because of lack of standards in the materials. This results in the loss of materials and poor management system (Thungphanich, 1997).
Shortages in basic materials like sand, cement, stones, iron and brick causes major delay in the construction. The non availability of the machinery at the right of the construction process is also major cause for the delay in the construction.
The following table shows that the various sectors which went the time overrun and cost overrun in India. These are the delays and the cost overrun during the years April 1992- September 208
Total no. of projects completed
% of projects with Time overrun
% Time overrun (as % of implementation phase)
% of projects with Cost overrun
Cost overrun as a %age of initial cost of all projects
% Projects with cost but not time overrun
I & B
Health and Family Welfare
Road & Transport
Shipping and ports
Source: Ram Singh, 2009.
For any project the most important aspect in order to meet the funds of the project is the cost estimation. Small misleading in the cost estimation will lead to the project cost overrun or under run.
Kerzer (2006) have explained about the factors which are affecting the process of the estimation and which results in the faulty estimation for the construction. The factors such as Misinterpretation of statement of the works, Omission or improperly defined scope, poorly defined or overly optimistic schedule, inaccurate work break down structure, applying improper skill levels to tasks, failure to account of risks, failure to understand or account for cost escalation and inflation, failure to use correct estimating technique. The important aspect to be considered is that many of the above factors which are affecting the cost estimation of the construction cannot be found until and unless the cost control system is implemented within the project.
Kerzer (2006) also explained various types of measures in estimating and their accuracy in the cost overrun, they are as follows.
(1)Order -of-magnitude estimates: There is no necessary of any engineering data for these types of estimates. Hence they are prepared without any engineering data and mostly they are based on the past experience. The accuracy of this estimate is + 35%.
(2)Approximate estimates: These are prepared without the detailed engineering data and these estimates are mostly based on the similar type of the project having similar scope and capacity. The degree of accuracy of this estimate is + 15%.
(3)Definitive estimates: These are based on the detailed engineering data, the degree of accuracy for these estimates is +5%.
According to Ashworth (2004), the cost control of any construction project should start at the inception stage of the project and should not be finished until the project has been hand over to the client. Even there is no need for the cost control if the final cost is still likely to be agreed, the cost control should be performed throughout the life of the building. In order to make the cost control more effective regular cost control meetings should be held to discuss the regular budget updates and then discussing the areas of improvement if needed.
The key tool for the project managers and project team involved in the projects is to execute the whole process of the project with the procedures of the project control and documentation during the whole process of the project (Hendrickson, 2000). Project control team serves the basis for the identification of slippage of the project plan rather than suggesting and finding areas of the savings.
Cost control process can be implemented within the projects by using the preliminary data such as construction plan and associated cash flow estimates as a baseline reference for the subsequent project monitoring and controlling. The final or detailed estimate provides reference for the assessment of financial performance during the project. To extent that costs are within the detailed cost estimates, then the project is thought to be under financial control. Overrun in particular cost categories signal the possibility of problems and give an indication of exactly what problems are being encountered. (Hendrickson, 2000).
According to Griffith and Watson (2004), cost control is a management function and for the construction managers to perform this task efficiently and effectively they require timely, high-quality information to be encapsulated within decision making process.
Griffith and Watson , (2004) have suggested to use the concept of ‘Plan, Do, Check and Act (PDCA) control cycle’ by this cycle we can establish the project objectives and determine the various for reaching the goals (Plan), implementing the plans (Do), checking the effects of the implementation (check), after this taking the corrective action (ACT). Thus this plan can be implemented for the cost control or overall control of the project. According to the PDCA, plan involves production of control programs, allocation of project budget, cash flow analysis and planning of the quality assurance system. The above planning is made as per the confirmation of efficient and effective utilization of the 5 M’s such as materials, manpower, machinery, money and management. The Do phase of the cycle involves deployment of plan with the engagement of 5 M’s. The next step in the cycle will be ‘Check’ it involves continuous monitoring the planned activities and determine the extent of relative variance and appropriate cost centers, after this phase the next step will be Act which involves preparation of contingency plans with incorporation of appropriate considerations of 5 M’s employing the corrective action which is passed from the check stage.The cycle suggested here is continuous cycle and it may implemented at all stages of the project right from the inception to completion stage of the project, which will bring continuous improvement for the project delivery within the confinement of time, cost and quality.
Cost Management is the process required to ensure that the project is completed within the given budget that is the project cost management starts with the client’s objectives and ends when the objectives have been met. Cost Management is done in order to ensure the best value in construction with the wisest use of the resources in the project. The project manager should estimate project at all stages that is from preliminary sketches, up through construction documents to get the estimated margins of the project and accordingly should make the plan for allocating of resources in order to ensure that the project is within the budget and should make cost control at necessary places. For many projects in order to achieve maximum benefits in terms of cost and time the projects are driven by some special types of systems such as management cost and control systems. Project cost control provides management with cost related information for making decision with a view to complete the project with specified quality, on time and within budget costs (Bill, et al,2006).
The most Challenge task in any construction project for the design team, contractors, sub contractors, construction managers and consultant is the managing of project cost accurately and responsively. The experiences and researches had shown that the project should start at the right time to finish in the right time. The essentials of the cost management for the construction projects comprises of the following three steps.
1. Accurately define scope, user expectations, and budget from outset.
2. Assure that scope, user expectation, and budget are all in alignment.
3. Maintain a balance and alignment over the time through the completion of time.
The maximum problems in the alignment are caused by disconnect of the scope, budget and expectations. This alignment problem usually results from ineffective planning, incomplete planning, shortage or inconsistence in the material requirements. To solve this problem solution for the planning and programming should be required for the project.
Effective cost management for the construction project is dependent on the following a consistent methodology, utilizing appropriate standards, concentrating effort for maximum effectiveness and utilizing all the tools available. Key considerations are as summarised in more detail as follows. (Michael D.Dell’lsola)
In order to communicate the information from project phase to phase and project to project it is essential to have Standard format. The most common format, Master Format, is based on trades/crafts and materials and works well for perspective specification. Uniformat, is another standard format that was originally developed in the 1970s and was updated in the last few years is an elemental or systems based format that responds better to the issues of design phase cost management. The use of Uniformat as a primary format is strongly encouraged (Michael D. Dell’lsola).
For any project it is very critical to concentrate attention on the true cost drives, that is increase in quality or performance will always accompanied in increase in cost. In order to avoid unnecessary costs in the construction the cost management should have to focus more like using Pareto’s principle of cost distribution (Michael D. Dell’lsola).
Cost management of the project should concentrate on the planning, programming of the project and the early design decision process where the changes are made without any major disruption to the project. When the problem surface during the design process, at that time the cost management should recognise that the project should require re-planning and re- programming, not just re-design (Michael D. Dell’lsola).
There is no linear relationship between the cost and quality. If the relationship were linear the decision making would be simpler because increase or decrease in quality would be followed by comparable increase or decrease in cost. The fact in many building projects is where the modest increase in the quality of the building systems will result in substantial increase in cost. High quality or high cost items are extremely sensitive and extra attention is needed (Michael D. Dell’lsola).
