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Causes and Effects of Cost Overruns in Construction Projects

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Generally, cost overrun is inevitable in construction projects. However, due to the time, cost, quality constraints, and public impact, roads and highway projects face more significant issues due to cost overruns. Construction projects face a mean cost overrun of 28% inevitably. This paper investigates the causes of cost overruns and their severity based on a systematic literature review. The final selection and analysis are based on 142 journal articles. Collected journal papers were analysed using science mapping and thematic analysis. Quantitative results identified that project management, risk assessment, cost-benefit analysis, construction management, time overrun, decision-making, and design/ methodology/ approach triggers a significant effect on cost overruns. The major causes were categorised into three major divisions as management related issues, design/ methodology/approach-related issues, and project performance issues. The Thematic analysis was presented in the form of a fishbone diagram. It is recommended to have a proper management process from consultant and contractor perspectives, as project management and construction management are two significant causes identified. The identified causes will be investigated using actual data from the construction industry and accommodated into a cost estimation model to minimise the inevitable cost overrun percentage. The research is limited to the literature findings of the past ten-year period. The study offers academics a comprehensive understanding of construction cost overrun (CCO) research to link current research areas to future trends. It also provides construction professionals with current practices and an interdisciplinary guide to deliver construction projects better.
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Causes and Effects of Cost Overruns in Construction Projects
Chinthaka Atapattu
1*
, Niluka Domingo
1
and Monty Sutrisna
1
1
School of Built Environment, Massey University,
Albany Auckland 0632, NEW ZEALAND
n.d.domingo@massey.ac.nz, m.sutrisna@massey.ac.nz
* Corresponding author
Abstract:
Generally, cost overrun is inevitable in construction projects. However, due to the time, cost, quality
constraints, and public impact, roads and highway projects face more significant issues due to cost
overruns. Construction projects face a mean cost overrun of 28% inevitably. This paper investigates the
causes of cost overruns and their severity based on a systematic literature review. The final selection
and analysis are based on 142 journal articles. Collected journal papers were analysed using science
mapping and thematic analysis. Quantitative results identified that project management, risk
assessment, cost-benefit analysis, construction management, time overrun, decision-making, and
design/ methodology/ approach triggers a significant effect on cost overruns. The major causes were
categorised into three major divisions as management related issues, design/ methodology/approach-
related issues, and project performance issues. The Thematic analysis was presented in the form of a
fishbone diagram. It is recommended to have a proper management process from both consultant and
contractor perspectives as project management and construction management are two significant
causes identified. The identified causes will be investigated using actual data from the construction
industry and accommodated into a cost estimation model which will minimise the inevitable cost overrun
percentage. The research is limited to the literature findings of the past ten-year period. The study offers
academics a comprehensive understanding of construction cost overrun (CCO) research to link current
research areas to future trends. It also provides construction professionals with current practices and
an interdisciplinary guide to better deliver construction projects.
Keywords:
Budget overruns, Causes, Cost overruns, Cost estimation, Construction, Effects
1 Introduction
Cost overruns in construction projects are considered one of the major issues globally, without
any control or solution for the last 70 years. According to the facts, construction projects
experienced 28% of the mean percentage of cost overrun (MPCO) (Flyvbjerg, et al., 2003; Lind
and Brunes (2015) studied Swedish infrastructure projects and identified that mostly the cost
overruns take place at the initial stages of design and planning until the design is finalized due
to technical and administrative issues. This means considering the avoidable causes of cost
overruns, the project team should pay more attention to these pre-construction issues.
This emphasised the value of proper cost control of the project. According to Seeley (1996),
the most important duty of a Quantity Surveyor is cost controlling while giving the value for
money set against perceived expectations. Nonetheless, cost control alone cannot address the
issue of cost overruns. There are three elements or processes of Cost Management; cost
estimating, cost budgeting, and cost controlling (Owens et al., 2007). Having accurate project
estimates and a project budget accordingly is essential to delivering the project within the
budget (Malkanthi, et al., 2017).
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
Hence, to execute the project within the expected budget, the accuracy of the estimation is
required, so that the decision-making can be done on a reliable project budget (Malkanthi et al.,
2017). Further, the researchers explained that the project cannot be carried out within the budget
without monitoring the actual costs in the meantime the project is being implemented. In
addition to that, current estimation and management practices of the project cost require in-
depth exploration of the significant causes and their impact on the project development cost as
it can be vital for the decisions of project owners, investment parties, project developers, and
financing institutions (Johnson et al., 2013). Hence, studying the factors affecting the accuracy
of budget estimation and incorporating them into the cost estimation is vital to minimize cost
overrun.
