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STRUCTURAL MODELLING OF COST OVERRUN FACTORS IN
CONSTRUCTION INDUSTRY
AFTAB HAMEED MEMON
A thesis submitted in
fulfilment of the requirements for award of the
Doctor of Philosophy
Faculty of Civil and Environmental Engineering
University Tun Hussein Onn Malaysia
MARCH 2013
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ABSTRACT
Construction industry contributes significantly in improving socio-economic growth
of a country. However, this industry usually faces chronic problems such as time
overrun, cost overrun, poor quality and others. Of all these, cost overrun is a major
problem that occurs globally including Malaysia. Cost overrun is resulted from
various factors which are essential to identify for improving cost performance in
construction project. Hence, this study focused on identifying and modelling the
factors of cost overrun for construction projects in Malaysia. Data collection was
done through structured questionnaire, which was designed based on 78 factors
found from the literature. Qualitative pilot study was done based on the opinions of
15 experts in the construction industry to improve the questionnaire by reducing the
factors to 58. The questionnaire survey was carried out among clients, consultants
and contractors. A total of 231 questionnaires were collected of which 213 responses
were found valid. Partial Least Square Structural Equation (PLS-SEM) model was
developed based on 8 categories/constructs generated through factor analysis test and
found that Global Fit Index (GOF) of the model to be 0.37. The findings from the
model indicate that all the 8 categories have significant effect on the cost overrun.
The most significant category is contractor's site management related issues with
path co-efficient value of 0.448. The developed model was validated statistically
(using power analysis and predictive relevancy) and through interviewing 21
experienced practitioners. Statistical validation tests showed that the developed
model had achieved substantial power in explaining cost overrun problem. All the
experts agreed with the factors and also categories of the model have significant
impact to cost overrun.
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ABSTRAK
Industri pembinaan menyumbang secara ketara dalam meningkatkan pertumbuhan
sosio-ekonomi sesebuah negara. Walau bagaimanapun, industri ini sentiasa
menghadapi pelbagai masalah kronik seperti lebihan masa, lebihan kos, kualiti yang
rendah dan lain-lain. Dari semua ini, lebihan kos adalah masalah utama yang berlaku
di seluruh dunia termasuk Malaysia. Lebihan kos adalah hasil dari pelbagai faktor
yang penting untuk dikenal pasti bagi meningkatkan prestasi kos dalam projek
pembinaan. Oleh itu, kajian ini mengfokuskan kepada mengenal pasti faktor serta
membina model lebihan kos untuk projek pembinaan di Malaysia. Pengumpulan data
dilakukan melalui borang soal selidik berstruktur yang direkabentuk berdasarkan 78
faktor hasil kajian literatur. Kajian rintis berbentuk kualitatif dilaksanakan
berdasarkan pendapat 15 pakar dalam industri pembinaan bagi memperbaiki borang
soal selidik dan hasilnya bilangan faktor menjadi 58 sahaja. Soal selidik sepenuhnya
dijalankan di kalangan klien, perunding dan kontraktor. Sebanyak 231 borang soal
selidik telah dipulangkan dan hanya 213 borang adalah sah. Model Partial Least
Square Structural Equation (PLS-SEM) dibangunkan berdasarkan 8 kategori /
konstruk dijana melalui ujian analisis factor dan didapati Global Fit Indeks (GoF)
model tersebut adalah 0.37. Penemuan menunjukkan bahawa semua 8 kategori
mempunyai kesan ketara terhadap lebihan kos. Kategori yang paling ketara adalah
isu berkaitan pengurusan kontraktor di tapakbina dengan nilai angkali 0.448. Model
yang dibangunkan telah disahkan melalui statistik dan melalui temuramah dengan 21
pakar pembinaan yang berpengalaman. Pengesahan statistik menunjukkan model
yang dibangunkan telah mencapai kuasa yang ketara dalam menjelaskan masalah
lebihan kos. Semua pakar bersetuju bahawa faktor dan kategori yang terdapat dalam
model mempunyai impak yang ketara terhadap lebihan kos.
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TABLE OF CONTENTS
DECLARATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
ABSTRAK
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
LIST OF APPENDICES
CHAPTER 1 INTRODUCTION
1.1 Background
1.2 Problem Statement
1.3 Aim and Objectives
1.4 Scope of the Research
1.5 Research Methodology
1.6 Thesis Layout/Organization
CHAPTER 2 LITERATURE REVIEW
2.1 Construction Industry in Malaysia
2.2 Problems in Construction Industry
2.2.1 Time Overrun
2.2.2 Cost Overrun
2.2.3 Construction Waste
2.2.4 Poor Safety
2.2.5 Poor Quality
2.2.6 Excessive Resources Consumption
2.2.7 Threat To Environment
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2.3 Construction Cost Overrun
