Cost Overruns and Failure in Project Management: Understanding the Roles of Key Stakeholders in Construction Projects

Cost Overruns and Failure in Project
Management: Understanding the Roles
of Key Stakeholders in Construction Projects
Hemanta Doloi 1
Abstract: The subject of poor cost performance has been widely published in the mainstream project and construction management
literature. Nevertheless, the underlying responsibilities of the key stakeholders (clients, consultants, and contractors) in managing this chronic
problem in the Australian construction industry remain unclear. By performing an in-depth analysis of the roles and responsibilities of these
key stakeholders, this research is intended to unfold the industrywide perception of cost performance being heavily reliant on the contractor’s
performance alone. Based on a thorough literature review and relevant industry inputs, 73 attributes associated with cost performance
were identified for investigation. Based on the relative importance weighing technique on 48 selected attributes, planning and scheduling
deficiencies have the highest impact on cost performance from clients, consultants, and contractors’ perspectives. Confirmatory factor analy-
sis on the combined responses across all three groups suggests that robust control procedures and adequate programming, along with efficient
design and effective site management, are the most critical factors. These factors are primarily associated with the responsibilities of
contractors and consultants for managing cost overruns in projects. However, the client’s responsibility in facilitating effective management
of these factors within the project environment is crucial. Multivariate regression analysis performed on eight factors’ scores highlighted the
influence of five significant factors (p < 5%) on managing cost overruns. The findings are expected to abridge a significant knowledge gap by
shifting the priorities in cost estimation and management practices across all industry sectors. DOI: 10.1061/(ASCE)CO.1943-7862
.0000621. © 2013 American Society of Civil Engineers.
CE Database subject headings: Construction costs; Estimation; Project management.
Author keywords: Cost overrun; Cost estimation; Cost performance; Project management.
Introduction
The factors that influence cost during the conception and design
phases within the construction process have been widely investi-
gated, primarily based on the contractor’s cost-estimating practices
(Akintoye 2000; Cheung et al. 2008). Hicks (1992) revealed that
regardless of management competence and the financial strength of
the contractor, accurate cost estimation at an early stage is the key
to avoid cost overrun in projects (Hicks 1992). Cost estimation is a
technical process of predicting expenditure, and success depends
on accurate integration of project information, resources, and con-
trol over project implementation (Baloi and Price 2003). Factors
influencing cost performance based on initial estimates have been
widely published and primarily concern project complexity, tech-
nology requirements, vagueness in scope, and the project team
requirements (Mansfield et al. 1994; Akintoye 2000; Frimpong
et al. 2003; Love et al. 2005). Empirical evidence suggests that con-
tractors’ efficiency in the estimating process and appropriate tender
pricing depicts the cost performance in construction projects
(Skitmore and Wilcock 1994). Therefore, contractors’ ability in us-
ing sophisticated methods and their rationalizations at the tender
development stage are considered crucial in achieving cost success
in most projects (Green 1989). In many instances, all of these
factors identified at an early stage of the construction process
are described as uncontrollable risks (Akinci and Fischer 1998).
Appropriate consideration of these uncontrollable risks during
the initial stage of the estimating phase significantly increases
the chance of minimizing any mistakes over the course of the
construction phase. However, some of the key questions regarding
responsibility, deliberation, and management of such risks in the
construction supply chain remain unclear in the discipline domain.
Identification of the cost-related risks, underlying drivers, and
impediments for effective management must be assessed in the
contexts of three key stakeholders: clients, contractors, and
consultants.
This research is intended to investigate the perceived under-
standing and importance of the key attributes among these three
key stakeholders’ groups with respect to achieving the target cost
performance in projects. Estimation of project costs at the early
stages of the design process and the ability to manage these costs
throughout the construction phase is paramount to a project’s over-
all success. Past research illustrates that construction cost overruns
and the subsequent poor cost performance are the attributes of the
lack of understanding among all participating teams across the
construction industry (Akintoye 2000; Frimpong et al. 2003).
However, an accurate understanding of the key attributes in the
context of the responsibility and management ability among clients
and consultant contractors has not been explored. By identifying
the factors affecting cost overruns, this research highlights the
criticality for their effective management within the roles and
responsibilities among clients, consultants, and contractors in
construction projects.
