TABLE OF CONTENTS

Table of Contents ........................................................................................................... i

List of Tables................................................................................................................. iii
List of Figures................................................................................................................... iv
Abstract............................................................................................................................ v

CHAPTER-1 INTRODUCTION........................................................................................ 1
1.1 The study Overview ………………………………………………… 1
1.2Construction Industry in India………………………………………. 2
1.3 Challenges of Construction Projects………………………………… 3
1.4Objectives of the Research ………………………………………….. 5
1.5The Research Motivation…………………………………………….. 7
1.6 Overview of the Research Process and Study ………………………...7
CHAPTER-2 LITERATURE REVIEW..............................................................................9
2.1 General ………………………………………………………………10
2.2Cost Overrun………………………………………………………...12
2.2.1 Definition of Cost Overrun……………………………………13
2.3 Causes of Cost Overrun………………………………………... …...13
2.4 Effects of Cost Overrun……………………………………………...43
2.5 Cost Management……………………………………………………44
2.5.1 Controlling Construction Costs………………………………...46
2.5.2 Phases in Building Construction for Cost Management ……….46
2.5.3 Construction Cost Estimate…………………………………….49
2.5.3.1 Project Stages for Cost Estimating……………………..50

CHAPTER-3 THE RESEARCH DESIGN AND METHODOLOGY........................... 53

3.1The Study Approach and Research Type……………………………54
3.1.1 The research type ……………………………………………..55
3.2 The study scope and limitation………………………………………55
3.3 Data source and collection…………………………………………..56
3.4 The Research Population…………………………………………….59
3.5Method of Analysis………………………………………………….59
3.6 Writing of the Research………………………………………………61

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CHAPTER-4 DATA ANALYSIS AND DISCUSSION........................................ 63
4.1Introduction…………………………………………………………63
4.2Questionnaire Response Rate………………………………………..64
4.3 Existence and Extent of Cost overrun………………………………65
4.4Relationship between Rate of Cost overrun and Contract Amount….67
4.5Causes of Cost overrun from Desk Study and
Questionnaire responses ……………………………………………..69
4.5.1 Identifying Causes of Cost Overrun based on
Rate of Occurrence……………………………………………….77
4.5.2 Identifying Causes of Cost Overrun based on Impact………….80
4.6 Tests for Agreements on Causes of Cost Overrun among
Stakeholders in the Construction Industry…………………………..84
4.7Effects of Cost Overrun………………………………………………86
CHAPTER-5 CONCLUSIONS AND RECOMMENDATIONS............................... 90
5.1Conclusions………………………………………………………… 91
5.2Recommendations………………………………………………….. 93
5.2.1 Expected from Consultant……………………………………. 94
5.2.2 Expected from Clients…………………………………………95
5.2.3 Expected from Contractors…………………………………….96
5.2.4 Expected from Government……………………………………97

REFERENCES............................................................................................................... 99

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List of Tables

Table 1.1 : The Question and Answer Approach

Table 2.1 : Factors influencing Cost over Runs

Table 4.1 : Summary of number and percentage of questionnaires distributed, returned

and response rate

Table 4.2: Summary of project type, contract amount and actual cost, contract and actual
completion time for building construction project.

Table 4.3: Mean score of causes of cost overrun

Table 4.4: Mean score of rate of occurrences of cause of cost overrun

Table 4.5: Impact of causes of cost overrun

Table 4.6: Summary of correlation test on the ranking of causes of cost overrun.

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List of Figures

Figure 2.1 : Construction cost estimate with changes in the project stage.

Figure 2.2 : Cost Time & Quality Triangle.

Figure 3.1: Flow Chart of research methodology.

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 ABSTRACT

Many projects experience cost overrun and thereby exceed initial contract amount. In India
the number of public building construction projects is increasing. However, it becomes
difficult to complete projects in the allocated cost and time. Taking into account the scarce
financial resources of the country, cost overrun is one of the major problems in this research
was carried out to dig-out information on the factors that cause cost, overrun during
construction and their effects on public building construction projects.

Questionnaire survey together with desk study was used to collect data on cost overrun. A
total of 12 questionnaires from clients, consultants and contractors were collected and a desk
study of 10 completed public building construction projects were investigated and analyzed
using both descriptive and inferential statistics. From the results it was found that 9 out of 10
public building construction projects suffered cost overrun. The rate of cost overrun ranges
from a minimum of 0% to the maximum of 126% of the contract amount for individual
projects. In this research it was found that the rate of cost overrun decreases with the increase
in contract amount.

Respondents identified 29 causes of cost overrun. The important causes of cost overrun were
found to be inflation or increase in the cost of construction materials, poor planning and
coordination, change orders due to enhancement required by clients, excess quantity during
construction.

Mean score analysis was used to evaluate whether consensus of opinions exists between
groups of respondents (client versus consultant, client versus contractor and consultant versus
contractor). From the analysis of the results it was found that consensus of opinion exists
between respondents on the factors that cause cost overrun and on their rate of occurrence.

The most common effects of cost overrun identified by this research were delay,
supplementary agreement, adversarial relations among stakeholders, and budget shortfall of
project owners. It is hoped that these findings will guide efforts to improve the performance
of the construction industry in the future.

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CHAPTER I

INTRODUCTION

1.1. The Study Overview

1.2 Construction Industry in INDIA

1.3 Challenges of Construction Projects

1.4 Objectives of the Research

1.5 The Research Motivations

1.6 Overview of the Research Process and Study

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 CHAPTER I

INTRODUCTION

1.1. The Study Overview

The construction industry has a great impact on the economy of a country. It is one of

the sectors that provide crucial ingredients for the development of an economy.

According to Chitkara, (2004), the construction industry in many countries accounts

for 6-9 % of the Gross Domestic Product (GDP.); and according to Bhimaraya,

(2001), it reaches up to 10 % of the GDP of most countries. In its percentage of GDP

amounts to 3%, considerably lower than the average of 6% 2006]. The construction

industry is a vital element of the economy and has a significant effect on the

efficiency and productivity of other industry sectors. One cannot think of dispread

investment in manufacturing, agriculture, or service sectors unless the construction

results of infrastructure facilities are in place. In some of the developing countries, the

growth rate of construction activity outstrips that of population and of GDP [Chitkara,

2004].

1.2. Construction Industry in INDIA

India has a rich history of magnificent construction endeavors. The Taj-Mahal, Qutub

Minar, Hawa-Mahal, Golkunda & Ranthambor-Forts, Meenakshi Temple are few

examples of these expertise's. With the advent of modern civilization, especially

during the late 19`s and early 20`s century, there have been some significant

developments in this regard. Even though, the development of the construction

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industry is slow, it plays a key role in the development of the national economy.

The role the construction industry plays in socio-economic development is significant.

It provides the basis upon which other sectors can grow by constructing the physical

facilities required for the production and distribution of goods and services. The

construction industry has a significant multiplier effect on the economy. An

interrelationship between the construction industry and the broader economy largely

emanates from three of the industry's characteristics namely:

 The public sector is its major client;

 It's large size, ability to produce investment or capital goods which contribute

significantly to national GDP ; and

 It is a major source of employment, directly and indirectly by its multiplier

effect.

Public construction projects are parts of the country's development initiative. It shared

considerable amount of the country's scarce financial resources. In the general

Budget, construction industry is the highest recipient of government budget in terms

of government development program. Consequently, public construction projects

consume an average annual rate of nearly 60% of the government's capital budget.