Future cost implication on the project should be considered because spending more initially might result in beneficial payback over the life of the project. Likewise, the unnecessary investment in quality or performance may have an extremely poor payback. There is a probably best life cycle choice for any system (Michael D. Dell’lsola).
Every project decision contains risk; but from the cost perspective some decisions are much riskier than other are. So the decision making should need more focus and attention either in terms of contingency planning and identifying the alternate approaches that help to mitigate the risk (Michael D. Dell’lsola).
The one of the most important factor in cost management is collection of the historical data wisely. The various methods of getting the information of historical cost include experience from the previous projects, published cost data, information from the organisations. This historical cost data should be used with caution. The cost information has been changing in early cost estimates has largely based on the historical cost while later estimates may be priced in detail from a complete quantity survey. Regardless from historical cost or quantity survey, great care should be taken that the sources are reliable and the “comparables” are in fact comparable. It should be considered clearly that technical basis, market conditions, time frame and exclusion/inclusions associated with historical cost information. A factor as seemingly “method of measurement” can be the main source of dramatic error if it is not interpreted in constant manner. The experience shows that the data collected for the cost estimates from the historical data and solely depending on this data for budget may lead to severe problems and there is no rational excuse for not maintaining accurate historical data on “in- house” project (Michael D. Dell’lsola).
There is no substitute for sound cost estimating, whether provided from internal sources, outside consultants or constructors. Furthermore, the accuracy of any estimate is only as good as the information on which it is based and the validity of assumption that is invariable must be made from those estimates, especially for early stage of estimate. To improve the accuracy and validity of estimates these steps should follow.
(1)Clearly document the estimate; (2)promote a clear understand among all parties of anticipated level of detail and format; (3)assure buy-in by all parties involved in the estimates; (4)properly evaluate the market factors, contingencies and major risks and (5) allow adequate time to prepare the accurate estimate.
A truly successful project is one that has been implemented in accordance with its budget and time, schedule, and which significantly contributes to the fulfilment of its agreed objectives . The success and failure of the project will be determined on the delivery of the products and the services on time and in budget. Since the cost overruns are of great magnitude in several projects, the projects are in need of some methods in optimization of the cost overrun.
Some methods for optimizing cost overrun which were used in construction sectors are:
Fuzzy Model Analysis
Measure Miles Analysis
‘‘Every project plans including estimates are ‘’living document” and are therefore subject to change. Changes are needed in order to prevent or rectify unfortunate situations. These unfortunate situations can be called as project risk”. (Kerzener 2006)
Risk management is the important factor throughout the life cycle of the project which is to be implemented for successful project management. Above listed cost overrun factors are mitigated by implementing proper risk management process within the project to avoid the cost overrun. Risk management involves six steps in the risk management process such as 1) Identification of risk 2) Quantifying the risk 3) Prioritizing risk 4) Developing strategy for managing risk 5) Project sponsor/Executive review and 6) Taking Action.
By conducting the risk analysis makes the project to determine the most likely cost for the total project and this will also compute the contingency needed for the project with different measures of protection against cost overruns. By conducting this risk analysis the project manager will become aware of most risky elements in the projects which lead to better risk management strategies. But in most construction projects as a result of improper assessment of risks and uncertainties, the building contracts did not meet the set cost targets of the project
This chapter introduces an overview of basic research, research processes and research methodologies. The literature review will provide the base information and describe the research methodology; which will be approached during the dissertation. Furthermore, the discussion in a study that is being reported, the focus of review is on hypotheses that may serve as leads for further investigation in order to change to a new system.
Research is a human activity based on intellectual investigation and aimed at discovering, interpreting, and revising human knowledge on different aspects of the world. Research can use the scientific method, but need not do so. It employs well designed method to collect the data and analyses the result. It disseminates the findings to contribute to generalize able knowledge.
* Exploring, describing, predicting, explaining, or evaluating new phenomenon
* Re-produce results from previous studies
* Explore and analyze more general issues.
* Quantitatively synthesizing a body of research
* Construct or create new procedures or systems.
· Strengthening a theory, verifying predictions
· Investigate existing situations or problems.
· Generate new knowledge.
There are a number of available kinds of research as follows:
1. AR is an approach to research that aims both at taking action and creating knowledge or theory about that action.
2. Action research (AR) is a generic term, which covers many forms of action-oriented research, and indicates diversity in theory and practice among action researchers, so providing a wide choice for potential action researchers as to what might be appropriate for their research question.
3.The four characteristics of the Action research are
AR focuses on research in action, rather than research about action
AR is participative
AR is research concurrent with action
AR is both a sequence of events and an approach to problem solving
AR works through a cyclical four-step process of consciously and deliberately: planning, taking action and evaluating the action, leading to further planning and so on.
Case research has consistently been one of the most powerful research methods in operations management, particularly in the development of new theory.
Case research, that is research based on analysis of a limited number of cases to which, at best, only limited statistical analysis can be applied, is widely used in Europe but is less common in North American operations management (Drejer et al., 1998)
There are several challenges in conducting case research: it is time consuming, it needs skilled interviewers, and care is needed in drawing generalsable conclusions from a limited set of cases and in ensuring rigorous research.
Unconstrained by the rigid limits of questionnaires and models, it can lead to new and creative insights, development of new theory, and have high validity with practitioners – the ultimate user of research.
Many concepts and theories in Operation management, from lean production to manufacturing strategy, have been developed through field case research
Case research in operation management is based on analysis of a limited number of cases to which, at best, only limited statistical analysis can be applied. Case research has consistently been one of the most powerful research methods in operations management, particularly in the development of new theory. Unconstrained by the rigid limits of questionnaires and models, it can lead to new and creative insights, development of new theory, and have high validity with practitioners, the ultimate user of research. Many concepts and theories in Operation management, from lean production to manufacturing strategy, have been developed through field case research. Case research enriches not only theory, but also the researchers themselves.
Case study approach helps in highlighting only one case in which it identifies and analyses issues concerned with the case, responsibilities, relationships and stages of development. There will be no scope of development of the new theory as in the case of Case Research. Case study approach is a method in which the situation has been occurred in the past and learning from its mistakes and drawing to a conclusion.
a) Qualitative Methodology, b) Quantitative Methodology
a) Qualitative analysis: The aim of qualitative analysis is a complete, detailed description. No attempt is made to assign frequencies to the linguistic features which are identified in the data, and rare phenomena receives (or should receive) the same amount of attention as more frequent phenomena. Qualitative analysis allows for fine distinctions to be drawn because it is not necessary to shoehorn the data into a finite number of classifications. Ambiguities, which are inherent in human language, can be recognised in the analysis.
The main disadvantage of qualitative approaches to corpus analysis is that their findings can not be extended to wider populations with the same degree of certainty that quantitative analyses can. This is because the findings of the research are not tested to discover whether they are statistically significant or due to chance.
b) Quantitative analysis: Statistically reliable and generalisable results. In quantitative research the features are classified and counted, and even construct more complex statistical models in an attempt to explain what is observed. Findings can be generalised to a larger population, and direct comparisons can be made between two corpora, so long as valid sampling and significance techniques have been used. Thus, quantitative analysis allows discovering which phenomena are likely to be genuine reflections of the behaviour of a language or variety, and which are merely chance occurrences. The more basic task of just looking at a single language variety allows one to get a precise picture of the frequency and rarity of particular phenomena, and thus their relative normality or abnormality.