2.3.1 Concept
2.3.2 Cost Performance
2.3.2.1 Developed Countries
2.3.2.2 Developing Countries
2.4 Causative Factors of Cost Overrun
2.5 Summary
CHAPTER 3 RESEARCH METHODOLGY
3.1 Introduction
3.2 Research Plan
3.3 Questionnaire Design
3.3.1 Measurement Scale
3.4 Pilot Study Analysis
3.5 Questionnaire Survey
3.6 Analysis Methods
3.6.1 Descriptive Analysis
3.6.2 Factor Analysis
3.6.3 Structural Equation Modelling (SEM)
3.6.3.1 Why PLS-SEM?
3.7 Summary
CHAPTER 4 DESCRIPTIVE ANALYSIS
4.1 Introduction
4.2 Pilot Study Analysis
4.3 Questionnaire Survey
4.3.1 Sampling Statistics
4.3.2 Respondent’s Organization Demography
4.3.3 Respondent’s Project Handled Demography
4.3.4 Respondent’s Expertise Demography
4.4 Factor Analysis Results
4.5 Reliability Test
4.6 Ranking of Factors Causing Cost Overrun
4.6.1 Design and Documentation (DDF)
4.6.2 Contractor's Site Management (CSM)
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4.6.3 Financial Management (FIN)
4.6.4 Project Management and Contract
Administration (PMCA)
4.6.5 Labour Management (LAB)
4.6.6 Material and Machinery (MMF)
4.6.7 Information and Communication (ICT)
4.6.8 External Factors (EXT)
4.6.9 Ranking of Overall Data
4.7 Comparison with Other Countries
4.8 Summary
CHAPTER 5 PARTIAL LEAST SQUARE SEM (PLS-SEM)
ANALYSIS
5.1 Introduction
5.2 Hypothetical Model of Causes of Cost Overrun
5.3 Mechanism for PLS Model Analysis and
Assessment
5.3.1 Data Input
5.3.2 Run PLS Algorithm
5.3.3 Evaluation of Model Output
5.3.3.1 Assessment of Measurement
Model
5.3.3.2 Modify Theoretical Model
5.3.3.3 Assessment of Structural Model
5.3.4 Test Hypothesis
5.4 Sample Size
5.5 Evaluation of Hypothetical Model
5.5.1 Individual reliability and CV of
measurement Model
5.5.1.1 Optimization of the Model Quality
5.5.2 Discriminant Validity of Measurement
Model
5.5.3 Structural Model Assessment
5.5.4 Test of Hypothesis
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5.5.5 Assessment of Overall Model
5.6 Validation of the Results
5.6.1 Statistical Validation
5.6.2 Expert Opinion Validation
5.7 Summary
CHAPTER 6 CONCLUSION AND RECOMMENDATION
6.1 Introduction
6.2 Summary of the Findings
6.2.1 Common Factors of Cost Overrun
6.2.2 Ranking of Causes of Cost Overrun
6.2.3 Developing model to assess significance of
causative factors
6.2.4 Validating SEM Model
6.3 Contribution of this Study
6.4 Recommendations For Future Research
REFERENCES
APPENDIX A: QUESTIONNAIRE FOR PILOT STUDY
APPENDIX B: QUESTIONNAIRE FORM
APPENDIX C: INPUT DATA (*.CSV) WITH FILE FORMAT
USED IN PLS-SEM ANALYSIS
APPENDIX D: PLS ASSESSMENT RESULTS OF ITERATION 1
APPENDIX E: PLS ASSESSMENT RESULTS OF ITERATION 2
APPENDIX F: PLS ASSESSMENT RESULTS OF ITERATION 3
APPENDIX G: PLS ASSESSMENT RESULTS OF ITERATION 4
APPENDIX H: PLS ASSESSMENT RESULTS OF ITERATION 5
APPENDIX I: PLS ASSESSMENT RESULTS OF ITERATION 6
APPENDIX J: PLS ASSESSMENT RESULTS OF ITERATION 7
APPENDIX K: PLS ASSESSMENT RESULTS OF ITERATION 8
APPENDIX L: QUESTIONNAIRE FORM FOR MODEL
VALIDATION
LIST OF PUBLICATIONS
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LIST OF TABLES
2.1 Contractors Registered under CIDB
2.2 Cost Performance in Developed Countries
2.3 Cost Performance in Developing Countries
2.4 Mapping Previous Studies (Factors of Cost Overrun)
3.1 Criteria for Selection of SEM Approach
4.1 Respondent’s Demographics in Pilot Study
4.2 Analysis of Pilot Study
4.3 Survey Statistics
4.4 Respondent’s Organization
4.5 Factor Analysis Results
4.6 Categorization of Cost Overrun Factors
4.7 Respondent’s Demographics in Validating Factor
Analysis Results
4.8 Reliability Test Results
4.9 Ranking of Design and Documentation Related
Factors
4.10 Ranking of Contractor's Site Management Related
Factors
4.11 Ranking of Financial Management Related Factors
4.12 Ranking of Project Management and Contract
Administration Related Factors
4.13 Ranking of Labour Management Related Factors
4.14 Ranking of Material and Machinery Related Factors
4.15 Ranking of Information and Communication Related
Factors
4.16 Ranking of External Factors Related Factors
4.17 Ranking of Overall Factors
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4.18 Comparison with Factors of Cost Overrun with
other Countries
5.1 Steps in PLS-SEM Process
5.2 Convergent Validity of Model (Iteration 1)
5.3(a) Convergent Validity of Model (Iteration 1 to 4)
5.3(b) Convergent Validity of Model (Iteration 5 to 8)
5.4 Analysis of Cross-Loadings of factors
5.5 Latent Variable Correlations
5.6 Path Results of the Model
5.7 GoF index and its Criteria
5.8 Estimates of Power Analysis
5.9 Estimates Q2 for Predictive Relevancy
5.10 Demographic information of respondents Involved
in Validation Process of the Model Results
5.11 Results of Validation Process of the Model Results
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LIST OF FIGURES
2.1 Construction work on an apartment complex in
Kuala Lumpur
2.2 The construction of the tunnel at Bukit Berapit in
Kuala Lumpur
2.3 Construction waste illegally dumped in mangrove
swamp
2.4 Construction debris along roadside
3.1 The flow chart of methodology for this research
4.1 Experience of Respondents involved in Pilot Study
4.2 Type of Projects Respondents handled
4.3 Size of Projects Handled by Respondents
4.4 Academic Qualification of Respondents
4.5 Respondents Experience
5.1 Hypothetic Model of Causes of Cost Overrun
5.2 Schematic Diagram of PLS-SEM Analysis
5.3 Theoretical Model of Cost Overrun and Causative
Factor
5.4 Data Input Screenshot from SmartPLS Software
5.5 PLS Model Results for Iteration 1
5.6 Result of Structural Model
6.1 Common Factors of Cost Overrun
6.2 Significant Factors of Cost Overrun
6.3 PLS-SEM Showing Causal Relations b/w Cost
Overrun Factors
6.4 Power Analysis Results Obtained from GPower
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LIST OF APPENDICES
APPENDIX TITLE PAGE
A Questionnaire for Pilot Study 128
B Questionnaire form for Data Collection 133
C Input Data (*.csv) with file format used in
PLS-SEM Analysis 137
D PLS Assessment results of Iteration 1 157
E PLS Assessment results of Iteration 2 160
F PLS Assessment results of Iteration 3 163
G PLS Assessment results of Iteration 4 166
H PLS Assessment results of Iteration 5 169
I PLS Assessment results of Iteration 6 172
J PLS Assessment results of Iteration 7 175
K PLS Assessment results of Iteration 8 177
L Questionnaire form for Model Validation 179
CHAPTER 1
INTRODUCTION
1.1 Background
Construction industry is a very important industry that plays a vital role in the socio-
economic growth of a country. Economically, it contributes significantly in the
improvement to the overall GDP of a country. It also improves the quality of life by
providing necessary infrastructure such as roads, hospitals, schools and other basic
and enhanced facilities. Hence, it is fundamentally crucial to make the construction
projects complete successfully within the time, budget and quality expected.
However, being a complex, fragmented and schedule driven industry it is always
facing chronic problems such as low quality, low productivity, cost overrun, time
overrun, construction waste etc. Of these, cost overrun is the major problem as
money is always of high importance.
Cost overrun is a global phenomenon in the construction industry and very
rarely projects are finished within the budgeted cost. The issue of cost overrun in
construction projects is very dominant in both developed and developing countries
but this trend is very severe in developing countries where these overruns sometimes
exceed 100% of the anticipated cost (Azhar, Farooqui, & Ahmed, 2008).
