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Cost overruns on state of Washington construction contracts
... This study considered cost growth, change order growth, and schedule growth as the three metrics to measure project performance. As studies have shown that cost growth and schedule overrun are affected by project size (Shrestha et al. 2013;Adam et al. 2015;Hinze et al. 1992), this study also identified the relationship between project size and project performance over time. For this study, cost, change order, and schedule growths are referred as increase in cost, additional work added, and time added in the original contracts. ...
... One of the studies conducted to investigate cost overrun trends over a time period of 5 years was conducted by Hinze et al. (1992). The focus of this study was to determine the estimated ranges of cost overrun and underrun rates for Washington State DOT (WSDOT) projects. ...
... This shows that the cost growth of highway projects significantly decreased from 2006 until 2015, and that the difference of cost growth decrease is higher in larger projects, compared to smaller projects. Hinze et al. (1992) found that the cost overruns in Washington DOT contracts increased as the size of the project increased, which is similar to the findings of this study. In this study, the authors found that there is higher cost growth in larger projects compared to smaller projects. ...
Costs, change orders, and schedule performances of highway projects built using the design-bid-build (DBB) method by state departments of transportation have been tracked for more than five decades. As technology improves, it is assumed that highway project performance should improve. Therefore, the research hypotheses for this study were developed assuming that construction cost growth, change order growth, and schedule growth will decrease over time. The research hypotheses have also been tested based on project size because research has found that project performance often varies based on project size. This study has collected project costs, change orders, and schedule data from 3,957 highway construction projects built by Texas DOTs from 1987 to 2015. When converted into January 2020 equivalent costs, total project costs were 10 million) compared to small projects (less than $10 million). The study shows a decreasing trend of change order growth only for small projects. However, the study did not find any significant schedule growth decrease or increase trends in any types of projects. The major contributions of this study are the findings related to a reduction in cost growth over time, irrespective of the size of the projects, and reduction in change order growth over time in large projects. This will be helpful for state DOTs project performance management personnel to learn cost and change order growth reduction strategies and use them to reduce schedule growth on highway projects.
... Thurgood et al. (17) studied 499 road construction contracts in Utah from 1980 to 1989 and found that the average deviation between final cost and agreed contract price ranged from 0% to 10%. Hinze et al. (18) reviewed 468 unit price contracts in projects undertaken in the state of Washington between 1985 and 1989 and found that the average escalation was 5.1%. Ellis et al. (19) studied 3,130 road projects in Florida and examined whether unit price contracts were more vulnerable to escalations than other forms of contracts. ...
... An escalation beyond the agreed contract does not have to be above the client's own estimate. Hinze et al. (18) found that even when the contracts in their sample overran by an average of 4.68%, the total cost of the contracts was close to the engineer's own estimate, as bids were usually below this. ...
... One can only speculate as to why the results from Norway differ so much from the results from Utah (17), Washington (18), Florida (19), and North Carolina (20). The studies in the United States suggest that factors such as project size, the client's staff skills, and a competitive bidding process may affect overruns. ...
This paper presents a study of cost escalation in unit price road construction contracts. The aim is to investigate why the final cost of contracts differs from the agreed contract cost following tendering, both to identify causes of observed discrepancies and to suggest measures that could improve the planning and delivery of future projects. Road projects often consist of several contracts and as they account for the biggest costs of the projects, cost escalation in the contracts may increase the risk of project cost overrun. Even if contract cost performance is an important indicator of project success, it may be too simplistic to equate this with project success. It is quite possible to deliver a project within budget even if contract costs escalate, as long as the project cost contingency is adequate to cover such escalations. However, escalations in contracts increase the risk of project overrun and may lead to other problems such as conflicts and delays. The results show that most of the studied contracts experienced cost escalation. The main cause of the escalation was change orders to the scope that were not covered by the original contract. In addition, the results indicate that complexity represented by contract size, duration, and urban location increases the risk and size of cost overrun. Based on these findings, the paper presents some recommendations on how contract delivery can be improved as well as some implications for future research.
... The literature is replete with studies that have examined the magnitude, causes and consequences of transport infrastructure project cost underestimation, also more commonly referred to as overruns (e.g. Merewitz, 1973;Sebastian, 1990;Thurgood et al., 1990;Hinze et al., 1992;Bordat et al., 2004;Odeck, 2004;Terrill and Danks, 2016;Love et al., 2017a). While there is widespread consensus that cost overruns are a pervasive problem, their causes remain matters of contention (Love et al., 2015). ...
... However, liaising directly with public authorities, cost consultants (e.g., quantity surveyors) and contractors and ensuring commercial confidentiality can provide them with the trust needed to ensure access to actual estimates and costs. For example, Thurgood et al. (1990), Hinze et al. (1992), Vidalis and Najafi (2002) and Ellis et al. (2007) obtained access to primary data and actual construction costs. Relatedly, Love et al. (2017b) were provided access to the actual costs that were incurred for 16 rail projects constructed by a contractor between 2011 and 2014, which ranged from AU$3.4 to AU$353 million in value. ...
... For example,Thurgood et al. (1990) examined the cost overruns of 817 highway projects delivered by the Utah Department of Transportation (UDOT) between 1980 and 1989. Similarly,Hinze et al. (1992) studied the nature of cost overruns of 468 highway projects procured by the Washington State Department of Transportation (WDOT). InFlyvbjerg et al. (2005: p.131) they continued to contend that their study contained "the largest sample of its kind" failing to acknowledge Vidalis and Najafi(2002)research on cost overruns based on 708 roads projects as well as Bordat et al.'s (2004) analysis of 659 transportation schemes constructed by the Indiana State Department of Transportation.Similarly, recognizing the need to improve the cost performance of transportation,Ellis et al. (2007) examined the effectiveness of alternative contracting strategies used to deliver 1160 projects from the Florida Department of Transportation database. ...
The methodology, analysis, and the unfounded conclusions presented in the paper “Underestimating costs in public works projects: error or lie?” by Flyvbjerg, Holm, and Buhl (2002), published in the Journal of the American Planning Association are critically questioned. Flyvbjerg, Holm, and Buhl attribute the cause of cost underestimation in transport infrastructure projects to delusion (optimism bias) and deception (strategic misrepresentation). The bifurcation of the cost underestimation problem into error or lie presents a false dichotomy - an either/or choice that is invalid when juxtaposed with the real-world nature of procuring large infrastructure assets. Put simply, the conclusions presented by Flyvbjerg, Holm, and Buhl are akin to being fake news. Unfortunately, the persistent reverberation of these convenient narratives and factoids in both academia and media has led to these explanations becoming an accepted norm. In this paper, the claims made by Flyvbjerg, Holm, and Buhl are debunked. A call is made for policy-makers to embrace and utilize evidence-based research so that informed decisions about capital cost estimates and potential risks can be better ascertained at the front-end of major transport infrastructure projects.
... Cost and schedule overruns are rife in transportation infrastructure projects (eg, Cantarelli et al, 2012a;2012b;2012c;Flyvbjerg et al, 2002;Hinze et al, 1992;Martin, 2011;Merewitz, 1973;Odeck, 2004;Pickrell, 1992;van Wee, 2007). Evidence from numerous empirical studies has identified overruns as a critical factor that has contributed to the derailment of stakeholders' satisfaction in project outcomes (Reichelt and Lyneis, 1999;Skitmore and Ng, 2003;Zhen-Yu et al, 2008). ...
... They simply assumed optimism bias and strategic misrepresentation occurred without proving causal connections. In addition, their view that different project types have different cost-overrun profiles is contrary to the transport infrastructure studies that can be found in the normative literature on construction and engineering management (eg, Creedy et al, 2010;Hinze et al, 1992;Kaliba et al, 2009;Mansfield et al, 1994;Naoum, 1994;Park and Papadopoulou, 2012;Thurgood et al, 1990;Wang and Chou, 2003). Against this contextual backdrop, alternative insights into the nature of overruns are promulgated so as to provide a balanced and comprehensive understanding of the complexities associated with delivering transportation infrastructure projects. ...