1
Senior Lecturer, Faculty of Architecture, Building and Planning, Univ.
of Melbourne, Victoria 3010, Australia. E-mail: [e-mail]
Note. This manuscript was submitted on November 13, 2009; approved
on June 6, 2012; published online on July 25, 2012. Discussion period open
until August 1, 2013; separate discussions must be submitted for individual
papers. This paper is part of the Journal of Construction Engineering and
Management, Vol. 139, No. 3, March 1, 2013. © ASCE, ISSN 0733-9364/
2013/3-267-279/$25.00.
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Literature Review
Over the last few decades, there has been much research into the
factors that affect cost performance in the construction phase of
projects. Usually the vast majority of cost overruns occur during
the construction phase, in which many unforeseen factors are con-
ceived over the conception/design stages (Chan and Kumaraswamy
1997). Attributes such as poor site management and supervision,
low speed of decision-making and client-initiated variations have
reportedly been some of the most significant causes of cost over-
runs in the construction phase of projects (Trost and Oberlender
2003; Iyer and Jha 2005). These factors primarily relate to the
project manager, given that project management involves managing
resources such as workers, machine, money, materials, and meth-
ods during this period (Frimpong et al. 2003). However, precise
understanding of these factors and protocols of responsibility shar-
ing for effective management among the key stakeholders is not
widespread. Although tools and techniques implemented to control
these factors is perceived to play an important role, understanding
the root cause of these factors and their potential impacts in man-
aging them from the perspectives of clients, consultants, and con-
tractors is the key for achieving success in cost performance.
Despite the fact that factors associated with cost management
are reasonably understood, improvement of construction industry
practices in terms of responsibility sharing and deliberations among
the project’s participants is not particularly evident. In the United
Kingdom, Green (1989) conducted six case studies of tendering
practices for establishing the reasons for disregarding the best prac-
tices among the industry. Green (1989) concluded that whereas the
rationality for estimating is justified across the firms, a range of
uncertainties associated with the wider environmental issues prevail
over the tendering process. In an attempt to understand the rationale
of estimating indirect costs for construction work, Tah et al. (1994)
investigated the current practices towards quantification and allo-
cation of general overheads, risk contingencies, and profit margin
across seven firms. The research revealed that the approach for such
estimation is ad-hoc and based on past experience alone (Tah et al.
1994). Whereas more sophisticated and reflective approaches to-
wards subjective practices were suggested in published research,
the relationships between subjective practices and overall cost
performance were not clearly highlighted (Enshassi et al. 2009;
Akintoye 2000). In the United Kingdom, Skitmore and Wilcock
(1994) surveyed nine smaller builders involved in all types of build-
ing projects to ascertain the pricing mechanism in preparing a bill
of quantities for competitive tender. The bulk of the items were
priced by experience, except a small percentage of specialized
items, which were priced by the prescribed detailed methods.
However, the research asserted that the combination of both the
subjective and prescribed methods is the most efficient manner
in which achieving accurate tender prices for estimators in a
time-constrained environment can be achieved. Incorporating the
statistically significant variability of the estimates in the program
evaluation and review technique (PERT) can enhance the reliability
of the subjective estimates. However, exclusion of cost perfor-
mance in relation to such assertions rendered this research insuffi-
ciently comprehensive.
Chan and Kumaraswamy (1997) reported five principal causes
of time overruns perceived among clients, contractors, and consul-
tants in Hong Kong construction projects. A questionnaire survey
was designed comprising 83 delay factors across eight categories
and distributed to 400 local firms involved in construction activ-
ities. Based on a 37% response, the five most significant sources
of delay were poor site management and supervision, unforeseen
ground conditions, low speed in decision-making, client-initiated
variations, and design change. Whereas a reasonable agreement
among three groups was reported on these time related factors
and their links to overall project success, the findings failed to
establish any meaningful insights into the roles and responsibilities
of the three groups and their underlying impacts on the overall cost
performance of the project.
Based on data collected from 84 contractors firms in the United
Kingdom, Akintoye (2000) reported the primary factors relevant to
cost estimating practice as project complexity, scale and scope of
construction, market conditions, methods of construction, site con-
straints, client’s financial position, buildability, and location of the
project. However, an investigation on how such factors would be
perceived by clients and consultants, and their potential impacts on
overall cost performance of projects, was not performed. This re-
search was therefore insufficiently comprehensive. Investigating
the causes of substantial cost variations relative to the initial con-
tract and excessive cost overruns in Nigerian construction projects,
Mansfield et al. (1994) revealed that poor project management
during the construction phase produces not only the deficiencies
in the projects’ plan and cost control, but also jeopardizes the target
outcomes expected by clients, contractors, and consultants in the
overall development process. Although the technical ability of
project managers is an important element to the project’s success,
the contribution of contractors and consultants in the process of
cost monitoring and controlling is equally important in achieving
overall success in projects (Iyer and Jha 2005).