1.3. Challenges of Construction Projects

Construction Projects can be marvelous in their breadth and complexity from the

Egyptian pyramids, and Gothic Cathedrals to soaring skyscrapers and enormous

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bridges. It is obvious that the construction industry has special features that are not

usually encountered in other industries. Usually in construction, when conditions in

the field turn out to be more complex than what was anticipated in the planning and

design phase, additional costs and time are needed. Any extremes can affect

productivity level, damage materials and work in place. More over the industry, most

of the time, is custom oriented, meaning that it is difficult to use mass production

techniques. Because of all these factors and others, it is difficult to predict accurately

how much money will be necessary to complete construction projects, creating a large

facility takes a long time and usually involves a large capital investment. Cost

overruns, delays and other problems tend to be proportionally monumental.

Cost is one of the primary measures of a project’s success. This is true, especially for

public projects in developing countries because public construction projects in these

countries are executed with scarce financial resources. Most literature review on

construction projects suggested that the common criteria for project success are

generally considered to be cost, time and quality [Arditi et al, 1997; Frimpong et

al-2003]; Atkinson (1999) called these measures as the `iron triangle'. Songer and

Molenaar (1997) considered a project successful if it was completed on budget, on

schedule, conformed to user expectations, met specifications, attained quality of

workmanship and minimized construction aggravation. Generally, a project is

considered successful if the project is completed within a stated cost or budget, getting

the project into use by a target date, meets the technical specification, and if there is a

high level of satisfaction concerning the project outcome among the project

participants.

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Completion alone does not constitute success for the project owner. For the owner,

much of the success of a project depends on many factors, the most important of

which is project completion within specified cost parameters (i.e. within a specified

budget). The second most important factor affecting success is on time completion as

delays in completion of facilities often directly equate to financial losses due to lack of

revenue from facility operation.

In the present state of the construction industry falls short of meeting domestic and

international quality standards and the performance demand expected from the sector.

Construction projects have problems with construction techniques and management as

well as limitation of funds and time. The critical problems are inability to complete

the projects on schedule, low quality work and cost overrun. In general, most (if not

all), construction projects experience time overrun and cost overruns during their

execution phase. An examination of the records of more than four thousand

construction projects showed that projects were rarely finished on time or within the

allocated budget. Other researchers have also observed that time and cost overruns are

common in the construction industry worldwide [Arditi, 1985].

1.4. Objectives of the Research

This study will be undertaken with the following main objectives.

1. Identifying the main causes of cost overrun and their overall effects for public

building construction projects.

2. Identifying the related responsible party to the causes of cost overrun.

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3. Identifying the rate of cost overrun for various types of public building

construction projects

4. Identifying the relationship between rate of cost overrun and contract amount.

5. Forwarding recommendations to minimize or to avoid cost overrun and

frequency of its occurrence; and hence to reduce its consequential effects on

public building construction projects.

To assess the objectives, beneficiaries, and methodology of the research work it is

diagnosed using a question and answer approach as shown in Table 1.1 below

Table 1.1: The Question And Answer Approach

No. Question Answer

I Why has the research Most Construction projects in this country suffer

been established? time and cost overruns.

2 What does the research To contribute knowledge on problems of cost

try to achieve? overruns their causes and their overall effects.

3 What are the important Methodology and literature review together with

issues for the research? distribution of questionnaire and desk study on

public construction projects.

4 Who will benefit from or Stake holders in construction industry and

affected by this research? myself.

5 How can the research be Literature review, distribution of questionnaires,

done? and desk study on public building construction

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 projects.

1.5. The Research Motivations

The initiation for the study of this research is largely due to personal observation and

low performance of the construction projects in terms of cost and time. These include

construction projects owned by the government and the private sectors. However, due

to the limitation with regard to accessibility of data on private construction projects

this thesis will focus on public building construction projects.

1.6. Overview of the Research Process and Study

This thesis will have the following broad categories.

Chapter I: Introduction/The research background

Chapter II: Literature review

Chapter III: The research design and methodology

Chapter IV: The research analysis and discussions

Chapter V: The research conclusions and recommendations

Chapter VI: Construction Site Photos

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Each of the above chapters will contain the following contents as stipulated below.

Chapter I describes the research overview, its initiation and purposes. It also

indicates the research objectives, how the research process is conducted and the

contents of the research.

Chapter II covers the literature review part of the thesis; the literature review will

include general information about cost, causes of cost overrun and their overall

effects.

Chapter III covers the research methodology. The methodological approach consists

of the overall research strategy; the research design, the analysis of the data and

writing of the research paper.

Chapter IV contains the discussion and analysis part. It contains the findings on

causes and effects of cost overrun; the rate of cost overrun on public buildings, the

relationship between rate of cost overrun and contract amount and finally;

Chapter V in this part, the research conclusions and recommendations are presented.

This will serve as an action guideline to stakeholders in the construction industry.

Chapter VI Photographs of various probable causes of cost over run.

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 CHAPTER 2

LITERATURE REVIEW

2.1 General

2.2 Cost Overrun

2.2.1 Definition of Cost Overrun

2.3 Causes of Cost Overrun

2.4 Effects of Cost Overrun

2.5 Cost Management

2.5.1 Controlling construction Costs

2.5.2. Phases in Building Construction for Cost Management

2.5.3. Construction Cost Estimate

2.5.3.1 Cost Estimating at different Stages of a Project

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 CHAPTER 2

LITERATURE REVIEW

“Cost is among the major consideration throughout the project management

life cycle and can be regarded as one of the most important parameters of a project

and the driving force of project success” (Azhar et al., 2008: : 7)

`The project management triangle is used to analyze or understand the difficulties

that may arise due to implementing and executing a project. All projects irrespective

of their size will have many constraints.

Although there are many such project constraints, these should not be barriers for

successful project execution and for the effective decision making.

Project management is the discipline of initiating, planning, executing, controlling,

and closing the work of a team to achieve specific goals and meet specific success

criteria

There are three main interdependent constraints for every project; time, cost and

scope. This is also known as Project Management Triangle .

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2.1. General

The construction industry is large and volatile and demand enormous capital outlay; as

a result the industry sometimes produces huge problems which can end up into dispute

and distraction of relationships between different parties of interest. The parties

involve could either be client, contractor, engineer or project manager. In most cases

the negative effect that arises are as such lawsuit, time loss and budget overrun. From

the client point of interest they would be a loss of profit as a plan might have been

drawn for business to embark on. On the contractor's side delays in construction

entails a contractor into additional cost from labour , equipment etc.

Construction project is a mission, undertaken to create a unique facility, product or

service within the specified scope, quality, time, and cost . In practice, however, some

construction projects encounter cost overrun, delay on completion time or poor

workmanship upon completion. Cost overrun, poor quality workmanship and delay of

construction projects require an in-depth investigation to improve the outputs of the

construction industry.

It is not uncommon to see construction projects failing to achieve their mission of

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creating facilities within the specified cost and time. Hardly few projects get

completed on time and within budget since construction projects are exposed to

uncertain environments because of such factors as construction complexity; presence

of various interest groups such as the project owners, end users, consultants,

contractors, financiers; materials, equipment, project funding; climatic environment;

the economic and political environment and statutory regulations.

The successful execution of construction projects, keeping them within estimated cost

and the prescribed schedules, primarily depends on the existence of an efficient

construction sector capable of sustained growth and development in order to cope with

the requirements of social and economic development and to utilize the latest

technology in planning and execution. Adequate planning at the early stages of a

project is crucial for minimizing delays and cost overruns.