... In addition, the procurement system adopted may also influence the estimate due to the allocation of risk, particularly if it is a PPP method for delivering the project. An alternative point of reference for determining cost overruns is the contract award, which is the final negotiated or proposed price prior to the commencement of construction (eg, Ganuza, 2007;Hinze et al, 1992;Love et al, 2012;Rowland, 1981, Zeitoun andOberlander, 1993). In this instance the cost overrun is determined by the difference between the contract value and the actual construction cost at practical completion. ...
Cost and schedule overruns are endemic features of transport infrastructure projects. Despite the considerable amount of research within the field of transport and planning in the past thirty years, limited progress has been made to improving the performance of projects. We contend that this will continue to be an issue as long as research efforts focus on the ‘outside view’ with emphasis being placed upon strategic misrepresentation and optimism bias. Understanding ‘why’ and ‘how’ projects overrun, particularly from both ‘outside’ and ‘inside’ perspectives, is pivotal to reducing their impact and occurrence. Thus, in conjunction with the transport and planning literature, references to cost-overrun studies undertaken within the field of construction and engineering are examined. Our objective is to provide policy makers, industry, voluntary organisations,and the public at large with an ameliorated understanding about time-overrun and cost overrun phenomena. Suggestions to mitigate overruns based upon recent process and technological innovations are identified and discussed.
... Cost overruns are an endemic feature of road construction projects (e.g., Hinze et al. 1992;Vidalis and Najafi 2002;Flyvbjerg et al. 2002;Odeck 2004). As such, cost overruns are a major concern for the public and private sectors as they can have a negative impact on an economy and their profitability, cause significant unease among taxpayers and shareholders, and can be politically destabilizing for an incumbent political party. ...
... In addition, the procurement system adopted may also influence the estimate due to the allocation of risk, particularly if it is a public private partnership method for delivering the project. An alternative point of reference for determining cost overruns is the contract award, which is the final negotiated or proposed price prior to the commencement of construction (e.g., Hinze et al. 1992;Zeitoun and Oberlander 1993;Ganuza 2007;Love et al. 2013). In this instance, the cost overrun is determined by the difference between the contract value and the actual construction cost at practical completion. ...
... If a fixed price is agreed prior to construction, then issues that can contribute to a cost increase can be dealt with under the contract and the construction contingency for known-unknowns (i.e., identifiable risks). However, it should be acknowledged that Hinze et al. (1992) analyzed 443 cost overruns using a reference point from contract for road construction projects and revealed a median cost overrun of 3.48% for projects up to US $10 million, and 5.05% for those above US $10 million, which is not too dissimilar from Odeck's (2004) study. A holistic analysis that tracked the approved or agreed project amount (approved by client) as the baseline against the contractor's estimation along the pre-construction and construction phases in a project budget history diagram has been proposed by Barrett et al. (2006) and Short et al. (2007). ...
... Cost overruns are an endemic feature of road construction projects (e.g., Hinze et al. 1992;Vidalis and Najafi 2002;Flyvbjerg et al. 2002;Odeck 2004). As such, cost overruns are a major concern for the public and private sectors as they can have a negative impact on an economy and their profitability, cause significant unease among taxpayers and shareholders, and can be politically destabilizing for an incumbent political party. ...
... In addition, the procurement system adopted may also influence the estimate due to the allocation of risk, particularly if it is a public private partnership method for delivering the project. An alternative point of reference for determining cost overruns is the contract award, which is the final negotiated or proposed price prior to the commencement of construction (e.g., Hinze et al. 1992;Zeitoun and Oberlander 1993;Ganuza 2007;Love et al. 2013). In this instance, the cost overrun is determined by the difference between the contract value and the actual construction cost at practical completion. ...
... If a fixed price is agreed prior to construction, then issues that can contribute to a cost increase can be dealt with under the contract and the construction contingency for known-unknowns (i.e., identifiable risks). However, it should be acknowledged that Hinze et al. (1992) analyzed 443 cost overruns using a reference point from contract for road construction projects and revealed a median cost overrun of 3.48% for projects up to US $10 million, and 5.05% for those above US $10 million, which is not too dissimilar from Odeck's (2004) study. A holistic analysis that tracked the approved or agreed project amount (approved by client) as the baseline against the contractor's estimation along the pre-construction and construction phases in a project budget history diagram has been proposed by Barrett et al. (2006) and Short et al. (2007). ...
The determination of a project’s cost contingency is a pervasive problem as the amount that is incorporated into an estimate is invariably insufficient to accommodate a project’s cost overrun. The cost overruns experienced in 49road construction projects procured using traditional lump contracts are analyzed. The theoretical probability distributions are fitted to cost overrun data derived from the sampled projects whose contract values ranged from AU97 million. Goodness of fit tests are used in conjunction with Probability-probability (P-P) plots to compare the sample distribution from the known theoretical distribution. A Log Logistic Probability Density Function(PDF) was found to best describe the behavior of cost overruns. The cumulative distribution function is then used to determine a realistic probability of a cost overrun being experienced from the point at which a contract is awarded. This is required so that public sector clients can determine an appropriate contingency at contract award, which takes into account the nuances that contribute to increasing project costs. The research findings and methodology adopted to determine the best fit probability distribution provides a more robust approach for governing a construction contingency for road construction projects so that they can be procured successfully.
... As an alternative to the decision to build, several authors have examined a project's cost increase from a contract's award to the issue of a final account [46,70,87,106,107]. However, such a reference point provides only part of the picture regarding a project's cost performance profile. ...
... A project's cost performance is typically determined from its contract award and the agreement of its final account (CAFA) [14,25,46,59,62]. Notwithstanding, the construction process is characteristically the shortest phase of an asset's life. ...
This paper goes beyond the proverbial appreciation that context matters and provides a deep exploration of how and why it can help make sense of cost deviations in large-scale transport projects (>$500 million). Using abductive inference in combination with a multiple case study approach, the criteria of planning, funding, scope, contract, challenges/issues, and benefits are used to understand and interpret the context and meaning of project cost performance. By comparing two light rail transit systems and conducting an in-depth examination of a road project, the paper examines the differences between procurement approaches and worldviews and how they can introduce bias into a project’s cost performance outlook. The contributions of this research are threefold as it: (1) provides an avenue for a new line of inquiry to help better understand causal inferences, thus contributing to the development of a plausible theory of project cost performance; (2) highlights the ambiguity associated with cost performance assessment and calls for the use of standardized definitions and terminologies, so that evidence-based decision surrounding risk and uncertainty can be enacted; and (3) suggests that by engaging in a collaborative benchmarking process of project completion data, the context and meaning of a project’s performance can be documented.
... Others rely upon the agreed price for constructing the works at the contract award as the preferred reference point (e.g. Thurgood et al., 1990;Hinze et al., 1992;Park and Papadopoulos, 2012;Love et al., 2017). This latter approach will be used to determine the cost performance of a project. ...
... The literature is replete with studies that have sought to provide explanations as to 'why' cost overruns occur in transport projects (e.g., Thurgood et al., 1990;Hinze et al., 1992;Flyvbjerg et al., 2002;Creedy et al., 2010;Love et al., 2015Love et al., , 2016. As we have noted above, there exists a dearth of studies that have either acknowledged or sought to explain the presence of the cost underrun phenomenon in transport projects. ...
... The paper commences with a brief review of cost performance literature in construction to provide a contextual backdrop for the research that is presented. This subject matter has received a considerable amount of attention over several decades and includes the works of Jahren and Ash (1991), Hinze et al. (1992), Odeck, (2004, Siemiatycki (2009), Bhargava et al. (2010; Anastasopoulos et al. (2014), Ahiaga-Dagbui et al. (2017), andCallegari et al. (2018) to name just a few. ...
... This increase was attributable to having less experienced pre-construction staff employed due to staff retiring. Similarly, Hinze et al. (1992) reported a mean cost overrun for roads constructed to be approximately 5%. Love (2002) found that cost overruns from the final tender sum to completion of construction for a sample 169 building projects to possess a mean cost overrun of 12.6%. ...
A total of 98 construction projects with a combined value of $8.5 billion were examined to explore the nature and value of rework and change-orders and their influence on a contractor’s margin. Only 65% of projects experienced a cost increase during their construction, though a mean rework cost of 0.39% of the contracted value was incurred, which had a negative impact on the contractor’s overall margin. In addition, the difference between approved client change-orders and those by the contractor for subcontractors was 0.5% of the total costs incurred for the sampled projects, which had an adverse impact on the organisation’s profit. The upshot here is that the contracting organisation underwent a mean loss in profit of 23% per annum over the period of analysis. It is suggested that margin losses might well have been higher as rework was seldom formally documented and reported.