Flyvbjerg, Holm, & Buhl (2003) in their global study of construction project
performance concluded that cost overrun is a major problem in the construction
industry where 9 of 10 projects are faced by these overruns which commonly range
between 50 to 100%. In developed countries like UK also construction industry is
affected by this problem (Olawale & Sun, 2010) and nearly one third of the client’s
complaint that their projects generally overran the allocated budget (Jackson, 2002).
2
1.2 Problem Statement
Like other developing countries, Malaysia also facing a serious issue of cost overrun
in construction industry (Ali & Kamaruzzaman, 2010, Sambasivan & Soon, 2007,
Abdullah et al., 2009 and Ibrahim et al., 2010). This is confirmed with a research
conducted by Endut, Akintoye, & Kelly (2009) showing that only 46.8% of public
sector and 37.2% of private sector projects were completed within the stipulated
budget. The issue of cost overrun has become a serious concern of the investors,
which needs a serious attention and in-depth research to put forward with solution to
this issue.
According to Toh, Ali, & Aliagha, (2011), Malaysia needs more research
works by academia and practitioners regarding construction cost factors. Since
construction cost is the most dominant component of project’s life cycle, thus it is
important to evaluate it before it is too late so that poor cost performance can be
prevented (Cha & Shin, 2011). The impact of poor cost performance could lead to
cost overrun which is an additional burden over the budgeted cost of project and this
cost overrun can never be recovered. These overruns are resulted from various
factors, thus it is important to identify and to control these responsible factors.
Further, there was no study done on assessing causal relationships among
factors of cost overrun (Toh et al., 2011) and this give an opportunity to the author
adopting Structural Equation Modelling (SEM) approach to assess and also to model
the factors. SEM is a graphical equivalent of a mathematical representation (Byrne,
2010) with features of advance multivariate tool to determine the strength of the
relationships between the factors (Jackson, Dezee, Douglas, & Shimeall, 2005; Hair,
Anderson, Tatham, & Black, 1998). It is becoming very popular in analyzing cause–
effect relations between factors (Hair, Ringle, & Sarstedt, 2011).
Hence, this study focuses on identifying major factors causing cost overrun
run and developing a structural model in representing the factors affecting cost
overrun for Malaysian construction industry.
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1.3 Aim and Objectives
The aim of this study is to model the factors contributing to cost overrun in
Malaysian construction industry. To achieve this aim, various objectives were set
which include:
o Identifying the common factors causing cost overrun
o Assessing hieratically the causative factors of cost overrun in Malaysian
construction industry
o Developing Structural Equation Model (SEM) to assess significance of
causative factors to cost overrun
o Validating the results of SEM
1.4 Scope of the Research
This study adopted quantitative approach in identifying and assessing the significant
factors causing overrun. The data samples are collected through questionnaire survey
amongst the clients, consultants and contractors involved in construction industry.
Contractors were selected from “list of approved contractors” in Construction
Industry Development Board (CIDB) Malaysia registered under category from G3 to
G7.
1.5 Research Methodology
This study is based on three research methods which include literature review,
interviews and questionnaires. These three methods acted as supplement to each
other which made the data collection more comprehensive and meaningful. Basically,
literature review focused on gaining a better understanding of cost performance and
causative factors affecting cost overrun in construction projects. These factors were
analyzed in conformance to represent the problems of cost overrun in prevailing
construction industry of Malaysia through interviewing the experience personnel
4
involved in handling construction projects. Questionnaire survey was conducted to
understand the perception of clients, consultants and contractors towards the factors
causing cost overrun. Gathered data was analyzed with statistical tools in order to
draw the conclusion in determining the current situation of cost overrun problem and
factors contributing to this overrun.
1.6 Thesis Layout/Organization
This study focused on modelling the causative factors of cost overrun to propose the
guidelines for controlling cost overrun problem in construction industry of Malaysia.
The thesis for this study is divided into 6 chapters as follows:
Chapter One: This chapter discusses about the need of this study. It contains
background of the study and problem statement to outline the primary objectives,
scope of the study with introductory remarks.
Chapter Two: This chapter contains the review of published research works
for related study on cost overrun issues and factors of cost overrun.
Chapter Three: This chapter illustrates the methodology adopted for this
study. It provides details of various analyzing approaches used for data analysis
together with the data collection strategy used.
Chapter Four: This chapter explains the descriptive analysis results including
the hierarchal assessment of causative factors of cost overrun and comparison of
findings with similar studies carried out in other countries.
Chapter Five: It discusses the structural equation modelling (SEM) analysis
and achieved results of causal relationships. It also explains the course of validating
the results and prosing the mitigation measure and guidelines to help the practitioners
in controlling causative factors of cost overrun at source.
Chapter Six: The final chapter discusses about the conclusion achieved from
this study with counsel for probable advancement and line of action for future works
to provide more benefits in achieving cost control of construction projects.
CHAPTER 2
LITERATURE REVIEW
2.1 Construction Industry in Malaysia
Construction industry is necessary in every country to provide physical
developments which help in improving social and economic needs of country (Abedi,
Mohamad, & Fathi, 2011). Hence, construction industry has been growing rapidly
worldwide.
Construction industry in Malaysia developed since its independence. The
industry is generally classified into two areas namely general construction and
special trade works (Ibrahim et al., 2010). General construction focuses on
residential and non-residential constructions and also general civil engineering works.
For special trade works, the activities involved are metal works, electrical works,
plumbing, sewerage and sanitary works, refrigeration and air-conditioning work,
painting work, carpentry, tiling and flooring work, and glass work. Figure 2.1 and 2.2
show the example of construction work of apartment complex and tunnel
construction in Kuala Lumpur.
Construction industry has been an important drive in Malaysian economy
(Ali & Kamaruzzaman, 2010). However, the volatile global economy between 2008
and 2009 constituted an overall decline in revenue stream in Malaysia’s construction
market. It was a challenging period for the construction industry facing that
economic crisis. According to (Rashid & Morledge, 1998) construction industry is
considered in crisis if its growth is less than 5.4% of the Growth Domestic Product
(GDP). Despite of these crises Malaysian construction industry has remained stable
(Leung & Tam, 2004) and registered a strong growth of 5.8% in 2009. The industry
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growth subsequently increased to 8.7% in 2010 as against that overall (GDP) growth
of 10.1%. Realizing the huge impact on the economy, the government had allocated
huge amount of the budget for construction development in Malaysia under 10th
Malaysian Plan with a total sum of RM230 billion (Mansor, 2010).
Figure 2.1: Construction work on an apartment complex in Kuala Lumpur
Source: Richter & Scheid (2011)
Figure 2.2: The construction of the tunnel at Bukit Berapit in Kuala Lumpur
Source: Railway-Technology.com (2011)
In Malaysian construction industry, it is mandatory for the contractors to
register with the Construction Industry Development Board (CIDB) before they are
eligible to participate in any construction activities for both public and private
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projects. A total of 66,904 contractors are currently registered with CIDB as
classified in 7 categories ranging from grade G1 to grade G7 (CIDB, 2012) as shown
in table 2.1.