Cost overrun is common in infrastructure and building construction projects.

Researches on construction projects in some developing countries indicate that by the

time a project is completed, the actual cost exceeds the original contract price by

about 30 %. One of the most comprehensive studies of cost overrun that exists found

that 9 out 10 projects had cost overrun. Overruns of 50 to 100 % were common.

Studies of construction projects in India, for example, found that more than 60 % of

projects experienced up to 200 % time overrun and 75 % cost overrun.

Delay and cost overrun are inherent part of most projects despite the much acquired

knowledge in project management. Although some may argue that this is negligible It

is important to note that physical and economic scale of projects today is such that it is

driven under the platform of profit to the parent organization, and of national interest

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(for government projects) by the degree of success defined within the Iron triangle of

cost, time, and scope. It is therefore much appreciated to look at some reasons of

delays and cost overrun in project and their mitigation process, so as to increase the

perception of project success.

2.2. Cost Overrun

A cost overrun, also known as cost increase or budget overrun, involves unexpected

costs incurred in excess of budgeted amounts due to an underestimation of the actual

cost during budgeting. cost overrun should be distinguished from cost escalation,

which is used to express an anticipated growth in a budgeted cost due to factors such

as inflation.

2.2.1. Definition of Cost Overrun

a) Cost overrun: A cost overrun ,also known as a cost increase or budget overrun

,involves unexpected costs incurred in excess of budgeted amounts due to an

underestimation of the actual cost during budgeting. [User Guide , 2005].

b) Cost overrun: The amount by which actual costs exceed the baseline or

approved costs [Wideman , 2002].

c) Cost overrun: The difference between the original cost and the actual cost

when the project is completed [Avots, 1983]. Actually, Avots, (1983) used the

word cost growth instead of cost overrun.

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 2.3. Causes of Cost Overrun

Some of the causes of cost over run are listed in Table 2.1. Cost overrun is a major

problem in both developed and developing countries, and depends on various aspects.

It may changes the estimated cost by various ways, there are various causes some of

which very minute and some of which are relatively very large both can change

overall cost of any kind of projects.

Degree of complexity Poorcontractor Problems agencies’

of works management payments

Kaming, et al. Increase of materials’ Frimpong, et al.

(1997) cost (2003)

Unpredictable Inaccurate estimating Poor technical

weather performance

Figure 2-1 Main causes of cost overruns (Adapted from Frimpong, et al., 2003; Kaming, et al., 1997)

The lack of knowledge about changes in exchange ratesbetween currencies

Safetyand
environmentalrisks

ce of a plan that takes into account geological risks andthe design and specificationchanges
Lack of knowledge
about the projectand itscomplexity

Causes of Cost overrun in

Underestimationof costs and length of delays
Construction project Lack ofmanagerial
strategies

Table 2.1 : Factors which may influence cost overruns

S. No Factors

1 Conflicts and changes in design.

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2 Inadequate planning.

3 Unpredictable weather conditions climate factors.

4 Fluctuations in the cost of building materials

5 Poor coordination.

6 Poor site management.

7 Incomplete design at the time of tender.

8 Additional work at owner's request.

9 Changes in owner's brief.

10 Equipment-related delays can be due to poor equipment planning.

11 Site/poor soil conditions.

Lack of control inaccurate management of personnel and the whole agency,

12
attitude, low moral motivation.

13 Labour, machinery and equipment.

14 Lack of cost reports during construction stage

15 Delays in issuing information to the contractor during construction stage

16 Improper construction methods.

17 Contractual claims, such as, extension of time with cost claims.

18 Improvements to standard drawings during construction stage.

Technical personnel- shortages, strikes, Lack of experience, slow

19
mobilisation, absenteeism, poor communication.

20 Omissions and errors in the bills of quantities

21 Delays in costing variations and additional works

22 Ignoring items of abnormal rates during tender evaluation.

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 Labour-related delays- increase in labour wages, poor communication ,
23
absentees or low motivation.

24 Site management and site safety.

25 Financial delay

Inadequate supervision, too many responsibilities Shortage of personnel

26
Lack of experience, Poor quality, Poor planning.

27 Lack of experience of local regulation.

Materials-related delays inefficient communication damage materials poor

28
quality of materials late delivery.

29 Delay in procuring & arrangement of construction equipment by contractors

In the following section of this research, factors which affect the cost of a construction

project will be dealt in detail -

i. Poor Project Management

The role of the project manager or project management team is probably the most

important element in controlling and/or managing the costs of a construction project.

It is often true that a good project, if combined with poor project management, will

usually face serious difficulties.

A poor project management structure will have an impact at all stages of the

construction process leading to:

 Lack of solid project plan.

 Lack of team coordination;

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 Poor communication between members of the project team and the project

sponsor;

 Failure to identify problems and institute necessary and timely design and

programming changes;

 Lack of control over time and cost inputs;

 Lack of end user involvement.

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ii. Unexpected Ground Conditions

Ground conditions can be assessed by the use of trial pits and borehole sampling

onsite or by using hi-tech equipment. However, the actual site conditions for the full

extent of a project are not usually determined until excavation is completed. It is

sometimes possible that those difficult conditions are overlooked by the initial review

or conditions have changed due to adverse weather conditions or changes in sub-soil

conditions. Unexpected sub surface conditions at many times can, require fundamental

redesign of projects at great expense. Changes in surface ground conditions can lead

to problems for moving machinery and supplies around the site, and in undertaking

excavations and laying foundations. This can also increase costs and add to the

construction time required.

 Grounds having shallow water levels.

 Grounds having deep water levels.

 Soil type and its behavior changes at each layer.

 Swelling of soil in rainy seasons. etc

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xxv
iii. Shortage of Construction Materials & Equipments

During periods of high development where the level of construction activity is

unusually high in a particular region, there may be shortages of some construction

materials. Sometimes the local market may not be able to supply the full demand of

these construction materials; hence, a need may arise to import these construction

materials from abroad. If this was not anticipated in the original cost estimate, delays

may occur and/or the prices of these elements may increase which consequentially

lead to delay and cost overrun for the project. Contractor should make sure material

arrives as schedules.

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iv. Financial inabilities

This is a situation were by a client is unable to fund an ongoing project resulting into

project time delays

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v. Inappropriate/Inexperienced Contractors

Contractors are selected on the basis of price, experience in undertaking particular

types of construction project and their reputation or track record in producing high

quality work within budget and on time. Some contractors have lack of

responsibilities and leadership against providing building permits, securing the

property, providing temporary utilities on site, managing personnel on site, providing

site surveying and engineering, disposing or recycling of construction waste,

monitoring schedules and cash flows, and maintaining accurate records.

There are cases where the prime contractor and sub-contractors go into bankruptcy

during the construction period. This can lead to significant delays and extra costs

arising as the project owner has to re-tender the remaining work to be undertaken by

another contractor.

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xxxii
vi. Force Majeure

This term covers a range of events which are also commonly referred to as "Acts of

God". They include revolution, war, riot, earthquake, landslide, fire, political and

economic instability, projectile missile, hostilities, contamination and other such risks.

Where they do occur, they will normally lead to significant delays and cost overrun to

construction projects.

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xxxiv
vii. Construction Cost Underestimation

A more serious situation can confront an owner when there has been deliberate

underestimating of costs in order to obtain project approval or for fraudulent practices.