The traditional cost estimation models used for construction projects mainly focused on Base
value (materials, labour, plant, and equipment cost), overheads and profits. Although there is a
risk assessment done at the planning stage, it is doubtful, how deep those risk factors are used
in estimation. Mostly the risk assessment is used in determining overheads, profits,
need of a proper cost estimation model which will address all the possible causes of cost
overruns. Therefore, this research examines the causes and their effects on the project cost in-
depth. Once the major causes are identified, the results will be validated by an actual data
collection process before accommodating them into the cost estimation model.
2 Research Methodology
A systematic review was undertaken in this study to examine the variables of cost overruns in
an organised, transparent, and reproducible way to synthesise research findings and discover
future studies (Snyder, 2019). The paper adopted mixed method data analysis techniques,
including quantitative (science mapping) and qualitative (thematic) analysis. This approach has
been extensively used in construction engineering and management to present knowledge
domains and research topics (Luo, et al., 2019; Ren, et al., 2020). Science mapping was utilised
to analyse and visualise bibliometric networks (Chen, 2017), while thematic analysis was
adopted to describe data in rich detail and summarise and interpret various aspects of the
research topic (Braun and Clarke, 2022).
The research process consists of three stages. In stage 1, the bibliometric search strategy used
CCO
literature. Scopus was selected for document search because of its influential and all-inclusive
database, covering more recent publications than other digital sources such as the Web of
Science (Falagas, et al., 2007). To narrow the scope of the review, a set of selection criteria
were considered, including (1) English journal articles published at the final stage in the last
ten years (2013-2022); (2) Relevant subjects in the construction research field; (3) Paper
published in top-ranking journals in the construction field ranked by Scimago Journal and
Country Rank (e.g. Engineering, construction, and architectural management), publishing the
largest number of papers in the research context. The final selection includes 142 up-to-date
journal articles. In stage 2, VOSViewer a comprehensive science mapping tool based on
Visualisation of Similarities (VOS) technology was adopted. It has unique advantages in
clustering fragmented knowledge from different domains according to their similarity and
relatedness. Compared with other options, the viewing capabilities of VOSViewer are
beneficial for maps containing at least a moderately large number of items (e.g. at least 100
items), and the tool displays such maps in a satisfactory way (Van and Waltman, 2010).
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
VOSViewer was used to visualise and analyse three scientometric tests: (1) keywords/clusters
co-occurrence analysis, (2) country-specific analysis, (3) document co-citation analysis.
According to Van and Waltman (Van and Waltman, 2014), a node indicates a specific
bibliographic item in the visualised networks, namely keyword, country, reference, etc. The
node size signifies the counting of the appraised item, such as citation and occurrence. Link
represents the co-citation and co-occurrence. The software automatically accomplishes the total
link strength (TLS) to reflect the correlation between any two nodes in the created networks.
The average normalised citation symbolises the normalised number of journal source, article,
scholar, country, or organisation citations. The normalisation corrects the misinterpretation that
older documents gain more time to receive citations than recent publications. In stage 3, a
qualitative discussion was presented with a hierarchical knowledge structure of recent
construction cost overruns research. We summarised ongoing main research topics, identified
the research gaps, and proposed future research directions
3 Research Findings
3.1 Keywords Co-occurrence Analysis
A network of keywords was produced to exhibit the knowledge and rational organisation of the
VOS Viewer analysis
were chosen to acquire a holistic academic knowledge of construction cost overrun research.
The minimum occurrence of a keyword was set at 3. Initially, 583 out of 999 keywords met the
etc., 158 keywords with 1595 links were selected for final consideration. In addition, using
VOS Viewer, the whole network could be automatically divided into clusters labelled with
terms from keywords. Studies within the same cluster might be more similar than those from
other clusters. Ten clusters were identified in different colours, demonstrating latent semantic
themes within the textual data, where the research patterns were perceived to uncover
knowledge (Luo, 2019). Cluster #1 (22 keywords) focused on project design factors. Cluster #2
(21 keywords) contained items related to planning and scheduling, whereas Cluster #3 (20
keywords) emphasised on financial factors. Cluster #4 (16 keywords) contained items related
to construction methodology and project delivery, while cluster #5 (15 keywords) is on delays,
changes, and wastages. Cluster #6 (15 keywords) comprised with items related to risk and
quality. Cluster #7 (15 keywords) focused on cost performance while cluster #8 (12 keywords)
is on contracts, claims, and financial problems. Finally, cluster #9 (12 keywords) points out the
factors on productivity and project control while cluster #10 (10 keywords) stressed variations
and disputes. Figure 1 illustrates the mainstream of research keywords and their co-relationship.