... Overruns occur irrespective of the type of project -roads, bridges, rails, houses, schools and tunnels all suffer the same fate (Hinze et al. 1992, Love et al. 2014. Is it a small or mega project? ...
... It is no wonder the final cost of the project was 10 times this initial proposed estimate. For example, while report an average cost overrun of 45% for tunnels and bridges, Hinze et al. (1992) and report lower averages of 4.24% and 11.89% respectively. ...
The main concern of a construction client is to procure a facility that is able to
meet its functional requirements, of the required quality, and delivered within an
acceptable budget and timeframe. The cost aspect of these key performance
indicators usually ranks highest. In spite of the importance of cost estimation, it is
undeniably neither simple nor straightforward because of the lack of information
in the early stages of the project. Construction projects therefore have routinely
overrun their estimates.
Cost overrun has been attributed to a number of sources including technical error
in design, managerial incompetence, risk and uncertainty, suspicions of foul play
and even corruption. Furthermore, even though it is accepted that factors such as
tendering method, location of project, procurement method or size of project
have an effect on likely final cost of a project, it is difficult to establish their
measured financial impact. Estimators thus have to rely largely on experience and
intuition when preparing initial estimates, often neglecting most of these factors
in the final cost build-up. The decision-to-build for most projects is therefore
largely based on unrealistic estimates that would inevitably be exceeded.
The main aim of this research is to re-examine the sources of cost overrun on
construction projects and to develop final cost estimation models that could help
in reaching more reliable final cost estimates at the tendering stage of the project.
The research identified two predominant schools of thought on the sources of
overruns – referred to here as the PsychoStrategists and Evolution Theorists.
Another finding was that there is no unanimity on the reference point from which
cost performance could be assessed, leading to a large disparity in the size of
overruns reported. Another misunderstanding relates to the term “cost overrun”
itself.
The experimental part of the research, conducted in collaboration with two
industry partners, used a combination of non-parametric bootstrapping and
ensemble modelling with artificial neural networks to develop final project cost
models based on about 1,600 water infrastructure projects. 92% of the validation
predictions were within ±10% of the actual final cost of the project. The models
will be particularly useful at the pre-contract stage as they will provide a
benchmark for evaluating submitted tenders and also allow the quick generation
of various alternative solutions for a construction project using what-if scenarios.
The original contribution of the study is a fresh thinking of construction “cost
overruns”, now proposed to be more appropriately known as “cost growth” based
on a synthesises of the two schools of thought into a conceptual model. The
second contribution is the development of novel models of construction cost
estimation utilising artificial neural networks coupled with bootstrapping and
ensemble modelling.
... Actual construction costs (A cv ) are defined as accounted construction costs at the time of project completion. An alternative definition and reference point for determining a cost overrun have been provided by Rowland (1981), Hinze et al. (1992), and Zeitoun and Oberlander (1993), who suggested that it is the difference between the original contract value (O cv ) (i.e., contract award) and A cv at practical completion. The discrepancy between definitions presented has contributed to significant variability in the cost overrun percentages that have been reported in the normative literature. ...
... Research has suggested that the likelihood of a cost overrun increases with contract size and complexity as well as the number of change orders (Rowland 1981;Hinze et al. 1992). Specifically change orders. ...
The statistical characteristics of cost overruns experienced from contract award in 276 Australian construction and engineering projects were analyzed. The skewness and kurtosis values of the cost overruns are computed to determine if the empirical distribution of the data follows a normal distribution. The Kolmogorov-Smirnov, Anderson-Darling, and chi-squared nonparametric tests are used to determine the goodness of fit of the selected probability distributions. A three-parameter Frechet probability function is found to describe the behavior of cost overruns and provide the best overall distribution fit. The Frechet distribution is then used to calculate the probability of a cost overrun being experienced. The statistical characteristics of contract size and cost overruns were also analyzed. The Cauchy (< A1 to 10 million, < A11 to 50 million) tests were found to provide the best distribution fits and used to calculate cost overrun probabilities by contract size. Ascertaining the best fit probability distribution from an empirical distribution at contract award can produce realistic probabilities of cost overruns, which should then be incorporated into a construction cost contingency.
... The analysis indicates that cost and time overruns do not vary by project size. This finding contradicts previous studies [56][57][58], which have suggested that project performance typically varies with size. However, the results are consistent with those of Cantarelli et al. [59], who noted that such conflicting results may be attributed to the small sample size of large projects in their study. ...
The construction industry in Saudi Arabia has been experiencing poor cost and time performance, leading to financial losses for all project parties involved. This study analyzes the cost and schedule performance of horizontal and vertical projects constructed at a public university between 2012 and 2022. Data on construction costs and schedules were collected and compared to assess project performance, such as cost growth and schedule growth. The findings from analyzing the project data were then used to formulate the interview questions designed to understand key factors contributing to cost and schedule growth and to explore potential solutions. Additionally, factors influencing project cost and time, as identified from a thorough review of previous studies, were used to guide the analysis and the interview process. The results indicate that vertical projects experienced more cost and schedule growth than horizontal projects. Altogether, 80% of both vertical and horizontal projects exceeded their planned budgets by an average of 5%, and ~95% of those projects were completed behind their planned schedules, with an average delay of 160%. The interviews revealed several factors affecting project performance, including owner-related issues such as change orders, payment delays, design errors, and inaccurate quantity estimates; contractor-related issues such as delays in material approvals and inadequate planning; labor-related challenges such as shortages of workers and unavailability of skilled laborers; and government-related challenges such as taxes, visa restrictions, and localization requirements. The findings of this study can help universities in taking proactive steps to reduce changes in construction project costs and durations, thereby improving the overall performance of construction projects.
... According to [30] the average escalation in 468 unit price contracts for projects completed in the state of Washington between 1985 and 1989 was 5.1%. [31] investigated whether unit pricing contracts were more susceptible to escalations than other types of contracts by looking at 3,130 road projects in Florida.There was, while negligible, a difference: unit price contracts were, on average, 9% more expensive than the price agreed upon, whereas other types of contracts showed an 8% difference. Similar findings were made by the North Carolina Department of Transportation, which discovered that in 390 road projects, the contractors were paid an average of 7% more than the initial contract price [32]. ...
This research delves into the nuanced dynamics of escalation amounts in construction projects, differentiating their implications on residential versus road construction. Detailed analyses of four diverse projects expose distinctive patterns: Project No.1 witnesses peak steel escalation, while material, labour, and POL exhibit constancy. Project No.2 reveals material escalation as dominant, with recuperated steel and cement costs. Conversely, Project No.3 portrays negative escalations for material and POL, dominated by labour impacts. Project No.4 experiences negative escalations attributable to duration shifts. The study unveils a correlation between project duration and escalating costs, highlighting steel, material, and labour as pivotal in residential projects and labour, material, and POL in road projects. The research underscores the critical role of escalation clauses in contracts, elucidating their significance in mitigating direct impacts on project costs. The findings emphasize project-specific factors such as duration, material price fluctuations, project nature, client-contractor dynamics, and governmental policies shaping escalation outcomes.
... It has been well-documented, however, that a transport project's scope can change significantly from the date its business case is approved until it is handed over for operation (Merewitz, 1973;Morris, 1990;Hinze et al., 1992;Love et al., 2017a;Love & Ika, 2021;Welde & Odeck, 2017;Welde & Dahl, 2021;Welde & Volden, 2022). The reasons for scope changes naturally vary, but the most common are overlooking or shifting stakeholder requirements and needs, price inflation, and resource constraints. ...
