Chapter 1: Introduction.
The delivery of any project is considered successful, when it achieves its predetermined goals and objectives. The performance of any construction project is measured or benchmarked by three aspects i.e. time, cost and quality. Any variations to these three aspects may lead to the failure of the project. Cost of the project, its duration and the value achieved from the project is an important issue, particularly for public funded projects. As these types of projects are sponsored by tax payers, hence it becomes necessary to provide better value for their money in terms of services or facilities. Increased duration means the tax payers and the overall economy of the country have to wait for facilities such as infrastructure and services. This will make hurdle for the progress of economy of that country.
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The simplest definition of the cost overrun in the construction project is an overrun which occurred rather than presumed cost. The researcher’s findings suggest that most of the public funded projects across the globe suffered from the phenomenon of cost overrun. The study of Flybjerg et al (2002, 2003 and 2004) had covered 23 countries across five continents and found as infrastructure projects often suffer from the cost overruns. For the successful delivery of the project without any cost overrun, it is necessary to investigate the various causes of cost overrun and as per various causes, preventive measures are to be implemented to avoid cost overrun.
There is an internal relationship between the type of the project i.e. size and purpose of project, type of risks involved in the projects and the phenomenon of cost overrun. Most of the mega projects are more susceptible for the cause of cost overrun due to various reasons such as, longer duration, variety of risks involved and influence of stake holders. Every cost escalated project has unique causes of cost overrun particular to that project, which mostly depends upon the location of the project, culture of construction industry at that location and type of project etc. Various researchers have found out the cause of cost overrun particular to their case studies. These causes of cost overrun are further subcategorised as technical causes and non technical causes. Majority of technical causes found are inaccurate cost estimates, poor project management and improper risk management.
Even though there are various causes of cost overrun for different projects, same measures can be implemented for any projects to take care of cost overrun. Though there are various case studies for successful projects and unsuccessful projects in aspects of cost overrun, the case study of construction of terminal 5, Heathrow is explained here as it is one of the successful project delivery without any cost overrun due to various measures and innovative strategies adopted by BAA during the project management. The case of Wembley stadium is considered for finding the causes of cost overrun as a failure project, which led the contractor to the huge amount of loss of profit.
Cost overrun has various impacts in a construction industry such as prolonged duration of projects, budget shortfall, supplementary agreements, loss of reputation for client, contractors and consultants and adversarial relationship among the stake holder due to failure of the project. As said above, most of the public funded projects were suffered from the cost overrun. It is necessary to attain the effective measures for cost overrun for the successful completion of the projects, which will be helpful for the socio-economic progress of that country.
Every country across the globe it may be developed or developing, is trying to make life of the citizens easier by providing or enhancing the infrastructural facilities. History shows that most of the infrastructural projects are prone to cost overrun with effect of delays or suspension of the projects, leading to deceleration in achieving infrastructural facilities for the tax payers or that country.
In order to realise every nation’s development dream and to leap towards the respective aspiration, every professional of construction industry will have to opt for successful project delivery without any cost overrun, sticking to time constrain and with optimum quality. This fact gives the much needed motivation for the research.
The aim of the research is to investigate the major causes of cost overrun in construction projects and measures to avoid cost overrun.
- To build clear understanding of the causes and measures for the phenomenon of cost overrun.
- To study some practical evidences to compare causes found for failure project and measures taken for successful project.
- Analyse the information obtained from study (literature review and case studies) and provide results to facilitate further recommendation and suggestions for avoidance of cost overrun.
1.5 Research questions:
- What are the major causes of cost overrun?
- What are the various measures to avoid cost overrun?
1.6 Breakdown of the dissertation:
This chapter gives the summery of the various contents which were covered in the research.
For better achievement of aims of research every topic will be covered in the chapters, following are the introduction of all chapters
- Chapter 1:- Introduction
This chapter covers the preliminary introduction to the topic with purpose of study, aim, objectives, research questions and breakdown of the dissertation.
- Chapter 2:- Review methodology
This chapter explains about the methodology followed to execute the study with explanation about research strategy, literature review, case study, research design, methods of data collection etc.
- Chapter 3:- Literature review
This chapter covers the literature review with description about cost overrun, megaprojects, causes and measures for the cost overrun.