According to a study, large projects have been intentionally underestimated in order to

obtain voter support for the financing approvals. Whatever the cause, almost all large

public projects contain initial cost estimating errors that result in the need for

increased funding to complete the projects.

Construction cost increases seem to materialize after the commencement of the

construction but the problem is deep-rooted during contract cost estimation and

tendering stage.

Explanations of cost underestimation come in four types:

 Technical

 Economic

 Psychological, and

 Political

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viii. Poor planning of work.

Poor up-front definition and planning can cause serious problems in many areas later

in the project, including:

Lack of business support

If you don't define the major characteristics of a project up front, it's very common to

have differences in expectations among the major stakeholders. This is true even if

you take all of your initial direction from the sponsor. As a project gets larger, even

the sponsor may not have a complete picture of what needs to happen for the project

to be successful. Other times, the sponsor has a vision, but there are other visions that

may be better or more viable. These competing ideas end up surfacing later in the

project, causing confusion and rework.

Poorestimates

Usually a project needs to have a budget and deadline before the business

requirements are completed. In many cases, if the definition and planning are not done

ahead of time, the project team starts off with inadequate resources and time—and you

don’t realize it until the project is already in progress. Many projects that could be

successful are viewed as failures because they overshot their budgets and deadlines.

This situation is often caused by the project manager committing to numbers that are

too low, based on a lack of up-front planning.

Poor scope control

One of the major aspects of defining a project is defining the high-level scope. If you

do not define and gain agreement on scope, you will find it very difficult to manage

scope effectively throughout the project.

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xxxix
viii. Change Orders or Variations Orders

Change orders are common in all types of construction projects. Changes in

construction projects can cause substantial adjustment to the contract duration and

construction cost. Changes can be deleterious in any project and can cause cost

overrun, if not considered collectively by all project participants.

The most common effect of change orders, during the construction phase, is the

increase in project cost .Change orders have been found to be a major contributor to

time and cost overruns.

Changes and variations are inevitable in any construction project. In an ideal world,

changes will be confined to the planning stages. However, late changes often occur

during construction, and frequently cause serious disruption to the project. Project

variations were identified as a major source of conflicts and disputes in the

construction industries of many countries. The need to make changes in a construction

project is a matter of practical reality. Even the most thoughtfully planned project may

necessitate changes due to various factors. Needs of the owner may change in the

course of design or construction, market conditions may impose changes to the

project, and technological developments may alter the design and the choice of the

engineer. Furthermore, errors, additions and omissions during construction may force

a change.

Changes can be originated from numerous factors pertinent to the construction

projects.

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Changes to a project may have impacts on time, cost or quality. Broadly, the later in

the development of the project that changes occur, the greater those impacts are likely

to be.

At certain stages in the design process, a complete package of information will be

provided for the client to approve. Once this approval has been given, a change

control procedure may be introduced to ensure that the approved information is not

changed without the express permission of the client. Change control

procedures should be formally set out in a project quality plan to ensure that changes

to controlled aspects of the project are referred for review to the right person at the

right time and so that changes are properly documented and reflected in all project

information.

Causes of change orders include the following:

 Additions and/or enhancement required by owners

 Accident or damage

 Force Majeure

 Unforeseen conditions

 Change in Plans and/or specifications

 Value engineering

 Acceleration

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ix. Inflation

 Inflation has become a chronic problem whose effects permeate the entire

construction industry. Owners are not only paying for the increased costs of facilities

and capital but also for premiums on construction prices because of the uncertainties

of inflation and its side effects. Contractors are faced with severe uncertainty in

bidding and financing work on projects. Productivity is affected because contractors

cannot accurately forecast long-term returns on their investments and are required to

divert necessary capital to meet resource costs. Owners and contractors must plan for

these effects and attempt to reduce the risks entailed. In particular, the proper

assignment of economic risks in contracting should reduce costs in the long term,

although this would entail considerable change in construction industry operations.

Inflation means a sustained increase in the general price level. However, this increase

in the cost of living can be caused by different factors. The main two types of inflation

are

 Demand pull inflation – this occurs when the economy grows quickly and starts

to ‘overheat’ – Aggregate demand (AD) will be increasing faster than

aggregate supply (LRAS).

 Cost push inflation – this occurs when there is a rise in the price of raw

materials, higher taxes, etc.

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 x. Acceleration Costs

Acceleration occurs when a project has been delayed, yet the owner demands that the

contractor complete the contracted work before the contract completion date, or

agreed upon changed completion date, or when the contractor wants to complete early.

Acceleration is an increase in the rate of progress of a contractor above that initially

contemplated in the contract. In some cases a contractor may accelerate because it is

directed to do so by thesuperintendent. In other cases, a contractor may make a

commercial decision to accelerate. Examples of this might include where a contractor

has not been entitled to an extension of time and it thinks that the costs of acceleration

will be less than the liquidated damages it might have to pay if it does not complete

the works by the date for practical completion.

xi. Delay on completion Time and Delay on Payments

Construction delays in residential and light construction are often the result of

miscommunication between contractors, subcontractors, and property owners. These

types of misunderstandings and unrealistic expectations are usually avoided through

the use of detailed critical path schedules, which specify the work, and timetable to be

used, but most importantly, the logical sequence of events which must occur for a

project to be completed. Delays in construction projects are frequently expensive,

since there is usually a construction loan involved which charges interest,

management staff dedicated to the project whose costs are time dependent, and

ongoing inflation in wage and material prices.

Delays might be caused by:

 The uniqueness of the project.

xlv
 Speed of decision making.

 Poor or unrealistic scheduling.

 Poor communication.

 Lack of information.

 Labour productivity

 Availability of resources.

 Adversarial relationships.

 Third party dependencies.

 Lack of finance.

 Availability of the site.

 Site conditions.

 Weather.

If the contractor does not receive payment in accordance with sub-clause 14.7

[Payment],the contractor shall be entitled to receive financing charges compounded

monthly on theamount unpaid during the period of delay. This period shall be deemed

to commence onthe date for payment specified in sub-clause 14.7 [Payment]

irrespective (in the case of itssub-paragraph (b)) of the date on which any interim

payment certificate is issued. Unlessotherwise stated in the particular conditions, these

financing charges shall be calculated atthe annual rate of three percentage points above

the discount rate of the central bank in thecountry of the currency of payment, or if

not available, the interbank offered rate, andshall be paid in such currency. The

contractor shall be entitled to this payment withoutformal notice or certification, and

without prejudice to any other right or remedy.

xlvi
xii. Late Site Hand Over or Change of Location of Construction site

Project changes and/or adjustments are inevitable as they are a fact-of-life at all stages

of design andconstruction. In an EPSRC (Engineering and Physical Sciences Research

Council, U.K.) report (Sun et al.,2004), it states that “More than a third of major

clients are dissatisfied with contractors’ performancein keeping to the quoted price

and to time, resolving defects, and delivering a final product of therequired quality.” It

may be inferred that the clients’ dissatisfaction is likely caused by change orders

running

through the construction projects. The effort of managing change orders has imposed

a huge burden onproject management, and it is a nightmare that industry people

wished they never have to face. Changes inconstruction also cause serious ethical

problems and disputes. According to an ethical survey done in 2004(available at:

http://www.acce-hq/documents/ ethics_survey.pdf), 84 percent of respondents

expressed thatthey had encountered situations that they considered unethical in their

business dealings, while 61 percent ofrespondents stated that the industry was

“tainted” by unethical acts. Owners are blamed for bid shopping andfor playing tricks

in payments; contractors were accused of over billing, front-end loading and playing

change-order games.

xiii. Provision of Clauses -Standard Conditions of Contract Related to Cost

In construction contracts the contracting parties agree on conditions of work for the

construction project to be carried out. Conditions of contract in the construction

xlvii
industry are prepared to be implemented according to the accepted practices. These

conditions are intended to govern and regulate the obligation of each party that

participates in the contract.