Worldwide transport projects repeatedly exceed their budgets. This problem has received widespread attention over several decades, with little progress made to improve project cost performance. Consequently, this has led to the emergence of the following recurring question: How can public agencies responsible for delivering transport projects improve the estimation accuracy of their actual construction costs? We use the metaphor of the Sisyphean task to assist us in suggesting that the conflation of risk and uncertainty results in an inability to estimate project actual construction costs accurately. Ambiguity aversion, an illusion of certainty, and the repeated occurrence of cost deviations, as demonstrated by our illustrative example and analysis of the elemental cost models of 39 transport projects, collectively create a Sisyphean that is impossible to break. Thus, we question the prevailing conceptualization and treatment of risk and uncertainty used to estimate the actual construction costs of projects. We offer a new theoretical lens framed around ecologically rational heuristics and provide suggestions to reconceptualize and recalibrate the treatment and assessment of uncertainty in cost estimates. We hope this paper provides a much-needed circuit breaker to public agencies’ prevailing treatment of risk and uncertainty and stimulates new lines of inquiry to improve the cost performance of transport projects.
... However, a clear explanation of this idea is lacking in the literature on the issue. Hinze et al., (1992), proposed, for instance, that cost overrun is defined as the discrepancy between the contract value at the beginning and the actual cost of completion. Flyvbjerg et al. (2002) and Odeck, (2004) opined that cost overrun is the discrepancy between projected and actual building costs. ...
Purpose
It is widely accepted that one criterion for determining if a construction project is successful is whether it is completed within the expected budget. There have been advancements in the management of building projects throughout time but cost overruns remain a key concern in the construction sector internationally, particularly in emerging economies such as Ghana. This study aims to answer the question, “What are the critical success factors (CSFs) that can assist reduce cost overruns in public sector infrastructure projects in the Ghanaian construction industry?”
Design/methodology/approach
This study used a quantitative survey method. The questionnaire was pre-tested by interviewing 15 contractors to ascertain the validity of the content. Factor analysis and multiple regression were adopted to analyze the data.
Findings
This study discovered that the critical factors that can reduce cost overruns in construction projects in Ghana are directly linked to five themes: early contractor involvement in the project planning stage, adequate funding, good project team relations, competent managers/supervisors and project participant incentives/bonuses. This study identifies indestructible, empirically measurable important success criteria for reducing cost overruns in public building projects in Ghana.
Practical implications
When well thought through from the project initiation stage to completion, these critical successes can also be used to deal with damaging economic effects such as allocative inefficiency of scarce resources, further delays, contractual disputes, claims and litigation, project failure and total abandonment.
Originality/value
The uniqueness of this research resides in the fact that it is, to the best of the authors’ knowledge, a first-of-its-kind investigation of the CSFs for reducing cost overruns in public building projects in developing countries.
... Welde and Dahl (2021) refer to cost overrun as the final costs, which consist of adjustable item costs and change orders that exceed the contractually agreed costs. Other scholars have also proposed different definitions of cost overrun (Amini et al., 2023;Derakhshanalavijeh & Teixeira, 2017;Hinze et al., 1992;Kaliba et al., 2009). Despite the varied definitions, a common theme among them is that cost overrun reflects a situation where the actual cost exceeds the original estimate. ...
This paper aims to elucidate the phenomenon of cost overruns resulting from government-led risks, with a specific focus on contract changes within the context of 70 Indonesian toll road projects. The dataset demonstrates a broad spectrum of cost overrun rates (COR), from −34.43% to 356.54%, with a median of 0.00% (mean = 14.83%). Empirical evidence demonstrates that contract changes exert a discernible influence on cost overruns. Among the sampled projects, 39 out of 70 encountered changes in their original contracts, and within this subset of projects, the median COR was 7.00% (mean = 26.63%). In the case of projects experiencing cost overruns and underruns, the median COR amounted to 21.00% (mean = 44.55%, n = 27) and −13.50% (mean = −13.72%, n = 12), respectively. This paper delves into the correlations between the COR and various project attributes, providing elucidations grounded in the framework of multiple theories in the literature.
... The estimated figure is built upon the finalized design documents of the project deliverables and is incorporated into the client's detailed business case in preparation for tendering (Berechman, 2018). The third point of reference used by researchers to measure transport project cost overrun is the contract award (e.g., Ganuza, 2007;Hinze et al., 1992;Love et al., 2013). The cost figure at this point represents the sum of the project work packages agreed between the client and the successful tenderer (Love et al., 2015a). ...
There is a growing face-value acceptance of optimism bias as the primary cause of transport cost overruns. This article provides a timely review of literature on optimism bias and transport infrastructure project cost overruns. The article identifies significant gaps and unanswered questions about the relationship between optimism bias in project cost appraisal and cases of transport infrastructure cost overruns. The presence and nature of optimism bias in the complex institutional environment of project cost appraisal are largely understudied and not well understood. Consequently, this has significant implications for the development of effective mitigation strategies for improving transport project cost performance.
... Most of the papers dealing with the cost performance of public infrastructure projects have an empirical character and focus on transport infrastructure. Early studies on particular countries can be found already in the second part of the 20th century (e.g., [25][26][27]). However, the real boom in the literature followed the paper by [28], who analysed 258 major transportation infrastructure projects completed worldwide and found cost overruns in the case of 9 out of 10 them. ...
This paper investigates the reasons behind the surprising cost performance of road construction projects in Poland. In particular, in order to explain the phenomenon of cost underruns, the role of regulations related to the national and the European Union structural investment funding is verified. It is shown that in Poland there exist two different institutional frameworks related to infrastructure investment projects. However, in the case of road transport infrastructure investment, the public investor does not discriminate between the sources of funding and follows the optimal strategy for the EU co-funded projects. This, in turn, leads to the emergence of cost underruns.
... For example, those taking an economics and policy lens tend to take a broad perspective of the problem and focus on determining a cost overrun as the difference between initial budget approval and final construction costs [6][7][8][9]. Contrastingly, within the field of construction and engineering management, the difference between contract award and final construction costs is typically adopted [10][11][12][13][14][15]. ...
The cost overrun phenomenon plagues capital projects worldwide. While policymakers and practitioners are aware of the potential for cost overruns to occur while procuring their projects, they have struggled to mitigate them. This article takes stock of cost overrun research and suggests two major periods stand out. First, it focuses on the period from 1960 to 2002 and briefly reviews studies examining issues influencing cost estimation accuracy. Then, we look at the present period (2002 to 2022), where the Planning Fallacy theory has been championed and identified as the best way to explain why cost overruns occur. While the Planning Fallacy has filled the theoretical void in the literature, we question its legitimacy as it has been unable to effectively address the cost overrun phenomenon. Moving forward, we suggest a line of inquiry based on the theoretical polyphony of the 'Fifth Hand' principle, which offers a new framing to remedy cost overruns in capital projects.
... Such dismal cost budgeting results have brought Love et al. (2015) to the following statement: "The determination of a project's cost contingency is a pervasive problem as the amount that is incorporated into an estimate is invariably insufficient to accommodate a project's actual cost overrun" (Love et al. 2015, Abstract). Most empirical studies on project cost overruns have attempted to explain their frequency and severity from their statistical relationship with a certain number of variables, among others, project size, construction type, number of bidders, percentage difference between cost bid and awarded bid, and project implementation phases (Cantarelli et al. 2012a, b;Creedy et al. 2010;Flyvbjerg et al. 2002;Hinze et al. 1992;Jahren and Ashe 1990;Odeck 2004;Thal et al. 2010;Vidalis and Najafi 2002). Worth mentioning is the technique of reference class forecasting (RCF) (Flyvbjerg 2013) used as a comparative method to assess or validate cost estimates of proposed projects. ...
This paper proposes a coherent risk measure to assess project cost overrun contingency reserves: the project expected cost overrun (ECO). It is shown that the traditional project cost-percentile metric does not qualify as a coherent risk measure and, therefore, that the ECO metric should be adopted. Obtained from the tail expectation of the project cost probability distribution, it measures the average value of project costs exceeding, at any significance level, the project cost baseline. A positive, unique, and exact closed-form solution to the ECO risk measure is devised under, among others, the normal probability distribution. The resulting project cost overrun contingency reserve may be interpreted as an insurance contract covering contingent risk factors and claimable by project managers from their project director once preidentified and agreed-upon contingent high-risk cost impacts are taken into account. The project ECO risk measure is extended to assess the project expected time overrun (ETO) and the project expected time overrun penalty (ETOP) risk measures, quantities that will prove indispensable for successfully tendering under any contractual form the minimum value of project time and project cost bids. They will be covering, at the very least, all relevant potential low-probability high-risk contingent risk factor impacts.