Table 2.1: Contractors Registered under CIDB
State Grade
Total G1 G2 G3 G4 G5 G6 G7
Johor 3,320 1,075 1,314 320 309 123 333 6,794
Kedah 2,128 537 375 115 134 63 176 3,528
Kelantan 2,243 314 296 79 134 50 127 3,246
Melaka 1,118 376 392 128 126 43 110 2,293
Negri Sembilan 2,109 468 429 94 126 52 84 3,362
Pahang 2,193 500 557 185 152 59 128 3,774
Perak 2,677 634 641 178 178 71 123 4,502
Perlis 925 92 66 22 27 4 19 1,155
Pulau Pinang 1,405 635 774 141 230 95 287 3,567
Sabah 5,772 1,140 989 140 216 78 401 8,736
Sarawak 1,456 529 418 141 164 89 367 3,164
Selangor 4,536 1,277 2,251 574 816 283 1,005 10,742
Terengganu 2,286 333 356 147 209 76 165 3,572
Wilayah Persekutuan 1,823 870 2,325 529 1,106 368 1,448 8,469
Total 33,991 8,780 11,183 2,793 3,930 1,454 4,773 66,904
Source: (CIDB, 2012)
Table 2.1 shows that large group of contractors are in G1 grade which means
that these contractors are entitled to participate in tendering for project with worth of
maximum contract sum of not exceeding than MR 100,000. G2 contractors are
suitable to participate in tendering for projects of contract sum not exceeding MR
500,000. Similarly, G3 and G4 contractors are qualified for tendering in project with
maximum tender values of not exceeding than RM 1million and RM 3 million
respectively. G5 contractors can participate in tendering process of project of value
not exceeding than RM 5Million. Abdullah et al., (2009) stated that in Malaysia
projects with contract value equal to or less than RM 5 Million are regarded as small
projects. This means the contractors registered under grades G1 to G5 are eligible to
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take part for tendering only in small projects. While, contractors registered in G6 and
G7 grades are able to tender for small and large projects. However, grade G6
contractors are limited to tender up to RM 10 million project and G7 contractors
have no limitation.
2.2 Problems in Construction Industry
Construction industry is considered as a locomotive of physical developments which
bring substantial and significant impacts to the country’s economy (Kumaraswamy,
2006). However, it also contributes to negative implications especially to the
environment and social aspect of a country. In addition, the industry is always facing
chronic problems such as time overrun, cost overrun, waste generation (Hussin,
Rahman, & Memon, 2012a), poor safety (Nahmens & Ikuma, 2009), poor quality,
excessive resource consumption and threat to environment (Hussin, Rahman, &
Memon, 2012b).
2.2.1 Time Overrun
Achieving completion of construction projects on time is a basic requirement.
However, seldom projects are completed on time. This has become a worldwide
problem. A study showed that the Vietnamese government has acknowledged this
issue as a serious concern, especially with government-related funded projects (Le-
Hoai, Lee, & Lee, 2008). In Nigeria, out of 3,407 projects only 24 projects were
completed on time, while 1517 were delayed and 1812 were abandoned (Amu &
Adesanya, 2011). Omoregie & Radford (2006) reported that the minimum average
percentage escalation period of projects in Nigeria was found to be 188%. A similar
research was conducted in Bosnia and Herzegovina on 177 projects and found that
the contracted date was not met in 51.40 % of the projects (Zujo, Car-Pusic, &
Brkan-Vejzovic, 2010). Al-Momani (2000) conducted a survey on 130 public
projects in Jordan and found delays occurred in 106 (82%) of the projects. Frimpong,
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Oluwoye, & Crawford (2003) found that 33 (70%) out of 47 projects in Ghana were
delayed. Whilst, in Saudi Arabia 70% of projects faced time delay with average time
delay of 10% to 30% of the original duration of the project (Assaf & Al-Hejji, 2006).
Likewise in Malaysia also, the construction industry is facing the same
critical problem of time overrun (Alaghbari, Kadir, Salim, & Ernawati, 2007;
Ibrahim et al., 2010; Sambasivan & Soon, 2007). Abdullah (2010) reported that more
than 90% of large MARA construction projects experienced delay since 1984. Endut
et al. (2009) studied on time performance of 359 projects (301 new constructions
while 58 refurbishment projects) in Malaysia. Of these 301 were public projects and
51 private projects. The study found that only 18.2% of the public sector projects and
29.45% of private sector projects had 0% time deviation (no delays) while the
average percentage of time overrun for other projects was 49.71%. Time Delay can
be due to one or more reasons including problems of financing and payment for
completed works. As an example, Yogeswaran, Kumaraswamy, & Miller (1998)
scrutinized 67 civil engineering projects in Hong Kong and found at least 15–20% of
time overrun was due to inclement weather.
2.2.2 Cost Overrun
Cost is one of the major considerations throughout the lifecycle of a project.
Unfortunately, most of the projects failed to achieve project completion with the
estimated cost. Besides time overrun, cost overrun is also a serious problem in the
construction industry. This is a major problem both in developed and developing
countries. The trend is more severe in developing countries where these overruns
sometimes exceeds 100% of the anticipated cost of the project (Azhar et al. 2008).
The history of the construction industry worldwide is full of projects that
were completed with significant amount of cost overruns. Despite the wide
availability and use of different project management methods and software packages,
many construction projects still suffer cost overruns (Olawale & Sun, 2010).
Developed countries have lessons to learn as well since cost overrun in the
construction industry is a worldwide phenomenon (Ameh, Soyingbe, & Odusami,
2010). Approximately 90% of projects worldwide have cost overrun ranging from 50
10
to 100% of project cost (Flyvbjerg et al., 2003). Like other countries, Malaysian
construction industry is also facing a lot of challenges in completing the construction
projects within the estimated cost (Ibrahim et al., 2010; Toh et al., 2011) and more
than 50% of projects face cost overrun (Endut et al., 2009).
2.2.3 Construction Waste
Waste is another serious problem in construction projects. Waste has direct impact
on the productivity, material loss and completion time of project resulting in loss of a
significant amount of revenue. Forsberg & Saukkoriipi, (2007) stated that the amount
of waste contributed is around 30-35% of a project’s production cost. The amount of
construction materials wasted on the site is relatively high and equals 9% by weight
of the purchased materials (Bossink & Brouwers, 1996). They investigated material
waste generated in a Dutch construction project and found that the average waste per
house was 6,860 kg which consisted of 4,480 kg of construction debris and 2,380 kg
of other types of solid waste.