However, the picture of the data which emerges from quantitative analysis is less rich than that obtained from qualitative analysis. Quantitative analysis is therefore an idealization of the data in some cases. To ensure that certain statistical tests provide reliable results, it is essential that minimum frequencies are obtained – meaning that categories may have to be collapsed into one another resulting in a loss of data richness.
Both qualitative and quantitative analyses recently moved in social science towards multi-method approaches which tend to reject the narrow analytical paradigms in favour of the breadth of information which the use of more than one method may provide. In any case, as Schmied (1993) notes, a stage of qualitative research is often a precursor for quantitative analysis, since before linguistic phenomena can be classified and counted, the categories for classification must first be identified.
Case Study: Attempts to shed light on a phenomenon by studying in depth a single case example of the phenomena. The case can be an individual person, an event, a group, or an institution
Grounded Theory: Theory is developed inductively from a corpus of data acquired by a participant-observer
Phenomenology: Describes the structures of experience as they present themselves to consciousness, without recourse to theory, deduction, or assumptions from other disciplines
Ethnography: Focuses on the sociology of meaning through close field observation of socio cultural phenomena. Typically, the ethnographer focuses on a community
Historical: Systematic collection and objective evaluation of data related to past occurrences in order to test hypotheses concerning causes, effects, or trends of these events that may help to explain present events and anticipate future events. (Gay, 1996)
The comparison between the interview technique with the questionnaire survey with its limitations and advantages are as follows:
* For interviews only a small number of subjects is required
* Selected sampling is used for interviews when the target is for specific groups of subjects
* Interviews can provide more in-depth qualitative data than responses from questionnaire surveys. Time constraints, for only limited people to interview. There may also be the problem of subjectivity or bias when dealing with respondents face-to-face. Analysis may also be a problem as you cannot produce quantitative data from such a limited number of respondents.
* A larger number will be required for questionnaire surveys especially where the results are based on statistical testing
* For a questionnaire survey try to obtain as many subjects as possible since only a small percentage will return the query
* Questionnaire surveys are used to obtain data which may be of a qualitative nature but also provides quantification of results and the application of an empirical method – they provide the evidence to test the theory. Questions may be either open (allowing respondents to freely give their comments) or closed (limiting responses to specific criteria selected by the researcher)
1. This method is cheaper than an interview or other methods of research
2. They do not require as much effort compared to verbal or telephone surveys or interviews, and often have standardised answers that make it simple to compile data.
3. This method is familiar to most people
4. Can reduce bias by a uniformed question presentation, not get influenced by the researcher’s opinion, there are no verbal or visual clues to influence the individual.
5. It is less intrusive than other methods
6. Respondents can take their own time
7. Usually anonymous and confidential
8. Large amounts of data can be gathered
1. This method may have a low response rate
2. The individual may not have the ability to answer the questions, may not understand the questions or the language it is written in, may not be able to read, may be illiterate or disabled.
3. Questions may not reflect the respondents actual concerns
3.9.Research Methodology used for the Proposed Dissertation:
Present dissertation is based on the concept of questionnaire and Case Study method in analysing the causes of the cost overrun in construction Projects. Case study approach helps in highlighting only one case in which it identifies and analyses issues concerned with the case, responsibilities, relationships and stages of development. There will be no scope of development of the new theory as in the case of Case Research. Case study approach is a method in which the situation has been occurred in the past and learning from its mistakes and drawing to a conclusion. A questionnaire was prepared with 18 questions which will be identified as the causes and measures which affects the cost of the project. Present questionnaire has been sent to 10 different construction companies’ staff (Architects, Engineers, Surveyors and proffessors) to grasp the knowledge from their experience. The present questionnaire is made with kind of questions to obtain what are the factors that are effecting the cost of the project with the background of Indian construction industry.
I am currently undertaking M. Sc. in Project Management in construction in the University of Salford. The aim of my dissertation is to identify and explore the various causes of cost overrun in construction projects in India. Cost overrun is the common problem in construction industries in many parts of the world. They are the critical issues and concern the all parties involved in construction projects. The main objectives of this study is the
* Identifying the main causes of the cost overrun in the construction projects through literature review.
* To identify the various measures of cost overrun in construction projects.
* To examine the affects of the cost overrun by analysing the case of a construction industry.
The result of this study may be beneficial to enhance the profitability of the construction projects. The summary of the survey results may give the valuable information about the problems causing the cost overrun of the project and where to invest to make the project free from the cost overrun problems.
1. Is the size and value of the project being large leads to the cost overrun(Ram Sing 2009, Kaming et al, 1997)
Answer: 65% of the respondents have agreed that the value and size of the project leads to the cost overrun and rest other think it’s not the factor leading to cost overrun. It has been found that in some large projects are complex than smaller projects. As complexity of the project increases there exist problems like difficult in providing detailed initial contracts and also there is lot of chances of materials missing out. Thus these kinds of problems will lead to excessive cost overrun during construction. It also explained that contractual incompleteness increases with the increase in project size.
2. Rank the following from 1 to 4 ( 1 being most critical factor) critical factors that lead to cost overrun
o Contract variations
o Soil and site conditions
o Any other critical factor please specify————–
45% of the people thinks’ delays as most critical factor. 27% says soil and site conditions as critical factor.15% says contract variations as less critical. Remaining says disputes as no impact on cost overrun. The other critical factors specified by some experts are Market fluctuation, rehabilitation and compensation, raw materials availability, lack of proper project managers, inexperienced engineers.
3. What are the main factors that cause delay in the construction of the project in your company
o site management and supervision
o poor, unforeseen ground condition
o low speed of decision making involving all project teams
o client initiated variations
Study indicates that delays along with cost overruns are too frequent and too large. They are inflicting huge but largely unnecessary cost on the economy. If there are delays in the project, all the inputs will be more expensive and automatically causes an increase in the project cost.42% of the people thinks’ the low speed of the decision making involving all project teams as the cause of delay.27% of the experts feels that client initiated variations are the main cause for the delay in the construction of the projects.23% of the people feel that site management and supervision as the main factor that cause delay in the construction projects. Remaining people thought poor, unforeseen ground conditions as the main factor.