It helps the parties to perform their part and facilitate the overall accomplishment of

the projects standard conditions of contract are very widely used conditions of

contract in the construction industry. They define the responsibilities of the parties

involved in the contract and describe the guide lines to be followed for the contract

administration. In standard conditions of contract have usually been used for

international construction projects, while standard conditions of contract have been

usually used for domestic public construction projects.

2.4. Effects of Cost Overrun

Effects are the consequences that will be encountered when cost overruns occur on a

construction project. The cost overruns have obvious effects for the key

stakeholders in particular, and on the construction industry in general. To the client,

cost overrun implies added costs over and above those initially agreed upon at the

onset, resulting in less returns on investment. To the end user, the added costs are

passed on as higher rental or lease costs or prices. To the professionals, cost overrun

implies inability to deliver value for money and could well tarnish their reputations

and result in loss of confidence reposed in them by clients. To the contractor, it

implies loss of profit for non-completion, and defamation that could jeopardize

his or her chances of

winning further jobs, if at fault. To the industry as a whole,cost overruns could

xlviii
bring about project abandonment and a drop in building activities, bad

reputation, and inability to secure project finance or securing it at higher costs

due toadded risks. The study further identified the following as the major effects

of cost overruns: delays during construction, supplementary agreement, additional

cost, budget short fall, adversarial relationship between participants of the project,

loss of reputation to the consultant, the consultant will be viewed as incompetent

by project owners, high cost of supervision and contract administration for

consultants, delayed payments to contractors, the contractor will suffer from

budget short fall of the client and poor quality workmanship. Howeveridentifies four

effects of cost overruns as follows: company or firm liability to insolvency and

liability of the companies or firms to bad debt, under-utilization of man-power

resources, plants and equipment, increased project cost due to extension of time:

Longer project duration means that more resources will need to be allocated to the

project, which then increases the project costs and project abandonment.

2.5. Cost Management

Managing construction costs includes estimating, scheduling, accumulating

and analyzing cost data, and finally implementing measures to correct construction

cost problems. A development budget study is undertaken to determine the total costs

and returns expected from the project. A cost plan is prepared to include

all construction costs, all other items of project cost including professional

fees and contingency. All costs included in the cost plan will also be included in the

xlix
development budget in addition to the developer’s returns and other extraneous items

such as project insurance, surveys and agent’s or other specialist advisers’fees.

The purpose of the cost plan is to allocate the budget to the main elements of the

project to provide a basis for cost control. The terms budget and cost plan are often

regarded as synonymous. However, the difference is that the budget is the limit of

expenditure defined for the project, whereas the cost plan is the definition of what the

money will be spent on and when. Thecost plan should, therefore, include the best

possible estimate of the cash flow for the project and should also set targets for future

running costs. The cost plan should cover all stages of the project and will be the

essential reference against which the project costs are managed.

The method used to determine the budget will vary at different stages of the project,

although the degree of certainty should increase as project elements become better

defined. The budgetshould be based on the client’s business case and should change

only if the business casechanges. The aim of cost control is to produce the best

possible building within the budget

The cost plan provides the basis for a cash flow plan, allocating expenditure and

income to each period of the client’s financial year. The expenditures should be given

at a stated base-date level and at out-turn levels based upon a stated forecast

of inflation.

2.5.1. Controlling construction Costs

During the execution of a project, procedures for project control and record

keeping become indispensable tools to managers and other participants in the

l
construction process. According to Dharwadker (1985), cost control can be achieved

by selecting the right man for the right job, the right equipment and tools for the

right work and the right quality of materials, in the right quantity, from the

right source, at the right price and delivered at the right time. Managers are expected

to be well equipped to execute the project, with due consideration to the quality of

work, yet within the estimated cost and limits.

2.5.2. Phases in Building Construction for Cost Management

There are three phases for construction cost management theses are: Planning phase,

Design phase and Construction phase.

i) Planning Phase

In the planning process,the planner will also investigate site constraints, which may

dramatically affect the usefulness or the cost of the project. For example in selecting

the site for a new school,The district determines that the school needs to be near

multiple modes of transportation such as automobile ,bicycle, and bus lanes but away

from industrial or commercial zones. The planners will also need to weigh the effect

of the development on the local community such as noise, traffic, aesthetics, use of

local utilities ,cultural/historical impacts, and future growth.

Most owner and designer cost control problems are created at the planning

stage of a project. At this time, client needs sometimes are understated in order

to justify a project. More often than not, client needs are not fully known and thus

are oversimplified.

li
ii) Design Phase

The selection of designer is a major factor in a project’s success and takes place once

the project’s design criteria are established. The owner creates the project design

criteria once it knows its budget, environmental restrictions, and other needs. The

project design criteria describes the project’s purpose, architectural goals, applicable

codes, and special requirement.

These project design criteria govern the architect and engineer in their project design

and often determine the final project budget. Upon the owner’s approval of the

design ,the designers formalize the design into plans and specifications suitable for

construction.

Designers are typically engineers or architects and they are often involved through

final completion of the project. The quality of their design, preparation of contract

documents ,and assistance in the construction management process is critical to a

project’s success.

iii) Construction Phase

Upon inclusion of the owners comments ,the designer will then develop the final

construction drawings and final specifications. The construction drawings will include

complete and accurate dimensioning on the site plan ,floor plan ,and

elevations ,complete and detailed selection of materials and complete

mechanical ,electrical, lighting,foundation and structural drawings . the final

specification book will detail materials,inspections ,and level of workmanship .

The goal of the construction drawing phase is to develop drawings and

specifications that are through enough for a contractor to both accurately estimate the

lii
cost to construct and actually construct the project . these drawings are the 100%

drawings.

The designer typically first transmits these construction drawings in draft form –the

fiinal draft drawings . upon the owners review and acceptance ,the designer produces

the final construction drawings.

The completion of the final construction drawing is not the end of the designer’s

involvement with the project ,At a minimum ,the designer will need to be involved

through the construction process to answer questions and provide interpretation .In

addition ,state or local statue often requires the designer to provide a final

certification.

2.5.3. Construction Cost Estimate

Estimates for the cost of facility construction are a major part of the cost estimate

domain. A construction general contractor or subcontractor must normally prepare

definitive cost estimates to prepare bids in the construction bidding process to

compete for award of the contract. Although many estimators participate in the

bidding and procurementprocesses, those are not a necessary function of cost estimate

preparation. Earlier estimates are prepared by differing methods by estimators and

others to support the planning process and to compare with bids. One way to make

those estimates is by determining the resources needed (e.g., the amount of

construction material quantities that are required) and then multiplying the estimated

construction material quantities by the corresponding unit cost. One advantage of

making estimates in this way is that it allows for the segregation of quantities and

liii
costs. This way they can be updated separately as new information becomes available.