This network represented the boundaries and central tendency in the CCO research area. The
nodes sizes and the connection lines among keywords showed the most frequently studied and
highly concerned terms, such as project management (frequency=114, total link strength
(TLS)=480), risk assessment (frequency=45, TLS=208), cost-benefit analysis (frequency=40,
TLS=190), construction management (frequency=29, TLS=129), time overrun (frequency=26,
TLS=64), decision making (frequency=26, TLS=111), and design/ methodology/ approach
(frequency=25, TLS=121), have been given close and thoughtful attention. Further
investigation of the average citations demonstrated that the following keywords including cost
and schedule cost estimating, project delivery, economic and social effects, change orders,
disputes, and delays triggered much consideration.
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
Figure 1. Mapping of co-occurrence analysis of keywords
Source: VOS Viewer
3.2 Country-specific Analysis
Keyword analysis specified several countries contributing to CCO research, comprising
developed and developing economies like the United Kingdom (UK) and India. The study
further determined countries active in global CCO research. The minimum of number
documents and citations for a country was set at 2 and 20, respectively. Finally, a shortlist of
22 countries and 62 links was generated. Figure 2 illustrates the map of countries contributing
to CCO research.
Figure 2. Mapping of the contribution to CCO research
Source: VOS Viewer
According to the analysis, the following are the countries most contributed to the CCO research:
the UK, China, Australia, India, the United States (US), Malaysia, Saudi Arabia, Canada, and
Iran. United Arab Emirates (UAE), Egypt, South Korea, and Qatar. According to the strength
of the links, India, the US, Australia, and China took the lead in the research on cost overruns
in construction projects. Although with less strong links, middle east countries have contributed
to a considerable level of CCO research.
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
Table 1. Major countries contributed to CCO research from 2013-2022
(Source: VOS Viewer)
Country Number of
publications
Number of
citations
Country Number of
publications
Number of
cita
tions
42
141
Pakistan
17
41
Malaysia
39
152
Saudi Arabia
16
153
US
35
307
Egypt
15
44
Australia
25
454
Canada
12
112
China
31
199
Iran
11
42
UK
22
132
Nigeria
11
10
South Korea
20
447
UAE
10
96
3.3 Document Co-citation Analysis
A document co-citation analysis could disclose the underlying intellectual structure of a
knowledge domain (Luo, et al., 2019). Therefore, the most influential journal publications in
the last ten years were assessed with the co-citation network generated in VOS Viewer. The
minimum number of citations was set to 20. Of the 404 authors, 90 meet the threshold, resulting
in a co-cited visual network map, as shown in Figure 3. The most extensive set of related items
consisted of 16 items. The nodes in the map denoted the documents, identified by the first
Figure 3. Mapping of the co-citation analysis
Source: VOS Viewer
The co-citation network showed an overall distribution with only a few sets of related items.
This result indicated that the recent CCO research directions went beyond common ideas and
results. According to the analysis, much research related to CCO was conducted during 2016-
2020. The latest CCO research in the 2020s was expected to spread faster and more
comprehensively. More details on the top-five most cited articles are demonstrated in Table 2
in the order based on the number of citations.
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
Table 2. High-impact publications in CCO research from 2013-2022
(Source: Scopus and VOS Viewer)
Authors
Year
Title
Citations
Keywords
Larsen J.K., Shen
G.Q., Lindhard
S.M., Brunoe T.D.
2016 Factors Affecting Schedule Delay, Cost
Overrun, and Quality Level in Public
Construction Projects
186 Journal of
Management in
Engineering
Doloi H. 2013 Cost overruns and failure in project
management: Understanding the roles of
key stakeholders in construction projects
150 Journal of
Construction
Engineering and
Managemen
t
Rosenfeld Y. 2014 Root-cause analysis of construction-cost
overruns
98 Journal of
Construction
Engineering and
Management
Adam A.,
Josephson P.E.B.,
Lindahl G.
2017 Aggregation of factors causing cost
overruns and time delays in sizeable public
construction projects: Trends and
implications
60 Engineering,
Construction and
Architectural
Management
Ahiaga-Dagbui
D.D., Smith S.D.
2014 Dealing with construction cost overruns
using data mining
43 Construction
Management and
Economics
4 Discussion
According to the keyword occurrence analysis, seven major causes were identified with
significant effects on cost overruns in the construction industry. They are project management,
design/ methodology/ approach, risk assessment, cost-benefit analysis, construction
management, decision-making, and time overruns. Similar results were observed in the research
conducted by Doloi (2013), which identified eight significant causes. Out of those eight, similar
causes were design efficiency, effective site management, contractor efficiency, project
characteristics, and accurate planning and monitoring. Although these wordings are not the
same, these aspects can be categorised together with the causes identified in this research. In
addition to that, communication, due diligence, and market competition were also identified by
Doloi (2013).