4. In your organization the actual to date cost information gets updated frequently (Please click more than one option if applicable)
o No, we don’t update regularly
o Yes, we update regularly
o Yes, we update weekly
o Yes, we update monthly
o Others please specify —————-
The cost information reports are the reliable documents as they are required by the project team to illustrate all the happenings on the construction site and also include any change orders. These reports help in indicating the work progress in comparison with the bills of quantities.65% of respondents say that in their organization the cost information gets update regularly.15% says yes, that the cost information gets updated weekly and15% says yes they update cost information monthly. Remaining says no, we don’t update regularly
5. Rate the following items which cause frequent reworks and made cost overrun
o Change drawings and specifications
o Failed quality Specifications
o Damaged after work was completed
o Others please specify—————
The study says that non-conformance costs are high for certain failure events. The problems related with change drawings and specifications, failed quality, damaged after work was completed incurred high additional costs. It is expected that a failure event for an activity which lies on a critical path and that requires expensive reworking will increase the cost of failure higher than a non critical activity. The effect of frequent reworks n construction activities can therefore be related to delays and cost overrun.39% says the change drawings and specifications in response to the client specifications are primary reason for the frequent reworks and made cost overrun. 36% says failed quality specification is the main reason for the frequent reworks. Remaining says damages after the work were completed as the main cause for the frequent reworks.
6. What extent does the cost overrun due to inaccurate estimating of the cost plays (N R Mansfield et al, 1994)
o Inaccurate estimate was the only reason
o Inaccurate estimate was the biggest reason
o Inaccurate estimate was one out of several reason
o No effect due inaccurate estimation
Majority of the project cost are based on the initial estimation, the improper estimation of the initial project cost may lead to the insufficient funds and may lead to the various factors that lead the cost overrun.72% says inaccurate estimate was one out of several reasons. Remaining 28% of people says that inaccurate estimate was the biggest reason.
7. What extent does the conflicts between the all parties of the project such contractor, sub contractor and sponsor/owner effects the project (Iyer and Jha, 2005)
o Conflicts is the only reason
o Conflicts plays a major role
o Conflicts was one out of several reasons
o No effect due to conflicts
62% of people agree that the conflicts play a major role. 35% says conflict was one out of several reasons. Remaining people say no effect due to conflict.
8. What are the types of factors which affects the process of the estimation and which results in the faulty estimation for the construction? (please click more than one if applicable)
o Misinterpretation of statement of the works
o Omission or improperly defined scope
o inaccurate work break down structure
o applying improper skill levels to tasks
o failure to account of risks
o others, please specify——————-
42% of people thinks’ that the omission or improperly defined scope. The scope of the construction projects is concerned with the activities that are and are not included in the projects. In case of large and complex projects due to the possible changes in design, variations of the work by contractor have impact on the scope and project planning. 31% of people say inaccurate work break down structure affects estimation process. In every construction projects the main problem where cost of the entire project is not getting most likely, is because of usual way of constructing a project estimate at completion is that adding the estimates for all work breakdown structure components. 12% of people say failure to account risks. Contractors are not implementing proper risk management tools for mitigation of the risk that occurs during the process of the construction. Remaining people thought applying improper skill levels to tasks.
9. When do you think to start and finish of cost control process in construction projects?
o Inception stage and hand over to the client
o Inception stage and finishing of construction stage
o Tender stage and finishing of construction stage
o Tender stage and hand over to the client
o Others, please specify————
Cost control is the important measure in the construction project management. It enables the project team to be aware of the cost and forms a basis for the timely actions to be carried whenever unfavorable conditions occur.42% of the respondents says that the start and finish of cost control process in construction projects is inception stage and finishing of the construction and 31% says tender stage and handover to the client.15% says tender stage and finishing of construction stage and rest of the people say inception stage and hand over to the client.
10. Does your company utilize the performance evaluation for the incentive programs such as pay rises, project bonuses, etc?
Answer: 88% says yes that their companies utilize the performance evaluation for the incentive programs by raising the pays and project bonuses etc, because the project success mainly depends on the skilled labor. Although this pay rises, project bonuses is more costly and increase the project cost the high productivity form the skilled labor could help the project team in planning the project more effectively.
11. Does contractors experience influence the project cost overrun
Answer: 92% says yes, as the experienced contractors will have more skills and pays high attention to the project planning, site conditions, resources allocations and cost control.
12. Does your company have computerized systems to track the project’s cost and schedule?
Answer: 81% says yes, respondents agreed that by using computerized systems performance can be tracked against identified cost, schedule and material resources. Analysis says that due to technological constraints, underestimation of cost would be as likely as overestimation. As a result imperfect techniques in estimation lead to cost overrun. So respondents feel that estimation by using the computerized systems to track the project cost is an effective measure for the successful completion of the project in terms of cost
13. What were the main factors for the cost overrun in the projects taken by the multiple organizations? (please click more than one if applicable)
o Coordination and communication
o Time delays
o Ego problems between the organizations
o Conflicts in the allocation of responsibilities
o Inappropriate organization structure
o Others, please specify————
The timely and efficient execution of any infrastructure project requires active cooperation of several departments within the organization. The study states that the government organizations are weaker in making the desired efforts from the people involved. The survey shows that the 26% says coordination and communication in the multi organizations are weak and thus making the project overrun.26% says conflicts in allocation of responsibilities are main reason for the organizational failure.21% says time delays is one of the reason.15% says inappropriate organization structure and remaining says ego problems between the organizations are causes for the cost overrun in projects taken up by multiple organization.
14. Does variation of work by the contractor affects the cost of the project (Chan et al, 1997)
The survey results indicated that 88% agreed that variation of the work by the contractor affects the cost of the project. Analysis also says that errors in design, incomplete drawings, limited scope of work, low quality materials etc are the reasons for the variations of the work. This variation in work causes delays in the schedule and necessitated extra materials.
15. Does your company have any suitable contingencies reserve for the quality of materials used in the constructions which affect the cost of the project?
Answer: 62% says yes, the low quality materials cause higher construction costs than expected because of lack of standards in the materials. This results in the loss of materials and poor management system. Thus shows, there should be adequate contingency reserve for the quality of the materials used which affect the cost of the project and also helps in covering material cost due to inflation.
16. To what extent the political and economical environment affects the cost overrun?
70% accepted that political and economical environment affects the cost overrun. The respondents says that It depends on the type of work, a Govt. funding project or a Private project with most effect on Public projects and varying effects on private projects. The projects taken up by the government are having more cost overruns affect because of failure in providing the necessary funds to contracts for the job done is making more difficult for the project team to meet the project objectives.
17. How effective is the construction control meetings towards the project success in terms of the cost?
Most of the Respondents agree construction control meetings are very helpful to plan the project accurately. Respondents feels that if the meetings were correctly implemented, all the parties involved in project would be constantly updating problems causing the cost overrun and thus helps project success in terms of the cost.
18. What have you done in the past 5 years for the successful implementation of the project overcome the cost overrun effects?
o Training the staff
o Regular budget updates
o Regular cost control meetings
o Proper planning tools and techniques
o Providing sufficient contingency reserve
o Others please specify———-
28% says proper planning tools and techniques are more helpful for the successful implementation of the project overcome the cost overrun effects. 26% says regular cost control meetings, 24% says training the staff, 14% says regular budget updates. Remaining says providing sufficient contingency reserve.