In an attempt to establishing a predictive model for early cost
estimation, Trost and Oberlender (2003) collected quantitative data
across 45 potential drivers on 67 completed construction projects
across the world. Based on factor analysis and regression modeling,
basic process design and site requirement was concluded to be the
most significant factor that impacts estimate accuracy. Although
this finding is an important first step in that it reveals the signifi-
cance of early cost estimation, the exclusion of building and infra-
structure sector in the data collection process rendered the research
constrictive in the context of cost performance across construction
projects. Addressing the risk issues that affect cost performance at
a project level, Baloi and Price (2003) examined the normative and
behavioral perspectives based on an existing literature search and
discussion with construction contractors. A lack of mechanized
support, such as a decision support system and contractors’ expe-
rience, were reported to be the key causes for failure in cost per-
formance in most projects. However, the roles of clients and
consultants were not included in the cost performance analysis,
and thus such findings are not broadly useful.
Based on the case study data on completed projects in Ghana,
Frimpong et al. (2003) identified five key factors that impact
project cost performance. These factors are monthly payment
difficulties from agencies, poor contractor management, material
procurement, poor technical performance, and escalation of
materials prices. Although a general consensus of the impacts of
these factors on cost performance was found among clients, con-
tractors, and clients, a significant contrast was highlighted on the
issues reported previously (Baloi and Price 2003; Skitmore and
Wilcock 1994).
Based on an investigation of the transport infrastructure across
258 rail, bridge, tunnel, and road projects in Denmark, Flyvbjerg
et al. (2004) highlighted three key factors that affect cost overruns.
Flyvbjerg et al. (2004) asserted that a longer project imple-
mentation phase, larger project size, and public ownership factors
are highly susceptible to cost overruns. However, relationships
between clients, contractors, and consultants in addressing these
factors and minimizing the impact of cost overruns were excluded
in the investigation. Cheung et al. (2008) investigated the attitude of
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clients and estimators towards estimating errors in the estimating
practice in the Hong Kong construction industry. Based on a ques-
tionnaire survey conducted among 45 estimators, 33 clients, and
regression modeling, tolerances in overestimations among both
parties were highlighted. Although both estimators and clients
are reasonably satisfied with overestimations, the underlying
causes of such practices and strategies for mitigation were not
revealed.
As evident from the previously discussed research, the field of
cost management and underlying attributes in cost estimation is
reasonably well developed (Bowen and Edwards 1998). However,
it is unclear how each of the attributes relate to the clients, con-
sultants, and contractors, and how the attributes effect successful
cost performance. Currently, no research has been found in the
public domain that focuses on the entire project development
phase, using the perceptions of clients, consultants, and contrac-
tors, and how it impacts cost performance (Fortune 2006). There
is a need to re-think and re-engineer the existing or normal cost
estimating process, incorporating emergent diversity and complex-
ity, especially in the project delivery approach. The findings of
this research should benefit the construction community by high-
lighting the key factors that impact costs and the associated
responsibilities for effective management among the key project
participants. Additionally, the results will provide guidance for
further research in developing practical steps that can be imple-
mented to reduce cost overruns during the entire development
process.
Methodology and Approach
Cost performance of projects and the management of cost overruns
is an ongoing topic of investigation in many countries. There has
been much research into the generic causes of cost performance
issues over the design and construction aspects of projects
(Skitmore and Wilcock 1994; Cheung et al. 2008). However, no
or little research has been reported in the context of understanding
the root causes, tackling mechanisms, and stakeholders’ respon-
sibilities in addressing this chronic issue of cost overrun in most
projects. Furthermore, the area-specific study of the factors that
affect cost performance in projects renders past findings insuffi-
ciently comprehensive in relation with Australian industry practice
(Love et al. 2005). Focusing on Australian construction projects,
this research is therefore intended to examine the root causes
behind the poor cost performance from the perspectives of the
three key participants and management responsibilities commensu-
rate to the contractual roles of these participants across the entire
development process.