It is noticed that the keyword analysis has provided only a set of general and simplified yet
widespread factors rather than specific and exact causes or issues leading to cost overruns.
Going forward, Larsen, et al. (2016) investigated deep into detailed causes and identified five
causes as errors or omissions in consultant materials, incomplete project documents, variations
by the client, lack of initial investigation before design/ tendering, and lack of experience in the
consultant team. Similarly, Rosenfeld (2014) also conducted a detailed investigation and
identified 15 causes that lead to cost overruns and stated that these are universal root causes.
Later they were categorised into three major divisions as organisational causes, project-related
causes, and systemic Causes. Correspondingly, in this research seven major divisions can be
identified as mentioned previously. The keywords identified in the Figure 1 map, which are the
causes of cost overruns can be categorized into three main groups namely, management-related
issues, design/ methodology/approach-related issues, and project performance-related issues.
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
4.1 Management-related Issues
All the management-related issues are categorised under this division. According to Figure 1,
the most significant cause of cost overruns is project management issues. Therefore, not having
a proper project management process, procedures and professionals will lead the project to
failure and cost overruns. This was identified 114 times in the literature and identified as one
of the most significant causes of cost overruns as identified by the researchers (Adam, et al.,
2017, Ahiaga-Dagbui and Smith, 2014, Doloi, 2013, Larsen, et al., 2016). In fact, Larsen et al.
(2016), identified project management issues as a separate division in their categorisation.
and supervision also cause the significant cost overruns.
At the beginning of the project identification of risks and taking proper actions for those risks
are very important. In other words, every project should have a proper risk management process
implemented by both consultant and the contractor teams. Without identifying the possible
risks, the project cannot be prepared to face the threats and thus the project will face cost
overruns. Therefore, Figure 1 identified risk assessment and management as a major cause.
4.2 Design/ Methodology/ Approach-related Issues
Although variations in a construction project are inevitable (Alsuliman, et al., 2012), a long
process for processing design changes, mistakes or errors in designs, and delays in designs can
could be part of a construction nature because of its inherent complexity and
uncertainty. Design issues cause delays as they need to be reviewed and approved by the client.
The lack of clearly defined project objectives and scope was mainly the cause of frequent
change orders in construction projects. Design-related issues during the pre-contract stage will
lengthen the time of the design and tender stage. There may be several tender clarifications and
drawing revisions to be issued and which will delay the tender submission (Aljohani, et al.,
2017).
Poor planning and scheduling at the pre-contract stage or just before the start of construction
could lead to issues in the project control and monitoring phase. The reasons behind this cause
and coordination skills. Because planning requires inputs from the design team, cost
management team, Engineering team, project management, and procurement team. Therefore,
team working, and coordination skills are very important.
Immature tendering documents were identified as causes of cost overrun in thirteen out of
seventeen studies. Several factors have caused this issue including the involvement of the
designer as a consultant; communication gaps occurring between the contractor and designer;
insufficient details in the working drawings and a lack of coordination between the parties. Also
available materials and equipment, and the use of incomplete shop drawings and specifications.
It is required to have a proper ground investigation at the design stage to ensure that the design
address any kind of situation the Contractor will face when the earthwork starts. But it is evident
that the proper and complete ground investigation will not happen until the project is awarded
to a Contractor. This may impact the change of the design, which may lead to variations.
Reasons for this cause maybe there are not enough technical experts within the design team to
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
carry out a proper and detailed investigation. On the other hand, the time constraints at the pre-
contract stage could also be the reason.
Cost estimating could be defined as the process where an estimator arrives at an expenditure of
resources necessary to complete a project in accordance with plans and specifications. The
preparation of a detailed cost estimate for a particular construction project requires collecting,
retrieving, and manipulating large amounts of independent, but related cost, and non-cost data
and information in a time-effective manner. Cost estimation for projects is a characteristically
complex exercise. Although estimation techniques have improved over the years, they are still
regarded as imperfect. Because of the high uncertainty of construction projects, clients along
with the contractor become better informed about the specific technological and material
requirements of the project work after a project moves from the design phase to the
implementation phase. E.g., poor ground conditions.
There are several causes for an inaccurate cost estimate, and some of these causes may be like
other causes of cost overrun. One of them is the psychological cause. Psychologists believe that
most people tend to be more optimistic than realistic which is called optimism bias. In this
situation, estimators and contractors make their decision based on delusional optimism (higher
than actual rewards and lower than actual risks) rather than rational measuring of profits and
losses. Other causes are: (1) The data used to estimate the bid may be unreliable. 2) The absence
of a
mistakes.