- Chapter 4:- Case study
This chapter gives the evidence of real life case studies, to get better idea of causes for failure and measures for success of project. Case study of terminal 5, Heathrow is studied to understand successful delivery and case study of Wembley stadium is considered for causes of failure of project.
- Chapter 5:- Finding and analysis
This chapter covers the knowledge gained from the studies and analysis in the form of future recommendation to avoid the cost overrun in construction projects.
- Chapter 6:- Conclusion
This chapter covers the introduction for conclusion, objectives and their attainment, limitation and strength of the study, which will be benefited from the study and the future recommendations.
Chapter 2: Review Methodologies
Sekaran (1992) defined research as ”an organized, systematic, data based, critical, scientific inquiry, or investigation into specific problem, undertaken with the objective of finding answers or solution to it.”
This chapter explains the methodology and the techniques, which were used for achieving the objectives explored in the Chapter 1. For doing so it will first discuss about the research design process, theoretical and practical explanation about selecting structured literature review and case study approach. It also elaborates about the actual design of the case study and details surroundings the selection of the case study. These detailed explanations involve the formation of questionnaire about the case study, overview of case study and discussion of the related issues. After this the section describes about the data collection methodology which was utilized in this investigation.
2.2 Research strategy
A Research strategy is a plan containing the ways of finding out the answers of the research questions. For framing the research strategy it is necessary to define the objectives of the research and accordingly the research strategy can be developed.
Flyvbjerg (2006) and Bell (2005) explained about the strategy, study and the situations. Accordingly, the problems under study and the situation will decide the strategy. Also the approach of information collection does not depend on one method. Methods are opted for feeding required data to produce complete piece of research. Various methods are used to examine a subject which eventually increases the validity of the theory.
Yin (2003) had elaborated five different strategies, which will support the research, accordingly,
- Experiments: Experiment will be helpful when there will be degree of control over the iterative trials and researcher is focused on current events. This will help to find out the conclusions by interrelating the cause and the effects of the variables in the research, which can be achieved by manipulating and control of external factors.
- Survey: A survey is a structured questionery which is to be questioned to the people. This will be the alternative for the experiments when there is no need of the control over circumstances of the event. The quality of the data by this method is lower than the other methods because the behaviour or approach of the person facing the questionery will affect the survey result.
- Case study: It involves thorough observations of few individuals. Data collection may involve inspecting the events, interviews and finding records.
- Archival analysis: It involves the thorough analysis of collected documents, archives, which may be journals, books, web pages etc. Here archival analysis is considered literature review.
- History: History is similar as archival analysis as it does not require control over the response of the events, only difference is as archival analysis focuses on the current events while history does not. History is practical when there is no control over the behaviour events and investigator does not focus on contemporary events.
From the various methods stated above the author has considered case study and literature review as the potential methods for the research under study. Specifically case studies of construction of Terminal 5, Heathrow and construction of Wembley stadium have been adopted for the proper understanding of the topic.By adopting the recommendations and similar conditions in context to the research, the study under view plans to follow broad range of methods such as qualitative and some elements of quantitative techniques. To accomplish this research project, both case study and literature review approaches will be used.
There are various reasons apart from as stated above for the adopting literature review and case study approach. One of the reasons will be the problem of biased selectivity in reviewing the literature and bias in reporting which reflects author’s bias. In addition to that, there may be difficulty of generalization of data on the basis of individual cases as interpreted by Flyvbjerg (2006).However the combination of the data from the literature review in context with case studies and further analysis will greatly improve the quality of this research and with anticipation, will not produce any barriers at the analysis and interpretation stage.