... Most of the papers dealing with the cost performance of public infrastructure projects have an empirical character and focus on transport infrastructure. Early studies on particular countries can be found already in the second part of the 20th century (e.g., [25][26][27]). However, the real boom in the literature followed the paper by [28], who analysed 258 major transportation infrastructure projects completed worldwide and found cost overruns in the case of 9 out of 10 them. ...
... This is because the variation is usually requested by the owners, and they can hardly engage a new contractor for the variation of the works that have been started by the original contractor. The inflexibility limits the bargaining power of the owner and enables the original contractor to increase the tender price during variation negotiation to offset the reduced profitability (de Brux 2010;Cruz et al. 2015;Cruz and Marques 2013b;Domingues and Zlatkovic 2015;Hinze et al. 1992;Quiggin 2005;Vassallo 2010). ...
The literature on public-private partnership (PPP) agreements suggests that variation renegotiation places the public sector authority at a disadvantage, because the authority has to pay extra costs to claim its variation. This leads to the need for a PPP contract to incorporate flexibility, embedded with real options analysis (ROA), to deal with these variations. This paper proposes that PPP agreements should ideally contain an option for the authority to order variation as an effective response to changing circumstances in the postconstruction phase throughout the concession period of toll roads. Having the variation option, the authority sets a threshold on the concessionaire’s bargaining power via variation negotiation as the authority can order its variation at its favorably controlled price. The paper also presents the ROA, based on the probabilistic cash flow approach, that gives the financial value of flexibility for the authority to order variation. This approach is straightforward and provides a fair way forward for the implementation of PPP toll roads.
... The literature is replete with studies examining why transport projects capital costs increase across their life-cycle [43], [45], [79], [80], [83], [95], [111], [121], [122], [128]. Without a doubt, this literature is too vast to review here, but it would be fair to say that it is ambiguous and controversial in terms of practical recommendations, which stymies our ability to make headway toward improving the cost performance of large-scale transport projects. ...
Transport projects are regularly subjected to cost mis-performance. The contingency set aside to cover any increases in cost due to risk and uncertainty issues is often insufficient. We review approaches that have been used to estimate a cost contingency. We show that some approaches such as Reference Class Forecasting, which underpins the Planning Fallacy theory, take a biased view to formulate a contingency. Indeed, there is a perception that the risks and uncertainties that form the parts of a cost contingency cannot be accurately assessed using heuristics. The absence of an overarching theory to support the use of heuristics has resulted in them often being downplayed in a project’s investment decision-making process. This article fills this void and provides the theoretical backdrop to support the use of heuristics to formulate a cost contingency. We make a clarion call to reconcile the duality of the bias and heuristic approaches, propose a balanced framework for developing a cost contingency, and suggest the use of up-lifts to de-risk cost estimates is redundant. We hope our advocacy for a balanced approach will stimulate debate and question the legitimacy of up-lifts to solely de-bias cost estimates.
... The notion of "cost overruns" is defined in a variety of ways in literature. For example, Hinze et al. [1] suggested that cost overrun is the difference between the original contract value and cost at practical completion. Derakhshanalavijeh [2] described project cost overrun as the positive difference between the actual cost upon project completion and the agreed estimation of the project budget. ...
The paper proposes a cost overrun risks prediction model, the structure of which is based on the fuzzy inference model of Mamdani. The model consists of numerous inputs and one output (MISO, multi-input-single-output), based on processes running consecutively in three blocks (the fuzzy block, the interference block, and the block of sharpening the representative output value). The input variables of the model include the share of element costs in the building costs (SE), predicted changes in the number of works (WC), and expected changes in the unit price (PC). The developed rule base makes it possible to determine the risk of cost overruns in the following categories: “very low”, “quite low”, “average”, “quite high”, and “very high”. Twenty-seven rules were assumed in the interference block. The operation of the model was illustrated by the example of selected elements of a road object and was validated by checking the correctness of the assumptions made at the design stage of the inference block rule base. It has been proven that with the increase of the share of element costs in the building costs (SE), predicted changes in the number of works (WC), and expected changes in the unit price (PC), the value of the risk exceeding the costs of a given element of the construction project (R) increases naturally and smoothly. It was emphasized in the conclusions that the cost overrun risks prediction model is intended for general contractors who subcontract many stages of works to their subcontractors in accordance with the agreed division into work elements.
... Thurgood et al. (1990) studied 499 road construction contracts in Utah from 1980 to 1988 and found that the average deviation between final cost and agreed contract price ranged from zero to 10 per cent. Hinze et al. (1992) reviewed 468 unit price contracts in the state of Washington from 1985 to 1989. They found that the average overrun was 5.1 per cent. ...
This paper presents a study of cost performance in construction contracts in the road sector.
... Several studies have utilized data provided by various Departments to examine transport cost overruns. For example, Thurgood et al. (1990) and Hinze et al. (1992) analyzed 817 Transit Authority for the actual and predicted costs of the Full Funding Actual Agreement in 32 projects presented in Love et al. (2017). So, as we can see, the creation of dataset for cost overruns is a relatively straightforward task. ...
The Planning Fallacy has been heralded as the best theoretical perspective to explain 'how projects work', particularly within the transport area. However, we contend that the data and the resulting conclusions relied upon to support the Planning Fallacy have been based on methodological artefacts that do not stand up to close scrutiny. We suggest these flaws stem from 'the compulsion to theorise', which predisposes to explain every project behaviour by the Planning Fallacy. We then unpack the method and data used to support the 'Planning Fallacy'. Therefore, we 'open a new door' for the development of a more robust theoretical explanation for 'how projects work'.
... Therefore, a large DB building project owner and design-builder must consider an appropriate change order management system in order to reduce impacts on costs and schedules. This finding is similar to what was found in DBB building renovation projects (Shrestha and Haileab 2018) and transportation projects (Hinze et al. 1992;Anastasopoulos et al. 2010). It shows that the change management process is very important in large DB and DBB projects because both have high numbers of change orders. ...
Few studies have been conducted to evaluate change orders in design-build (DB) projects, examining their impacts on cost and schedule performance, and their relationship with project size. This study analyzed cost, schedule, and change order data for 125 DB building projects to check whether the number of change orders for DB projects was higher than for design-bid-build (DBB) projects. All of the DB projects considered in this study had fixed their final guaranteed maximum price (GMP) before the design was 100% completed. One of the advantages of the DB delivery method is constructability, in which the designer can solicit feedback from construction personnel during the design phase; this can reduce the number of change orders. Results indicated that there were fewer change orders during DB building projects compared with DBB building projects. In addition, the percentage of projects that had cost overruns (21%) was significantly lower than that for projects that had cost underruns or were completed on budget (79%). In addition, the percentage of change orders in projects that had schedule overruns was not significantly higher than that in projects that had no schedule overruns; among other findings, the number of change orders increased as the size of the project increased (r ¼ 0.59).
... Yet literature on the subject lacks an unambiguous definition of this concept. For example, Hinze et al. [2] suggested that cost overrun is the difference between the original contract value and cost at practical completion. Flyvbjerg et al. [3] and Odeck [4] defined a cost overrun as the difference between forecasted and actual construction costs. ...
During the construction phase, significant differences between the planned and actual costs of construction projects frequently occur. The paper describes the concept of a model of prediction of the increase in the costs of construction works in relation to those planned. The assumption of the model is to determine the probability of the cost increase for the elements of the object for which it is the largest. A fuzzy Mamdani inference method was proposed for the selection of the elements to be evaluated. In the cost prediction model, fuzzy relations and the compound max-min relations were used. The result of the model are the probabilities of cost overrun for works most exposed to changes in costs. The model can be helpful mainly for the contractor who wants to know not only the probability of the total cost overrun but also the possibility and amount of increase in the costs of individual packages of works or detailed construction works necessary to complete a construction project. Such an approach may help to properly plan expenses related to the implementation and schedule of works along with the cash flow for the project.
... While such challenges are arguably knowable ex-ante, Indian PPPs are characteristically contractually weak (compared to those in developed nations), which heightens the significance of this condition. Thus, complexity in road projects should adversely affect a project's budget and schedule (Hinze et al., 1992). The quantitative proxy for complexity is as follows: ...
