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Construction Projects Cost Overrun: What Does the Literature Tell Us? International Journal of Innovation, Management and Technology, Vol. 8, No. 2, April 2017 Construction Projects Cost Overrun: What Does the Literature Tell Us? Abdulelah Aljohani, Dominic Ahiaga-Dagbui, and David Moore Humber bridge in the UK (175% overrun) and the Paris Nord Abstract—Construction industries have a poor reputation in TGV in France (25% overrun) [3]. In Korea, a study done by terms of finishing projects on budget. Nine out of ten projects Seung Heon, Sungmin [4] showed that the average final cost normally experience cost overrun. Different causes for cost of seven megaprojects (defined as a project that cost more overrun have been identified. This paper critically reviews the literature concerning cost overrun in construction projects in than $1 billion) at completion increased by 122.4% compared different countries to identify the main potential causes. 173 to the original budgeted cost. The average cost overrun for 29 causes of cost overrun have been found in seventeen contexts medium sized projects (defined as a project that cost between with the main potential causes being: frequent design change, $50 million and $1 billion) studied within the same time span, contractors’ financing, payment delay for completed work, lack is 32.5%. Another study conducted by Merrow, McDonnell [5] of contractor experience, poor cost estimation, poor tendering includes 52 Megaprojects from different regions around the documentation, and poor material management. world and their budgets between $0.5 and $30 billion (in 1984 Index Terms—Construction projects, cost overrun, literature value US dollars). The results show that only 4 projects met review. their cost goals, while the rest accrued average cost overruns of 88%. From the USA, Pickrell’s [6], [7] studies of cost estimation in eight US rail projects identified an average cost I. INTRODUCTION overrun of 61%. Moreover, a Dutch study containing 78 Besides being unique, expensive and usually carried out projects (Road: 37 projects, Rail: 26 projects, Tunnel: 8 within a limited time frame, construction projects have been projects, Bridge: 7 projects) found an average cost overrun of described as complicated and uncertain in nature, as no two 16.5% [8]. Finally, a study published by Flyvbjerg, Bruzelius construction projects are ever exactly the same. Even if two [3] concerning the quality of the estimating of cost and construction projects are similar, the opportunity for exactly demand in 258 transport projects located in twenty countries repeating the process of execution is very low, as most of the (constructed between 1927 and 1998) found that nine out of projects’ elements are site-specific. Although the level of ten projects (86% of the projects) experienced cost overrun, investment represented by construction projects has increased with the overall average overrun being 28%. over the years, construction projects have a consistently poor In light of the above, cost overrun should be regarded as a record in finishing within budget. Morris [1] considers cost vital issue in the management of construction projects overrun as a “regular feature” for public projects. Himansu [2] globally; this phenomenon is not limited to a specific country defines cost overrun as “…the degree to which the final cost as the above studies show. The variation on the percentages of of the project exceeds the ‘base’ estimate”. cost overrun could be related to different factors such as the Construction projects experiencing cost overrun have the project size [9]-[11], project type [11] and project location as potential to become defaulted projects, with a resultant it was one of the main findings obtained from the following significant impact on all the projects’ parties. For example: studies [8], [12]-[14]. Equally, the studies support the claim clients will be unable to use the facility, as the projects have that the worldwide findings are not always applicable for not finished yet, and consultation and designing fees might individual countries. increase. For contractors the impact could include loss of reputation and being “trapped” in only one project for long time. II. METHODOLOGY One of the most famous projects to experience cost overrun A large number of factors leading to project cost overruns was the Channel Tunnel project. Construction costs increased have already been identified by previous studies. This study from £2600 million to £4650 million (80% higher than the takes such previous studies one step forward by identifying forecasted costs) [3]. Other examples of projects with cost the main potential factors leading to cost overrun within overrun are found in different countries around the world such different contexts. The