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Risks Leading to Cost Overrun in Construction Projects: A Systematic Literature Review

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In construction projects in the world, there is generally a final cost overrun on the completion of construction projects. The cost overruns occur when the project has to face various risks due to the lack of anticipated preparation to minimize the risks that cause delays in the implementation of the sequence of work sequences. This is certainly a big problem in preparing construction project budgets and critical challenge for both owners and contractors, so it should be managed to decrease or avoid bad things. The purpose of this literature review is to present risks that cause cost overrun for the past ten years. Factors cause cost overrun; Cost Estimate, Construction Items, Project Participants, Environment, and Finance. This research used a systematic literature review. Based on 50 journals review about risks leading to cost overrun, the most factor causes cost overrun.
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Advance Researches in Civil Engineering
ISSN: 2645-7229, Vol.3, No.1, pages: 43-60
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Risks Leading to Cost Overrun in Construction
Projects: A Systematic Literature Review
Marsha Enrica 1*, Humiras Hardi Purba 2, Aleksander Purba 3
*1 Department of Civil Engineering, Faculty of Engineering, Mercubuana University, Jakarta Indonesia
(marshaenrica800@gmail.com)
2Industrial Engineering Department, Faculty of Engineering, Mercubuana University, Jakarta, Indonesia
3Civil Engineering Department, Faculty of Engineering, Lampung University, Lampung, Indonesia
(Date of received: 10/05/2020, Date of accepted: 15/01/2021)
ABSTRACT
In construction projects in the world, there is generally a final cost overrun on the completion of
construction projects. The cost overruns occur when the project has to face various risks due to the lack of
anticipated preparation to minimize the risks that cause delays in the implementation of the sequence of
work sequences. This is certainly a big problem in preparing construction project budgets and critical
challenge for both owners and contractors, so it should be managed to decrease or avoid bad things. The
purpose of this literature review is to present risks that cause cost overrun for the past ten years. Factors
cause cost overrun; Cost Estimate, Construction Items, Project Participants, Environment, and Finance.
This research used a systematic literature review. Based on 50 journals review about risks leading to cost
overrun, the most factor causes cost overrun is Project Participants (25, 60%) with case Poor Planning,
2nd rank is Construction Items (22.67%) with case Frequent Changes in Design, 3rd Rank is Cost Estimates
(22,00%) with case Inaccurate Cost Estimation, 4th rank is Finance (16,93%) with case Inflationary
Pressure and last risk factor is Environment (12,80%) with case Weather Condition.
Keywords:
Risk, Cost Overrun, Construction Project.
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1. Introduction
Risks always exist in construction projects and often cause schedule delay or cost overrun [1].
Cost overrun is not an uncommon phenomenon in construction projects and in particular with civil
engineering and infrastructure projects [2]. Risk management defined by the researcher as a
stepwise procedure consisting of risk identification, risk classification, risk analysis, and risk
response tasks. Risk in construction projects has been the object of attention because of time and
cost overruns associated with construction projects. Cost overrun is a very frequent phenomenon
and is almost associated with all projects of the construction industry. Cost overrun is the difference
between the final actual cost of a construction project at completion and the contract amount agreed
by and between the owner and the contractor during the signing of the contract. Cost overrun is
considered an obvious indicator of the project's failure, which a situation of a construction project
in which budgetary estimate exceeds estimation and settlement exceeds budget is a universal
phenomenon [3].
Figure 1. The Impact of Cost Overrun on Project Situation [3].
It is important to analyze the factors causing cost overrun so that project implementation does
not exceed the budget, get profit, and raise a successful project.
2. Research Methodology
This journal review is based on a literature review obtained online from trusted sources; ASCE,
Research Gate, Taylor, and Francis, etc by using the keywords "construction projects", “cost
overrun” and "risk", so we get 93 journals and only 50 journals selected to be review and provide
the latest information.
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Figure 2. Study Framework.
3. Result and Discussion
A variety of construction projects in the world often face several obstacles that cause cost
overruns which become a major problem in the provision of budget. The need to examine the
problems that occur in construction projects in the world to analyze the risks that have the
opportunity to occur, so that in implementing construction projects, project participants can take
action to anticipate the occurrence of risks to minimize cost overruns. Cost overruns are primarily
due to uncertainty uncontrollable than risk controllable and therefore are more difficult to manage.