2.3 Literature Review
Bouner (1996) explained about the various reasons for giving time and efforts for the literature review before approaching towards the research project. Accordingly
- To identify gaps in the literature
- To avoid reinventing the wheel
- To carry on from where others have already reached
- To increase your breadth of knowledge of your subject area
- To identify seminal works in your area
- To identify opposing views
- To put your work in to perspective
- To identify information and ideas that may be relevant to your project
- To identify methods that could be relevant to your project
On the basis of the above reasons literature review can be defined as a survey of the scholarly articles, relevant books and other academic sources (Dissertation, conference proceedings) in context with the research subject, providing details, critical analysis and summery. Literature review can be done by adopting various steps one by one as
- Define the topic
- Compile a list keywords
- Identify resources
- Search results
- Screening results
- Organize findings
- Data extraction and
2.4 Case study
Feagin et al (1991) defined case study as an ideal methodology when a holistic, in-depth investigation is needed. Yin (2003) explained about the case study as ”when the phenomenon under study is not readily distinguishable from its context.’ According to Flyvbjerg (2006) case study is beneficial in view of developing and analyzing the hypothesis but not limited to these research activities alone. He elaborated the case study as a perfect choice for achieving the greatest possible amount of information on a given problem or phenomenon. Yin (2003) recommended about the data collection for the formation of the case study, accordingly data obtained from the multiple resources, approaches will add value and strengthen the case study. Yin (2003) identified six sources of case study evidences namely ‘documentation, archival record, interviews, direct observations, participating observations, and physical artefacts’. Due to certain limitations including time and lack of funds, this research will make use of only documentation and archived materials. Data from the two separate case studies was collected to get near to the aim of the research and trying to find literal replication to support the findings of the research. The propositions directed and shaped the collection and analysis of data in each case study. Yin (1994) given recommendation to be followed for methodology for a case study which has four stages;
- Design the case study protocol:
- determine the required skill
- develop and review the protocol.
- Conduct the case study;
- prepare for data collection
- distribute questionery
- conduct interview
- Analyze case study evidences:
- analytic strategy
- Develop conclusion, recommendations, and implications based on the evidence.
Yin (1994) intimated that case study designs are not variants of other research design he proposed five components of case studies:
- A study’s questions,
- Its propositions, if any,
- Its unit(s) of analysis
- The logic linking the data to the propositions, and
- The criteria for interpreting the findings (Yin, 1994, p.20).
The stage of analysis is a critical factor in case study because it is a system of action rather than individuals or group of individuals. Case studies will be isolating, focusing on one or two issues which will be helpful to understand the system being examined. Multiple case studies will adopt the logic of replication. Each individual case study consists of a “whole” study, in which facts are gathered from various sources and conclusions drawn on those facts. The topic of cost overrun is vast because to understand or to investigate the various causes of cost overrun it is necessary to go thoroughly to the every phase of the project, right from its inception to completion stage. Hence the time available to write dissertation on such huge and vast topic is limited, so instead of writing two much case studies, emphasize is given on two case studies such as successful project as a project T5 and failure project as a Wembley stadium. Why case study of project T5 and Wembley national stadium? The answer is, Terminal 5 project considered here to understand the successful project delivery without any cost overrun and the Wembley stadium is considered for finding and comparing the causes of failure of project.
2.5 Research Design
”A deliberately planned arrangement of conditions for analysis and collection of data in a manner that aims to combine relevance to the research purpose with economy of procedure” (Cook et al 1981).The purpose of the research design is to map the process of research, i.e. research design is used to frame the research, by mapping all the major parts, components, and activities involved to achieve the objectives involved in research project. Various parts and components of the research are samples or groups, measures and activities such as methods of assignment are to be addressed to central research questions. Before planning research design the very first step is identification of the research objectives and then the research questions are then asked and accordingly strategies are to be identified. While fixing the strategy about research design, researcher needs to overlook and decide about the usage of viable and accessible source of information with the help of currently available tools and methods. The data should be collected in view to get assist to the identified problems or reveal some unknown aspects of the research problems. As research strategy is decided by focusing on aims and objectives of the research, all the data collected should be eventually related within the scope of the research. Efficient collection of data requires through understanding and clear definition of the problem and opportunities surrounding the research subject. (See Figure No 2.1)
2.6 Methods of Data collection
Various sources of data which were used for data collection is below
- Science direct
- Wiley interscience
- Google scholar
- e-Library, University of Salford
- EBSCO host
Other potential sources of information are textbooks, journals available at library, University of Salford.
While searching the appropriate article for collection of the data, it is observed that the same article is appeared in most of the resources. As research aim is in context with the overall construction projects, most of the articles found based on public projects and it is difficult to find the article for private projects. Also it is observed that there are very less articles purely on the topic of cost overrun, most of the articles combined cost overrun and time overrun.