This study examines conditions that impact PPP delivery success or failure in the roadways sector in India using Qualitative Comparative Analysis. QCA is well-suited for problems where multiple factors combine to create pathways leading to an outcome. Past investigations have compared PPP and non-PPP project delivery performance, but this study examines performance within PPPs by uncovering a set of conditions that combine to influence the success or failure road PPP project delivery in India. Based on data from 21 cases, pathways explaining project delivery success or failure were identified. Specifically, PPPs with high concessionaire equity investment and low regional industrial activity led to project delivery success. Projects with lower concessionaire equity investment and low reliance on toll revenue and with either: (a) high project technical complexity or (b) high regional industrial activity, led to project delivery failure. The pathways identified did not have coverage values that they were extremely strong. Coverage strength was hindered by lack of access to information on additional conditions that could be configurationally important. Further, certain characteristics of the Indian market limit generalization. Identification of combinations of conditions leading to PPP project delivery success or failure improves knowledge of the impacts of structure and characteristics of these complex arrangements. This study is one of the first to use fuzzy QCA to understand project delivery success/failure in road PPP projects. Moreover, this study takes into account factors specific to a sector and delivery mode to explain project delivery performance.
... Summarizing the respondents' assessments as well as the statistical test results, it can be concluded that megaprojects experienced a higher probability for cost overrun than general projects. Such results are in line with Hinze et al. (1992) and Shrestha et al. (2013) who claimed that megaprojects were more prone to cost overrun than general projects. ...
The aims of this study are (1) to check the prevalence of cost overrun in megaprojects, (2) to investigate the efficacy of cost control in megaprojects, (3) to identify the popular tools and techniques used for cost control, (4) to find out the key knowledge areas highly relevant to cost control in megaprojects and (5) to make a comparison of these results between mega and general projects. To achieve these goals, a comprehensive literature review was conducted first, followed by a questionnaire administered to 32 Singapore-based construction companies having experiences in megaprojects. The results showed that: on average 44.22% of megaprojects in Singapore experienced cost overrun, which is about 6% higher than that for general projects; megaprojects are facing a lower efficacy in cost control than general projects; ‘S-curve’, ‘forecasting techniques’, ‘cost control software products’ and ‘Work Breakdown Structure’ are the popular tools and techniques used for cost control in megaprojects, and they are used more frequently in megaprojects than in general projects. Finally, six knowledge areas were found highly relevant to cost control in megaprojects, demonstrating higher relevance to cost control in megaprojects than in general projects.
... However, it should be noted that in the literature, there has been an alternative definition for cost overrun. For instance, Hinze et al. (1992) suggested that the cost overrun is the difference between the original contract value that is awarded and the actual construction value at the time of completion. Most of the studies that we investigate in this paper have used the former definition of cost overrun, and when they have not, an attempt was made to convert these studies' measures to conform to the former definition. ...
This paper uses an econometric meta-regression analysis framework to examine how the mean percentage cost overruns (MPCOs) of transportation projects reported in the literature vary by study specific characteristics, such as whether it is a road or rail project, the world region where the study was conducted; and the year of publication of the study. The motivation of the study is that there are no other studies in the literature on MPCOs of transportation projects using meta-regression analysis; a method well respected in other fields for summarizing findings from different studies. The data used comprise 127 data points retrieved from 48 studies from across the continents. The results show that (1) cost overruns rather than underruns are prevalent across all types of studies, and the typical cost overrun is, on average, 34% regardless of the transportation infrastructure under consideration; (2) recent studies show significantly lower MPCOs as compared to earlier studies; (3) published studies in scientific journals or conference proceedings show higher MPCOs than unpublished reports; (4) in comparison with Asian studies and those of the rest of the world, European and North American studies show significantly lower MPCOs, but Australian studies are not significantly different; (5) road projects show significantly lower MPCOs than rail projects regardless of the region of study; and (6) European and North American roads show higher MPCOs than rails in Asia and the rest of the world. We conclude that the magnitudes of MPCO results from individual studies should not be generalized as the study specific characteristics matter. Insights offered by this study can, therefore, serve as a reference when reporting results from individual studies.
... However, the phenomenon is often attributed to a variety of sources including scope creep and rework (Love et al., 2005), unrealistic cost targets and misguided trade-offs between project scope, time and cost (Ahiaga-Dagbui and Smith, 2014a), a poor understanding of the systemic and dynamic nature of projects Love et al., 2016a), unidentified or improperly managed risk and uncertainty (Okmen and Öztas, 2010) and suspicions of foulplay and corruption (Wachs, 1990). A review of the normative cost overrun literature reveals that a plethora of studies have been dedicated to understanding this problem (Hinze et al., 1992;Flyvbjerg, 2008;Cantarelli et al., 2010;Durdyev et al., 2012;Ahiaga-Dagbui and Smith, 2014b). Most of these studies identify several purported causes of overruns and make recommendations for mitigating and containing this phenomenon. ...
Infrastructure cost overruns receive significant amount of attention in the academic literature as well as the popular press. The methodological weaknesses in the dominant approaches adopted to explain cost overrun causation on infrastructure projects are explored in this paper. A considerable amount of cost overrun research is superficial, replicative and thus stagnated the development of a robust theory to mitigate and contain the problem. Future research should move from single-cause identification and the traditional net-effect correlational analysis to a search for causal recipes through systems thinking and retrospective sensemaking to address the high-level interactions between multiple factors.
... The existing body of knowledge has described projects as being unique and bespoke in terms of their scale (Jahren & Ashe, 1990 ), schedule, type, location , delivery process, and site conditions (Anon, 2005 ; Desnoyers, 1981 ; Flyvbjerg, Bruzelius, & Rothengatter, 2003 ; Flyvbjerg et al., 2002 ; Kerzner, 2006 ). Research findings have revealed that a project ' s characteristics can adversely impact its performance (Chan, Scott, & Chan, 2004 ; Chang, 2002 ; Cho, Hong, & Hyun, 2009 ; Doloi, 2013 ; Fiden, Dikmen, Tanyer, & Birgonul, 2011 ; Hinze, Selstead, & Mahoney, 1992 ; Walker, 1995a Walker, , 1995b). Hence, understanding these characteristics is quintessentially important to the study of cost overruns in the megaprojects. ...
Cost overruns are prevalent in hydrocarbon (oil and gas) megaprojects. A recent report indicates that 64% of ongoing megaprojects globally are facing cost overruns. Despite their increasing occurrence, there has been limited published research in the mainstream literature that has specifically examined why and how they occur. Consequently, suggestions regarding how to constructively address cost overruns in hydrocarbon megaprojects are scant. To better understand the causal nature of cost overruns in hydrocarbon megaprojects, this article provides a critical review of the extant literature. Findings from the research indicate that complex interactions between project characteristics, people, technology, and structure and culture contribute to cost overruns occurring. As a result, it is suggested that chaos theory can be used to explain how cost overruns arise in hydrocarbon megaprojects. This article provides a reference point for engendering future research in this pervasive and fertile area.
... The existing body of knowledge has described projects as being unique and bespoke in terms of their scale (Jahren & Ashe, 1990 ), schedule, type, location, delivery process, and site conditions (Anon, 2005 ;Desnoyers, 1981 ;Flyvb- jerg, Bruzelius, & Rothengatter, 2003 ;Flyvbjerg et al., 2002 ;Kerzner, 2006 ). Research findings have revealed that a project ' s characteristics can adversely impact its performance (Chan, Scott, & Chan, 2004 ;Chang, 2002 ;Cho, Hong, & Hyun, 2009 ;Doloi, 2013 ;Fiden, Dik- men, Tanyer, & Birgonul, 2011 ;Hinze, Selstead, & Mahoney, 1992 ;Walker, 1995aWalker, , 1995b ). Hence, understanding these characteristics is quintessentially important to the study of cost overruns in the megaprojects. ...
According to research, stakeholder disappointment is a root problem within projects. In this article, the dilemmas related to stakeholder inclusiveness, in other words, engaging a broad range of stakeholders, are discussed. Based on a longitudinal case study, three propositions are offered: Applying stakeholder inclusiveness in a project (1) increases the likelihood of more engaged and satisfied stakeholders; (2) increases the danger of losing focus on those stakeholders who possess the most critical resources for the project's survival and progress; and (3) increases the danger of inducing stakeholder disappointment due to expectation escalation and impossibility of embracing conflicting requirements and wishes.