The provision of more realistic contingency percentages across such projects will go a long way to
providing better reporting of highway projects, program results, and associated key project
performance indicators [4]. Full attention must be paid to cost-overrun factors to achieve the project
aim to complete the project within budget. Two parties must work together collaboratively can
effectively reduce the possibilities of occurrence risks, and thus the chance of cost-overrun can be
minimized [1]. The most problem in residential construction projects is originated from poor
resource management (human, technical, and material). These causes should be controlled right
away from the planning to the implementation and management stages. Good practice in planning,
coordinating, controlling, and monitoring procedures, therefore, have to be recognized [5]. To
achieve efficient and effective cost, project managers are suggested to adopt particular measures to
implement at the planning stage to avoid the hindrances during project execution and achieve
effective cost control assuring the completion of the project within budgeted cost [6]. Detailed
studies can be done to evaluate the involvement and effect of a specific party or resource of the
construction project on the cost overrun in construction projects [7].
Conducting a multi-case study with more number of companies, including large and small
companies, may give more accurate results. The limited sample size may also influence the results
[8] . The cost overrun factors that lead to project cost growth has been documented through a large
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number of studies. So they were identified from the literature survey worldwide [3]. The most
significant causes of cost overrun in the Afghanistan construction are corruption, delay in progress
payments by clients, difficulties in financing projects by contractors, security, and change order by
clients during the construction phase. The findings need attention to achieve improved cost
performance and to mitigate against further project failure [9]. The list of Existing Literature review
of Cost Overrun in Construction Projects is as shown in Table 1.
Table 1. Existing Literature review of Cost Overrun in Construction Projects
No
Paper Identity
Cost Overrun Factor
Result
Cost Estimate
Construction Items
Project Participants
Environment
Finance
1
(Creedy et al.,
2010) [4]
4
5
3
1
2
The analysis has produced important findings
concerning the reasons highway projects have cost
overrun. Of particular concern change in project
designs and scope changes during project
development.
2
(Durdyev et al.,
2010) [5]
4
3
5
2
1
The results show that most of the problems in
residential construction projects are originated from
poor resource management (human, technical, and
material). These causes should be controlled right
away from the planning to the implementation and
management stages.
3
(Wang & Yuan,
2011) [1]
3
5
1
2
4
The findings revealed that the key cost-overrun risks
included: Client’s capital is
unavailable, Design Variations, Variations by the
client, Inflation in price of construction materials,
Contractor’s security of payment, Cost estimation is
crude, Insufficient liquidated capital, Dispute for the
ambiguity of contract conditions, Corruption, and
bribery, Inadequate or insufficient site information,
Poor management level, Unreasonable project
construction period requirement, Low competency of
the subcontractor, Bureaucratic inefficient and delay
on Examining and Approving and Inadequate
program scheduling.
4
(Doloi, 2012) [10]
4
3
5
1
2
The result was found the design complexity, financial
structure, and government policy influences are the
three main factors affecting risks across time, cost
and operational performance in PPP projects.
5
(Azis et al., 2013)
[6]
3
4
5
2
1
The most severe contributor to cost overrun, ranked
by the respondents out of eight categories of cost
overrun is the contractor's site management.
6
(Muya et al.,
2013) [11]
5
4
2
1
3
The results presented the Zambian construction
industry should endeavor to improve project finance
planning and management. Project cost estimates
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should also take into account escalations that could
result from inflationary changes.
No
Paper Identity
Cost Overrun Factor
Result
Cost Estimate
Construction Items
Project Participants
Environment
Finance
7
(Sweis, 2013)
[12]
3
4
2
5
1
The top three major factors that cause the cost
overruns were a governmental delay, followed by
severe weather conditions and design changes.
8
(Mahamid &
Dmaidi, 2013)
[13]
4
1
2
5
3
100% of the respondents indicated that the average
cost between 10% and 30% of the project’s estimated
cost.