identification of these factors should as: the Great Belt link in Denmark (54% overrun), the improve the performance of construction projects and increase the probability of successful project completion. A critical literature review methodology is used to achieve this Manuscript received June 24, 2016; revised August 30, 2016. This work goal. was supported by Albaha University, Albaha, Saudi Arabia and Robert Gordon University, UK. A. Previous Studies The authors are with the Scott Sutherland School of Architecture and Built Environment, Robert Gordon University, Garthdee Road, Aberdeen, Table I comprises the 17 national studies selected from the AB10 7QB, Scotland, UK (e-mail: [email protected], literature review. [email protected], [email protected]). doi: 10.18178/ijimt.2017.8.2.717 137 International Journal of Innovation, Management and Technology, Vol. 8, No. 2, April 2017 TABLE I: SUMMARY OF THE PREVIOUS STUDIES Study Country Methodology Number of Study Country Projects’ type Projects Phase factors [15] Malaysia Building projects cost more Not mentioned identified than $ 1.1 M. owners, 17.5% worked for [16] Nigeria Telecom projects Not mentioned contractors, 14.8% designers, 8% [17] WW Transport projects Planning and consulting companies, 2.1% as construction private owners). [18] Turkey Residential construction Not mentioned [21] Saudi Identified factors from the existing 41 projects Arabia literature. [19] Pakistan Construction projects Not mentioned Analysis 160 questionnaire survey [20] Israel Building and infrastructure Not mentioned (160 Project Manager (23% Owners, projects 52% Contractors, 25% [21] Saudi Infrastructure projects Not mentioned Consultants)). Arabia [22] Kuwait Identified factors from the existing 7 [22] Kuwait Private residential projects Implementation literature. Phase Analysis 450 personal interview [23] Australia Highway construction projects Not mentioned survey of owners. (450 house [24] Gaza Strip Building, roads, water and Implementation owners). sewage, electro-mechanical Phase [23] Australia Analysis 231 highway projects (140 37 and public works. open tender, 91 negotiate, and 7 [25] UK Construction projects Not mentioned panel experts) [26] Indonesia High-rise projects Implementation [24] Gaza Identified factors from literature 42 Phase Strip review, personal interviews with a [27] Uganda Construction projects Implementation number of contractors and the Phase experiences of the researchers. Analysis 66 questionnaire survey (66 [28] South FIFA World Cup stadia Not mentioned Contractors). Africa [25] UK Analysis 141 open-ended 341 [29] Nigeria Highway projects Not mentioned questionnaire, asking professional [30] Ghana Groundwater projects Implementation cost estimators to list up to five phase reasons for cost overrun. [31] Zambia Road construction projects Not mentioned [26] Indonesia Identified factors from literature 7 review. Most of the studies have not identified in which project Analysis 31 questionnaire survey (31 phase the cost overrun occurred; only six out of seventeen Project Manager) The questionnaire survey was studies identify the causes of cost overrun during the supported by follow-up interviews. implementation phase. [27] Uganda Identified factors using face-to-face 22 discussion B. Previous Studies Methodologies Analysis 742 questionnaire survey As the summary table shows, almost all the studies (13 out (30% client, 57% consultant, 13% contractors). of 17) used a questionnaire as the sole data collecting method. [28] South Identified factors from the existing 18 The respondents for the questionnaire typically comprised all Africa literature. the projects stakeholders (Owners, Contractors and Analysis 22 questionnaire survey (5 Consultants) (see Table II). clients, 3 contractors, 14 consultant). [29] Nigeria Analysis completed highway 23 projects. TABLE II: SUMMARY OF THE PREVIOUS STUDIES Identified factors from the existing Study Country Methodology Number of literature. factors Analysis 37 questionnaire survey (9 identified clients, 15 contractors, [15] Malaysia Preliminary study (interview). 35 13consultants). Analysis 97 questionnaire survey (16 [30] Ghana Identified factors from the existing 26 Clients, 25 Consultants, 56 literature. Contractors). Analysis 72 questionnaire survey (28 [16] Nigeria Identified factors from the existing 42 owners, 25 contractors, literature. 19consultants). Analysis 53 questionnaire survey (23% Clients, 41% Consultants, 36% Contractors). [17] WW Analysis 258 projects. 3 III. RESULTS [18] Turkey Identified factors from the existing 40 The total number of factors identified across the 16 studies literature. Analysis 79 questionnaire survey (30 reaches 366 factors. After removing factors that are PM Consultants, 26 Contractors, 23 essentially a duplication
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