COST CONTROL IN CONSTRUCTION PROJECTS –

ROLE OF PROJECT MANAGEMENT.

AACEI Member ID: 40214

Date of Paper: 30-09-2008

1 of 20
 Table of Contents
Page No.
List of Figures & Tables - 3
Abstract - 4
1. Introduction - 5
2. Project Cost Control - 6
2.1. Estimating and budget information - 7
2.2. Attributes of project cost systems - 9
2.3. Value of work done (Earned Value) - 10
2.4. Financial reporting and reviews - 11
2.5. Baseline and WBS management reporting taxonomy - 12
2.5.1. Baseline - 12
2.5.2. Work breakdown structure - 13
3. Case study on an accommodation project - 13
3.1. Introduction - 13
3.2. Project description - 13
3.3. Objective of case study - 13
3.4. Research methodology - 14
3.5. Cost overrun factors - 14
3.5.1. Macro economic factors - 15
3.5.2. Management Factors - 15
3.5.3. Business and regulatory environment factors - 16
3.6. Conclusion on cost overrun on project - 18
3.7. Recommendations - 19
3.7.1. Macro economic factors - 19
3.7.2. Management Factors - 19
3.7.3. Business and regulatory environment factors - 19
4. Conclusion - 19
5. References - 20
2 of 20
 List of Figures & Tables

Page No.

1. Cost control concept (figure-1) - 6

2. Measuring and tracking resource allocation (figure-2) - 8

3. Severity ranking of cost overrun factors (figure-3) - 17

4. Top ten cost overrun factors (Table-1) - 18

3 of 20
 Abstract
Organizations investing in project management need to be assured of a concrete return.
Nowadays in projects, since the cost is controlling everything, the control over the cost is
very important and can achieved by effective project management. The Activity Based Cost
(ABC) system has been suggested as the leading contender method to replace the
traditional system; due to this the control over the cost of each activity will lead to the entire
project cost control.

This paper describes how the project management tools and techniques can help in
controlling cost of the projects. Here the project is looking from the contractor’s point of
view. The important topics include examining the various approaches to estimating and
costing input/outputs, analyzing data and budget information, uses and limitations of
traditional project costing and evaluation methods, determining what cost data to collect,
forecasting project schedule cost for completion, defining and controlling financial
tolerances and defining and prioritizing project resources.

A case study regarding the cost overruns of a completed project is also detailed in this
paper including the research methodology, cost overrun factors of the project and
recommendations for the future projects.

The main conclusion of this paper is that the cost control over construction projects have
been achieved by effective project management tools and techniques. The projects can be
completed with the budgeted cost and even under the budgeted cost. It is very important
that the projects are failing not at the end, but they are failing at the beginning itself and
accordingly the project cost planning is also important like project cost control.

4 of 20
1. Introduction
The construction projects will always have a tendency to overrun from their budgets. The
only question is how much it will be. Even though there are some exceptional cases, it is a
proven fact. Some of the overrun in the projects have washed out the contractor and even
the owner also. Here we have to think about the importance of keeping projects under cost
control. The studies in this subject showing that, most of civil projects having a cost
escalation of over 50 percent.

Effective management of construction projects has been a major research subject in the
last century due to the importance of this industry and the amount of money it attracts. One
critical problem facing construction managers is inefficient cost control procedures,
particularly in developing regions of the world. Project managers and developers are now
aware that the failure of a cost control system or use of a poor system can lead to project
failure. Project cost control methods need to be improved to ensure that owners and
contractors manage construction costs and meet project goals on time and within budget.

Having been charge as a project team member, the author has different experience with
the projects and the number of projects for which the actual cost exceeded the budgeted
cost. Particularly regarding the last completed project, the budgeted amount for the
construction of a University building was AED. 130 million and the project completed with
AED. 150 million, even there was no considerable utilities added to the project’s basic
design.

The main reason for the project overruns is mainly due to the poor planning, execution and
controlling, totally can call poor project management. The effective use of project
management tools and techniques can help in improving the project deliverables in a cost
efficient manner.

The time and cost imperative underpins all project activities. Understanding the
interrelationship of the measurement of the risk/reward is vital for project managers if they
are to deliver successful projects within the budgets.