They can also be tracked separately allowing decision makers to make better decisions

about the project during its conceptual phase.A cost estimate is the approximation of

the cost of a program, project, or operation. The cost estimate is the product of the

cost estimating process. The cost estimate has a single total value and may have

identifiable component values. A problem with a cost overrun can be avoided with a

credible, reliable, and accurate cost estimate. An estimator is the professional who

prepares cost estimates. There are different types of estimators, whose title may be

preceded by a modifier, such as building estimator, or electrical estimator, or chief

estimator. Other professional titles may also prepare estimates or contribute to

estimates, such as quantity surveyors, cost engineers, etc.

2.5.3.1. Cost Estimating at different Stages of a Project

All projects begin with an idea and end by filling a need. As a project is proposed and

liv
then developed, through time the estimate preparation and information will change

based on the needs of the owner or the designer. Generally, cost estimating is a

dynamic process that begins in the early stages of a project and ends when the project

is completed and turned over to the owner.

It is important to consider the project stages at which estimates can realistically and

usefully be produced so that there is a sound basis for deciding whether or not to

proceed to the next stage. The number of stages in a project is influenced by the

project delivery strategy adopted. According to Nigel J. Smith, (1995) traditional civil

engineering projects can be divided into six stages: Identification, Appraisal,

Definition, Approval, Implementation and Operation.

These stages may not be appropriate for every project and cannot be adhered to

exclusively, but they do offer a rational and structured approach which is applicable to

many construction projects. Figure 2.1 shows the sequence of these project stages and

indicates the types of estimate used in each stage.

i. Preliminary estimates:

The Preliminary Cost Estimate is developed based on the best available information,

considering that the project is typically at approximately 30% completion. Preliminary

cost estimates should be conservative but realistic since they are typically used to

determine project funding; therefore, in addition to calculating the preliminary

construction costs (costs incurred by the contractor), the preliminary cost estimate

should also include costs for items such as construction engineering, change orders,

environmental mitigation and right-of-way (ROW) acquisitions including off-site land

acquisition for mitigation.

lv
ii. Appraisal estimates:

Sometimes known as feasibility estimates; these are directly comparable estimates of

the alternative schemes under consideration.

iii. Proposal estimate:

This is an estimate for the selected scheme. A proposal estimate is usually based on a

conceptual design and design study specifications.

iv. Approved estimate:

A modified version of the proposal estimate to reflect the client's views, which is

intended to provide the basis for project cost control.

v. Pre-tender estimate:

The pre-tender estimate (PTE) is the final estimate of the likely cost of the works that

are described in completed tender documents prepared to seek tenders (offers) from

prospectivesuppliers. The pre-tender estimate itself is not included in the tender

documents.

vi. Post-contract estimate:

Once the design documents are complete, companies interested in actually performing

the work price the project. At this level the cost estimate is made by contractors who

want to execute the project. This estimate is the most important. It carries with it legal

implications; if the bid is accepted, a construction company is legally bound to a

specific price for a specific scope of work.

vii. Achieved cost (Actual Cost):

This is a record of the actual costs of the job in order to review performance and

provide data for future projects. It is useful to compare the actual use and expenditure

lvi
of allowances and contingencies with those included in the various estimates.

Every estimate, whether prepared in the early phase of the project or at tender time

considers the same basic issues. Project price is affected by the size of the project, the

quality of the project, the location, construction start time and duration, and other

general market conditions, etc

CHAPTER 3

THE RESEARCH DESIGN AND METHODOLOGY

3.1 The Study Approach and Research Type

3.1.1 The research type

3.2 The study scope and limitation

3.3 Data Source and Collection

3.4 The Research Population

3.5 Method of Analysis

3.6 Writing of the Research

lvii
 CHAPTER 3

THE RESEARCH DESIGN AND METHODOLOGY

3.1 The research type

The research is a practical problem developed from the observation of construction

projects and the research questions are oriented to investigate the cause of cost

overrun and their effects.

This research can be categorized as applied, exploratory, descriptive and co-relational

type. It is applied and exploratory because the research was initiated from practical

problems and finds whether there exists cost overrun or not. It is also descriptive and

co-relational because it tried to describe the actual rate of cost overrun and the

variables of cost overrun and tries to draw relationship between contract amount and

rate of cost overrun in the Ethiopian public building construction projects.

3.2 The study scope and limitation

This study adopted quantitative approach in identifying and assessing the significant

factors causing overrun. The data samples are collected through questionnaire survey

amongst the clients, consultants and contractors involved in construction industry.

lviii
Contractors were selected from “list of approved contractors” in Construction .

3.3 Data Source and Collection

The study has used the data sources to produce the following basic documents:

respondents' documents and archival documents. The respondents' documents were

collected using questionnaires from clients (project owners), contractors and

consultants. There are two basic types of survey questions from which to choose:

open-ended and closed-ended. This questionnaire survey has both open-ended and

closed-ended questionnaires. Archival documents were mostly from completed

projects, in which contract documents, project reports, correspondence letters and

payment certificates were investigated thoroughly which were very important in

identifying the recurrent problems related to cost in the Ethiopian building

construction sector. In addition, they helped to judge how problems on causes of cost

overrun arise and how they are documented.

3.5 Method of Analysis

The data used in this paper were derived from both primary and secondary sources.

The primary data was obtained through the survey method, while the secondary data

was derived from the review of literature and archival records. The primary data was

obtained through the use of a structured questionnaire survey. This was distributed to

a total of 80 construction professionals that included; Architects, quantity surveyors,

civil engineers, construction mangers and project managers who are currently

involved in construction works in India. This yardstick was considered vital for the

survey in order to have a true reflection of the causes and effects of construction

lix
project cost overruns. Allprofessionals in India. had an equal chance to be drawn and

participate in thesurvey. Out of the 80 questionnaires sent out, 52 were received back

representing a 65%response rate. This was considered adequate for the analysis based

on the assertion byMoser and Kalton (1971) that the result of a survey could be

considered as biased and oflittle value if the return rate was lower than 30–40%. The

data presentation and analysismade use of frequency distributions and percentages of

all the respondents.

Mean Item Score (MIS)

A five point Likert scale was used to determine the causes of construction project

costoverruns in India ,with regards to the identified factors from the

reviewedliterature. The adopted scales was as follows:

1 = Strongly disagree

2 = Disagree

3 = Neutral

4 = Agree

5 = Strongly agree

The other scale used was as follows;

1 = Extremely unlikely

lx
2 = Unlikely

3 = Neutral

4 = likely

5 = Extremely likely

The five-point scale was transformed to mean item score (MIS) for each of the factors

ofcauses of cost overruns as assessed by the respondents. The indices were then used

todetermine the rank of each item. The ranking madeit possible to cross compare the

relativeimportance of the items as perceived by the respondents. This method was

used to analysethe data collected from the questionnairessurvey. The mean item score

(MIS) wascalculated for each item as follows;

MIS= 1n1+ 2n2+ 3n3+4n4+5n5

Equation1.0
∑N

Where;

n1 = Number of respondents for extremely unlikely or strongly disagree;

n2 = Number of respondents for unlikely of disagree;

n3 = Number of respondents for neutral;

n4 = Number of respondents for likely or agree;

lxi
n5 = Number of respondents for extremely likely or strongly agree;

N = Total number of respondents

After mathematical computations, the factors were then ranked in descending order of

their mean item score (from the highest to the lowest).

3.6 Writing of the ResearchThe research contains four main parts. These are the

research proposal, the. literature review part, the research methodology and analysis,

and the final research writing. The research proposal writing was already taken place.

The literature review part took the longest period of the research. During this period,

different documents were collected and tested against the research objectives and the

relevant information were taken. Finally all the notes taken down were linked to

produce a document; the differences in perceptions between authors being noted

down. The final research part was written after analyzing all primary and other

support documents to test the actual existing situation of the construction industry

towards the research objectives. Finally, the conclusions and recommendations part

was written. The final research writing was classified into the following five major

parts for final presentation.

Chapter I: Introduction

Chapter II: Literature Review

Chapter III: The Research Design and Methodology

Chapter IV: Data Analysis and Discussion

lxii
 Chapter V: Conclusions and Recommendations

Chapter VI: Construction site photographs.

To make the project report more interesting, causes of cost overrun are

supplemented with real time photographs.

CHAPTER 4

FINDINGS AND DISCUSSION

4.1. Introduction

This part of the research deals with the analysis and discussion of the data gathered

from the desk study and questionnaire survey. It includes the identification of the

existence and extent of cost overrun, relationship between rate of cost overrun and

contract amount, main causes of cost overrun, rate of occurrences of variables of cost

overrun, the impact of the variables of cost overrun on the final/total cost of the

project. Finally, the effects of cost overrun on the various stakeholders, on the

construction industry.

4.2.FINDINGS

lxiii
Findings from the 52 usable questionnaires revealed that 23% of the respondents had a

metric certificate, 27% had post-graduate degree and 50% had diploma degrees as

their highest qualification. Further findings revealed that 8% of the respondents had

16 - 20 years’ experience in the industry, 10% had more than 20 years’ experience,

12% had experience of 11 - 15 years, 35% hand 1 - 5 years’ experience and 37% had

6 - 10 years’ experience in the construction industry.

The following section presents the causes and effects of cost overruns as revealed

from the questionnaire survey.

Causes of cost overruns in BHOPAL

Based on the ranking (R) of the weighted average of the mean item score (MIS) for

the

listed causes of cost overruns, it was observed that the most dominant cause of cost

overruns on construction projectsw ere contractors project inexperience (MIS=4.40;

R=1),poor project management (MIS=4.10; R=2), inadequate planning (MIS=4.02;

R=3), contractors inefficiency (MIS=4.00; R=4) and inadequate financial provision

(MIS=3.98; R=5). Other factors identified inthe study include; site conflicts

(MIS=3.75; R=10), delays from employer (MIS=3.72; R=11), material price

fluctuations(MIS=3.68; R=12), lack of executive capacity by the employer

(MIS=3.66; R13) and over design (MIS=3.64; R=14). The study further revealed that

unpredictable weather conditions (MIS=3.40; R=20), breach of local regulations

(MIS=3.32; R21), unstable economy (MIS=3.22; R=22), project site location

(MIS=3.16; R=23) and inflation (MIS=3.14; R24) were among the cause of cost

lxiv
overruns in Bhopal.

These results were in agreement with the study done by Al-Najjar (2008:117) where

technical incompetence and inadequate project planning and implementation were

identified as the major causes of cost overruns. The study also agreed with the study

by Memon et al (2011:65) where lack of experience was one ofthe major causes of

cost overruns. However, the study was not in agreement with the study by Eshofonie

(2008:32) where the major cause of cost overruns identified was cost of materials. The

study did not also agree with the work of Baloyi and Bekker (2011:60) where the

major cause of cost overruns identified was increase in material cost.

Table 1. Causes of cost overruns

Causes of cost overrunsMISRANK (R)

Contractors project inexperience 4.40 1

Poor project management 4.10 2

Inadequate planning 4.02 3

Contractors inefficiency 4.00 4

Inadequate financial provision 3.98 5

lxv
Shortage of skilled site workers 3.92 6

Poor workmanship 3.90 7

Inaccurate estimate 3.84 8

Project complexity 3.82 9

Site conflicts 3.78 10

Delay from employer 3.72 11

Material price fluctuations 3.68 12

Lack of executive capacity by employer 3.6613

Overdesign 3.64 14

Shortening of contract period 3.62 15

Unsteady material supply 3.56 16

Ceaseless variation order 3.55 17

Change in project design 3.54 18

Insufficient time for estimation 3.44 19

Unpredictable weather condition 3.40 20

Breach of local regulation 3.32 21

lxvi
Unstable economy 3.22 22

Project site location 3.16 23

Inflation 3.1424

Effects of construction project cost overruns in BHOPAL

When the respondents were further asked to rate the effects of construction project

cost overruns in Bhopal, the following result wereobtained; increased project cost due

to extension of time (MIS=4.19; R=1), projects abandonment (MIS=4.12; R=2),

company/firms liability to insolvency (MIS=3.78; R=3), tying down clients capital

(MIS=3.74; R=4), under-utilization of manpowerresources (MIS=3.71;R=5), liability

of companies or firms to bad debt (MIS=3.60; R=6) and under-utilization of plants

and equipment purchased for the projects (MIS=3.34;R=7) were the causes of cost

overruns.These findings were in general agreement with the study done by Nega

(2008:103) where delay during construction was identified asthe major effect of cost

overruns.

Table 2. Effects of construction project cost overruns

Effects of cost overrunsMISRANK (R)

Increased project cost due to extension of time 4.19 1

Projects abandonment 4.12 2

Company/firms liability to insolvency 3.78 3

lxvii
Tying down clients capital 3.74 4

Under-utilization of manpower resources 3.71 5

Liability of companies or firms to bad debt. 3.60 6

Under-utilization of plants and equipment

purchased for the projects. 3.34 7

CHAPTER 5

CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

5.2 Recommendations

5.2.1 Expected from Consultants

5.2.2 Expected From Clients/Project Owners

5.2.3 Expected From Contractors

5.2.4 Expected From Government

lxviii
 CHAPTER 5

CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

Financial resources are scarce in developing countries and hence, cost related issues in

the construction industry are sensitive issues. Therefore, carrying out a research in this

area will have a paramount importance.

Identification of causes of cost overrun is a prerequisite to minimize or to avoid cost

overrun in the construction industry. The main objective-of this research is, therefore,

to identify and investigate the critical causes and effects of cost overrun on public

building construction projects.Desk study was used to identify the existence and

extent of cost overrun on public building construction projects. Questionnaire survey

lxix
was also used to identify the causes and effects of cost overrun. Clients, consultants

and contractors were asked to identify the variables of cost overrun in the

construction industry. Frequency of occurrence of the variables of cost overrun, and

their impacts on the final cost of the project were also asked. Agreements of the

respondents on the causes of cost overrun, i.e. between client and consultant, between

client and contractor, and between consultant and contractor were also tested. The data

gathered from the survey are analyzed using the mean score (MS) and correlated using

Spearman correlation coefficient (rho, p). The analysis of the results from the

open-ended part of the questionnaire was carried out using descriptive analysis.

From the results of the analysis of desk study and respondents' responses the

following conclusions are drawn.

1. Justification of the existence and extent of cost overrun on building

construction projects is important before identifying the causes of cost overrun.

67 out of 70, (95.7%), public building projects investigated in the research

suffered cost overrun in their execution. For these public building construction

projects, the actual cost overrun ranges from 0% to 126% of the contract

amount.

2. Rate of cost overrun is found to be influenced by the contract amount. The

regression analysis of the data gathered from desk study for public building

construction projects shows that the rate of cost overrun is found to decrease

with increase in the contract amount.