The research is intended to expand current understanding of
cost performance issues and management methods through a ques-
tionnaire survey. The questionnaire was designed to capture the
current construction industry experiences among clients, consul-
tants, and contractors. Over 160 construction clients, consultants,
and contractors were selected on the basis of their diverse back-
grounds, professional experiences, and current participation in
the industry.
The objective of this research is to identify the most critical
factors that impact cost performance across the design consultants,
contactors, and client perspectives by the following:
• Ranking the most critical attributes based on the relative impor-
tance weight (RIW),
• Reduce the influencing attributes into factor groups, identifying
the latent properties of each factor and their effective manage-
ment based on factor analysis,
• Investigate the influencing factors on cost performance based on
multivariate regression analysis, and
• Analyze the management of the influencing factors in relation
with the roles and responsibilities of the consultants, contactors,
and client in the project.
The first objective is important for clients, consultants, and con-
tractors to understand and attend to the underlying attributes that
impact cost success. By establishing the relative positioning of
the attributes in the order of their significance, the second objective
attempts to create a better understanding of the clustered effects
(e.g., factors) of these attributes on project cost performance. The
factors are then analyzed in the context of effective management
among the clients, consultants, and contractors in the optimal project
delivery process. The second objective is particularly important
for all three parties to prioritize, specifically, the factors in terms
of their criticality for developing contractual arrangements and
assume responsibilities, to obtain the desired outcomes. The third
objective is intended to validate the factors in terms of their relevancy
and underlying influence on cost performance in projects. Finally,
through the fourth objective, the resulting factors are analyzed with
reference to the roles and responsibilities of all three key stakehold-
ers with respect to cost management processes and their effective
development and implementation in the construction projects. By
increasing the discipline-specific knowledge in meeting the require-
ments and expectations of clients, consultants, and contractors, it
may be possible to accurately highlight the advantages and disad-
vantages of the cost management approach and clarify the perceived
viewpoints within the construction industry.
The research uses a carefully designed questionnaire to collect
the perceived opinions of the most possible causes of cost overruns
among the three key stakeholder groups. To capture the most rel-
evant attributes in the questionnaire that impact the cost perfor-
mance in projects, an extensive literature search was conducted.
A listing of the attributes that are directly or indirectly associated
with project cost performance was developed under seven broad
headings, as shown in Table 1. To validate the selected attributes
in an Australian context, a number of feedback sessions were also
conducted among five senior industry professionals who represent
all three categories in the Australian construction industry.
The final questionnaire, consisting of 73 key attributes, was then
distributed to over 160 selected professionals, targeting a good mix
of construction contractors, consultants, and clients primarily in-
volved in medium- to large-scale construction projects. Of the pos-
sible 73 attributes, 48 attributes had a sizeable correlation with one
another and were considered appropriate for further investigation
(Doloi 2008; Field 2005; Chan and Kumaraswamy 1997). The re-
spondents were asked to provide their objective opinions on the
impacts of all the attributes on cost performance in one of their past
or current projects on a five-point Likert scale (5 = strongly agree,
4 = agree, 3 = neutral, 2 = disagree, and 1 = strongly disagree). To
measure the perceived agreement of the respondents’ groups on the
criticality of the attributes that impact project cost performance, two
hypotheses were developed, as follows:
• Null hypothesis (H0): none of the groups are in agreement with
the ranking of any attribute, and
• Alternative hypothesis (H1): all three groups are in agreement
with the ranking of any attribute.
The previous hypotheses have been discussed in the context of
results and findings in the following sections. Given that there con-
tinues to be considerable cost overrun issues among a majority of
construction projects, the contributions made in this research are
highly relevant for understanding the client’s, consultant’s, and
contractor’s roles in relation to achieving target cost performance
and overall project success.
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Data Collection Process
A total of 160 questionnaire surveys were distributed to the
selected clients, contractors, and consultants within the Australian
Construction Industry, comprising residential, commercial, and in-
dustrial buildings. Selection of those firms and individuals from
the contractor, client, or consultant background was critical to the
success of this research. Given that the target outcome of this
research entirely relies on the representative population sample,
a simple random sampling was adopted to provide a broad spec-
trum of the three key groups in both government and private or-
ganizations within the industry (Akintoye 2003). The selection of
the firms/individuals had therefore been selected from industry
body websites. The contractors were primarily sourced from
the Master Builders of Australia (MBA) website. The consultants
were sourced from specific industry websites, which include quan-
tity surveyors from the Australian Institute of Quantity Surveyors
(AIQS) and architects from the Australian Institute of Architects
(AIA). The clients firms were identified primarily from property
development companies available from both contractors’ websites
and the Australian Property Institute (API).