4.3 Project performance-related issues
Project performance is a very important division of a project. According to Figure 1, the
performance of the project can be affected significantly by (1) poor or lack of cost monitoring
and control, (2) health and safety issues, (3) defects or reworks, (4) scheduling errors which
lead to time overruns, (5) improper construction methodology. These issues are jointly agreed
upon by other researchers as well (Adam, et al., 2017, Ahiaga-Dagbui and Smith, 2014, Doloi,
2013, Larsen, et al., 2016).
Figure 4. Fishbone diagram causes of cost overruns
Paper ID: 2477
Proceedings of the 45
th
AUBEA Conference, 23-25 Nov. 2022, Western Sydney University, Australia
Following the qualitative discussion, the findings can be drafted into a mind map called a
fishbone diagram to summarise this research. Figure 4 shows the fishbone diagram drafted
based on the above discussion. Rosenfled (2014) created a similar mind map with three different
categories organisational, systemic, and project related. Although the causes are different, it is
observed that the factors show similarities and connections to the factors identified in Figure 4
map.
5 Conclusion and Further Research
Construction projects around the world will normally have poor performance in terms of
achieving cost, quality, and time targets. Therefore, cost overruns are considered a common
feature in construction projects. 158 keywords related to construction cost overruns were
identified through an existing literature survey. The studies show that the causes of cost
overruns are similar in all contexts. However, the impact or the severity can differ from country
to country. As a result, it would not be accurate to identify the causes of cost overrun for a
specific country from global literature only. Out of those causes, seven factors were recognised
as factors that make the most significant effect on the cost of construction projects in general,
namely (1) project management, (2) risk assessment, (3) cost-benefit analysis, (4) construction
management, (5) time overrun (6) decision making, (7) design/ methodology/ approach. One
of the potential solutions to reduce the effect of cost overrun in construction projects is the
embedding of an effective resources (human, technical, and material) management system
within construction projects as it seems that most of the causes of cost overrun are related to
and external stakeholders is a very important task to deliver projects successfully and reduce
cost overrun. Finally, the risk is more important in construction megaprojects to identify these
causes beforehand so that the team can take necessary actions to prevent them or reduce the
effect of the risk. Therefore, a proper risk assessment at the beginning of the project is essential
to identify these causes. This research is based on systematic keyword analysis. Therefore, the
causes cannot be completed and accurately derived through keyword analysis. Therefore, it is
recommended to carry out a systematic literature review to identify specific causes of cost
overruns commonly in construction projects. Then those factors can be studied based on actual
data collected through industry professionals to identify the impact and severity. These causes
can be a valuable set of variables for a cost estimation model or for a risk register.
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Braun, V. and Clarke, V. (2022), Thematic analysis: A Practical Guide, SAGE, London.
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... Unanticipated expenses, material price fluctuations, and inefficiencies in resource allocation can lead to budgetary constraints, leading to compromised project quality and stakeholder dissatisfaction. Analyzing the various cost factors impacting construction projects will aid in devising cost-effective and sustainable solutions to mitigate financial risks [12,13]. Studies have found a number of elements that contribute significantly to communication issues in the sector, including unclear communication routes, poor information exchange, and cultural obstacles [9,[14][15][16]. ...
Article
The importance of good project management is key to performing well in Pakistan\'s ever-changing construction industry. This research dives into project management by using data analysis methods, including the Relative Importance Index (RII) and rankings based on surveys. These methods help us understand the most important factors for success and subsequently affect project results. The RII designates a number for each factor to display its importance. These values allow stakeholders to gauge the impact of different aspects on project success, guiding resource allocation and decision-making. Ranking these factors adds an additional layer of clarity, enabling stakeholders to discern priorities and allocate efforts judiciously. Analyzing insights derived from individual questions provides a nuanced perspective on specific aspects. For instance, clear roles and responsibilities (RII: 0.748) emerge as a foundational factor, emphasizing the importance of organizational clarity. Effective communication (RII: 0.655) surfaces as a significant challenge, highlighting the need for streamlined information dissemination. Drawing from these analyses, actionable recommendations arise. Improving communication channels, enhancing planning processes, investing in skill development, and adopting technology are among the proposed strategies. In the context of the construction industry, the findings resonate profoundly and offer a blueprint for stakeholders to optimize project management processes, driving success in an industry notorious for its intricacies. By embracing data-driven insights, stakeholders can navigate the complexities of construction projects with informed decisions and strategic actions.
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