In Malaysia also construction waste generation is becoming an important
issue (Begum, Satari, & Pereira, 2010; Nagapan, Rahman, Azis, Memon, & Zin,
2012). The high quantity of construction waste generated in the country is due to the
rapid development of the construction industry. Demand of houses and major
infrastructure projects contributed to the increase of construction waste (Nasaruddin,
Ramli, & Ravana, 2008; Siti & Noor, 2008). Begum, Siwar, Pereira, & Jaafar (2006)
studied the economic feasibility of waste minimization in Malaysian construction
project and concluded that by adopting waste minimization strategy like recycling
and reusing materials, it can save 2.5% of the total budget.
The major impact of increased construction waste generation has caused
illegal dumping and has swelled rapidly in Malaysia (Yahaya & Larsen, 2008). A
study done in Johor district alone indicated that 42% of 46 illegal dumping sites are
of construction waste (Rahmat & Ibrahim, 2007). Furthermore, a study in Seberang
Perai, Pulau Pinang also discovered more illegal dump site along the roadside
(Faridah, Hasmanie, & Hasnain, 2004). Recent news had highlighted that almost 30
tons of construction wastes was dumped illegally in tropical mangrove swamp near
11
Bandar Hilir, Malacca (Murali, 2011) and construction debris problem near roadside
at Section 17, Petaling Jaya, Selangor (Tan, 2012) as shown in figures 2.3 and 2.4.
Figure.2.3: Construction waste illegally
dumped in mangrove swamp Source: Murali (2011)
Figure.2.4: Construction debris along roadside. Source: Tan (2012)
These illegal dumping has caused a risk to human health and environment
(Faridah et al., 2004; Rahmat & Ibrahim, 2007). The issues of illegal dumping arise
is due to the cost and location of the project (Seow & Mohamad, 2007). The
contractors intended to maximise profit by avoiding transportation cost and payment
charge to the gazetted landfill. Distance between the project location and the landfill
site also hinders the contractor to dispose in legal landfill. A study conducted at 30
construction sites in Malaysia identified six types of waste materials which includes
concrete (12.32%), metals (9.62%), bricks (6.54%), plastics (0.43%), timber (69.10%)
and other wastes (2%) (Faridah et al., 2004). Hence, it is timely for Malaysia to adopt
a systematic and efficient waste management strategy which would minimise the
generation of waste at different level. Advanced techniques such as lean construction
can help in reducing waste at source and can minimised the waste produced during
the operation by re-using and re-cycling.
2.2.4 Poor Safety
The construction industry is notoriously known for its poor safety record as
compared with other industries (Mohamed, 2002). Poor safety resulted to accidents
and fatality which affect significantly on efficiency and cost of the project. Accident
12
data prepared by the Occupational Safety and Health Branch of the Labour
Department, Hong Kong as summarized by (Rachel, 2006) shows that accident rates
in the construction industry are much worse than all other industries for many years:
for 1000 workers, the accident rates are on an average 3 times more than that of all
industries, whereas the fatality rates are on an average 5 times more than other
industries. Bureau of Labor Statistics USA (in Nahmens & Ikuma, 2009) reported
that in USA total injury and illness incidence rates are 9.5 to 14.3 per 100 workers in
prefabricated wood manufacturing while in the residential construction, incidence
rate is approximately 5 per 100 workers.
Koskela (1992) mentioned that cost incurred because of poor safety practices
in construction industry is approximately 6% of total project cost. In a research,
Everett and Frank (1996) found that the total costs of construction accidents
accounted for 7.9% to 15% of the total costs of projects. UK Health and Safety
Executive reported that the total losses due to accidents in the UK were equal to
about 8.5% of the tender price (Rowlinson, 2003). These accidents may be caused by
different factors. Kartam (1997) stated that accidents are directly attributed to unsafe
design and site practices while Baxendale & Jones (2000) stated that most of the
accidents are caused due to poor management and control.
2.2.5 Poor Quality
Another problem faced by construction industry is poor quality standards. It is very
common and serious problem as the expected quality is not complied in the
construction projects (Kometa & Olomolaiye, 1997). Failure in achieving required
quality has also significant impact of project cost. Koskela (1992) stated that quality
cost (non-conformance) in construction industry of USA contributed to 12% of total
project cost. Burati, Farrington, & Ledbetter (1992); Ledbetter (1994) and Love
(2002) studying quality performance of construction projects through case studies as
summarized in Marosszeky, Thomas, Karim, Davis, & McGeorge (2002) showed
that quality failures had resulted in rework which incurred extra cost approximately 2%
to 12% of project cost while Marosszeky et al (2002) stated that quality rectification
problems contributed to approximately 3.4% to 6.2% of project cost.
13
2.2.6 Excessive Resources Consumption
Built environment has significant impact on resources where it accounts for one-sixth
of the world’s freshwater withdrawals, one-quarter of its wood harvest and two-fifths
of its material and energy flows. The structures also have impact areas beyond their
immediate location, affecting the watersheds, air quality, and transportation patterns
of communities (Rodman & Lenssen, 1994). Buildings built without due
consideration to energy, environmental impact and natural resources conservation
will result in detrimental wastage affecting our ecological integrity (Shen & Tam,
2002).
Excessive resource and energy use and a growing demand for raw materials
are largely responsible for the depletion of natural resources worldwide and the
acceleration of global warming. About 40% of the world's resource and energy used
is linked to the construction and maintenance of buildings. This contributes to one-
tenth of the global economy (Rodman & Lenssen, 1994). Other studies indicate that
more than half of all resources consumed globally are used in construction, and 45
per cent of energy generated across the world is used to heat, light and ventilate our
buildings, with a further 5 per cent arising from constructing those (Edwards, 2001).
As an example, in the European Union, buildings are responsible for more than 40%
of the total energy consumption and the construction sector is estimated to generate
approximately 40% of all man-made wastes. In addition, the construction sector is
the Union’s largest industrial sector, contributing approximately 11% to the GNP and
having more than 25 million people directly and indirectly engaged (CIB, 1999).
2.2.7 Threat To Environment
Built environment is considered the most environmental unfriendly human activity
because it consumes large amounts of natural resources and produces a huge amount
of pollutants. The environmental impact of the construction industry is extensive and
readily identifiable (Rodman & Lenssen, 1994). Most people are not serious about
environmental protection in construction sites. They assume that a construction site
14
is only a temporary setup lasting for two to three years. In fact, the industry is a
major source of urban air pollutants (Chan, 2000).
The emission of CO2 by buildings contributed to the global warming and
extreme weather change all over the world. The harvest of timber leads to the loss of
natural forests. Other impacts of constructing a new building include quarrying to
provide aggregates, production of cement, the wasteful use of water and the
widespread use of toxic chemicals in materials (Kin-sun, 2004).
2.3 Construction Cost Overrun
Among the problems faced by construction industry, one of the most critical issues is
cost overrun problem. Cost overrun has become a global phenomenon and rarely
projects are completed within the budgeted cost. While, achieving completion within
the budgetary cost is the fundamental requirement of any construction project
(Olawale & Sun, 2010). Cost overrun normally experiences in construction projects
(Azhar et al., 2008). However, the magnitude of these cost overruns varies
considerably from project to project which are subjected to various causes. Thus
Sohail, Miles, & Cotton (2002) suggested that construction professionals should pay
more attention to cost performance of projects as cited by (Olawale & Sun, 2010)
and unearth the causes affecting it which can be shared amongst construction
community.
2.3.1 Concept
Cost overrun is also called “cost escalation,” “cost increase,” or “budget overrun”
(Zhu & Lin, 2004 in Enshassi, Al-Najjar, & Kumaraswamy, 2009). Cost overrun is
the excess of actual cost over budgeted cost which occurs when the final cost of the
project exceeds the original estimates (Avots, 1983; Azhar et al., 2008). Cost overrun
has become a universal phenomenon (Endut et al., 2009) which adds pressure to
investment decision (Ali & Kamaruzzaman, 2010).
15
Cost overrun is measured as a percentage of actual costs over the estimated
costs of the project (Cantarelli, 2009; Choudhury & Phatak, 2004) as shown in
expression 2.1:
Cost Overrun = Actual Cost−Estimated CostEstimated Cost
Actual costs are defined as real and accounted construction costs determined
at the time of project completion. Estimated costs are defined as budgeted or
forecasted construction costs determined at the start of projects (Cantarelli, 2009).
2.3.2 Cost Performance
The success of any project can be measured by various norms like time performance,
cost performance, quality standards, achieving safety and health, etc. Atkinson (1999)
stated that cost, time and quality serve as Iron Triangle for success of any project. Of
these, cost performance is the most important indicator of project success (Frimpong
et al., 2003; Olawale & Sun, 2010). It presents not only the firm’s profitability but
also the productivity of organizations at any point during the construction processes.
It can be seen easily in the project account and is always used to measure project
performance against the estimated target.
Unfortunately, construction industry has been experiencing poor cost
performance which described its inability to complete projects within budget. This
chronic issue is experienced worldwide and becoming more critical as been revealed
in World Bank report in 1990. The report pointed out that 63% of the 1778 financed
construction projects faced poor performance with overrun in budget at an average of
40% as cited by (Ameh et al., 2010; Zujo et al., 2010). For worldwide scenario,
Flyvbjerg et al. (2003) had studied 258 projects in 20 nations which approximately
US$90 billion worth of project with size ranging from US$1.5 million to $8.5 billion.
They found that cost escalation happened to almost 9 out of 10 projects with an
average of 28% higher than forecasted costs. The study concluded that cost
performance has not improved over the time and its magnitude has not changed for
the past 70 years. Other study conducted by Odeck (2004) shows that average cost
...........................................(2.1)
16
overrun was rather small with approximately 7.9% of project cost. The problem of
cost overrun is common issue in both developing and developed countries (Angelo &
Reina, 2002) However, it is more severe in developing countries where actual cost
exceeded 100% of the anticipated cost of the projects (Azhar et al., 2008).
2.3.2.1 Developed Countries
Numerous project control methods and software packages, such as Gantt Bar Chart,
Program Evaluation and Review Technique (PERT), Critical Path Method (CPM),
Microsoft Project, Asta Power Project, Primavera, etc. have been used to control cost
overrun. Despite that, many construction projects in developed countries still suffer
cost overruns (Olawale & Sun, 2010) as discussed below:
UK Scenario: A research conducted by Barrick (1995) showed that nearly
one third of the clients in UK complaints that their projects generally overran
budget. Further, Department of Environment, Transport and the Regions
(DETR, 2000) reported that approximately 55% of projects face the problem
of cost overrun with huge amount as cited by (Jackson, 2002). For example,
British library faced three times over the original budget, Guy’s house at
£152M doubled its original budget (NAO, 1998) parliamentary office
building in London also at cost of £250M doubled its original budget
(Wheeler, 1998) and Holyroad project in Glasgow took £230M against £90M
of the original budget (Fairs, 2001). Olawale & Sun (2010) conducting a
survey on cost overrun problems in construction projects stated that 41% of
respondents experienced overrun on just less than 10% of their projects while
59% of respondents experience cost overrun on 10% or more of their projects.
USA Scenario: A study conducted in 1994 consisting of 8,000 projects
showed that only 16% of the projects satisfied the three famous performance
criteria: completing projects on time, within budgeted cost and quality
standard (Frame, 1997). In study of project performance of cost plus fixed fee
projects, Chang (2002) conducted case studies on four projects. He found that
the entire four projects were facing cost overrun ranging from 12.3% to 51.3%
at an average of 24.8% of the contract amount. The Government
17
Accountability Office also stated that 77% of highway projects in the USA
experienced cost escalation (Cantarelli, Flyvbjerg, Molin, & Wee, 2010).
Netherlands Scenario: Investigation on 87 projects (29 road projects, 28 rail
projects and 30 fixed link projects) revealed that cost overrun was the
common problem at an average of 10.3% of project cost. The study showed
that the percentage of cost overrun in road projects was the highest with the
rate of 18.5% followed by rail projects with 7.6% and finally fixed link
project with 4.5% (Cantarelli, 2009).
Norway Scenario: Odeck (2004) studied the performance of construction
projects controlled by Norwegian Public Roads Administration. He found
that that cost overrun was a severe problem and the amount of overruns
ranged from -59% to 183%.
Slovenia Scenario: In a study of 92 traffic structures, it was found that
contracted construction price overrun was 51 % as cited by (Zujo et al., 2010).
Sweden Scenario: The Auditor General of Sweden (1995) report showed a
narrow focus on cost overruns involving transport projects. It covered 15
projects (8 road and 7 rail projects). The report showed that average capital
cost overrun for road projects was 86% (ranging between 2 and 182%) and
for rail projects this overrun was 17% (ranging from -14% to 74%) as cited
by (Cantarelli et al., 2010).
Portugal Scenario: Auditing report of public projects published by the
National Court of Audit Portugal (NACL, 2000) on the cost performance of
26 major motorway projects, underground projects launched between 1985
and 2000 and 98 Expo projects revealed that in motorway projects, average
cost overrun was 39% of project cost. In underground projects, cost overrun
averaged 311% while the Expo projects had cost overruns averaged as much
as 41%. Further, an investigating 66 construction projects with average initial
contract amount was €16.530.674. Average final costs of these projects
reached €18.584.954 with an average cost overrun of €2.054.280 i.e. 12% of
the initial average cost (Moura, Teixeira, & Pires, 2007).