A total of 94 responses were received, which consisted of 24
clients, 29 consultants, and 41 contractors. The response rate of
approximately 25% of clients, 31% of consultants, and 44% of con-
tractors from the overall respondents was deemed acceptable for
this study (Flyvbjerg et al. 2004; Doloi 2008). Table 2 shows the
profile of the respondents in terms of their experience and the size
of the projects.
As seen in Table 2, among 94 respondents across the clients,
contractors, and consultants, 46% had a minimum of 10 years
experience in the construction industry. As seen in the last
column, 59% respondents were involved in project in the range
of $75–$150 million, with 11% over $150 million. These statistics
provide the basis that the research feedback has been based on
medium- to large-scale construction projects.
Table 1. Summary of the Literature Review Related to Project Cost Performance
Key attributes highlighted Authors
Project related: Scale and scope of project, location of project, tender period and market condition, extent of
completion of precontract design, project organization, size of project team, type of structure, project duration,
unexpected geological conditions, inclement weather
Flyvbjerg et al. (2004); Chan and
Kumaraswamy (1997); Trost and
Oberlender (2003)
Contract related: Poor contract management, design changes within development period, consultation with design
team and clients in design phase, negotiations and obtaining of contracts, complexity of design and construction,
project team’s experience in development stages, contractor’s deficiencies in planning and scheduling at tender
stage, form of procurement and contractual agreements, inaccurate estimates
Akintoye (2000); Flyvbjerg et al.
(2004); Baloi and Price (2003); Doloi
(2009); Cheung et al. (2006); Green
(1989); Skitmore and Wilcock (1994)
Project management team related: Capability of the firm’s construction team, planning and scheduling
deficiencies, buildability (including on-site prefabrication), anticipated frequency of construction variations, delays
in work approval waiting for information, cash flow during construction, contractor’s financial difficulties,
financing and payment of completed projects
Hicks (1992); Mansfield et al. (1994);
Chan and Kumaraswamy (1997)
Quality related: Inadequate insurance covers, mistakes and discrepancies in construction documentations,
inspection and testing of completed projects, late delivery of materials and equipments, shortage of materials and
equipment parts, imported materials and plant parts, frequent breakdown of construction equipment, poor site
management and supervision, inadequate management skills, improper control over site resource allocations,
deficiencies in cost estimates prepared, methods/techniques of construction
Iyer and Jha (2005); Cheung et al.
(2008); Tah et al. (1994); Skitmore
and Wilcock (1994); Love et al.
(2005)
Planning related: Effective monitoring and feedback process, positive attitudes of project manager (PM) and
project teams, effective monitoring and feedback by PM, early selection of PM with proven track record, scope and
nature of work defined in tender, understanding of responsibilities by all teams, leaderships quality of PM,
coordinating ability and rapport of PM with owners representatives, coordinating ability and report of PM with
other contractors on-site, regular budget update, staff training in the skill areas relevant to project, construction
control and status meetings
Baloi and Price (2003); Frimpong
et al. (2003); Enshassi et al. (2009);
Akintoye (2000); Mansfield et al.
(1994); Iyer and Jha (2005)
Market related: Nonadherence to contract conditions, mistakes during construction, labor and management
relations, shortage of materials in current market, fraudulent practices and kickbacks, lead times for delivery of
materials, shortage of materials, price fluctuations, difficulties in obtaining materials at current price, escalation of
material prices, availability and supplies of labor and materials
Trost and Oberlender (2003); Cheung
et al. (2006); Iyer and Jha (2005);
Chan and Kumaraswamy (1997)
Contractor related: Inadequate contractor experience, necessary variation of projects, client-initiated variations,
lack of communication between client and contractor, low speed at decision-making involving all project teams,
delay in subcontractor projects, low labor productivity, unrealistic contract duration imposed by client, shortening
of contract periods, poor procurement programming of materials
Baloi and Price (2003); Frimpong
et al. (2003); Iyer and Jha (2005);
Doloi (2009)
Table 2. Summary of Respondents’ Profiles
Field of work
Respondents
(%)
Experience
(years)
Respondents
(%)
Typical project budget
(in millions of dollars)
Respondents
(%)
Clients 25 <1 2 <5 2
Consultants 31 1–5 16 5–25 8
Contractors 44 5–10 36 25–75 20
>10 46 75–150 59
>150 11
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