... The existing body of knowledge has described projects as being unique and bespoke in terms of their scale (Jahren & Ashe, 1990 ), schedule, type, location , delivery process, and site conditions (Anon, 2005 ; Desnoyers, 1981 ; Flyvbjerg, Bruzelius, & Rothengatter, 2003 ; Flyvbjerg et al., 2002 ; Kerzner, 2006 ). Research findings have revealed that a project ' s characteristics can adversely impact its performance (Chan, Scott, & Chan, 2004 ; Chang, 2002 ; Cho, Hong, & Hyun, 2009 ; Doloi, 2013 ; Fiden, Dikmen, Tanyer, & Birgonul, 2011 ; Hinze, Selstead, & Mahoney, 1992 ; Walker, 1995a Walker, , 1995b ). Hence, understanding these characteristics is quintessentially important to the study of cost overruns in the megaprojects. ...
Cost overruns are prevalent in hydrocarbon (oil and gas) megaprojects. A recent report indicates that 64% of ongoing megaprojects globally are facing cost overruns. Despite their increasing occurrence, there has been limited published research in the mainstream literature that has specifically examined why and how they occur. Consequently, suggestions regarding how to constructively address cost overruns in hydrocarbon megaprojects are scant. To better understand the causal nature of cost overruns in hydrocarbon megaprojects, this article provides a critical review of the extant literature. Findings from the research indicate that complex interactions between project characteristics, people, technology, and structure and culture contribute to cost overruns occurring. As a result, it is suggested that chaos theory can be used to explain how cost overruns arise in hydrocarbon megaprojects. This article provides a reference point for engendering future research in this pervasive and fertile area.
... Semple et al. (1994) found that 11 lump sum contracts had 44% cost increase and 74% time increase, and eight unit price contracts had an 88% cost increase and a 48% duration increase. Hinze et al. (1992) concluded that cost overruns tend to increase with project size. Lee (2007) compiled a comprehensive review of the many published articles that measure how a change in one discrete factor's (e.g., weather, overtime) impacts productivity. ...
Change on construction projects is a regular occurrence and impedes project success for both the owner and the contractor. Many papers have been written about change, but few document its prevalence, severity, and impact on labor productivity in a reliable, quantitative way. The purpose of this paper is to help project owners, contractors, and other parties understand and benchmark their projects against a large set of construction projects. Data from two independent research studies are analyzed to quantify the impact of change on project cost, schedule, and productivity. The result is a set of curves and reference points that contrast the amount and likelihood of change with the amount and nature of its impact. One major finding of this study is that the ratio of final project costs to estimated project costs is substantially higher than conventionally thought. Previous reports hold that two-thirds of all projects should have fewer than 15% change. The equivalent number found in this study was 19%. Approximately 40% of all projects in this study experienced more than 10% change. Many industry observers believe that cumulative impact is a rare condition and is likely to occur when change exceeds 10%. On the basis of these findings, cumulative impact occurs more frequently than generally thought. Two other findings concern the quantitative rates at which productivity and the predictability of productivity deteriorate with increasing amounts of change. Productivity exceeded planned rates on 60% of the projects when change was limited to 5%, but it never reached planned rates once change exceeded 20%. Minimizing change is thus important for realizing good productivity performance. Change averaged 8% on these projects. Findings presented in this paper can be used to forecast prospectively the impacts that change has on cost, schedule, and productivity. They can also help the parties retroactively assess the impact of change when looking for guidance to settle disputes.
... Several studies have sought to estimate the factors that lead to project overruns in construction projects. For instance, Hinze et al. (1992) analyzed cost overruns associated with Washington State highway projects and found that the cost overruns, expressed as a percentage of the contract amount, increased with project size. Flyvbjerg et al. (2004), in road infrastructure projects, found that cost escalation was strongly influenced by the implementation phase length and project type, and suggested that decision makers and planners should be duly concerned about long implementation phases. ...
Construction cost overrun and time overrun are significant problems in infrastructure projects. This study provides a
comparative analysis of the incidence of project overruns in Public Private Partnership (PPP) and non-PPP road projects. Data
from national road projects in India was used as the study sample. Means analysis, both using an unmatched sample and
matched pair analysis indicated significant overruns between PPP and non-PPP projects. While cost overruns were higher in PPP projects,
time overruns were higher in non-PPP projects. These trends persisted in OLS regression estimates. A three stage least squares
regression estimated to address the simultaneity bias also showed that use of PPP increased cost overrun, though it did not affect time
overrun. Results obtained in this study are contrary to the findings of the previous studies, which have been based on PPP projects in
developed economies. The findings emphasize the need for developing countries like India to strengthen their capabilities in PPP models
to take advantage of private sector efficiencies.
... A wide range of hypotheses have been proposed and tested to identify the factors and measure their impacts on the project deviation. Hinze et al. (1992) stated that the cost overruns tend to increase with the project size. Thurgood et al. (1990) found that rehabilitation and reconstruction projects are more likely to increase the cost overruns in comparison with the maintenance projects. ...
Construction projects are complex as they include many activities which influence and interact with each other at different stages. The impact of design phase undiscovered rework on construction phase quality has been hypothesized as influential in project dynamics by many. However few empirical studies have measured this impact. In this paper we develop a simple system dynamics model, estimate it using data from 18 construction projects, and validate the model on a validation set of 15 projects. The model provides good fit for the calibration set and strong predictive power on the validation set. It also allows us to estimate the impact of undiscovered design changes on construction phase quality, which appears to be notable.
... Project bids based on over-optimistic cost estimates are more likely to result in a project. This is evident from, for example, the results reported in (Hinze et al., 1992) where the average cost overrun was found to increase with the number of bidders. In competitive bidding rounds this bias may be substantial and is frequently termed "the winner's curse" or the "optimizer's curse" (Smith and Winkler, 2006), but the bias will also be present in situation where a company has to prioritize between projects and selects the one with the estimated best cost-benefit. ...
Empirical studies differ in what they report as the underlying relation between project size and percent cost overrun. As a consequence, the studies also differ in their project management recommendations. We show that studies with a project size measure based on the actual cost systematically report an increase in percent cost overrun with increased project size, whereas studies with a project size measure based on the estimated cost report a decrease or no change in percent cost overrun with increased project size. The observed pattern is, we argue, to some extent a statistical artifact caused by imperfect correlation between the estimated and the actual cost. We conclude that the previous observational studies cannot be considered to provide reliable evidence in favor of an underlying project size related cost estimation bias. We discuss the limited, statistically robust evidence and the need for other types of studies.
Construction project changes vis-a-vice their impact on the cost and time performance has been the main concern of practitioners and scholars for decades; hence, many attempts have been made to develop early warning mechanisms for decision-makers. Since many factors drive project changes, various strategies can be adopted to mitigate further alterations after awarding the contract. This study aimed at developing multiple Support Vector Machine (SVM) classifiers to enhance change prediction accuracy. 5,628 completed construction-oriented projects datasets comprising preconstruction information, obtained from the Indiana Department of Transportation (INDOT), were used to develop the models. All free kernel parameters were determined using Genetic Algorithm (GA) optimization. The results show that the models built using SVM classifiers with Radial Basis Function (RBF) kernel function were successful in decreasing the uncertainty associated with change order occurrence in the early phases of the projects. Therefore, the study recommends that agencies, developers, and contractors store historical project data to build early warning systems using machine learning techniques.
The primary objective of this study is to examine the factors affecting the cost accuracy of construction projects in Egypt and to develop a model that can aid in arriving at more accurate and reliable final cost estimates in the early stages of the project. This study was based on a primary data collected through a structured questionnaire from a sample size of 60 respondents involving construction workers including contractors, consultants, quantity surveyors, estimators and architects using stratified sampling technique. Multiple regression analysis has been used to reveal the relationships between the pre-mediated factors (independent variables) selected form exiting literature and the cost accuracy (dependent variable). According to the findings, the main factors affecting the cost accuracy include multiple internal and external aspects such as construction team experience in building type, client's financial situation and budget, completeness and reliability of cost information and details, stability of market as well as the economic situation of the country. It is expected that these results will guide efforts to improve the performance of the construction industry in developing countries in future.