3. There are significant variations in the total amount of cost overrun for the

lxx
 different types of public building construction projects investigated in this

research. From the survey educational buildings have the lowest rate of cost

overrun, where as health buildings have the highest rate of cost overrun.

4. From the results of this thesis 39 causes of cost overrun were identified by the

respondents. The causes of cost overrun were identified based on the responses

of the respondents. The most frequent causes of cost overrun are also identified

by the research based on the ranking of the rate of occurrences of the variables

of cost overrun. The most common causes of cost overrun are inflation or

increase in the cost of construction materials, change in foreign exchange rate

(for imported materials), change orders and/or lack of control on excessive

change orders, failure to identify problems and institute the necessary and

timely actions.

5. There is strong correlation on the responses of respondents, i.e. between client

and contractor; between contractor and consultant; and between client and

consultant in ranking causes of cost overrun and the rate of occurrences of the

variables of cost overrun.

6. From the research it was found that consultants are most of the time found to

be responsible followed by clients for the problems of cost overrun in the

construction industry.

7. From this research clients are those who are severely affected by cost overrun,

since they are forced to look for additional money to complete the construction

project. However, it should be noted that clients, consultants, contractors, and

lxxi
 even the national economy of the country are all affected by cost overrun.

8. There are many effects of cost overrun to stakeholders in the construction

industry. The most common effects of cost overrun in the construction industry

are; delay, supplementary agreement, budget short fall of project owners,

adversarial relationship among stakeholders, and loss of reputation for

professionals on the construction industry especially to consultants.

5.2 Recommendations

Based on the findings of the research, the following recommendations are expected

from key role players in construction projects.

5.2.1 Expected from Consultants

The consultant is one of the key role players in construction projects that translates the

clients' needs and ideas in to plans and drawings and supervises the translation of

these plans and drawings into visible physical structures. The following

recommendations are expected from consultants.

1. Continuous coordination and direct communication, which will eliminate

design discrepancies and errors as well as omissions in design and also provide

an opportunity for professionals to review the contract documents thoroughly.

This would help in eliminating change orders or variations due to discrepancy

in contract documents.

2. Provide comprehensive information required for easier interpretation of the

drawings and setting out of the works. Specifications should also be

lxxii
 standardized as much as possible for ease of understanding by project

participants; ensure adequate and realistic specifications of materials and

methods are stated in the contract documents.

3. Detailed and comprehensive site investigation should be done at the design

phase to avoid variations and late changes during the construction phase.

4. As much as possible avoid complex designs, while trying to achieve aesthetic

appeal, consider seriously the issue of build ability in the design.

5. Build-in adequate flexibility in design to respond more proactively to imminent

changes in client needs and requirements; after completion of designs and

plans, cross-check designs and details to eliminate errors.

6. Adopt efficient information retrieval and distribution systems to guard against

communication gaps; respond as quickly as possible to contractor and client

questions and requests for clarification to avoid associated delays and

confusions which consequentially will lead to cost overrun.

7. Ensure that the scope includes all the work required, and only the work

required to complete the project successfully. Guard against incomplete

identification of scope to avoid frequent changes; do not incorporate

unnecessary works to avoid distractions and a drain on scarce resources.

8. Implement the necessary measures to reduce construction cost, since

construction cost reduction is one way of reducing potential cost overrun.

5.2.2 Expected From Clients/Project Owners

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Clients are one of the most important parties who invest their money for realization of

construction project, and they are the key role players starting from conception

through construction up to operation of the project. The following recommendations

are expected from clients.

1. Clients should allow sufficient time to prepare project briefs and other

feasibility studies. Allow sufficient time for proper feasibility studies, planning,

design, information documentation and tender submission. This helps to avoid

errors and omissions that consequentially help in avoiding or minimizing cost

overrun.

2. Ensure comprehensive articulation and communication of owner and end-user

needs and requirements during briefing sessions; client goals should be

sufficiently accurate and realistic.

3. Fulfill contractual obligations, especially as regards to payment of contractor's

works duly executed, or settlement of fees accounts of consultants and

possession of construction site. Clients should ensure that adequate funds are

available before projects are started, so that contractors can be paid in

accordance with the contract agreement.

4. Employ professionals to work as counter part with consultants and contractors.

5. Select suitable contractors not only on the basis of price and time offerings, but

also on experience, financial standing, capacity and expertise.

6. Minimize red-tape; that is, minimize unnecessary and excessive bureaucratic

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 procedures in the clients' organization.

7. Implement cost reduction incentive proposals

5.2.3 Expected From Contractors

Contractors are one of the stakeholders who participate directly on the construction

projects; accordingly the following recommendations are expected from contractors.

1. Procure construction materials and other items in collaboration with the client

ahead of time.

2. Solve problems and propose solutions on construction projects proactively.

3. Minimize adversarial relations with stakeholders on construction projects.

4. Ensure efficient time management through proper resource planning, duration

estimation, and schedule development and control; to avoid delay and hence to

avoid cost overrun due to delay.

5.2.4 Expected From Government

Most public projects are financed by the government; hence, the government is one of

the key role players in public construction projects. The following recommendations

are expected from government authorities.

1. Phasing of large construction projects by the government, this helps the

economy from becoming `overheated' this in turn avoids the consequential

effects of inflation and hence avoids cost overrun on construction projects.

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 2. The government must create a climate of economic stability that is sufficient to

inspire investors, especially in the production of construction materials to be

produced from local materials and production of enough quantity and quality of

construction materials in the local market, this will curtail excessive price

fluctuations associated with imported construction materials.

3. Make the required budget available on time.

4. Carry on capacity building programs for professionals and for firms on the

construction industry. There must be programs for institutional strengthening

and man power development in the areas of construction project management.

5. Assist individuals, organizations and institutions in the construction industry on

research and development of appropriate construction management techniques

and technology which will help to reduce problems related with cost overrun.

6. Create opportunity for domestic consultants in the construction industry to work

as joint venture with foreign consultancy firms.

7. Work with private investors and financiers to co-finance public projects to

overcome problems related with finance.

All stakeholders in the construction industry have to work for improving the out puts

of the construction industry and to sustain a healthy growth of the industry. Especially

consultants, contractors and clients have to use a holistic approach for solving

problems in the construction industry; they have to familiarize themselves to the latest

technology and methods to solve problems and look for solution proactively.

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Institutions and academicians in the construction industry have to work hand-in-hand

with practitioners in the industry. A combined effort of stakeholders is necessary to

apply the results of researches conduct in the construction industry.

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REFERENCES

1. Bhargava.A, Anastasopoulos.P,Sinha.K,- Three Stage Least Squares Analysis of Time &

Cost Overruns in Constructions Contracts.

2. Michel Gibeault –Controlling Construction Change Orders.

3. Widerman- Glossary of Project Management Terms.

4. Roger Atkinson-Project Management: Cost Time & Quality.

5. Chitkara Ashok-Chitkara University of Management Chandigarh.

6. Bhimaraya Metri- Professor of Operation Management & Dean (Management

Development Institute, Gurgaon.)

7. Statistics for Economics (Class XI) CBSE.

8. Al-Najjar, J.M.,2002. -Factors Influencing Time and Cost Overruns on Construction

Projects in the Gaza Strip: Master’s Thesis: The Islamic University of Gaza.

9. Nega, F., 2008, -Causes and effects of cost overrun on public building construction

projects

in Ethiopia: Master of Science thesis: Addis Ababa University.

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