5 of 20
2. Project Cost Control
From the studies in the construction projects it was realized that there was some lack of
understanding of the whole system of project cost control. As everybody thinking, the
project cost control is not that much difficult in theory. This is displayed in graphical form in
Figure-1

Figure 1: Cost control concept

To implement any controlling system, the first thing we need is a baseline. As work
progresses the data and value of progress of works has been monitored and recorded.
From these findings, the progress will compared with the baseline to find the variances and
will forecast the end results. If the end results are not satisfactory, the changes and
adjustments will be applied to the processes to bring the project results under an accepted
level. It is a continuous process and repeated at regular or irregular intervals. If the end
results get really out of line with the baseline plan, the changing to the plan may have to
apply. More likely, there will be (or have been) scope changes that change the reference
baselines which means that every time that happens you have to change the change the
baseline plan anyway.

6 of 20
But in practice project cost control is a lot more difficult to do, as is evidenced by the
number of projects that fail to contain costs. It also involves a significant amount of work, as
we shall see, and we might as well start at the beginning. So let us follow the thread of
project cost control through the entire project life span.

And, will take the opportunity to point out the proper places for several significant
documents. These include the Business Case, the Request for (a capital) Appropriation (for
execution), work packages and the Work Breakdown Structure, the Project Charter (or
brief), the project budget or Cost plan, Earned Value and the Cost Baseline. All of these
contribute to the organization’s ability to effectively control project costs.

2.1. Estimating and budget information

All projects carry inherent cost and financial risk and these risks have to be managed
preferably from the inception of the business case (that underpins the project).

For many project managers managing budgets along the critical path becomes both a
challenge and a source of frustration. For example, many business cases are premised on
cost estimates of work to be done and are rarely corrected for accuracy.

Awareness is crucial; historically, research points out we are notoriously bad at estimating.
If estimate of a task showing 10 days. Identify how confident you are that you can deliver in
10 days by using percentages. For example, there is only 50% chance that that it will
deliver in 10 days. In practice it should be aimed for 80%. If the 80% not achieved, then re-
calculate or seek advice.

Producing good estimates is very reliant on domain knowledge and processes that are
proven to be repeatable and well managed. A good estimate consists of a description of the
projects scope - Work Breakdown Structure, (WBS) - the estimation technique used and
the accuracy of the estimate.

The project size, cost and schedule estimation process should be premised on the
requirements - traditional size estimates in software engineering projects come from using
function point methods or equivalent source lines of codes. Associated effort is usually
calculated in person-hours which can be translated into cost by using applicable labour
rates. Effort, cost and schedule are all interrelated and a change in one will affect the other
two. In my experience a compressed schedule usually results in a higher effort and costs.

Although project tools are useful they are only tools and need to be managed like all other
resources. As a basis for budgeting and resource allocation the WBS helps by defining
work packages – it could be argued that the primary function of the WBS is that of an
accounting tool for summing up the task related costs for all project activities.

When dealing with project sponsors the WBS takes on significance in that it helps the
individual understand how the project is structured and how the money is apportioned to
the activities (see Figure 2).

7 of 20
Research shows that less than 10 percent of all projects are delivered to their original cost
and schedule estimates. One reason associated with this failure rate lies in the tracking of
effort and cost – estimates should be tracked over time comparing planned to actual
outcomes.

The key here is to have a consistent means by which to do it and a mechanism for
analysing and storing the data. Pitfalls to avoid when converting estimates to cost include:

 Unrealistic assumptions and omissions;

 Reliance on data which is historic and outdated;
 Preliminary estimates adopted without revision;
 Failure to use forward pricing rates;
 Misinterpretation of requirements (not seeking clarification);
 Lack of oversight and tracking;
 Poor judgement and knowledge.

Defined and Predictable

Costing Process

Project Work
Breakdown Structure

Work to be done Tracking and Oversight Work actually

done

Agreed Measure of
Performance

Figure 2: Measuring and tracking resource allocation

8 of 20
2.2. Attributes of project cost systems

Whilst the use of propriety project management tools can help alleviate some of the
mundane administration of managing project costs, the bottom line issue is what costing
method to adopt and why.