9
(Yehiel, 2013)
[14]
5
4
3
1
2
three of the 15 roots causes were identified as most
prominent :
•Premature tender documents
•Too many changes in owners’ requirements or
definitions
•Tender-winning prices are unrealistically low
10
(Mahamid, 2014)
[15]
1
3
4
2
5
Detailed studies can be done to evaluate the
involvement and effect of a specific party or resource
of the construction project on the cost overrun in
construction projects. Research can be carried out to
investigate the effect of the fluctuation of currency
exchange and financing on cost overrun in
construction projects.
11
(Jalaei & Jrade,
2014) [16]
3
2
4
1
5
Lack of planning and coordination is described as the
most significant factor causing cost overrun of
building construction projects.
12
(Choudhry et al.,
2014) [17]
4
2
3
1
5
Risks that affected: unexpected weather, delay in
approvals, design changes, insufficient technology,
lack of workspace, unavailability of material, and
funds.
13
(Al-Sabah et al.,
2014) [18]
2
1
3
4
5
Among all external risk categories, the economic risk
category was ranked to have the highest effect
concerning the impact on project cost and company
performance.
14
(Abdussalam
Shibani & Kumar
Arumugam, 2015)
[8]
4
3
5
2
1
It is interesting that this critical success
factors also affect the objectives of construction
projects, like budget, performance and quality, and
completion of the project on time.
15
(Tebeje Zewdu,
2015) [19]
2
3
5
1
4
The result by the contractor’s perspective that the top
five causing cost overrun in construction projects are
poor planning, fluctuation of the price, poor
productivity, inflationary pressure, and project
financing.
No
Paper Identity
Cost Overrun Factor
Result
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Cost Estimate
Construction Items
Project Participants
Environment
Finance
16
(Lind & Brunes,
2015) [20]
4
5
2
1
3
The descriptive part covers two dimensions, first is
when during the process the cost overrun occurs and
the second is which part of the cost function has
changed: is it changes in the product (scope changes,
quality changes), changes in the number of inputs
needed or changes in the price of the inputs.
17
(Samuel & Ovie,
2015) [21]
4
5
3
1
2
This value on the II calibration is a stationary value
between the boundary variables of inexperience
project management having II value of 0.77 and
low skilled manpower having value of 0.69.
18
(Iqbal et al., 2015)
[22]
2
3
4
1
5
Out of 37 risks, top ten risks have been highlighted
and discussed in detail: payment delays; project
funding problems; accidents /safety during
construction; defective design; inaccurate execution
plan/schedule; poor performance of subcontractors;
exchange rate fluctuation and inflation; the improper
scope of work definition in a contract; poor quality of
materials and equipment; and shortage /delay of
material supply.
19
(Larsen et al.,
2016) [23]
3
4
5
1
2
Also, the project organization must manage the
factors, which should be completed in the design
stage before either tendering or construction.
20
(El-Ahwal et al.,
2016) [3]
4
3
5
1
2
Cost factors are grouped into six groups, these six
main groups, namely: technical, economic
&financial, political &regulation, management,
project resources, and environmental factors.
21
(Shibnai
Abdussalam and
Salah Karim,
2016) [24]
3
5
4
2
1
The owners are recommended to revise and check the
contracts document because of unfavorable clauses
such pay when paid can lead to lack of funds to the
contract that will result in work suspension and also
the duration of the contract if too short for the project
and unreasonable comparing with the type and size of
the project, delay and cost overrun may happen. The
owner should pay the payment on time causes limit
the contractors to finance the work.
No
Paper Identity
Cost Overrun Factor
Result
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Cost Estimate
Construction Items
Project Participants
Environment
Finance
22
(Abusafiya &
Suliman, 2017)
[25]
3
5
4
2
1
Frequent design changes were the most important
factor of cost overrun causes that can affect the
project’s estimated budget and its consequences
involve not only the work for which the change is
directed but other work and overhead functions as
well.
23
(Derakhshanalavij
eh & Teixeira,
2017) [26]
5
3
4
1
2
The five most important factors, agreed by the project
owners, consultants and contractors are: inaccurate
cost estimations; improper planning; frequent design
changes or mistakes in design; inadequate labor/skill
availability; inflation in the costs.
24
(Al-Hazim et al.,
2017) [27]
1
4
2
5
3
The most important reason that leads to cost overrun
was terrain conditions that are occurred in 22.20% of
the studied projects. The second was weather
conditions that occurred in 15.3%. Other factors are
new variation orders (10.2%), mistakes in design
(6.1%), emergency working (3.2%), poor scheduling
of time (5.9%), and poor planning of cost (4.3%) for
the infrastructure projects.