Cost performance of construction projects in developed countries is
summarized in table 2.2.
18
Table 2.2: Cost Performance in Developed Countries
Origin Reference Findings UK DETR (2000)
Jackson (2002) Olawale and Sun
(2010)
55% of projects were overrun 1/3 of project face overrun More than 10% of project face cost overrun
USA Frame (1997) Chang (2002)
Kaliba et al. (2009)
84% project overrun 100% of projects overrun at average 24.8%
77% of highway projects face cost overrun
Netherlands Cantarelli (2009) Cost overrun amounts 10.3% of project cost
Norway Odeck (2004) Cost overrun ranged from -59% to 183% of project cost
Slovenia Zujo (2010) Cost overrun was recorded as 51 % of tender cost
Sweden Auditor General of Sweden (1994)
Average capital cost overrun for road projects equals to 86% of estimated cost
Average cost overrun for rail projects equals to 17%
Portugal N.A.C.L (2000)
Moura et al. (2007)
In motorway projects cost overrun was 39% In underground projects cost overrun was 311% of
original estimate Expo projects faced cost overrun at an average rate
of 41% of project cost
Construction Projects had overrun at average rate of 12% of budgeted cost
2.3.2.2 Developing Countries
Compared to developed countries, the trend of cost overrun is more severe in
developing countries as discussed below:
Bosnia and Herzegovina: In a study of 177 structures, it was found that the
contracted price was not met in 41.23% of structures. Another study of 53
building projects including 29 new construction and 24 reconstruction
projects showed that average cost overrun in reconstruction projects was 9.23%
white it was 6.84% for new construction projects (Zujo et al., 2010; Zujo &
Car, 2008).
Croatia: A multi-annual research of cost overruns conducted as part of the
scientific project on construction project risk and resource management
19
pointed out that the occurrence of price overrun was in no less than 81 %
projects as cited by (Zujo et al., 2010).
Ghana: Frimpong et al. (2003) studied cost performance of water drilling
projects and found that 38 of total of 47 investigated projects (at a rate of
75%) were facing cost overrun whereas only 25% were completed within the
budget.
India: A study of 290 projects showed a total of Rs 20,024 crore over the
contract cost of projects as Rs 27,568 with an average of 73% of cost overrun
as cited by (Gupta, 2009).
Korea: Lee (2008) investigated 161 projects which included 138 road
projects, 16 rail projects, 2 airport and 5 port projects. Findings of study
showed that 95% of road projects had cost overrun at rate of 50% of the
project cost, all the rail projects faced cost overrun at the rate of 50% of
projects cost while airports projects had overrun of more than 100% of
project cost and port projects had approximately 40% of cost overrun.
Kuwait: In study of 450 private housing projects in 27 metropolitan districts,
Koushki, Al-Rashid, & Kartam (2005) noted that 33% of the projects faced
cost overrun which resulted in increasing the cost of house from US$ 381,612
to US$385,492 (with increase of US$ 3,880).
Malaysia: Malaysians Auditor General 2008 (in Khamidi, Khan, & Idrus
2011) showed that completion of electrified double track project between
Rawang and Ipoh resulted in a cost overrun of RM 1.43 billion. Endut et al.
(2009) analyzed cost overrun problems by investigating 308 public and 51
private projects (a total of 359 projects). They found that only 46.8% and
37.2% of public sector and private sector projects completed within the
budget respectively with average cost deviation of the project was 2.08%.
The maximum deviation was found as 80.76% of project cost. Further, in
MARA large construction project, research conducted by Abdullah et al.
(2009) revealed that more that 90% of large MARA construction project
experienced delay since 1984 with major effects of time and cost overrun.
Later on, in qualitative study of project performance of D & B project
through eight case studies Potty, Idrus, & Ramanathan (2011) found that
seven projects were facing cost overrun, however the risk of these overruns
20
was borne by contractors as the projects were awarded on fixed price
conditions.
Nigeria: Jackson & Steven (2001) studied the problem of cost overrun by
investigating 15 projects in llorin and found that 73.7% project faced cost
overrun at an average of 34.7% of the initial project cost. They also
conducted a questionnaire survey and mentioned that only 10% respondents
have not experience cost overruns at all while 75% of the respondents
mentioned that cost overruns have sometimes occurred in building projects,
15% said it always occurred. Through 61 cases studies Aibinu & Jagboro
(2002) found that the projects had a mean percentage cost overrun of 17.34%.
Later on an investigation of 137 construction projects showed that 55% of
projects were facing cost overrun problem. These overrun ranged from 5% to
a maximum amount of 808% of project cost (Olatunji, 2008). A research of
cost escalation on infrastructure projects conducted by Omoregie & Radford
(2006) showed that a minimum percentage of cost escalation was found as 14%
of the budgeted cost.
Pakistan: Azhar et al. (2008) stated that cost overrun was a common problem
in construction projects. The minimum range of cost overrun experienced was
found as near around the 10% of the total cost of the project. In large
construction firms these overrun ranged up to about 40% while in medium
size firms this percentage increased up to nearly about 60% of the project cost.
Thailand: Meeampol & Ogunlana (2006) studied cost performance on 99
highway construction projects and found that only 46 projects only were
satisfied with cost performance while the others faced poor cost performance.
Uganda: Northern by-pass project in Kampala was overrun by more than 100%
and a study of a total of 30 projects showed that 53% of the projects had cost
overruns (Apolot, Alinaitwe, & Tindiwensi, 2011).
Vietnam: Government has acknowledged the construction cost overruns
problem as the big headache, especially with government-related funded
projects (Le-Hoai et al., 2008).
Zambia: Kaliba, Muya, & Mumba (2009) studying the project performance
in road construction projects of worth U$542.7 found that more than 50% of
projects could not meet the contract budget and were facing cost overrun.
21
Cost performance of construction projects in developing countries is
summarized in table 2.3.