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The research methodology is explained here as a process by which the aims and the objectives of the research have been achieved. For finding out and going near to the answers of the research question is achieved by following the research strategy, which includes adoption of the literature review and case studies with justification adoption of case studies for the particular research. Finally the research design described about the collection, segregation and extraction of data from the authentic sources.
Chapter 3: Literature review.
A construction project is a unique undertaking for essentially a single purpose which is defined by scope, quality, time, and the cost objectives. The cost and the quality objectives are met by the use of limited resources (Ahuja et al 1994).
One of the client’s main requirements in respect of any construction project is the assessment of its expected cost (Ashworth, 2004).The importance of cost control as explained by Ashworth (2004) is to limit the client’s expenditure within the amount agreed, to achieve a balanced design expenditure between various elements of buildings and to provide the client with a value-for-money project. The value-for-money may be the satisfaction achieved by client in sense of optimum quality and in time possession of the project. For any construction project which may be small or large, the first initiative is to prepare the cost estimates. After this stage the cost control measures are to be implemented during the project life cycle to limit the client expenditure within the amount agreed. This will be the theoretical explanation which seems easier rather than the implementation of the various measures because, the various factors such as forces of inflation, economic uncertainties and the error prone human input are influencing during the project lifecycle. In construction industry, there are very rare projects which are completed as per the estimated cost and on scheduled time. The projects which are completed on its estimated cost are exception rather than the norm. As said above the construction project has to go through the many phases during the project life cycle. By the transformation along with the duration it will affected by the various factors such as geological conditions, weather and many other parameters which will be unknown during the planning stage of the project. Accordingly the variation in prices, quantities and many other parameters like that prevent accurate cost estimates. Also as the project progresses towards its completion lots of new things will be propping up which eventually change the estimated cost of the project. World recession has generally produced a shortage of funds for capital purposes and construction in general. This has been coupled with high inflation and interest charges, resulting in the costs of construction soaring to high level. (Ashworth, 2000)
3.1 Type of project, risk, cost:
Kerzener (2006) explained the rules and the guidelines about the execution of the large construction projects. According to that, such projects involves vast number of people often for short or intense period of time and continuous organizational restructuring may be necessary as each stage of the project goes through the different life cycle phase where the matrix and project organization form may be used interchangeably. As stated above every project must satisfy the aim of the client by proper utilisation of the time and resources. For successful completion of such projects the contractor and his organization should be prepared with all the required qualities. There may be various factors within the organization which are found to be critical in concern with the success of the project such as training in the project management, rules and procedures clearly defined, communication at all levels, quality front end planning etc. Kerzener (2006) explained about the behaviour or approach of the some of the companies and the mega projects. According to this, many companies dream about winning the mega projects rather than recognizing their own capacity such as, lack of availability of on site and skilled workers, lack of properly trained supervisor staff and last but not least, unavailability of raw materials. As a result of such problems, company immediately assigns its employees who may have experience of such project or they may be new to such projects, who eventually face working stress from the execution of the project consequently reducing their efficiency. Such situation will create confusion and delay for the project execution which results in increase the completion cost of the project. Mega projects are not always as glorious as people think they are .Organizational stability, accompanied by moderate growth rate, and may be more important than the quantum steps to the megaprojects. In short megaprojects should be left to those companies that have the facilities, expertise, resources, and management know-how to handle the situation (Kerzener 2006).
Flyvbjerg (2005) explained about the characteristics of the large infrastructural projects as
- Such projects are inherently risky due to long planning horizon and complex interfaces
- Technology is often not standard
- Decision making and planning are multi actor processes with conflicting interest
- Often the project scope or ambition level will change significantly over time
- Statistical evidences shows that such unplanned events are often unaccounted for leaving budget contingencies sorely inadequate
- As a consequence, inappropriate information about costs, benefits, and risk is the norm
- The result is cost overrun and/or benefit shortfalls with majority of projects.
Every construction project differs from the various types of risks such as social/institutional, technical and market related risk. International Program in the Management of Engineering and Construction (IPMEC) has conducted a study about the various types of the risks with the project. Miller et al (2008) have given examples of a various type of the projects such as, oil platform are technically difficult, but typically they face few institutional risks because they are built out of focus of the public attention. Hydro electric power project are tedious in concern with engineering but very difficult in view of social acceptability. Nuclear power projects have all technical, social and institutional risks. A road and tunnel project present high level of technical risk as rock information usually hides big surprises which may eventually affect the cost and length of the project. Here author has explained about the various types of the projects and risks related with that project. These risk factors are the major catalyst for the causes of the cost overrun and time overrun during the project which eventually drags project towards the failure.
Miler et al (2008) explained about the one of the aspects of the risk which he calls as the ‘Turbulence’. This is not the type of the risk which occurs in the construction project but it is observed in many of the construction engineering projects. Turbulence refers to the way that consequences of events are compounded in unforeseen ways, even if the initial event lies within the range of possibilities that was known in advance, but often more seriously in the case of events that are truly surprises (Miler et al 2008).In the face of such difficulties the project may get stuck, the parties which are working for the project may leave the project hence again there may be the possibilities to restart the project which may take re-approval of procedure and renegotiation to complete the project. This eventually creates delay and cost overrun in the project.
Thus here we can find that the type of project, size of the project, and risks involved with the projects are interrelated with the possibility of the overrun of the cost of the project.
3.2 Cost overrun:
Arditi et al (1985) conducted a survey to investigate the causes of the cost overrun in Turkey. For his study he considered the various government projects between the periods of 1970-1980. According to him various causes such as
- Increase in material cost and wages
- Inflation burden
- Shortage of materials and variation in the price index of the material cost, and lastly most important
- Delay in construction and errors in the initial estimates are the major causes of the cost estimates.
As per Arditi et al (1985) the effect of the cost overrun is not only limited up to the construction industry of the turkey but also it had shown its effects to the economy of the that country. Author also stated about the worst situation of the project delays. According to him many of the time situations may arise that many of the completed activities such as casting, fabricating, exterior works of the projects get worn out during lag period and it has to be reinstated after re-approval and restart. Here author tried to explain about extra expenditure which will be spent for the reinstatement of the damaged work due to the project delay which automatically adds up a cost for the project. Author has found occurrence of cost overrun in various stages of the project such as preconstruction and construction phase. Author has not suggested any recommendations for avoiding the cost and time overrun for the projects. Only thing the author has made comment about is the practice of the public agencies regarding their estimating and the payment practices. It shows that there are chances for the minimization of the cost by adopting proper and correct estimation technique and payment procedures.
Various studies have been observed in the Nigerian construction industry. Dlakwa and Culpin (1990) conducted survey to investigate the various causes of cost and time overrun for the various projects during the third quarter of 1988. Dlakwa and Culpin (1990) has considered only the construction phase particularly near to completion time of the project for finding and identifying the various reasons for the cost overrun. The author here explained about the significance of completion stage, as there is maximum amount of money of the clients is invested at the completion stage as compared to conception stage of the project. Author has interpreted survey results, according to which there are five major causes for the cost overrun,
- Fluctuation in labour, material and plant cost
- Construction delay
- Inadequate preplanning
- Deficiencies in the initial estimates
- Unforeseeable circumstances.
Author has recommended about the relationship, trust among the various stake holders such as agencies, contractors and consultants which were involved in the public project, for that reason he suggested various factors such as disagreement on the contract clauses and specifications and enforceable circumstances has to be given prime importance to avoid cost overrun.
Mansfield et al (1994) carried out survey for the recently completed highway projects during 1992. The author here explained about the construction industry of one of the developing country and impact of construction industry on the economic growth of the country. Author insisted about the cost effectiveness within the project planning and project management for the development of the economy of the particular country. Author has explained about the current practices of the contracts which were used in the Nigeria. Hence it is observed as even though there are various forms of the contracts are used by public clients, the greater emphasis was given on the fixed-priced contract. Author conducted survey among 50 construction professionals ranging from contractor, consultant and client organization. According to his survey cost overrun attributed to finance and payment arrangements, poor contract management, material shortage, inaccurate estimating and overall price fluctuations in developing countries. The lack of proper phasing of construction project
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