(PDF) Cost Overruns and Failure in Project Management

Running head: COST OVERRUN
Cost Overrun in Ongoing Construction Projects in Melbourne
Name of the Student
Name of the University
Author Note

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Acknowledgement
I would also like to take this opportunity to thank my professor without whose, constant support
and guidance, the research would not have been possible.
Firstly, I would like to thank God the Almighty in giving me the strength and courage without
which I could not have completed the entire study. Secondly, I would like to thank my family
and relatives who gave me constant support mentally and physically so that I can complete the
study on time. Lastly, I would like to give thanks to my peers and the friends who have helped
me in providing the appropriate information throughout the project and helped me in doing the
in-depth analysis of the research. Without their proper guidance, it is impossible for me to
complete the project.
Thanks and Regards,
Yours Sincerely,

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Abstract
The overrun in costs along with the delays in the schedule are a major problem in the world and
in the Australian context as well. Many dollars have been lost due to the delays that take place in
the construction projects. The main reason for cost overrun is based on three explanations that
are technical challenges, over-optimism and misrepresentations in a strategical manner. It is seen
that a majority of the construction projects have experienced cost overrun and this puts a huge
burden on the financial aspect for the owner of the construction companies. A total of 26
questions were distributed among the employees of the construction firms in Melbourne to
record their statements and the Chi-Square test of Pearson has been used to analyze those
responses. The result of the test has shown that the rise in then rate of inflation and the making of
decision at a slower pace have resulted in the cost overrun for a majority of the construction
companies along with the other issues as well.

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Table of Contents
Chapter 1: Introduction....................................................................................................................5
1.1: Background of the study.......................................................................................................5
1.3: Research problem.................................................................................................................7
1.4: Research objectives..............................................................................................................7
1.5: Research questions...............................................................................................................8
1.6: Research Hypothesis.............................................................................................................8
Chapter 2: Literature Review...........................................................................................................9
2.1: Accuracy of cost estimates.................................................................................................10
2.2: Causes of cost overrun........................................................................................................10
2.2.1: Technical challenges....................................................................................................10
2.2.2: Optimum Biases..........................................................................................................13
2.2.3: Strategic Misrepresentation.........................................................................................14
2.3: Measures to reduce cost overrun........................................................................................15
2.4: Summary.............................................................................................................................18
Chapter 3: Research Methodology................................................................................................38
3.0: Introduction........................................................................................................................38
3.1: Research philosophy...........................................................................................................38
3.1.1: Justification of the philosophy.....................................................................................38
3.2: Research approach..............................................................................................................39

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3.2.1: Justification for the approach......................................................................................39
3.3: Research purpose................................................................................................................39
3.3.1: Justification of the research purpose...........................................................................40
3.4: Research strategy................................................................................................................40
3.4.1: Justification for the research strategy..........................................................................40
3.5: Data collection....................................................................................................................40
3.6: Sample selection.................................................................................................................41
3.7: Data analysis.......................................................................................................................41
3.8: Ethical considerations.........................................................................................................41
Chapter 4: Analysis and Findings..................................................................................................42
Chapter 5: Conclusion...................................................................................................................88
5.1: Conclusion..........................................................................................................................88
5.2: Linking with the objectives................................................................................................88
5.3: Limitations of the research.................................................................................................89
5.4: Scope for future research....................................................................................................89
Reference List................................................................................................................................90
Appendices....................................................................................................................................95
Appendix 1: Survey questions for employees...........................................................................95