Lack of planning and coordination between the project team, less importance given to planning, change in plans, drawings and specification which is causing frequent reworks, lack of site investigations, inaccurate estimations are found be the faults of the construction teams in their projects. The questionnaire also identified that political and environmental factors plays an important role on the cost of the project. Most of the Respondents agree construction control meetings are very helpful to plan the project accurately. Questionnaire results gives idea that performance evaluation for the incentive programs such as pay rises, project bonuses, etc, providing sufficient contingency reserve, regular budget updates, training staff helps successful implementation of the project overcome the cost overrun effects. It also identified that size and value of the project also plays major role in the cost of the project.
The result of this study may be beneficial to improve the profitability of the construction projects. The summary of the survey results had given the valuable information about the problems causing the cost overrun of the project and where to invest to make the project free from the cost overrun problems.
Name of Work: Widening and Construction of Eastern Express Highway (EEH),
from Thane to Parliament, Mumbai, Maharashtra, India.
Package No.13 and 14, From GMLR junction to Godrej Junction
Name of Client: Mumbai Metropolitan Region Development Authority of India
(MMRDA)& Mumbai Urban Infrastructure Project (MUIP)
Name of Contractor: Soma Enterprises Pvt Ltd
Cost of the Project: 55 Crores Rs (Indian) and later cost were 80.7 Crores.
Completed Period: 18 months
A Soma Construction is a small and director (owner) oriented Firm established in 1980’s, initially this firm was working as sub contactors and also as material supplier. They supply mainly asphalting material. This company after some period started construct some small kind of council projects and some road maintenance and repairing projects. In processing such small projects the company slowly increased its staff and its machinery, and then moved to take council road projects. The company now owns 30 technical staff and more than 40-50 non technical staff members. The above mentioned project was the one of major road project for the company.
Soma construction is a private construction company and it is owner oriented firm most of the decisions were made by the owner regarding progress of the project. The company got the contract through tender process. So fulfil the requirements of the tender the company has arranged the project manager on both packages but powers of the project manager were limited. The company has dived the project into various sub tasks such as Earthwork, Pavement concreting, structural works such as minor bridge, Drainage works, pedestrian’s subway, storm water drain, retaining wall kerb stone casting and fixing, asphalting and so on. For all these tasks the contractor has arranged separate field engineers, non technical supervisor, where there is necessary management is required contractor appointed a experienced sub contractor. For the cost control department of the company has arranged construction management personnel to look after the purchasing, estimation and quality of the materials for the project.
The company management always requires delegation. The management of the company before the delegation requires stating the policy and objectives of the company and these should be understood at all levels of the company. In Soma construction the most of the decisions were carried out by the director (owner) of the company. This company was very small and initially they were doing as sub contractors for the small projects before the company had started as a main contractor for the big scale projects and also the directors (owner) of the company has lack of experience and poor technical knowledge on the construction work in handling the project. The director has huge experience in small scale projects on the thumb rule calculations of the budget of the project and had no technical base. All the process of the cost control system was in the hands of the director decisions, for the financial considerations of the project the management of the company has kept separate team for cost control department who looks after the purchasing, quality, stock checking of the materials, billing and maintain the records at the site. But even if the cost control department finds some mistakes on the site for example if the quality of the materials are not good and sometimes they found that materials are not arriving at right time for the site because of which whole works at site is in standstill and making the time delays and cost overrun of the project they doesn’t have freedom to make changes. Everything was going as per the decisions of the director of the company. The director (owner) always asks the cost control department to manage the work which would likely increase in their revenues and profit by having the cost underestimation and benefits over estimation which would be economically rational for contractor of the project. There was no freedom for the cost control department engineers to work accordingly to cost control procedures in estimating and maintaining the cost registers of the project and for the internal quality as well.
The cost control system followed in the company cannot be performed well unless each and every party included in the organization knows about what it is and performance of it. In the company the cost control department has found a system. In the Soma construction company no one in the field engineering knows about the working performance of the system. As this company is director’s oriented company every work on the site will be carried out according to his schedule, that is he use to sets the targets of particular task in front of the field engineers, without having the knowledge of the materials, machinery and staff requirement at the site, and sets the certain time for the field engineers to complete the work. The same time field engineers who were aware of the cost and quality systems carried out in the project and running behind the schedule time will perform the works on their own knowledge without informing the cost management teams about the regular budgets and fails in performing the measures in controlling the schedule and budget of the project. Certain measures can be performed immediately, if found that any overrun in the site works through appropriate techniques by minimizing these overrun once found by the cost management team, these would be beyond ability of the field engineers who are not aware of the system. Because of these conditions the cost management team was failed to perform the cost planning in the project.
This section is applicable to all the departments in the organization involved with cost functions. Personally everyone in the project must know what they are being asked to do, and therefore up to date information must be available. In this at the beginning of the project the cost control department has carried out their work very smoothly by maintaining their records up to date with perfect procedure in making sure that the specifications and the project requirements but as the project execution has taken the pace at every department such Earthwork, pavement concreting, structure works such as Minor bridge, cross drainage works, pedestrian subway, storm water drain, footpath over drain slab, retaining wall, Kerb stone casting and fixing at main etc are recorded in the initial estimation of the cost and some more extra cost is kept for contingencies. As it is explained earlier all the rights are reserved to the owner, so he himself has planned the schedule of the project as per his convenience, like availability of the materials, machinery and funds and all, because of such irregular schedule of the work, the project cost has not achieved. This obviously happens the delay of the work made the materials arrived on the site to be waited on the site for the long days and thus increasing the wastage of the materials and theft of the materials and paying for workers at the site for no work at the site, there will arise the communication problem between the purchasing, quantity estimating and stock checking departments of the project. The another cause quality control team also felt short because of this irregular scheduling of work and thus failed to keep the quality of the materials. Most of the work is carried out without intimating the cost control department thus failed to meet their daily records.
For example on the particular day lot of activities takes place on the different parts of the site like earthworks, concreting the retaining walls, Kerb stone casting, drain slab. As explained earlier due to irregular schedule of the works there will be no proper coordination between the purchasing department, quantity estimating departments and stock checking, so this will be very difficult to the check and maintain the requirement of the materials and thus leads to inconsistency of the materials at the site. Thus because of this reason the cost control team was failed in maintaining the records of the budget of the project.
The purchasing of the correct material requires the clear specification of materials requirement and a sound knowledge of the possible supplier’s ability to provide material of certain quality. It should be required to ensure that purchasing orders are made with suitable suppliers or subcontractors by knowing their capabilities of meeting the specific requirements fully but because the process of the low tender bid and to make some profit by the management with client as well, so the contractor appoints the poorly experienced sub contractors as the material supplier for the whole project. The non technical staff appointed by the contractor was used to purchase lump sum of low quality materials without proper estimation of the requirements. The contractor shows the standard quality of materials at the initial stage of the process to client and then afterwards they shifts to the low quality of materials without any considerations of the quality management, even if the client notices they are managed by sharing the profit by the contractor. All these above factors cause the project cost overrun. Thus proper supervision should be taken place in quality estimate which is the main cause in the project for the cost overrun, from project initial stage to completion stage.
As explained earlier due to the corruption, the contract of the project is awarded to any contractor without knowing his ability and past records. The incomplete drawings at the initial contract report made the estimated budget very low. Thus the contractor makes changes in drawings and specifications according to his requirements. This makes initial cost contract lot of inconsistency. So this affects the cost as well as quality of the project. So the client shall appoint his own consultancy which looks for the supervision, payments and specifications of the project.
The process control is related to planning and controlling of the process within the scope of the organization. In this process of the project contractors planning was so effective but due to the internal conflicts in the project people as explained earlier such as the communication gap between the field engineers, purchasing staff and quality control engineers, has made shortage of the materials, funds and machinery and lack of experience of the project contractors in handling the projects made the planning of the contract ineffective. The schedule of the work was so ineffective that the delay at the start of the contract affected the activities that should be carried out at other months. Thus because of the lack of experience the preliminary data such as construction plan and associated case flow which are used as baseline reference were not accurately collected, thus made very difficult for the financial estimates of the project and paid way for the cost overrun of the project.
The earth work in embankment should be done at different layers which should not be more than 200mm with spreading water on it and rolling to achieve its designed dry density of the soil for particular layer i.e. for 1 meter depth earth work but in order to achieve the work faster the contractor has done in two layers 0.5 meter each which should be done in five different layers. But after the earth work the quality control management has checked and hasn’t approved the quality of the Embankment and as result of this earthwork has done twice which made time overrun and cost overrun of the project.
The cost management team has prepared a chart of cost accounts where all the details costs of the project has been entered in order to have an idea for the contractor to maintain the cost. Then the project cost plan is made which estimates the actual cost of the entire project which the director expects to pay. The data collected during the execution of the project regarding the materials, machinery costs; payments for the staff are recorded in the registers to maintain the effective cost control system. The project management team will finds the additional costs which are included in the cost management records i.e. they finds any future costs of the projects that should be included. The quality control department is used to check the quality of the machinery and materials. Regulars records and registers were maintained by the QC engineers and purchasing department for the materials. The observations had shown that because of the lack of communication between the cost management and directors and due to irregular scheduling of the project the cost control team does not performed the effective budget updates for the cost control.
In order to avoid the mistakes or faults, timely and effective actions were taken to correct them. For example the design team deals with design and specifications of the project and they will react timely and quickly if they are any changes in the design specifications in order to maintain the schedule of the project as per records, the quality department amended quality related problems and the contractor ensure the compliance with laid down procedure and specification. The mutual understanding between the contractors had resulted in some faulty work which is not much important was gets managed.
Cost control management explains that everyone related to the project should be trained according to requirement, but as explained in the earlier stage that due to the lack of experience for the contractor on big scale projects, the contractor has appointed lots of new and ill experienced staff to carry out field works, quality works, purchasing and cost estimations. Contractor has planned to arrange training sessions for useful technical information on the respective fields, but because of very short duration period for the completion of the project, contractor was unable to find technical sessions. But in order to carry out some complicated works the contractor has appointed some skilled and specialists sub contractors
In India there are many multinational companies which can take up the project in right manner with effective measures by employing the highly skilled staff. The Public Sector Projects like roadways, railway etc., allows the contractors to take up project through bidding. The contract will be awarded to the contractor according to the influence by the local ministers or to the contractor who shares some part of the profit to the client or the local governing body, and not by considering the bidding amount and the past records of the contractor. This makes the contractors who are not having the experience will get the chances of processing the projects and also to make the more money in short period. Thus these contractors will execute the project without considering any requirements of the project like cost, time and quality of the project.
The government should think of adopting, not just the conventional contracts but also the design-build contracts, direct negotiation contracts and other types of contracts. Alternative procurement strategies such as best value procurement should also be adopted in the projects undertaken by government, semi-government bodies and agencies.
One type of competitive bid can be the average-bid method, in which the winner on is the contractor whose bid satisfies a certain relationship with the average of all bid prices. The basic advantage of the average-bid method, from an owner’s perspective, is that it safeguards against signing a construction contract for an unrealistically low bid price that almost certainly will lead to adversarial relationships during construction (Grogan 1992). On the other hand also safeguard contractors to fall for their mistaken low amount bids.
The schedule of the work was so ineffective that the delay at the start of the contract affected the activities that should be carried out at other months, which shows the inexperience in the management team. The appointment of the skilled persons may benefit the project to overcome the factors affecting the delays and cost overrun. For example the problem of irregularity in the availability of the materials can be avoided by regular supervision of the contractor thus reducing the failures during the construction. By applying the measures like risk management, cost management and site investigations the failure events can be avoided.
Name of the Projects: Power Sector Projects in Kakkad, Kerala State, India.
Client of the Projects: Kerala State Electricity Board
Name of the Work: Construction of Hydal electric plant.
This project is considered as the least hydro electric project in kerala, this project makes the back race waters of Sabarigiri power house(PH), together with the inflow of two tributaries of Kakkad river through Moozhivar and Veuthodu streams over a gross head of 132.6M for power generation of 262 million units(mu) with an installed capacity of 50MW. The project was constructed to meet the power shortage problems of the hilly district of Pathanamthitta. It was troubled by prolonged labour troubles, corruption, and inefficiency of authorities and indifference of contractors
Year of starting: 1976
Estimated cost of the Project in Rs: 1860 lacs.
Expected Year of Commissioning: 8 years
Actual project commissioned on: 14th October 1999
The causes of the cost overrun in the Kakkad Project
The Kakkad project was commissioned in the year 1976. The contractor of the project was appointed through the process of tender. Though the project was commissioned on 1976 the project was actually started on the year 1978, i.e. the project has taken its implementation phase after 2 years of its commissioning. In this particular project there is a link between the corrupt officials and contractor. This link try to get maximum benefit for themselves, this causes much delay of the project. A section of the officials in the KSEB delayed the project in connivance with the contractors for the material benefit of both. This had forced the Accountant General to object to payment to certain contractors. So, the corrupted officials in KSEB made the project delay and cost overrun. The tenders were awarded to the contractors even before finalizing the drawings. This took almost 10 months for the board to give the full details of the drawings to the contractor. The board has failed in the conducting the geological investigations and the site conditions of the proposed dam to determine the rock dynamics and structural stability of the site. If the study had taken efficiently the time delay and cost overrun due the geological conditions would have been saved. The cause for the delay in the implementation phase was found due to the scarcity of the funds to implement by the contractor. As a result, this project lost two years of time, it makes a big difference in cost of the project.
The construction phase includes the tunnel work. The works in the project were slow which shows the poor performance of the contractor. The best example of the poor performance of the contractor is, the project processed only 886mts out of 3036mts of its work in interconnect tunnel for one year. The work was again interrupted in the year 1987 due to the rock falls in the tunnel and this tunnel rework also caused the extra cost to budget of the project.
The based on the preliminary investigations for the feasibility report of the dam, the original estimation was the masonry dam. The introduction of the concrete lining, surge shaft and surge expansion gallery made the problems for the labour in construction and also made the construction cost high and taken more time. Thus the sudden change from the masonry dam to the concrete dam made cost overrun on the project and the time overrun of 40 months.
Delay in the works was also found as one of the main cause of the cost overrun for the Kakkad power project. Frequent labour unrest has been the major irritation of this project. The labour problems forced the contractors to abandon the work several times. The labour has few problems with the contractors regarding their wages; they haven’t got their wages for the completed works in time. The major reason for the labour strike in this project is for their permanent jobs in the electricity board.As a result they stopped work many times to contributed to delay of the project.The best example of the poor performance of the contractor is, the project processed only 886mts out of 3036mts of its work in interconnect tunnel for one year. The work was again interrupted in the year 1987 due to the rock falls in the tunnel and this tunnel rework also caused the extra cost to budget of the project.
The project has undergone poor management in the construction phase. The quality of the materials used for the construction is also poor quality because of the inefficiency in the management and the corruption by the higher officials with the contractor.. The first case shows that in the process power tunnel construction that went on two opposite sides but never meeting together, thus two tunnels dug from opposite sides just went in parallel. The second case is that, a major leakage was detected in the concrete lining of the tunnel gate, just two months prior to the commissioning of the project in 1999. The KSEB had spent rupees 15 lakhs to repair the damage position using the Expony mixture (The Hindu Daily, September 2nd 2001).
During the process of the Kakkad project it has been seen that there was mismanagement of the project and improper monitoring. The execution of the project at site was very slow and subsequently raised the cost of the project which is mainly because of the lapse of the management. The project manager at the site has no idea about the project and the all the authority of the project was in the hands of the contractor, that is all the civil and administrative works were done by the contractor itself. As explained earlier the management of the project has failed to examine the site conditions before the execution of the project which made huge time delay and cost overrun of the project. Because of the poor management there were lot of strikes by the workers of the project. The project cost estimation was revised every year in much disorganized manner which shows the inconsistency in the planning mechanism performed by the project management of the Kakkad project team.
Price Inflation also played a major role in the cost escalation of the power project. Actually the project of the Kakkad was estimated to finish within 8 years i.e. 1984. But the project has faced huge the time overrun of 13 years as in 1999. That is project has 23 years for its final commission. Though the inclusion of the possible price inflation in the estimation of the cost at the initial contract was made, the actual experience would probable deviate from the assumptions. This shows that the improper project implementation of the project made the cost overrun 8 times more than the actual cost due to the price inflation i.e. cost of escalation of the Kakkad project was 725 percent above original estimate.
The cause of the cost overrun in kakkad project by the labor strike is also one of the main concerned. It is very difficult factor to measure the loss occurred to projects by the strikes. The financial commitment for the settling the strike in kakkad project was 125 lakhs.
The kakkad project has undergone large corruption and the trade union militancy. There were serious defects found out in construction of the project when the works were carried out. This is because the construction works done by the contractor who has no experience an inefficient to make the progress of the work, he was awarded the contract only because of the influence of the concerned minister. Later the contractor was forced to terminate from the project. Having this type of contractors in the project makes difficult in any case where timely actions should be performed and examinations on the causes of the delay.
Finally this project completed in longtime but exhibited poor quality of construction work. After completion of the project it still has few problems. A major leak in the Adit-5 of the IC tunnel had led to the shutdown of the hydel project of the Kerala State Electricity Board (KSEB) in August 2001. So, this project ended with poor quality of work and one of the biggest cost overrun projects in India.
This project is construction of a dam power station of 15MW installed capacity and generation of 53 MU of power from the existing Kallada irrigation project.
Year of starting: 1981
Estimated Cost of the Project in Rs lacs: 1180
Expected Year of Commissioning:8 years
Actual Year of Commissioned on: 1993-1994
The main cause of the kallada project to get delay and thus made the cost overrun project is because of the site conditions, which are the release of the water frequently through the irrigation outlets of the dams flooded the dam work areas, preventing the progress of works. This also shows the inadequate investigation of the site before commission the project.
This case the cost overrun due to price inflation was due to the underestimation of the project by the contract during the initial stage of the project. The project was estimated to completed on 1989 but was finally commissioned on 1994 that is the time overrun of 5 years. The original cost estimate of the kallada project was Rs 1180 lakhs but due to the time overrun it went upto1802 that is 52.71 percent increase. During the time overrun of 5 years the price inflation was raised to 148 percent.
The cause in the cost overrun of kallada project is the inconsistency in the project planning. That is upward and downward mechanism of revising the cost estimation every year of the project made inconsistency in the initial cost contract. This shows that the project management is inefficient in planning the initial cost. This has made the inadequate coverage of the general price inflation in the revised cost estimates of the projects.
This project is a trail race cum run-off-river scheme in the lower reaches of periyar river downstream of Neriamangalam power station, the spill from kallarkutty dam and the available yield from the perinjankutty catchment and the catchment areas below the dams at Kallarkutty, Idukki and Cheruthoni river, over an average gross head of 302.63m for power generation, with an installed capacity of 180MW and annual generation of 493MU.
Year of Starting: 1983
Estimated cost of the project in Rs Lacs: 8848
Estimated Year of Commissioning: 8 years.
Actual Year of Commissioned: 1997
As stated in the above discussions the delay of this project had made large impact on the cost escalation. The major cause of the cost overrun in Lower pariyar project is the price inflation. The project was estimated of Rs 8843 lakhs when it was started in 1983, then this project was commissioned in 1997 and its revised cost estimates as in 1999-2000 stood at Rs 353 crores. In this 14 years, the cost estimation saw an increase of about 300 percent in which the cost overrun by the price inflation is alone 194 percent.
The site and weather conditions played a major role on the cost escalation of the Lower Periyar power project. The project has involved some serious long run fall out without considering the Environment properly. The project causes a 15km break in the course of the Periyar River, at least during the summer, as it is diverted through the tunnel from pambla to karimanal, the power station site. The river already controlled considerably by the Idukki project thus lies at Pambla and resurrects at karimala, where the tail race water from the power station gives life back to the river.
The inefficiency of the contractor paid the way for the cost overrun of the project. The following example will explain the case for the inefficiency of the project members, before the few months of appropriate date of commissioning, the steel rope of the surge gate was snapped. It had taken almost two months for the board to get back the equipment from power shaft’s well and to replace the rope. If the board had taken timely decision and acted well it would had taken only few days. According to the estimation, the loss of day’s power generation at Lower periyar was Rs 14 lakhs.
The delay in the materials also made the cost overrun of the project. The main reason is that material suppliers for the Lower periyar project were Public Sector undertaking Company. The example for this case is the hoist were delay in the arrival of the five radial gates of the dam at pampla. The Allahabad-based Thriven structural, a public sector undertaking, was given order for these equipments long back, in 1988. This company was failed to keep the reputation of supplying the materials. The board of the project also failed in taking the decisions and by sticking to the same company. The Lower Periyar Hydroelectric project took 13 years for completion. The project was commissioned in October 1997 after draining roughly Rs 2.5 billion by way of cost escalation.