25
(Abd El-Karim et
al., 2017) [28]
5
3
2
4
1
Estimating costs are major factors in achieving a
successful and realistic budget for projects. if the cost
estimator takes the impact of those attributes as same
as their values, the budget will increase accordingly
and the tenderer may be unsuccessful.
26
(Durdyev et al.,
2017) [29]
5
2
4
1
3
Results showed three factors contributing to cost
overrun: project and cost management, project
finance, and project risk factors.
27
(Niazi & Painting,
2017) [9]
2
4
5
1
3
Corruption is ranked as first ranked, Delay in
progress payment by the client is ranked the 2nd and
Difficulties in financing project by contractors is
ranked 3rd of cost overrun.
28
(Haslinda et al.,
2018) [30]
5
4
2
1
3
In terms of overall severity, the highest-ranking
variables were found to be `Poor pre-construction
budget and material cost planning’ (0.84), ‘Inaccurate
quantity take-off’ (0.74), and ‘Materials cost
increased by inflation’ (0.70).
29
(Gunduz & Maki,
2018) [31]
3
4
5
1
2
The top 3 rank cost overrun factor is the schedule
delay (47%), planning and scheduling (47%),
frequent design changes (45%).
No
Paper Identity
Cost Overrun Factor
Result
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Cost Estimate
Construction Items
Project Participants
Environment
Finance
30
(França &
Haddad, 2018)
[32]
2
3
5
1
4
The result of the project managers group shows that
the customer is the major causer in cost overrun. The
group of area managers understands that the
production department is the main responsible for the
increase in costs. The result of the directors is more
related to internal factors of planning.
31
(Kim et al., 2018)
[33]
3
2
5
4
1
The top five factors causing the highest cost overrun
in hospital projects are: Addition work, Wet weather
effect/rework, Quantity increased measures,
Accommodation works, and Project administration
cost increase.
32
(Sinesilassie et
al., 2018) [34]
3
4
5
2
1
The determinants may help in reducing failure factors
and bringing in success factors about the cost of a
project. This may ultimately lead to projects being
completed within the stipulated budget.
33
(Plebankiewicz,
2018) [35]
5
3
2
1
4
The results showed that the most likely increase in
costs of the analyzed element will be 53% with the
costs specified in the cost estimate.
34
(Johnson & Babu,
2018) [36]
4
1
5
3
2
Design variation, poor cost estimation, delay in
decision-making process, financial constraints and
inappropriate procurement method is the top five
causes of cost overrun. These causes are
experimentally proven applicable to various
countries.
35
(Mansur et al.,
2019) [37]
5
2
1
4
3
The study found cost items for labor, material,
equipment, and subcontractor are between 79% to
86% of each component cost. This demonstrated are
indeed the main contributors to cost overrun in
construction China's project compared to other
factors that cause cost overrun.
36
(Patil, 2019) [38]
2
5
4
3
1
Late delivery of materials and equipment,
Unavailability of competent staff, Low productivity
level of labors, Quality of equipment, and the raw
material is the factor causes cost overrun.
37
(Personal &
Archive, 2019)
[39]
5
2
4
3
1
The results show that poor estimation, lack of
timeous reports, corruption, construction productivity
and contractual claims.
No
Paper Identity
Cost Overrun Factor
Result
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Cost Estimate
Construction Items
Project Participants
Environment
Finance
38
(Nguyen et al.,
2019) [40]
1
3
4
2
5
This study assessed cost performance through cost
growth a difference in percentage between the
original contract price and actual/final contract price.
Three main types of resources evaluated in this study
included equipment, materials/capital, and
manpower/project team.
39
(Danisworo &
Latief, 2019) [41]
1
4
5
2
3
The Jakarta Phase 1 MRT project is estimated to have
a cost overrun estimation of 47.57% from the initial
contract amount.
40
(Mahmid, 2014)
[7]
2
3
5
1
4
The five majors’ significant factors causing cost
overruns are reworked, fluctuation in the money
exchange rate, escalation of material price, additional
work at owners’ request, and high transportation cost.
41
(Kavuma et al.,
2019) [42]
3
5
4
1
2
To avert cost escalations on freeform building
projects, the client needs to do a thorough cost
analysis for the project in addition to allowing
considerable sum in the project cost for
contingencies.
42
(Akhund et al.,
2019) [43]
5
4
3
1
2
Cost overrun in construction projects of Pakistan is
still a challengeable problem, especially in Public
projects. This issue can be resolved by focusing on
the pre-construction planning phase of the project life
cycle. The study can be compared and more
favorable results in terms of comparison can be
obtained.
43
(Annamalaisami
& Kuppuswamy,
2019) [44]
1
3
5
2
4
Scope creep, construction delays, rework and practice
of awarding the contract to the lowest bidder and
their causal impact on other cost overrun factors.
44
(Akinradewo et
al., 2019) [45]
3
4
5
1
2
Cost overrun is a common phenomenon by varieties
of factors such as the introduction of new works
during the construction phase of the project, poor
practice of cost control techniques, improper
management of the contract.
45
(Kamal et al.,
2019) [46]
3
4
5
1
2
Top 5 cost risk factors were rework due to error,
underestimation of timely completion, poor site
management, underestimation of costs, and
fluctuation in material prices.
No
Paper Identity
Cost Overrun Factor
Result
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Cost Estimate
Construction Items
Project Participants
Environment
Finance
46
(Taye, 2019) [47]
3
2
4
1
5
According to the overall view of rank, fluctuation of
construction material cost, inadequate project
planning & scheduling and poor economic condition
were the 1st, 2nd, and 3rd level of influencing factor
of cost overrun in a construction project.
47
(Andrić et al.,
2019) [48]
5
3
4
2
1
The key causes of cost overruns are: increase cost of
resources (construction materials, equipment, and
labor), construction works, changes in design
specifications, land acquisition and resettlement, and
currency exchange.
48
(Alzara et al.,
2020) [49]
3
5
4
2
1
Thus, “changed orders,” “client’s change of scope,”
and “bid proposal errors” are the most significant
causes of cost overruns in Saudi Arabia.
49
(Susanti, 2020)
[50]
4
2
5
3
1
inaccurate in budgeting and resource planning and
Owner additional required as factor most causing cost
overrun.
50
(Amri & Marey-
Pérez, 2020) [51]
3
4
5
2
1
The main client-related factors include change of the
project’s scope. Poor planning and management were
established as important contractor related
determinants of project cost overrun.
Based on Table. 1, each journal has a score in each factor that shows the most factor causes cost
overrun (5) to which factor doesn’t have a big effect on cost overrun (1). The 50 journals selected
are previous studies published for the past 10 years, fig. 3 shows how many journals selected to
review by year from 2010 -2020. In the planning stage of any construction project, larger efforts
should be exerted on the planning preparation, scheduling, and cost evaluation to reduce the risk
of delay and cost overrun of the project implementation. Successful management of construction
projects may need to adopt procedures to avoid problems and to adopt contingency plans to reduce
the effects of problems when they occurred [41]. The literature review presents the previous study.
The comparison with other studies demonstrates the need for the research for the special project
type [33]. From the last 2 years' journal research in 2019 and 2020, the journal published in 2019
discussed risk factors that cause cost overrun in MRT Project Phase 1 in Indonesia and journal
published in 2020 discussed risk factors cause cost overrun and time delay of construction projects
in Indonesia. Owners and contractors also agreed “Owner additional required” as factor most
causing cost overrun and time delay in the construction project. Nevertheless, both parties agreed
the inflation has the least influent on construction project delay, both parties have extra effort in
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the planning phase. A Successful management construction project may avoid the problem or
reduce the effect when cost overrun or time delay occurred [50].
Figure 3. List of Journal’s Year Published.