In my experience setting up costing and financial systems can be a complex activity. The
ploy is to keep it simple. Most seasoned project managers will testify to this key principle.

As the project manager you (and possibly your team) will need to identify the full economic
costs of each project activity before they apply, and account for these costs, and ensure
that such costs can accommodate within your overall budget.

The core processes that support the majority of costing methods (and systems) are direct
and indirect cost accrual and variance reporting. The most important principles associated
with these processes are:

 Applicability;
 Costs are fair and reasonably stated;
 Flexibility and choice of methods;
 Consistency of costing treatment;
 A system that can be audited.

Although some organizations use in-house accounting methods and standard costing a
common choice amongst many project based organisations is the generic method of
activity based costing (ABC).

ABC was originally designed as way to improve the allocation of overhead costs in
manufacturing settings in order to develop more accurate product costs.

With this approach, overhead and indirect costs are allocated to products based on the
degree to which those products actually consume the repetitive production activities of the
organization, rather than being based on a single factor, such as the number of direct
labour hours associated with the product.

In more recent times ABC method as found favour with many software firms. In essence, it
traces costs to specific activities undertaken by the project, such as preparing a logical
design or undertaking systems testing.

The costs of these activities are then attributed to products within the WBS using estimates
of usage of these activities by the cost objects (for example testing software components).

Unlike other costing methods, by inserting activities into the costing process, ABC provides
the project manager (and the management team) with rich information because it gives a
greater level of detail about how and why costs are incurred.

9 of 20
This information can lead directly to specific adjustments or modifications in a projects
activity and can be used as a mechanism to streamline costs. The steps in ABC include to:

1. Gain acceptance to the method.

2. Plan for the costing exercise.
3. Identify the WBS and products for costing.
4. Ascertain core processes and activities in consultation with the project team or key
staff (some testing and revision may be required to encompass all activities).
5. Conduct staff effort and time estimates for each activity (the longer the timeframe
over which staff time estimates are collected, the more comprehensive the required
data).
6. Calculate costs per activity.
7. Assign cost drivers (the determinants of activity volume) and determine unit activity
costs.
8. Assign activity costs to WBS products.
9. Undertake periodic reviews.
10. Make adjustments when needed.

However it must be pointed out, ABC does not apply to every situation or project. For ABC
to apply well, three conditions need to be met. They are:

1. Indirect and overhead costs must be significant, and must be poorly accounted for
by traditional means.
2. Costing objects must exist for which management wishes to know true costs
(products, customers, projects, etc.).
3. Repetitive activities must exist that can serve as the basis for mapping indirect and
overhead costs to cost objects.

The first two criteria go to the relative pay-off from ABC that is the pay-off will be highest to
the extent that these two criteria hold. The third criterion is self-evident, in that the whole
point of ABC is to use repetitive activities to better account for the costs associated with
cost objects.

2.3. Value of work done (Earned Value)

Taken in isolation, neither the budget nor actual costs are sufficient to show the financial
status of a project. What is required is a way of comparing (and combining) the project cost
information to the value of work done (VWD).

One method of evaluating the VWD is to use the accounting technique of earned value
(EV). EV is particularly useful in monitoring effort on large projects. The EV technique aims
to answer questions in relation to the projects business case:

1. Where are we today?

2. Where will the project end up?

EV can be decomposed to form a cost breakdown structure (CBS) which can be combined
with the WBS.
10 of 20
As the project progresses the actual VWD can be plotted alongside the estimates or
forecast values (or the cost of work scheduled). In EV terms progress is measured as the
budgeted VWD up to a specific calendar date.

One advantage of using EV is in decision making. It is easier to make small rather than
large changes to the project plan. Therefore, variances from the baseline must be identified
quickly – EV helps us recognize such variances and take corrective action.

In calculating earned value, tasks can be considered as either:

1. 100 percent complete, in which case the VWD will be equal to the BCWS for the
task.
2. Not started, in which case the VWD will be equal to zero and the schedule variance
for the task will be equal to the cost work scheduled minus VWD.
3. Somewhere between 100 percent complete and not started, in which case VWD will
have to be calculated based on some determination of the amount of work
completed for the task.