Table 2.3: Cost Performance in Developing Countries
Origin Reference Findings Bosnia and Herzegovina
Zujo and Pusic (2008)
Zujo et al. (2010)
Reconstruction building projects had cost overrun at average rate of 9.23%
New building projects had cost overrun at average rate of 6.84%
41.23% of projects faced cost overrun
Croatia Zujo et al. (2010) More than 81% project had cost overrun
Ghana Frimpong et al (203) 75% of the project face cost overrun run
India Gupta (2009) Project faced cost overrun at an average rate of 73% contracted price of projects
Korea Lee (2008) 95% of road projects had cost overrun at rate of 50% of the project cost
all the rail projects faced cost overrun at the rate of 50% of projects cost
Airport projects had overrun of more than 100% of project cost
Port projects had cost overrun at rate of 40% of project cost
Kuwait Koushki et al. (2005) 33% of the projects faced cost overrun resulting in increase US$ 3,880 in cost of house
Malaysia Malaysians Auditor General (2008)
Endut et al (2009) Abdullah MR (2009)
Potty et al (2011)
Cost overrun of RM 1.43 billion in electrified double track project between Rawang and Ipoh
46.8% and 37.2% of public sector and private sector projects completed within the budget
90% of large MARA construction project experience overruns
87.5% of D&B projects face cost overrun
Nigeria Jackson and Steven (2001)
Aibinu and Jagboro
(2002) Olatunji (2005)
Omoregie and
Radford (2006)
90% respondents participating in survey agreed that they experience cost overruns
Average cost overrun was found as 34.7% of the initial project cost
Mean percentage cost overrun of 17.34%
55% of projects faced cost overrun problem ranging from 5% to 808% of project cost
Minimum percentage of cost escalation in Infrastructure projects was 14% of the budgeted cost
Pakistan Azhar et al (2008) Cost overrun ranged from 10% to 60%
Thailand Meeampol and Ogunlana (2006)
53% highway projects had poor cost performance
Uganda Sepuuya (2008)
Northern by-pass project was overrun by more than 100% of project cost
22
Apolot et al (2011) 53% of the projects had cost overruns
Vietnam Le-Hoai et al (2008) Most of projects face cost overrun which has become headache.
Zambia Kaliba (2009) more than 50% road construction project faced cost overrun
2.4 Causative Factors of Cost Overrun
Cost overrun in construction projects can occur due to many factors. It is very crucial
to determine these factors in improving cost performance. Since, many research
works had been carried out in determining these factors, hence a comprehensive
literature review was carried out to uncover these factors affecting cost overrun for
further investigation in construction industry of Malaysia.
Kaming, Olomolaiye, Holt, & Harris (1997) identified factors influencing
construction cost overruns on high-rise building projects in Indonesia through a
questionnaire survey administered on 31 project managers. The results showed that
major factors affecting project cost were materials cost increased by inflation,
inaccurate quantity take-off, labour cost increased due to environment restriction,
lack of experience of project location, lack of experience of project type,
unpredictable weather conditions and lack of experience of local regulation.
Jackson & Steven (2001) examined the causes of cost overrun in building
projects of Ilorin through questionnaire survey and found that major factors of cost
overruns were fluctuation in the prices of materials/Labour, variation orders, delay in
honouring certificates, lack of proper analysis of tenders, selection of incompetent
contractors, lack of proper appraisal of projects and unrealistic representation of
clients needs.
Jackson (2002) studied reasons of budget overrun in UK through
questionnaire survey and found that major reasons of overrun were design changes,
design development factors, information availability, method of estimation,
performance of design team and project management.
Chang (2002) studied the reasons of cost increase through 4 case projects to
quantify their contributions in engineering design projects in USA. The finding of the
23
study showed that the major reason for cost increase was owner request of changes in
scope and additional works.
Frimpong et al. (2003) conducted a questionnaire survey consisting of 26
factors to study major contributors of cost overrun in groundwater drilling projects in
Ghana. Out of 26 factors considered, top 10 factors are monthly payment difficulties,
poor contract management, material procurement, inflation, contractor’s financial
difficulties, escalation of material prices, cash flow during construction, planning and
scheduling deficiencies, bad weather and deficiencies in cost estimates prepared.
Koushki et al. (2005) studying problem of cost increase in the private
residential projects of Kuwait mentioned that three main contributors to cost
overruns were contractor-related problems, material-related problems and owners’
financial constraints.
Omoregie & Radford (2006) study found out the major factors causing cost
overrun in infrastructure projects of Nigeria were price fluctuations, financing &
payments of completed works, poor contract management, schedule delay, changes
in site conditions, inaccurate estimates, shortage of material, imported materials &
plant items, additional works, design changes, subcontractors & nominated suppliers,
weather, non-adherence to contract conditions, mistakes & discrepancies in contract
conditions and fraudulent practices.
Azhar et al. (2008) investigated cost overrun causes in construction industry
of Pakistan. A survey using questionnaire containing forty two (42) factors showed
that the top ten cost overrun factors found were fluctuation in prices of raw materials,
unstable cost of manufactured materials, high cost of machineries, lowest bidding
procurement procedures, poor project (site) management/ poor cost control, delays
between design and procurement phases, incorrect/ inappropriate methods of cost
estimation, additional work, improper planning, and unsupportive government
policies.
Le-Hoai et al. (2008) studied the causes of cost overrun in large construction
project of Vietnam using questionnaire survey. The investigation included 21
causative factors and top 5 common and very sever causes of cost overrun were poor
site management and supervision, poor project management assistance, financial
difficulties of owner, financial difficulties of contractor; design changes.
24
Enshassi et al. (2009) conducted questionnaire survey to identify major
causes of cost overrun in construction projects of Gaza by investigating 42 factors
amongst contractors, consultants and owners. Results indicated that top ten factors
that cause cost overruns as perceived by the three parties include increment of
materials prices due to continuous border closures, delay in construction, supply of
raw materials and equipment by contractors, fluctuations in the cost of building
materials, unsettlement of the local currency in relation to dollar value, project
materials monopoly by some suppliers, resources constraint: funds and associated
auxiliaries not ready, lack of cost planning/monitoring during pre-and post contract
stages, improvements to standard drawings during construction stage, design changes,
and inaccurate quantity take-off.
Kaliba et al. (2009) carried out a study to determine the contributors of cost
escalation in road construction projects of Zambia. The finding of study showed that
the main causes of cost escalation included bad or inclement weather due to heavy
rain and flooding, scope changes, environmental protection and mitigation costs,
schedule delay, strikes, technical challenges, inflation and local government pressure.
Ameh et al. (2010) investigated the causes of cost overrun in 53
telecommunication projects of Nigeria through structured questionnaire survey
containing 42 factors. Survey results showed that top seven factors were lack of
experience of contractors, cost of material, fluctuation in the prices of materials,
frequent design changes, economic stability, high interest rates charged by banks on
loans received by contractors, mode of financing, bonds & payments as well as
fraudulent practices & kickbacks.
These identified factors are part of the whole literature review on the factors
causing cost overrun happening worldwide. Comprehensive review consisting of 46
published articles has resulted in identifying 78 common factors of cost overrun
which were considered for further investigation to find the relevancy and
significance of these factors towards Malaysian construction industry. As a part of
literature review, studies on time overrun factors were also considered as cost
overrun is directly correlated with time overrun (Abdullah, 2010; Aibinu & Jagboro,
2002) and it is difficult to separate the factors causing overrun between cost and time
overrun as the reasons for cost increases are normally also the reasons for time
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