The components that caused cost overrun of the above three electrical projects are improper project planning, political factors, inflation and inexperienced project management. As can be seen in the lower periyar project, the inflation rates are the major factor that influenced the construction costs. This shows that the estimators were unaware of the fluctuation rates and haven’t included this in their estimates. This illustrates how changes in unit prices can cause cost overrun. The site conditions and environmental conditions caused the lower productivity and even stopped some activities. These delays in works resulted in the delay of the succeeding activities which cause allowable delays. Poor project management is another factor that affected the construction project. Poor project management can be observed from the various difficulties which multiplex faced during the construction stage of the project The project management had not implemented proper measures to control the schedule and the costs of the project. Another cause is poor project planning i.e. all the projects suffered from not having the right materials, the right tools, the correct information, proper training. Such improper planning is major cause of time delays as well as cost overrun. By taking some preventive actions these failure events could have been avoided. For example the poor site conditions can be identified by using the proper site investigations which significantly reduces the probability of the failure during the construction.
Poor project planning is one of the major cause in the delay and cost overrun of the project. This may be due to various reasons such as budget allocation, land acquisition, poor resource scheduling, risk management etc. The size and complexity of construction projects are increasing which adds to risks. Every construction project is driven by the finance and hence lack of trustworthy between the construction parties for fear of loss in the finance because of the other party actions. As a result project is going to be delay and affect on cost of the project.
Factors affecting the cost performance of Indian construction projects, including the extent of adverse climatic and economic conditions; unfavorable project specific attributes; top management support; monitoring; feedback, coordination, conflict and knowledge of the project participants; and reluctance to make timely decisions. Of these, coordination among project participants was found to be the most significant of all factors, having a maximum positive influence on the cost performance.
The study identified the following factors (1) Poor site management and supervision, (2) unforeseen ground conditions, (3) low speed of decision making by project teams, (4) client-initiated variations and (5)necessary variations of work, as major cause of delay.
Present case study of kakkad and kallad identified that revising the cost estimation every year of the project made inconsistency in the initial cost contract. This shows that the project management is inefficient in planning the initial cost. In case of the kallada project to get delay and thus made the cost overrun project is because of the site conditions and inadequate investigation of the site before commission the project. The present case study also explains that hydro electric plant which has the time overrun 13 years as in 1999, when it was finally commissioned, the cost escalation of this project was 725 percent over the above estimates i.e. 8 times more than the actual cost the author says the cost escalation of this project is because of the price inflation.
In the case of Soma Construction Company no one in the field engineering knows about the working performance of the system. As this company is director’s oriented company every work on the site will be carried out according to his schedule, that is director use to sets the targets of particular task in front of the field engineers, without having the knowledge of the materials, machinery and staff requirement at the site, and sets the certain time for the field engineers to complete the work. Thus this made a lot of confusion in planning of the materials and made the project cost overrun.
The major causes for the delays and cost overrun were poor site management and supervision, unforeseen ground condition, low speed of decision making involving all project teams, inflation, client initiated variations and necessary variation of work.
The site conditions like the environment played a major role on the cost escalation of the Lower Periyar power project. The project has involved some serious long run fall out without considering the Environment properly.
From the survey questionnaire more than 50% of the people agreed that size and value of the project being large leads to the cost overrun. In case study 1 the contractor inexperience in handling the complex projects made the project cost overrun by 25.7 crores (Indian rupees).
The infrastructure projects particularly India is vulnerable to inter-organizational failures. Most construction projects in government sector are Roads, Rail ways and urban development sector. The projects should need permission from the central and state government for the environmental clearance. When compared other sectors, these projects require more active cooperation of the several departments such as land acquisition, shifting of power lines, water lines, sewer lines etc. Hence the projects in these sectors are having more chances of the organizational failure.
For every construction projects once the cost of the project has been estimated it becomes imperative to implement cost control methods in order to limit the client’s expenditure to within the amount agreed. This would not be easier to done because of various acts such as inflation, economic uncertainties and error in human input in construction which are generally subjected in construction industry. By conducting the risk analysis makes the project to determine the most likely cost for the total project and this will also compute the contingency needed for the project with different measures of protection against cost overruns. By conducting this risk analysis the project manager will become aware of most risky elements in the projects which lead to better risk management strategies. But in most construction projects as a result of improper assessment of risks and uncertainties, the building contracts did not meet the set cost targets of the project. The cost analysis for any construction projects starts with work breakdown structure (WBS). The next step is to collect the data on the extreme optimistic and pessimistic ranges of cost for each of the risky element.
For many years, value analysis and value engineering was associated with cost cutting, but through applying value methods on projects, it became apparent that best value is not about cutting cost, rather improving the understanding of the client’s requirements and business needs
The construction control meetings will be very effective towards the project success in terms of the cost. By conducting the workshops and meetings brought these issues open and enabling the team to propose various ideas and creative solutions to the problems and provided more opportunities for cost savings. These meetings also help to present opportunities to maintain a common understanding of the shared goals. Thus conflicts which are most important aspect for infrastructure projects can be reduced by conducting these meetings. By achieving goal congruence across all sectors and the supply chain time and cost can be reduced and quality kept to a maximum.
The low quality materials cause higher construction costs than expected because of lack of standards in the materials. This results in the loss of materials and poor management system. So in this case Quality control and quality assurance are most essential at the moment. It is this sense that has been used by quality assurance schemes, where it refers to characteristics which can be specified and quantified. A separate experts team for quality assurance scheme will be developed, which will be practicing the policies of quality schemes such as 5S and TQM principles.
The project manager is to identify key project variables to be monitored weekly to ensure that their progress/status is in accordance with their related plan. That include
* Tasks starting and ending as planned;
* Deliverables with content and quality level required to meet clients needs;
* Milestones being met on schedule;
* Risks as recorded applying the Risk Management Process
* Stakeholder commitments and level of involvement;
* Managed data is under configuration management;
* Team training levels;
* Issues and action item resolution.
This constant monitoring of daily achievements allows for the pinpointing of problems and the quick remedy to reduce impact of potential threats
Construction sector is considered as one of the most important sector for economy of a country, as it develops and achieves the main objectives of the society. The main infrastructure depends on the construction sector. Every construction project is driven by the finance and hence there will be a lot of chances to the disagreement between the construction parties for fear of loss in the finance because of the other party actions. One of the client’s main requirements in respect of any construction project is the assessment of its expected costs. The main aim of the dissertation is to identify and explore the various causes of cost overrun associated with construction projects. So from the literature review and data analysis it is apparent that every cost escalated project has different reasons for cost overrun. These causes for the delays and cost overrun were size of the project, poor site management and supervision, unforeseen ground condition, low speed of decision making involving all project teams, inflation, client initiated variations and necessary variation of work. Majority of the project cost are based on the initial estimation, the improper estimation of the initial project cost may lead to the insufficient funds and may lead to the various factors that lead the cost overrun.Proper measures and procedures should be established in order to control the project effectively. High productivity from the skilled labor can help the management plan the construction more effectively. In some firms most of the decisions were made by the owner regarding progress of the project and plays the responsibility for the project cost control. In order to control the cost of the project, the owner needs to provide effective coordination and understand the process of the construction. Efforts should be made to concentrate on major factors affecting the cost of the project. This will help in selection of proper measures form the project management tool and helps in reducing the unexpected disasters saving many lives.
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