Proper management use depends on effective and tailored analysis that is responsive to
management needs. Key attributes of effective EV analysis are:

 Management support that is consistent and visible to the entire team. This reinforces
the importance of EV to the project team.
 Multi-functional team approach to analysis.
 Integration of analysis of key programmatic data from a variety of sources.
 Timeliness of analysis.
 Focus on significant variances and developing trends.
 Focus on understanding the past in order to project final cost and schedule
estimates.
 Management emphasis on developing credible corrective action plans.

2.4. Financial reporting and reviews

Throughout the project lifecycle senior management will need to set aside regular time
periods to review budget and financial information.

Management must be prepared to contribute this time. In my experience this time is never
fully factored into the project budget and for complex projects this could represent hundreds
of hours. In essence the cost of this time must be budgeted and accounted for within the
project.

This is necessary for three reasons:

1. To reflect the true direct and indirect project costs.

2. To ensure individual management commitment.
3. To track contribution made by management and other project staff.

11 of 20
Without a formal review process, it is easy for projects to go adrift (and for costs to escalate
without sanctions). Original project objectives are turned into a moving target - the project is
challenged and may never achieve its original business case.

The financial review process will mitigate the risk of the project overspending and ensure
that the project is kept focused and on target. Such financial and budgetary information
may include:

1. Monthly reporting that includes:

o time allocation (direct and indirect);

o value of work done;
o value of rework;
o lost hours (or non productive work); extraordinary purchases.

2. Establishing the cost rates.

3. Building up project costs that includes:

o estimating staff time;

o applying indirect costs.

4. Recording and validating both direct and indirect costs.

At the end of the project, the project manager has an obligation to ensure that all costs are
correctly accrued and accounted for in accordance with the procedures of the firm. This
includes ensuring that a financial balance sheet is produced for audit and signature.

Documentation should be made available to audit personnel and should include a complete
oversight of any adjustments or changes that have been agreed during the projects
lifecycle.

2.5. Baseline and WBS management reporting taxonomy

2.5.1. Baseline

Frequency
Monthly, quarterly or semi-annually.
Monthly recommended for development or high risk projects

Description
Budgeted time-phased baseline costs to end of program. This format shows significant
baseline changes authorized during the reporting period. Data includes estimate at
completion, contract budget base, total allocated baseline and completion dates.

Use and format

Used to determine if Over Target Baseline or Over Target Schedule has been incorporated
into the programme. Data can be plotted to determine trends or if there has been a shift in

12 of 20
the baseline. Analysis can focus on the distribution of cost for authorized changes to the
baseline during the period.

2.5.2. Work breakdown structure

Frequency
Monthly or weekly basis as provided in business case

Description
Report WBS element performance data (for the current reporting month as well as
cumulative to date data. Cost and schedule variance are calculated and reported. Identifies
any reprogramming adjustment, budget at completion, estimate

Use and format

Isolate key cost and schedule variances, quantify the impact, analyze and project future
performance. Performance issues isolated at lowest level and analyzed for impact to
overall cost and schedule variances

3. Case study on an accommodation project

In this case study of a staff accommodation project for a university campus in Abu Dhabi is
discussing and analyzing the causes and impacts of cost overruns in the project

3.1 Need of the project

The project is required for the accommodation of the staffs working in the university
campus. Since the building is located inside the campus, the transportation difficulties of
staffs from their living locations to the campus will be avoided. Moreover, the university
management can save the high accommodation allowance to be granted to their staffs to
arrange their accommodation outside.

3.2 Project description

This Project is a Firm Fixed Price contract for the construction of a university staff
accommodation, which includes the 8 accommodation buildings, 9 villas, 1 health club, 1
substation building, boundary wall, 2 guard houses, landscaping, external services, internal
roads, parking structures etc. The project was contracted for a lump sum amount of Dhs.
87.50 million (without variations).

3.3 Objective of the case study

The study has been conducted to identify the issues involved in cost overruns in the
aforesaid project. In this regard certain factors have been identified through the study and
their importance and impacts have been discussed. The factors have been identified
through a survey on the project. Furthermore, some recommendations and mitigation
measures have been suggested to strategically cope up with these factors.

13 of 20
3.4 Research methodology

The methodology of the study is follows:

1. A thorough literature review was done and also the expert opinions from industry experts
were taken, through which a number of cost overrun causes were identified in the project
scenario. In total thirty (30) factors were finalized to made part of the survey questionnaire.

2. Questionnaire consisting of two parts A and B was developed. In Part A personal

Information of the respondent (e.g. work experience, organization) was asked. Part B was
aimed to obtain information about causes of cost overrun in the project; it was asked to rate
those initially identified thirty (30) factors according to their severity level on the given scale,
information regarding maximum, average and minimum cost overrun ranges experienced.

3.5. Cost Overrun factor analysis

Before providing the list of factors, respondents were asked to enumerate the five major
cost overrun factors according to their perspective. It was found that the consequently
identified factors were already in the list and were not providing any additional input to the
comprehensive list. In conjunction to this a list of 30 factors was given to the respondents to
rank and score them according to the severity on the scale of 1 to 10 and were instructed to
rate score 1 to the factors which they find least contributing towards the cost overrun and a
score of 10 to those factors they regard as most significant towards generating project cost
overruns and rating of in between to mark the severity of factor ranging from low, medium
to high. Impact of each factor was then calculated by simple calculation

Impact = Σ( fi * i)
n

where: i is the severity score from 1 to 10

fi is the frequency of factor getting score i
n = number of responses

Figure 3 gives the resultant impact ranking of the cost overrun factors as depicted by the
survey analysis, impact ranges were divided into three regions, range of 0 to 2.5 (on
severity impact axis) is neglected from the analysis due its insignificance and ranges are
developed for severity impact as low, medium and high. Low severity range (with impact
score of 2.5 to 5), medium severity range (impact score of 5 to 7.5) and high severity range
(ranges from 7.5 to 10).Results represents that very few (2) factors were rated as low
severe, majority of the scores lies in the high medium severity range and two (2) factors
were highlighted as having high severity impact on the cost overruns. From the initial
analysis top ten factors of cost overrun, on the basis of severity impact scoring received,
were selected for the further in depth analysis. Table 1 presents the resultant top ten
factors. It is evident that both internal and external aspects of business setting are present
as the prime contributors to cost overruns. For the purpose of analysis the identified top ten
cost Overrun factors have been arranged into three (3) broad categories viz.;

14 of 20
1. Macro Economic Factors
2. Management Factors
3. Business and Regulatory Environment

This is useful towards assessing the treatment measures that can be applied to improve
the scenario.

3.5.1 Macro economic factors

The cost of construction is basically the cost of money, the cost of material, the cost of
labour and the cost of management. Top three factors identified by the survey results i.e.
Fluctuation in prices of raw materials, Unstable cost of manufactured materials, High cost
of machineries are markets related problems. Unlike a manufactured commodity,
construction industry is mainly market driven. Prices can, and sometimes do, changes on
an almost daily basis. These rapid changes in many cases cause problems for vendors to
commit to one fix price.

Some of the factors which contribute to dramatic price fluctuations include:

• World commodity prices for basic materials

• The current state of the local economy
• The quality of materials and workmanship required
• Simple supply and demand

The basic reason of cost overruns is that most contractors quote prices based on their
projected estimates unfortunately, the prices change so quickly that the initial budget
figures becomes completely unrealistic. Costs related to the construction industry have
been volatile in recent years. Some of the volatility may be related to higher energy prices.
Prices for iron and steel, cement, and concrete, commodities used heavily in the
construction projects rose sharply within in last few years, and shortages have been
reported. Need is there to calculate that how such price fluctuations may affect the cost or
pace of new development in the construction industry with more certainty.

3.5.2 Management factors

Some cost overruns are unavoidable because they cannot be reasonably prevented, such
as those due to unanticipated events, however overruns due to design plan or project
management problems are avoidable because they could have reasonably been foreseen
and prevented.

Sriprasert (2000) points out that cost overrun problems are caused by ineffective
construction management and poorly established cost control systems Factors that are
dependent upon individual organizations discrete can be regarded as in-house factors, as
indicated in the survey reasons such as Poor project (site) management/ Poor cost control,
Additional work and improper planning are the mere negligence by the constructors and
project managers and can be controlled considerably with little attention Management
needs to modify the project schedule and estimates because of changes or discrepancies
that may occur during the construction period (Civil and Environmental Engineering, 2004).
15 of 20
The primary control tool is the schedule. Efficient management is essential to managing a
productive and cost efficient site. Scope changes are due largely to inadequate planning
and feasibility studies. If importance is paid at the right time scope changes and additional
works can be considerably reduced. Another cause is poor scheduling i.e. not having the
right materials, the right tools, the right information, the right training, and the right people
all at the right place at the right time. Such improper planning is the major cause of time
delays as well as cost overruns. In order to control the project effectively, the project
manager must monitor the schedule to avoid construction delays and additional costs. All of
these responsibilities are those of management, and within the ruling factors of cost
overruns these in-house factors, being internal factors, are in greater control of the
individual organizations as compared to Macro Economic Factors and Business and
Regulatory environment.

3.5.3 Business and regulatory environment factors

Majority of constructors are small players who have weak financial positions, out-dated
labour-intensive technology and poor organizational structures and vision for growth and
development. They are highly vulnerable to government policies and changes in
government policies.

Leading factor of cost overrun related to Business and Regulatory environment, which
encourages corner cutting and unsound construction methods is the prevailing practice of
the government to implement its lowest bid price method, which has various inbuilt
problems and cannot produce the best value. The lowest bid price is often less than 50% of
the estimated total cost. The major shortcoming of the low-bid method, frequently used for
competitive bidding, is the likelihood of awarding a construction contract to a contractor that
submits, either unintentionally or on purpose, an unrealistically low bid price. Often, such an
occurrence works to the owner's and contractor's harm by creating disputes, cost overruns,
and schedule delays.

Methods used for cost estimation during the project cost scheduling are not adequate
enough to cover all aspects of cost of projects in result various cost items necessary for the
project remain unidentified at the estimation stage and appears as cost overruns later.
Extensive experience and decision are needed to develop a reasonable approximate
estimate for the project cost, since the estimator has to modify the unit costs for quantities
of materials, labour, location, and construction contingencies (Roachanakanan, 2005).Cost
estimation techniques utilized locally don’t carry out the in depth analysis, assumptions and
forecasting on cost rates are done on experience without incorporating price index.

Most popular method of cost estimation is based on the bill of quantities which cumulates
the anticipated cost estimate quite lesser than the scheduled cost in result imparts cost
overruns to the project. One major problem that forces contractors to stick to this method is
that if estimated otherwise they might end up having cost estimates more than others in
competition and they may not remain competent to win contracts especially when lowest
bidding method is adopted for bidding.

16 of 20
Factor IDs and Description

1. Fluctuation in prices of raw materials

2. Mode of financing and payment for completed work
3. High cost of machineries
4. Improper planning
5. Frequent design changes
6. Lack of coordination between general contractor and subcontractors
7. High machineries maintenance costs
8. High cost of skilled labour
9. High transportation costs
10. Contract management
11. Inadequate duration of contract period
12. Inappropriate government policies
13. Poor financial control on site
14. Absence of construction cost data
15. Inappropriate contractual procedure
16. Additional work
17. Wrong method of cost estimation
18. Inaccurate cost estimation
19. Poor relationship between management and labour
20. Stealing and waste on site
21. Inadequate labour/ skill availability
22. Disputes on site
23. Adverse effect of weather
24. Numerous construction activities going on at the same time
25. Scope changes occasioned by inadequate pre-contract study
26. Scope changes arising from redesign and extensive variation occasioned by change in brief
27. Work suspensions owing to conflicts
28. Inadequate quality/ Ambiguity of contract documents
29. Inappropriate contractor policies
30. Poor project (site) management/ Poor cost control

10.00

9.00

8.00

7.00
6.00
Impact

5.00

4.00

3.00

2.00

1.00

-
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Factors
Figure 3: Severity ranking of cost overrun factors

17 of 20
 Table 1: Top Ten Cost Overrun Factors
Factor
Rank Factor Description Impact Category
ID

Macro Economic
1 1 Fluctuation in prices of raw materials 9.10
Factor
2 30 Poor project (site) management/ Poor cost control 7.50 Management Factor
Macro Economic
3 3 High cost of machineries 7.20
Factor
Business and
4 17 Wrong method of cost estimation 7.00 regulatory environment
factor
5 4 Improper planning 6.90 Management Factor

6 16 Additional work 6.90 Management Factor

Business and
7 12 Inappropriate government policies 6.70 regulatory environment
factor
Macro Economic
8 9 High transportation costs 6.60
Factor
Macro Economic
9 8 High cost of skilled labour 6.50
Factor
10 13 Poor financial control on site 6.40 Management Factor

3.6. Conclusions on cost overrun of the project.

The following major conclusions have been derived:

1. The survey results indicated that the majority of cost overrun factors lie in medium
severity impact range. Attention should be paid to these factors as they cause considerable
increase in the cost of the project initially estimated.

2. Findings reveal that both internal and external aspects of business setting contribute to
cost overruns.

3. Macro economical factors affect the cost of the construction project most severely.

4. Among all factors leading to cost overruns, management related factors are those which
can be controlled and prevented most easily as they are the in-house factors.

5. Business and regulatory environment is dysfunctional and need drastic changes, more
scientifically proven methods, tools and techniques may be adopted instead of the orthodox
practices

7. It is to be noticed that the cause of cost overruns is due to improper planning, execution
and controlling which leads to the importance of management in construction projects.

18 of 20
3.7. Recommendations
On the basis of the analysis few recommendations can be made to avoid the cost overruns
in future projects. These recommendations are grouped for improvements under the same
three classifications identified earlier in the paper.

3.7.1. Macro economic factors

Fluctuation in prices of raw materials and high cost of machineries are severe when these
elements are in short supply, to stabilize the cost of materials and machineries, increase of
supply of materials and machineries can be useful to break the monopoly of few suppliers
controlling the supply chain of the market.

3.7.2. Management factors

Thorough estimation process for project costs calculations, with vigilant planning, keeping
in view trends of inflation and depreciation factors, cost variations trends in project and
industry with lead to smoother implementation and achievement of desired cost control.

3.7.3. Business and regulatory environment factors

The government should think of adopting, not just the conventional contracts but also the
design-build contracts, direct negotiation contracts and other types of contracts. Alternative
procurement strategies such as best value procurement should also be adopted in the
projects undertaken by government, semi government bodies and agencies. One type of
competitive bid can be the average-bid method, in which the winner on is the contractor
whose bid satisfies a certain relationship with the average of all bid prices. The basic
advantage of the average-bid method safeguards contractor to fall for their mistaken low
amount bids.

4. Conclusion
In this paper the details of cost controlling techniques and the progress reporting
techniques for the control of the costs. A detailed case study also conducted to identify the
major cost overrun areas and the recommendations also made to control the same. In
order to control costs the project manager should be competent and have access to
adequate management tools from planning to the closeout of the project. Stating that cost
control should be the top priority to the project manager.

The meaning of the project is of course not its costs, but its usefulness or value for a
certain purpose. This seems to be undisputable true. But when a project turns into an
economic disaster, or even when the cost expectations are overrun by say a merely 20%,
the value of the project may turn to become a negative asset to its sponsor.

As we discussed earlier the major reason for the cost overruns is the lack of proper
planning, execution and control. Here we should think about the role of project
management and its application in the effective cost control over projects.

19 of 20
5. References
Project Management Institute, A guide to Project Management Body of Knowledge (2004).

Sriprasert, E. (2000). Assessment of Cost Control System: A Case Study of Thai

Construction Organizations. M.S. thesis, Bangkok: Asian Institute of Technology.

Civil and Environmental Engineering, Carnegie Mellon University. (2004). Cost Control,
Monitoring and Accounting

Kwanchai Roachanakanan (2005), A Case Study Of Cost Overruns In A Thai

Condominium Project

20 of 20