Based on Fig. 3, there is 1 journal published in 2010 and also 1 journal published in 2011 is
selected to review, then 2 journals in 2012, 5 journals in 2013, 4 journals in 2014, 5 journals in
2015, 3 journals in 2016, 7 journals in 2017, 6 journals in 2018, 13 journals in 2019 and 3 journals
published in 2020. Journals selected is discussed various types and location of the construction
project. For types of construction projects, there is a highway, industry, infrastructure, high rise
building, residential, hospital, railway, bridge, etc. There’s a journal case for the location of the
construction project in China, Turkey, Malaysia, Zambia, Palestine, Pakistan, India, Ethiopian,
Sweden, Egypt, Bahrain, Iran, Cambodia, Afghanistan, Brazil, Vietnam, United Arab Emirates,
Zimbabwe, Nigeria, Asia, and Indonesia. Studies were conducted to investigate the effects of cost
overrun in construction projects, the field survey included 26 consultants. 41 factors are identified
through a literature review. The factors are divided into 5 groups. Several studies were conducted
to investigate the effects of cost overrun in construction projects. Table 2 summarizes some of
these effects [13].
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Table 2. List of Cost Overrun Factors According to Journal [13].
Cost Overrun
Factor
Types of Factor
Cost Estimate
Cost of Labor
Transportation Cost
Cost of Machinery
Machinery Maintenance Cost
Wrong Estimation Method
High-Interest Rate by Bankers
Cost of Insurance
Fluctuation Prices of Materials
Waste on Site
Bureaucracy in Tender Method
Long Period Between Design and Time
of Tendering
Construction
Items
Additional Work
Contract Management
Contractual Procedure
Duration of Contract Period
Frequent Changes in Design
Lack of Adequate Manpower
Fraudulent Practices and Kickbacks
Project
Participants
Poor Financial Control On-Site
Poor Planning
Disputes on Site
Previous Experience of Contract
Relationship Between Managers and
Labors
Lack of Coordination Between
Construction Parties
Environment
Level of Competitors
Manipulation of Suppliers
Absence of Construction-Cost Data
Economic Instability
Effects of Weather
Government Policies
Monopoly by Suppliers
Number of Competitors
Political Situation
Poor Productivity
Project Location
Social and Cultural Impacts
Number of Projects Going at The Same
Time
Inadequate Production of Raw Materials
by The Country
Finance
Currency Exchange
Inflationary Pressure
Project Financing
Table 1 provides information from 50 journals selected and reviewed. To get a comparison
value, in table 1, each factor in each journal has a value of 1 5 (the most). The percentage obtained
from calculate a value in table 1 and divide with the total value from 50 journals reviewed. The
result of this paper literature review, The most risk factor leading to cost overrun is Project
Participants (25.60%), 2nd rank is Construction Items (22.53%), 3rd Rank is Cost Estimates
(22.13%), 4th rank is Finance (16.93%) and last risk factor is Environment (12.80%) as shown
below in Figure 4 and types of cost overrun factors as shown below in Figure 5.
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Figure 4. Percentage of factors causes cost overrun.
The preparation of a cost estimate for a particular construction project requires collecting,
retrieving, and manipulating large amounts independently. Change in a project’s design could be
part of a construction project nature because of its inherent complexity and uncertainty.
Figure 5. Percentage of Types of Cost Overrun Factors.
22.00%
22.67%
25.60%
12.80%
16.93%
Factors Causes Cost Overrun
Cost Estimates
Construction Items
Construction Participants
Environment
Finance
10
11
19
3
7
0
2
4
6
8
10
12
14
16
18
20
ICE FCD PP EW IP
Types of Cost Overrun Factors
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The most problems encountered in construction projects from 19 journals reviewed is Poor
Planning. Frequent Changes in Design were identified as the most factor causes of cost overrun in
eleven out of fifty journals, ten out of 50 journals identified that Inaccurate Cost Estimation is the
most factor causes cost overrun, Inflationary Pressure has been recognized as one of the main
causes of cost overrun in seven studies out of the fifty and the last three from fifty journals inform
that weather is the most factor causes cost overrun.
4. Conclusion
The result of this paper literature review, the most risk factor leading to cost overrun is:
1. Project Participants (25.60%) with case Poor Planning (19).
2. Construction Items (22.67%) with case Frequent Changes in Design (11).
3. Cost Estimates (22.00%) with case Inaccurate Cost Estimation (10).
4. Finance (16.93%) with case Inflationary Pressure (7).
5. Environment (12.80%) with case Weather Condition (3).
A realistic tender winning price is an important thing. The contractor should be prepared for
fluctuation material price during construction project time. One of the solutions to anticipate cost
overrun in construction projects is good planning and estimation before the project begins.
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