Cost Overrun Issue in Construction Management and Construction Industry

This article discusses the issue of cost overrun in construction management and construction industry. It highlights the common causes of cost override and provides recommendations on how to mitigate them. The article also includes a concept map showing the factors that lead to cost overrun in a construction project.

Cost Overrun 1
COST OVERRUN ISSUE IN CONSTRUCTION MANAGEMENT AND CONSTRUCTION
INDUSTRY
By (Name)
Course
Professor’s name
University name
City, State
Date of submission

Cost Overrun 2
Introduction
Cost overrun
Cost overrun is quite a common issue in construction management and construction
industry especially in the implementation of large and complex projects. Preparing cost
estimation in much earlier than the time the project need to be implemented causes serious
anomalies in the quotation. This happens because the quantity surveyor in most cases to not take
care of the contingencies (Gwaiz, et al., 2006). In general, there are a number of factors that may
lead to cost override in the implementation of a project. One of the most common problems
experienced in construction site are delays in completing certain stages of construction caused by
issues such as late delivery of materials in a construction site. Another factor may be lack of all
the construction details and specification which may either be incomplete or inadequate. This
inefficiencies in the construction blueprint causes project managers to seek for help form the
relevant experts such as the architect, structural engineer or civil engineers which ultimately
waste a lot of time (Ahady, et al., 2017). In worst case scenario, the construction project can
come to a standstill when the project manager does not immediately or fail to address these
problems.
The issue of cost override can be addressed by constantly doing a thorough market
research to ascertain the right prices of materials and equipment to be used in construction to
ensure that the budget estimate are up to date with the current market prices to avoid any
surprises during implementation (Alghonamy & Abdulaziz, 2015). Even though, this move
might not give us the actual prime cost of the project, it will still reduce the gap of the
provisional sum of the expenses and if the budget will be higher, then it will not be as much.

Cost Overrun 3
Contractors and project managers should ensure that thy understand project brief when acquiring
the plans including the specifications of the project to avoid any misinterpretation that may lead
to compromising the quality of the project and delays which ends up affecting the cost
(Belachew, et al., 2017). Hence, getting expert assistance in such circumstances is very important
in order to save on cost and the time taken to complete the project. Experience also plays a role
in this, suppliers of materials should learn from their past experiences to make the next project
more effective and successful. For this reason, project managers will have to rely on reliable
suppliers to avoid any extra cost that may be caused by delays in delivering materials to the
construction site (Decoster & Claypool, 2004).
However, there are other factors that can cause cost overrun but cannot be easily solved
by project managers as the other mentioned issues regardless of how effective they coordinate
the project requirements and manage the whole system in an effective manner (Enshassi, et al.,
2003). This factors include the uncertainties in the market prices of equipment and materials
required in construction, unpredictable human resource issues, in accurate cost estimation
compared to the actual construction cost.

Cost Overrun 4
Concept map showing the causes of cost overrun in a construction project
Most common factors that lead to cost overrun as shown in the concept map have been
listed below, with each factor having a distinct effect on the project cost. These factor include:
Design related factors
Most design factors are believed to have the highest impact of the cost overrun of a
project with their related effects ranked according to their importance. The sub factors related to
design issues include improvements made on the working drawings done during the construction
stage, lack of pre-contract coordination, design changes, inadequate review, inadequate planning,

Cost Overrun 5
design failure in a number of phases, prior proper land survey, and incomplete design
specifications during the time of tendering (Enshassi, et al., 2007).
Management related factors
Project management is key when undertaking any construction project. When it is poorly
managed, it can lead to project failure (Ghiorghis, 2014). This sub factors include quantity
overestimation/underestimation, poor contractor management, delay in inspection, lack of
communication, lack of cost reports filled in during construction stages, absenteeism at worksite,
project size, logistics due to the site location, change in legislation, delays in resolving disputes,
lack of having experience in a certain project type, omission and errors made in the bill of
quantities, time extensions due to cost claims and delay caused as a results of the final accounts
agreements.
Labor related factors
The labor part of construction is key to implement any project to completion. Lack of
labor on site will mean a halt of the construction process since when there is no labor, no work
will be done. Some of the sub factors related to labor include lack of skilled labor, inadequate
skilled labor, lack of training, labor unrest, increased labor cost due to hardship areas, lack of
safety measures taken by labor, inadequate living condition for labor, lack of motivation for
laborers, and challenges faced in monthly payment from agencies (George & Mallery, 2003).

Cost Overrun 6
Material and equipment related factors
Construction materials and equipment play a very important role in the construction
industry since they form part of the building elements after its completion. Hence, when they are
tampered with, it may cause some serious cost overrun. The sub factors that are related to this
issue include fluctuation of prices in the market, shortage supply of construction material, lack of
the right equipment required for the job, delay in materials delivery, wastage of material, low
quality materials delivered on site, equipment breakdown leading to wastage of time on site and
low level of skilled laborers (Rauzana, 2016).
Contractor, consultant, client related factors
Proper coordination among these stakeholders in a construction project is very important
to ensure the smooth flow of the construction project. Lack of proper coordination as a result to
contractor, consultant and client issues will definitely lead to cost overrun. Hence, some of the
issues related to this factors include delay in sub-contractors work, suspension of work by client,
poor communication, late instruction given by consultants, failure to apply the safety rules,
changes due to the client’s requirements, poor qualification of the consultant, and unstable
financial background of the contractor (Saraf, 2013).
External factors
Some cost overrun factors are unpredictable circumstances that cannot be prevented in
any way, they are beyond human prevention just because they cannot be foreseen to be averted
on time. Such external problems include corruption, market deflation/inflation, access utility
such as water, electricity etc., manmade disaster e.g. bomb blast, natural disaster e.g. flood,

Cost Overrun 7
hurricane etc., unpredictable weather, security problems and work suspended due to security
issues (SIGAR, 2010)
Recommendation
Cost overrun is a problem that affect the construction industry all over the world. All
project stakeholders should combine efforts in working together to achieve a successful project
within the estimated budget. The academicians can take keen interest in analyzing the specific
details that lead to cost overrun and its effects in construction (Rauzana, 2016). The government
and other stakeholders should commit their resources in rooting out the culture of impunity in the
management of resources in order to end corruption menace (George & Mallery, 2003). This can
be achieved by increasing the use of electronic payment and introducing sustainable procurement
procedures. Construction managers should introduce models to mitigate cost overrun by
improving productivity, improving estimation process, improving value management, improving
change control process and improving the procurement process (Ghiorghis, 2014).

Cost Overrun 8
References
Ahady, S., Gupta, S. and Malik, R.K. 2017. A critical review of the causes of cost overrun in
construction industries of developing countries. International Research Journal of Engineering
and Technology, 4(3), pp.2550-2558
Al Gwaiz A., Al Dihan K. and Al Ankary F. 2006. CEM 520 Construction Contracting &
administration, Term project, the factors governing housing construction costs in Saudi Arabia.
Unpublished.
Alghonamy, Abdulaziz. 2015. Cost Overrun in Construction Projects in Saudi Arabia.
International Journal of Engineering & Technology, 15(4), pp. 35-42.
Belachew, A.S., Mengesha, W.J. and Mohammed, M. 2017. Causes of Cost Overrun in Federal
Road Projects of Ethiopia in Case of Southern District. American Journal of Civil Engineering,
5(1), pp. 27-40.
Decoster, J. and Claypool, H. (2004). Data Analysis in SPSS. Retrieved http://www.stat-
help.com/notes.html
Enshassi, A., Lisk, R., Sawalhi, I., and Radwan, I. 2003. Contributors to construction delays in
Palestine, The Journal of American Institute of Constructors, 27(2), pp. 45-53.
Enshassi, A., Mohamed S., Mustafa Z.A. and Mayer P.E. 2007, Factors affecting labor
productivity in building projects in Gaza Strip. Journal of Civil Engineering and Management,
13(4), pp. 245–254.

Cost Overrun 9
George, D. and Mallery, P. 2003. SPSS for Windows step by step. A sample guide and
reference.11.0 update, 4th edition, Boston: Allyn and Bacon.
Ghiorghis, T.G. 2014. A Rapid Desk Study: Afghanistan Current Status and Future Prospects for
the Construction Sector, climate & environment infrastructure livelihoods.
Rauzana, A. 2016. Cost Overruns and Failure in Construction Projects.IOSR Journal of Business
and Management, 18(10), pp. 80-83.
Saraf, D.D. 2013. Study of Factors Affecting Performance of Construction Project. International
Journal of Science and Research, 4 (5), pp. 1339-1341.
SIGAR 2010. Contract delays led to cost overruns for the Kabul power plant and sustainability
remains a key challenge, sigar 6 inspection report, Kabul.