This paper provides conceptual insights on the economic impact of project cost overrun and schedule delays on infrastructure procurement in developing countries with huge infrastructure deficit in Sub-Saharan Africa. Projects cost overruns and schedule delay are a major and widespread problem in infrastructure procurement the world over. It has received a lot of attention in the recent past. However, the literature reveals that extant studies on project overruns are heavily skewed towards causative factors, with little or no attention to the effects it has on the economy as a whole. The paucity of studies on the effects of project cost overrun and schedule delay will further reinforce the imperative to reacquaint policymakers and infrastructure developers, as well as project financiers with the gravity and import of the problem for infrastructural development in particular and the wider economy in general. The study undertakes an exploratory approach drawing from a wide range of secondary information and materials obtained from policy documents, study reports and peer-reviewed articles. The findings show that cost overrun and schedule delay in infrastructure procurement can have a damaging economic effect ranging from allocative inefficiency of scarce resources, further delays, contractual disputes, claims and litigation to project failure and total abandonment. The study recommends project management capacity-building for infrastructure developers, project managers as well as a number of innovative control mechanisms such as reference class forecasting, public-private partnership and computer-aided cost estimating tools including artificial neural networks, data mining, building information modelling as well as fuzzy neural inference model, genetic algorithms, and stochastic simulation to curb the menace of the problem.
This paper provides conceptual insights into the economic impact of project cost overruns and schedule delays on infrastructure procurement in developing countries with weak institutions like those in Sub-Saharan Africa. Project cost overruns and schedule delays are a major and widespread problem in infrastructure procurement the world over that has received a lot of attention in the recent past. However, a critical review of the literature reveals that extant studies on project overruns are heavily skewed towards causative factors, with little or no attention to the effects it has on the economy as a whole. The paucity of studies on the effects of project cost overruns and schedule delays further reinforces the imperative to reacquaint policymakers and infrastructure developers, as well as project financiers with the gravity and import of the problem for infrastructural development in particular and the wider economy in general. The study undertakes an exploratory approach drawing from a wide range of theoretical and empirical literature obtained from policy documents, study reports and peer-reviewed articles. The findings show that cost overrun and schedule delay in infrastructure procurement can have a damaging economic effect ranging from the productive inefficiency of scarce resources, further delays, contractual disputes, claims and litigation to project failure and total abandonment. The study recommends project management capacity-building for infrastructure developers, project managers as well as a number of innovative control mechanisms such as reference class forecasting, public-private partnership and computer-aided cost estimating tools including artificial neural networks, data mining, building information modelling as well as fuzzy neural inference model, genetic algorithms, and stochastic simulation to curb the menace of the phenomenon.
The expected final budgeted costs of infrastructure assets are often exceeded during project delivery. Being able to determine the likelihood of changes to the final budget can enable clients to implement strategies to manage and control costs during construction. To understand the changing nature of costs, the cost profiles of 1,093 water infrastructure projects that were delivered by a water utility company are examined. Cost overruns were experienced in 656 projects. Only one project was delivered on budget with the remaining 436 being completed under the ‘Final Budget Approval’. A mean cost overrun and underrun of +19.97% and -32%, were found, respectively. The ‘best fit’ distribution for cost overruns and underruns for determining their probability of occurrence were calculated. The research moves beyond examining the cost performance of heterogeneous datasets that have dominated previous studies to the use of a homogeneous sample, which enables more reliable contingency forecasts to be determined.
This paper provides conceptual insights on the economic impact of project cost overrun and schedule delays on infrastructure procurement in developing countries with huge infrastructure deficit in Sub-Saharan Africa. Projects cost overruns and schedule delay are a major and widespread problem in infrastructure procurement the world over. It has received a lot of attention in the recent past. However, the literature reveals that extant studies on project overruns are heavily skewed towards causative factors, with little or no attention to the effects it has on the economy as a whole. The paucity of studies on the effects of project cost overrun and schedule delay will further reinforce the imperative to reacquaint policymakers and infrastructure developers, as well as project financiers with the gravity and import of the problem for infrastructural development in particular and the wider economy in general. The study undertakes an exploratory approach drawing from a wide range of secondary information and materials obtained from policy documents, study reports and peer-reviewed articles. The findings show that cost overrun and schedule delay in infrastructure procurement can have a damaging economic effect ranging from allocative inefficiency of scarce resources, further delays, contractual disputes, claims and litigation to project failure and total abandonment. The study recommends project management capacity-building for infrastructure developers, project managers as well as a number of innovative control mechanisms such as reference class forecasting, public-private partnership and computer-aided cost estimating tools including artificial neural networks, data mining, building information modelling as well as fuzzy neural inference model, genetic algorithms, and stochastic simulation to curb the menace of the problem.
This paper provides conceptual insights on the economic impact of project cost overrun and schedule delays on infrastructure procurement in developing countries with huge infrastructure deficit in Sub-Saharan Africa. Projects cost overruns and schedule delay are a major and widespread problem in infrastructure procurement the world over. It has received a lot of attention in the recent past. However, the literature reveals that extant studies on project overruns are heavily skewed towards causative factors, with little or no attention to the effects it has on the economy as a whole. The paucity of studies on the effects of project cost overrun and schedule delay will further reinforce the imperative to reacquaint policymakers and infrastructure developers, as well as project financiers with the gravity and import of the problem for infrastructural development in particular and the wider economy in general. The study undertakes an exploratory approach drawing from a wide range of secondary information and materials obtained from policy documents, study reports and peer-reviewed articles. The findings show that cost overrun and schedule delay in infrastructure procurement can have a damaging economic effect ranging from allocative inefficiency of scarce resources, further delays, contractual disputes, claims and litigation to project failure and total abandonment. The study recommends project management capacity-building for infrastructure developers, project managers as well as a number of innovative control mechanisms such as reference class forecasting, public-private partnership and computer-aided cost estimating tools including artificial neural networks, data mining, building information modelling as well as fuzzy neural inference model, genetic algorithms, and stochastic simulation to curb the menace of the problem.
Factores latentes de desviación de presupuestos en proyectos de arquitectura 0 TESIS DOCTORAL Factores latentes en la desviación de presupuestos en proyectos de arquitectura. Un análisis empírico
Strategic negotiation of subcontracts appears to contain many benefits regarding cost savings, quality improvement, better project time management, and project value enhancement. The primary purpose of the study presented in this paper is to investigate the current and prospective concepts of negotiable subcontract conditions in the Australian construction industry that can alleviate elongated negotiations and attain a win/win result for both contractor and subcontractor. The study first discussed legislative regulations and opinions concerning subcontract negotiation through extensive review on academic literature and Australian Standards including AS 4903 General conditions of subcontract for design and construct and AS 4300 General conditions of contract for design and construct. The study was further developed in the form of a survey, collecting data from 71 respondents (i.e., contractors and subcontractors) from the Queensland, New South Wales and Northern Territory construction industries in Australia. Cronbach’s alpha assessed the reliability of survey responses. The research then statistically analyzed not only critical negotiation factors contributing to project performance based on Fisher’s exact test but also significant differences between contractors’ and subcontractors’ viewpoints to subcontract negotiation by ANOVA testing. The survey results revealed that contractors and subcontractors attain different opinions regarding the fairness of subcontract conditions; however, both parties believed that there were genuine opportunities to improve project performance and value via the negotiation of subcontract conditions using an integrative approach.
The data mining technique of classification was used to identify patterns in bidding data. Using highway-bidding data from Texas highway projects several different ratios were calculated to describe relationships between the submitted bids such as the spread of the submitted bid and the difference between the low bid and the second lowest bid. Elevated levels of these ratios have been found to be associated with projects that have significant deviations between the original low bid amount and the completed project cost. The Ripple Down Rule (Ridor) classification algorithm was used to generate a set of rules from the database of bidding ratios that provides a prediction of the expected level of cost increase over the initial low bid price. The classification rules generated by the Ridor algorithm are presented. A test set was used to determine the usefulness of the generated rules in predicting project cost increases and results of the testing are presented.
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