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Chapter 1: Introduction
The construction industry helps in influencing the economies of most of the countries, as
it provides the factors that are important for the growth of the economy. The World Bank had
shared a report stating that the annual growth of the Gross Domestic Product for a country is
between 6-9 percent due to the factors that help in influencing the construction industry
(Salunkhe & Patil, 2014). A report shared by United Nations Economic Commission for Europe
(UNECE) stated that the growth in GDP was around 4.5 percent in Turkey due to the
construction industry. This industry plays an important role within the economy, as it helps in
creating an impact on the output and the efficiency of the different industries (Gonzalez et al.,
2013)
1.1: Background of the study
The infrastructural development is one of the important things that helps in the growth of
the commercial sector, as it helps in meeting all the requirements that are present in the
infrastructural projects. The source of the funds mainly comes from the Public Private
Partnerships (PPP), which helps in taking in to account the investments done by the private and
the public firms so that road or rail construction can be done in an efficient manner (Ngacho &
Das, 2014). The cost overruns and delays have various implications on the economic and
political aspect of the countries, as the provisions of goods and services that are necessary for the
common public takes longer than the expected time. The present projects that are being done in
Melbourne are also facing serious issues from the government that is causing the projects to get
delayed and leading to an increase in the cost. The increase in the paper works regarding the
safety protocols that are to be maintained to undertake the construction projects by the

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companies. Cost overruns also result in reducing the factor of competition within the industry, as
it leads to an increase in the ratio of capital and output within the economy (Narbaev & De
Marco, 2013). Most of the important projects that are funded by the government are done based
on the money that they earn from collecting taxes from the citizens of the country and therefore
most of the taxpayers have the right to have a better knowledge regarding the proper use of the
money for the goods and services (Fulford & Standing, 2014). The lack of proper identification
results in delaying the projects, which leads to cost overruns and the policymaking guidelines are
also mislead. Most of the citizens of the country are of the perception that governments are not
capable of delivering the goods and services within the time that has been allotted by them and
this results in relying more on the private sectors. This also results in excess privatization in most
of the sectors, which also increases the cost within the economy (Ling et al., 2013).
An example of this would be the Australian city Melbourne, with its economy at a
booming level that has led to the rise in the infrastructural projects. This has led the government
of that place to allow a 100 percent Foreign Direct Investment (FDI) within the industry so that
the activities of construction can be carried out in a proper manner (Iqbal et al., 2015). The real
estate sector within Australia has grown from approximately 25 billion in the year 2005 to 80
billion in the year 2015. The development of the information technology facility has helped the
infrastructure companies in showing a major jump in its activities, as the efficiency of
communication has helped in easing out the procedure (Marzouk, El Kherbawy & Khalifa,
2013). The current project that is being undertaken in the city is Melbourne Metro Rail Tunnel
that will be one of the largest projects in construction that the city has ever had. The completion
of this project will help the citizens significantly. The place known as City Square will be fenced
so that the machineries can be installed in the area and the construction of the project can start.

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The project will be based on widening the roads and leveling the crossing intervals in the
Blackburn Road area, Mitcham and Heatherdale Road. The transport minister of the area had
stated that the construction will play a pivotal role in changing the situation of the local people.
The project will help the locals in reaching to their friends and relatives at a faster rate due to the
construction. Some of the places will remain closed, as it would help in completing the projects
within the stipulated time. The construction had already started from the end of 2017 and up on
its completion, it will help the locals in commuting the places at a faster manner. Presently, most
of the roads and the public transport system present in the area had been diverted to another route
so that the construction does not get hampered (Dow, 2018).
1.3: Research problem
There are many risks in the administration of the construction projects with respect to
budget and the scheduled delivery of the work within the stipulated period. The presence of these
problems such as the cost and over time has led to a delay in the construction projects. A report
prepared by Asian Development Bank (ADB) and African Development Bank (AFDB) showed
that most of the infrastructural projects were having cost overruns and it was in countries like
Pakistan, China, Korea and Iran (Narbaev & De Marco, 2013). The failures and the other weak
spots have to be taken in to consideration so that the research can be conducted in a better
manner. Melbourne has seen a rise in the cost overrun due to the failure of the companies in
meeting the deadlines under which the project had to be completed. This has led to the decrease
in the competition in the real estate market as well (Salunkhe & Patil, 2014).
1.4: Research objectives
The research will be based on the objectives that are as follows: