CAUSES OF COST OVERRUN AND ITS IMPACT ON

CONSTRUCTION PROJECTS IN ADDIS ABABA

BY

MIHERET ANILEY

ADVISOR: BELACHEW ASTERAY

MASTER OF SCIENCE

ADDIS ABABA SCIENCE AND TECHNOLOGY

UNIVERSITY

FEBRUARY 2023
CAUSES OF COST OVERRUN AND ITS IMPACT ON CONSTRUCTION

PROJECTS IN ADDIS ABABA

By

MIHERET ANILEY

ADVISOR: BELACHEW ASTERAY

A Thesis Submitted to the Department of Civil Engineering for the Partial

Fulfillment of the Requirements for the Degree of Master of Science in Civil

Engineering (Construction Technology and Management)

ADDIS ABABA SCIENCE AND TECHNOLOGY UNIVERSITY

FEBRUARY 2023
 DECLARATION
I hereby declare that the thesis entitled “Causes of Cost Overrun and Its Impact on

Construction Projects in Addis Ababa” was composed by myself with the guidance of my

advisor. The work contained herein is my own except where explicitly stated otherwise in the text,

and this work has not been submitted, in whole or in part, for any other degree or professional

qualification. Any sources used in the preparation of this thesis proposal have been fully

acknowledged and referenced appropriately. I take full responsibility for the content of this thesis

and any errors or omissions that may be present.

iii
ABSTRACT
The construction industry is a vital sector of the economy, but it is also one that is prone to project

cost overruns. Cost overruns occur when the actual costs of a construction project exceed the

original budget. These overruns can have a significant impact on the project and its stakeholders.

Cost overrun is one of the primary concerns in Addis Ababa, given the country's limited financial

resources. The main aim of this study was to investigate the various factors affecting cost overruns

in public building projects in Addis Ababa and to examine their impact on stakeholders in the

construction sector. The study employed both quantitative and qualitative methods, including a

literature review and a structured questionnaire. Various factors affecting project cost overrun

were identified from the previous literature review and a total of 22 questions were prepared for

clients, contractors, and consultants to identify the extent of elements that causes cost overruns

during construction and their implications for public building projects in Addis Ababa. From 17

potential participants, 11 (64.7%) responded. Data was collected using google forms and a

descriptive analysis of the data was made using SPSS data analysis software. A relative

importance index (RII) was calculated to determine the most important factors based on 5 Likert

scales. The results showed that poor planning and scheduling was the major reason for cost

overrun, followed by inadequate material estimation and unreasonable delays. The study also

found that project delay was the most significant impact of cost overrun, followed by contractor

bankruptcy, decreased financial returns, and loss of reputation. The paper concludes that

addressing cost overrun is crucial for the construction sector and the country's economy and

provides recommendations for remedial measures.

Keywords: Cost Overrun, Cause, Impact, Construction, Public building.

iv
ACKNOWLEDGEMENT
First and foremost, I want to thank our almighty GOD for giving me the courage and strength
to successfully complete my thesis work.
Secondly, I would like to express my deepest gratitude and respect to my academic
instructorBelachewAsteray (Ph.D.) for his endless support for guiding and encouraging me
throughout the process of this research work as my teacher and mentor. He has taught me more
than I could ever give him credit for. He has shown me, what a good person should be.

I am also grateful to those who provided me with extensive personal and professional guidance
and taught me a great deal about both scientific research and life in general

Finally, I would like to extend my appreciation to all of my family & friends who have always
been there throughout my study.

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 TABLE OF CONTENTS
DECLARATION.......................................................................................................................... iii

ABSTRACT .................................................................................................................................. iv

ACKNOWLEDGEMENT ............................................................................................................ v

LIST OF TABLES ....................................................................................................................... ix

LIST OF FIGURE ........................................................................................................................ x

LIST OF ABBREVIATIONS& ACRONYMS ......................................................................... xi

CHAPTER ONE: INTRODUCTION ......................................................................................... 1

Background of the Study ....................................................................................................... 1

Statement of the Problem ...................................................................................................... 2

The objective of the study ..................................................................................................... 3

1.3.1 General Objective ..................................................................................................... 3

1.3.2 Specific Objectives ................................................................................................... 3

Significance of the Study ...................................................................................................... 4

The Scope of the Study ......................................................................................................... 4

CHAPTER TWO: REVIEW OF RELATED LITERATURE ................................................. 5

2.1 Introduction ...................................................................................................................... 5

2.2 Theoretical literature review ............................................................................................ 5

2.2.1 Definitions of Cost Overruns .................................................................................... 6

2.2.2 Project Cost Management ......................................................................................... 6

2.3 Empirical literature Literature Review ............................................................................. 7

2.3.1 Major Causes of Cost Overrun ................................................................................. 7

2.3.2 The responsible parties to the causes of cost overrun ............................................... 8

2.3.3 Effects of Cost Overruns ........................................................................................... 9

2.3.4 Possible Solution that Can Reduce Cost Overruns ................................................. 10

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 2.3.5 Summary of Research Gaps .................................................................................... 11

CHAPTER THREE: MATERIALS AND METHODS (RESEARCH METHODOLOGY) 12

3.1 Introduction ......................................................................................................................... 12

3.2 Research Design ............................................................................................................. 12

3.3 Sources of Data .............................................................................................................. 13

3.4 Data Collection Tools..................................................................................................... 13

3.4.1 Questionnaire Approach ......................................................................................... 14

3.5 Sampling......................................................................................................................... 14

3.6 Method of Data Analysis................................................................................................ 14

3.7 Validity and Reliability .................................................................................................. 15

3.8 Variable measurements .................................................................................................. 16

3.9 Ethical considerations .................................................................................................... 16

CHAPTER FOUR: RESULTS AND DISCUSSION ............................................................... 17

4.1 Introduction ......................................................................................................................... 17

4.2 Response Rate ..................................................................................................................... 17

4.3 Respondent’s Profile ...................................................................................................... 18

4.4 Relative Important Index (RII) ....................................................................................... 20

4.4.1 Ranking causes of cost overrun Using RII .................................................................. 21

4.4.2 Ranking of Effects of cost overrun (RII) ................................................................ 25

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ........................................... 29

5.1 Conclusion........................................................................................................................... 29

5.2 Recommendations ............................................................................................................... 30

5.2.1 Expected from Consultants ........................................................................................... 30

5.2.2 Expected from Clients/Project Owners ........................................................................ 30

vii
 5.2.3 Expected from Contractors ........................................................................................... 31

REFERENCES ............................................................................................................................ 32

Appendices ................................................................................................................................... 33

Appendix 1: Final Thesis Proposal ............................................................................................ 33

Appendix 2: Originality Report ................................................................................................. 33

Appendix 3: Grammer Checker Report ................................................................................... 33

Appendix 4: Refferencing Software Usage ............................................................................... 33

Appendix 5: Data Collection Tools ............................................................................................ 33

Appendix 6: Journal Manuscript and Submission Process .................................................... 33

viii
LIST OF TABLES
Table 1. Summary of cause and effects of cost overrun ................................................................. 9
Table 2: Variable measurement using Likert’s scale .................................................................... 16
Table 3: Number and percentage of responses gathered through the questionnaire ..................... 18
Table 4: Ranking of causes of cost overrun in group level RII. ................................................... 21
Table 5: the main factors identified from each group ................................................................... 22
Table 6: Ranking overall causes and effects of cost overrun using RII. ....................................... 22
Table 7: Ranking overall effects of cost overrun using RII. ......................................................... 25

ix
LIST OF FIGURE
Figure 1: Respondent’s category ratio .......................................................................................... 19
Figure 2: The five most important factors of cost overrun based on their RII Value ................... 23
Figure 3: The prevalent effects of cost overrun based on their RII Value .................................... 26

x
LIST OF ABBREVIATIONS& ACRONYMS
GDP - Gross Domestic Product
BOQ - Bill of Quantity
BC - Building Contractors
ESC - Estimate at Complete
EAC - Estimate at Completion
BAC - Budget at Completion

xi
 CHAPTER ONE: INTRODUCTION
Background of the Study
In today’s construction industry, cost overrun is a very common phenomenon worldwide. Because
most developing countries spend a considerable amount of their GDP on construction projects, it
is critical to pay attention to the performance of projects in the sector to ensure efficient use of tax
payer’s money. The construction sector, like other industries, has key performance indicators. Cost
is one of these performance indicators, particularly for industry initiatives. This is because every
client or construction project sponsor wants the project to be finished within a budget that has been
established. Cost overruns in construction projects can be caused by a variety of factors, and many
scholars have looked at the reasons for cost overruns.
The issue of cost overruns is not unique to Ethiopia. One of the most important indicators of a
project’s success is its cost. This is particularly true for public projects in underdeveloped nations
such as Ethiopia, where public building projects are carried out with little financial means. Cost,
time, and quality are typically considered to be the common criterion for project success in most
literature reviews on building projects. A project is considered successful if it was completed on
budget, on time, satisfies user expectations, met specifications, achieved quality of workmanship,
and caused the least amount of construction stress (Olawale, Y. A., & Sun, M., 2010). In Ethiopia,
a project is recognized as successful if it is completed within a specified cost or budget, if it is put
into service by a particular date if it meets technical specifications, and if the project participants
are very satisfied with the project outcome. The current situation of Ethiopia’s construction
industry falls short of satisfying domestic and international quality requirements, as well as the
sector’s performance expectations. Building projects, in particular, have issues with construction
processes and administration, as well as budget and time constraints. The failure to execute
projects on time, poor quality work, and cost overruns are the most serious issues. During the
execution phase of most construction projects, schedule and cost overruns occur often. By
researching the building sub-sector of Ethiopian construction project delivery, this study will add
to the body of knowledge.

Cost overrun refers to the amount by which actual costs surpass the baseline or authorized costs.
The gap between the original cost and the final price is known as cost overrun. For this study, cost

1
overrun is defined as the difference between a construction project’s final or real cost at completion
and the contract amount agreed upon by the customer (the project owner) and the contractor upon
contract signing.
Cost overrun is a common issue in construction projects and refers to the situation where the actual
costs of a project exceed the original budget. This can happen for a variety of reasons, such as
changes in scope, unexpected issues or delays, or poor cost estimation. Poorly defined scope, lack
of detailed design, and inadequate project planning can lead to cost overruns. Unforeseen changes
in the scope of work, design modifications, and delays can all result in additional costs. The cost
of materials and labor can increase throughout a project, leading to cost overruns. Poor project
management, including lack of oversight and communication, can lead to cost overruns. Some
specific examples like underestimating the cost of materials, failing to account for inflation,
changes in project scope or design, poor project planning and scheduling, delays caused by weather
or other uncontrollable factors, and disputes between contractors and project owners will cause
project cost overrun.
Project cost overruns can have a significant impact on an organization, as they can lead to
decreased profits, increased debt, or a negative impact on reputation. It can delay the completion
of a project, reduce the overall quality of the finished product, and strain relationships between
project stakeholders. Additionally, cost overruns can also harm the reputation of the contractor or
developer. To prevent or mitigate project cost overruns, organizations may use various tools and
techniques such as project management methodologies, risk management, and cost control
measures.

Statement of the Problem

In Ethiopia, the construction industry receives the largest share of the government's capital budget
for development and investment. The construction industry is very big, difficult, and needs huge
investments. It shares a considerable amount of the country‘s scarce financial resources. However,
project cost overrun is one of the most prevalent problems in the construction industry today in
Ethiopia. It significantly impacts the project scope. Time delay is frequently associated with
exceeding budget, often leaving the construction project in great trouble. In Ethiopia, the number
of public building construction projects is increasing from time to time. However, it becomes
difficult to complete projects within the allocated cost and time. Taking into account the scarce

2
financial resources of the country, cost overrun is one of the major problems in Ethiopia. The
causes of cost overrun are greatly varied, thus making the task of construction cost management
difficult for clients. It is becoming difficult to complete projects within the allocated cost. Thus,
addressing this problem is vital to achieving sustainable growth and accelerated development of
the construction sector.
The most common causes of cost overrun are construction material inflation, poor planning&
design, erroneous project cost estimation, change orders, Poor site management, poor
communication, improper resource planning, and late payments.
The seeds of this study will seek to uncover important influencing elements or bottlenecks that
based on the findings of the previous study, determine the incidence of cost overruns in public
building construction projects. To facilitate the present study, the researcher will examine the
factors that lead to cost overruns in public construction projects as well as their effects. Thus, the
first motive to undertake this research is to learn more about the factors that cause cost overruns
during construction and how they affect public building projects in Addis Ababa town. However,
the relationship or correlation of causes and effects on cost overrun of public building construction
projects was uncovered. Therefore, this study covered this with a tool of regression analysis.
Besides, the magnitude of the causes and effects of cost overruns in public building construction
projects will also be investigated in this study. Therefore, this research will help fill a knowledge
gap by examining the causes and effects of cost overruns on public building construction projects
in Addis Ababa and facilitate appropriate measures to avoid the problem and attempts to provide
answers for the following basic research objectives; This research will focus on studying cause &
effects of cost overrun on construction projects in Addis Ababa and facilitate appropriate measures
to avoid the problems and attempts to provide answers for the following basic research objectives.

The objective of the study

1.3.1 General Objective
The general objective of this study is to assess the main factors and impacts of cost overrun on
building projects and identify possible mitigation strategies.

1.3.2 Specific Objectives

This study will be undertaken with the following specific objectives:

3
  Identifying the major Causes of cost overrun on the construction project.
 Identifying the responsible parties to the causes of cost overrun.
 Identifying the effects of cost the overruns
 Determining solutions that can help prevent cost overruns in building construction projects.

Significance of the Study

The study adds to our understanding of the critical and major factors that contribute to cost
overruns in construction projects, and more importantly, it establishes a foundation for treating the
multiple risk factors that contribute to cost overruns in construction projects.
The initiation for the study of this research is largely due to personal observation and the low
performance of the construction project for building projects in terms of cost and time. In general,
the research is vital to be studied due to the following reasons.
 Most Construction projects in Addis Ababa, Ethiopia suffers cost overruns. The root cause
and its effect as well as the possible remedial measures shall be identified to take action
and support the construction industry.
 The study will contribute knowledge on problems of cost overruns, their causes, and their
overall effects on stakeholders before engaging themselves in a real contract.

The Scope of the Study

This research will be conducted in Addis Ababa, Ethiopia, with a focus on both public and private
building projects focused on the client, contractor, consultant, and external stakeholders that cause
cost overruns in public building projects. The factors influencing budget increases in building
projects will the focus of this report. Examination of the various factors that can contribute to cost
overruns in a project, as well as an analysis of the impact that such overruns can have on the overall
success and completion of the project. Some of the key areas that might be studied include project
management practices and processes, the availability and quality of resources, and the level of
oversight and accountability in the project. Additionally, the study will examine the impact of cost
overruns on project stakeholders, including project sponsors, project managers, and end users. The
study will also include recommendations for how to mitigate and prevent cost overruns in future
projects.

4
 CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Introduction
The construction project is a mission, undertaken to create a unique facility, product, or service
within the specified scope, quality, time, and cost [Chitkara, 2004]. In practice, however, some
construction projects encounter cost overruns, delays in completion time, or poor workmanship.
Cost overrun, poor quality workmanship, and delay in construction projects require an in-depth
investigation to improve the outputs of the construction industry.

It is not uncommon to see construction projects failing to achieve their mission of creating facilities
within the specified cost and time. Hardly few projects get completed on time and within budget,
since construction projects are exposed to uncertain environments because of such factors as
construction complexity; the presence of various interest groups such as the project owners, end
users, consultants, contractors, financiers; materials, equipment, project funding; climatic
environment; the economic and political environment and statutory regulations.

The successful execution of construction projects, keeping them within the estimated cost and
the prescribed schedules primarily depend on the existence of an efficient construction
sector capable of sustained growth and development to cope with the requirements
of social and economic development and to utilize the latest technology in planning and
execution. According to Chalabi, et al, (1984), adequate planning at the early stages of a
project is crucial for minimizing delays and cost overruns.
Cost overrun is common in infrastructure and building construction projects. Researches on
construction projects in some developing countries indicate that by the time a project is
completed, the actual cost exceeds the original contract price by about 30 %.

2.2 Theoretical literature review

Any country's growth is dependent on its construction industry. Buildings, highways, and bridges
can be used to calculate a country's economic development (Fugar, F. D. K., & Agyakwah-Baah,
A. B., 2010). Various parties, procedures, different phases and steps of work, and a great deal of
feedback from both the public and private sectors are all involved in the implementation of a
construction project, with the main goal of getting the project to a successful conclusion Wang

5
(1994). The quality of the relevant parties' managerial, financial, technological, and
organizational efficiency is used to determine the success of building project creation while
taking into account the related risk management, the market climate, and economic and political
stability (Duncan 1990). As construction becomes more complex, Wang (1994) claims that a
more sophisticated approach is needed to deal with initiating, preparing, funding, designing,
authorizing, implementing, and completing a project. According to (Duncan 1990) Contractors
play a critical role in the completion of construction projects. Their key responsibilities begin
when the project hits the implementation point, which is when the project's actual work is
completed. When it comes to the building sector, project success is crucial. Client satisfaction
and on-time completion are often used as performance indicators. The effectiveness of
construction projects is determined by the ability of the construction project manager to fulfill his
job functions with the expected efficacy. According to Azeb (2016), a stakeholder is a person or
community who has a stake in or can affect, the construction project's success, whether they are
within or outside the project. Construction projects may have a variety of stakeholders, but for
this article, the stakeholders are limited to contractors.

2.2.1 Definitions of Cost Overruns

Cost overruns are common in the construction industry. Only a small portion of projects are
completed on schedule and within budget. Cost overrun refers to the amount by which actual costs
surpass the baseline or agreed-upon costs. According to (Memon, March 2013) "Cost escalation,"
"cost increase," and "budget overrun" are all terms used to describe cost overrun. Cost overrun is
also described by Memon as a percentage of actual costs over the project's projected costs, as
shown below.
𝐀𝐜𝐭𝐮𝐚𝐥 𝐂𝐨𝐬𝐭 − 𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭
𝐂𝐨𝐬𝐭 𝐎𝐯𝐞𝐫𝐫𝐮𝐧 =
𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭
2.2.2 Project Cost Management
Project cost refers to the financial effort required to manufacture a construction product, such as a
building. To summarize, the total amount of money required to complete all project activities is
known as the project cost (Jemal, 2015). Estimating, scheduling, gathering and analyzing cost data,
and finally implementing measures to resolve construction cost problems are all part of the
construction cost management process (Nega, 2008). Cost control is used to align the scope,

6
quality specifications, and budget during the planning, design, and construction phases of a project.
The following three steps can be summarized as part of the approach:
1. Define the scope, the required level of quality, the completion time, and the budget.
2. Ensure that the scope, quality, time, and budget are aligned,
3. Throughout the life of the construction project, keep an eye on the balance of these
elements.
The process of project cost control starts with the selection of the owner's goals and ends when
those goals are reached. In Ethiopia, a similar study revealed significant delays in construction
projects (Zinabu, 2016). Different factors make it difficult to maintain effective time
management. According to Olawale and Sun (2010), the following are the top five factors that
obstruct successful project time management, in order: Changes in design, inaccurate project
time/duration estimates, job difficulty, project risk, and uncertainty, and poor performance by
subcontractors and nominated suppliers are all factors to consider.

2.3 Empirical literature Literature Review

2.3.1 Major Causes of Cost Overrun
Cost overruns are widespread, according to several studies of large projects. Cost overruns in
construction projects have a variety of factors, some of which are not only hard to forecast but also
difficult to manage (Morris, 1991). Inflationary pressures, increases in material prices and labor
wages, difficulties in obtaining building materials, construction delays, inadequacies in cost
estimates provided by public agencies, and unexpected sub-soil conditions were identified as the
most significant sources of cost overruns in a study conducted in Turkey by Arditi, et al, (2011).
Kaming, et al, (1997), studied the factors that influence construction time and cost overruns for
high-rise projects in Indonesia and found that material cost increases owing to inflation, imprecise
material estimating, and the degree of project complexity were the most significant contributors to
cost overruns. Mansfield, Ugwu, and Doran, (1994), found that Cost overruns are caused by a
variety of factors, including poor contract management, material shortages, changes in site
conditions, design changes, errors and discrepancies in contract documents, mistakes during
construction, price fluctuations, inaccurate estimating, delays, additional work, contract period
shortening, and fraudulent practices and kickbacks. Ibbs, (1928), attributes Cost overruns are due
to various reasons that are either uncontrollable or unmanageable to varied degrees. They include

7
factors such as the accuracy of the initial cost estimate, the level of government regulation and
control, construction completion delays, the number of design revisions, and labor-related issues
including availability, skills, and increases in fringe benefits. According to Robert, (2007), Project
cost overruns are caused by incomplete designs, a poor pre-planning process, rising material costs,
a lack of timely options, and excessive modification orders, according to project owners.
According to Cantrell, (2007), Poor project management, design revisions, unforeseen ground
conditions, inflation, material shortages, change in exchange rates, inadequate contractors, funding
challenges, and so on are all variables that affect the cost of construction projects over time. In
developing countries, Construction projects that are not properly phased can cause the economy
to become 'overheated'. As a result, construction materials will be in short supply since demand
will outstrip supply; This, in turn, causes an increase in the cost of construction materials, which
eventually leads to project cost overruns, with inflationary consequences and a decline inefficient
construction activity (Ugwu, 1994).

2.3.2 The responsible parties to the causes of cost overrun

Construction cost overruns can be caused by a variety of factors, and different parties may be
responsible for these overruns. Some of the major parties that may be responsible for
construction cost overruns include:
 Owners/Clients: Owners or clients may contribute to cost overruns by making changes
to the project scope, failing to provide accurate cost estimates, or failing to properly
budget for the project.
 Contractors: Contractors may contribute to cost overruns by failing to properly manage
the project, underestimating the cost of materials or labor, or failing to properly plan for
potential complications.
 Architects and Engineers: Architects and engineers may contribute to cost overruns by
making design errors, failing to properly plan for the project, or failing to properly
coordinate with other parties involved in the project.
 Government Agencies: Government agencies may contribute to cost overruns by failing
to provide necessary approvals or permits promptly, or by imposing unexpected
regulations or requirements on the project.
 Financiers: Financiers may contribute to cost overruns by failing to provide sufficient

8
 funding for the project, or by imposing unexpected financial constraints on the project.
It's important to note that cost overruns are often the result of a combination of factors and that
different parties may be responsible for different aspects of the overruns. It's also important to note
that Construction projects are often complex, involving many different parties, each with their own
set of responsibilities, and that cost overruns can be caused by a failure of any one of these parties
to adequately perform their duties.

2.3.3 Effects of Cost Overruns

Cost overruns have clear consequences for key players as well as the construction industry as a
whole. Cost overruns suggest additional costs beyond those previously agreed upon, resulting in
lower returns on investment for the client. The extra costs are passed on to the customer in the
form of higher rental/lease rates or prices. To experts, cost overrun indicates a failure to give
value for money, which could degrade their reputations and cause clients to lose faith in them. If
the contractor is found to be at fault, it can result in a loss of profit as well as defamation, which
could endanger future job opportunities. Cost overruns could lead to project cancellation and a
downturn in building construction, as well as a bad reputation, trouble obtaining project funding,
or acquiring it at higher costs due to increased risks (Mbachu, et al., 2004). All of these
implications jeopardize the construction industry's viability and long-term viability. According
to Arditi, et al., (2011). The consequences of cost overruns are not limited to the construction
industry but can reflect the status of a country's broader economy. They claim that construction
project delays and cost overruns prohibit the expected rise in property and service production
from occurring and that this occurrence, in turn, harms the rate of national growth.

Table 1. Summary of cause and effects of cost overrun

 Causes of cost overrun  Effects of cost overrun
 Inflationary pressures,  Lower returns on investment
 Increases in material prices and labor  Degrade their reputations and
wages due to inflation  Cause clients to lose faith in them
 Construction delays,  Loss of profit as well as defamation,
 Inadequacies in cost estimates given by  Endanger future job opportunities
public agencies  Project abandonment and

9
  Unexpected sub-soil conditions
 Imprecise material estimating, and
 The degree of project complexity
 problems with finance and payment
arrangements,
 Poor contract management,
 Material shortages,
 Changes in site conditions, design
changes, mistakes, and discrepancies in
contract documents,
 Mistakes during construction,
 Incomplete drawings, poor pre-planning
process,
 Lack of timely decisions and excessive
change orders
 Inappropriate contractors, funding
problems&Inaccurate BOQ &take-off
 Inaccurate evaluation of project time
 Material shortages,
 A decline in building construction
 Negative reputation,
 Difficulty to acquire project funding
or securing it at higher costs due to
increased risk
 Delay payments and limit the client's
or project owner's early return on
investment
 Employees/workers couldn't get their
wages on time
 Machinery renting companies couldn't
get their payment as required or on
time
 A disagreement could happen between
the contractor and the client
 Due completion date, the employer
will fail to afford to pay the wages of
employees which will affect the total
performance of the project

2.3.4 Possible Solution that Can Reduce Cost Overruns

Experts believe conscious estimating, which requires the estimator to double-check the estimate
and include supplier and contractor pricing, can prevent or mitigate cost overruns. Comparing cost
by whatever unit measure is an appropriate practice. Using change orders is another approach to
avoid cost overruns. When conditions are unknown to the contractor and sufficient paperwork is
lacking, submitting a change order request might be problematic. The practicality of a client might
help determine whether or not to issue a change order. Another strategy to avoid cost overruns is
to plan rental equipment efficiently. This will help you avoid wasting money. Doloi, A. (2011),
Rental tools and equipment should not be allowed to stay on a project if they are not being used.

10
Another strategy to avoid expense overruns is to thoroughly review all invoices. Invoices must be
compared to the purchase order, as well as delivery and pick-up receipts. Cost overruns, according
to experts, can also be avoided by using effective project management tools and techniques. Also,
the importance of efficient communication among the stakeholders cannot be underestimated.
During project delivery, there should be no communication gaps between the client, the
professionals, the contractor, and the rest of the project team members.

2.3.5 Summary of Research Gaps

Research on the causes of construction cost overruns has been conducted for many years, and there
is a significant body of literature on the topic. However, there are still gaps in our understanding
of this issue, and further research is needed to fully understand the causes and potential solutions
for construction cost overruns. Some of the major research gaps in this area include:
Lack of standardization: There is a lack of standardization in the way construction cost overruns
are defined and measured, making it difficult to compare studies and identify common causes.
Limited generalizability: Many studies on construction cost overruns have been conducted in
specific geographic regions or on specific types of projects, making it difficult to generalize their
findings to other contexts.
Limited focus on specific causes: While many studies have investigated the causes of
construction cost overruns, they often focus on only a few specific causes, rather than looking at
the issue from a holistic perspective.
Limited focus on solutions: While many studies have investigated the causes of construction cost
overruns, there is a lack of research on effective solutions for preventing or mitigating these
overruns.
Lack of focus on developing economies: Research on construction cost overruns is mostly
focused on developing economies, which may have different causes and solutions than those in
developing economies.
Overall, there is a need for more comprehensive and standardized research on the causes of
construction cost overruns, as well as research that focuses on solutions for preventing or
mitigating these overruns. Studies that are conducted across different contexts, both in developed
and developing economies, and that consider the issue from a holistic perspective would be
particularly valuable.

11
 CHAPTER THREE: MATERIALS AND METHODS (RESEARCH
METHODOLOGY)
3.1 Introduction

To study the causes and effects of cost overruns, researchers typically use a combination of
quantitative and qualitative methods. Quantitative methods may include statistical analysis of
project data to identify patterns and trends in cost overruns, while qualitative methods may include
interviews and case studies to gain a deeper understanding of the underlying causes and effects.
One commonly used methodology in studying cost overruns is the case study approach. This
involves an in-depth examination of one or more specific projects to understand the factors that
contributed to cost overruns and the impact they had on the project. Another approach is to conduct
a survey, either online or in person, of project managers or other stakeholders to gather information
on the causes and effects of cost overruns. Additionally, cost estimation techniques such as
parametric cost estimation, bottom-up, and top-down cost estimation, earned value management,
etc. can be used to prevent cost overrun by providing more accurate cost estimates for the project.
Overall, the material and methodology for studying the causes and effects of cost overruns can
vary depending on the specific research question and the resources available, but a combination of
quantitative and qualitative methods is often used to gain a comprehensive understanding of the
issue.

3.2 Research Design

The study uses a survey research design that will allow the collection of data from the participant
directly through administered questionnaires; moreover, this design will enable the researcher to
capture the opinions, characteristics, and conditions of the study population. Also, this design will
be non-experimental because there will be no manipulation of variables. This research included
the following steps:
1. Define the research question: This will determine the level of the main causes and effects
of cost overruns in construction projects.
2. Review the literature: A review of existing literature on the topic of cost overruns in
construction projects is made to identify key causes and effects, as well as any gaps in the
existing research.

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 3. Identify a sample of construction projects: Selected a sample of construction projects
that have experienced cost overruns and a sample of projects that did not experience cost
overruns.
4. Collect data: Collect data on the causes and effects of cost overruns for the selected sample
of projects using Google Forms.
5. Analyze the data: Analyze the collected data using statistical techniques to identify
patterns and relationships between the causes and effects of cost overruns.
6. Draw conclusions and make recommendations: Draw conclusions about the main
causes and effects of cost overruns in construction projects and make recommendations for
how to prevent or mitigate cost overruns in the future.
7. Report and communicate findings: Report the findings of the research and communicate
them to relevant stakeholders such as construction companies, project managers, and
government agencies.

3.3 Sources of Data

Both primary and secondary data were employed in this study where the primary data will involve
the collection of information from the participants directly through an administered questionnaire
that will make that data to be original.
The secondary data will be obtained from the authorized personnel and through available works
literature concerning the issues of cost overrun for building construction projects under force
account in the construction industry.

3.4 Data Collection Tools

A questionnaire was used to collect the necessary information. In public buildings in Addis Ababa,
a questionnaire was created to identify the elements that cause cost overruns in public building
construction projects. To acquire the necessary data, 22 structured questions were prepared. The
survey was broken into three sections. The first section consisted of questions regarding the
respondents' overall profile, information, and background. The second section comprised
questions concerning the key and significant causes that contribute to cost overruns in Addis
Ababa public building construction projects. The third section consists of questions regarding the
possible impacts of cost overrun. The questionnaire was created with open and closed-ended

13
questions in mind. These questions provided many different responses, and the respondents were
free to choose the one they thought was most appropriate. The reason for using a questionnaire in
this study is that it has the advantage of providing informants enough time to answer. It also made
it simple to approach and contact respondents, and it was cost-effective.

3.4.1 Questionnaire Approach

In this research, questionnaires were prepared following the objectives of the research. The
questionnaire was divided into three parts; the first part requesting on general information about
respondents, and the second part covered the probable cause and effect of cost overrun. And third
part shall inquire into the possible mitigation approaches against cost overrun.
The questionnaire consists of both open and closed questions which allow the collection of both
qualitative and quantitative data. Closed-ended questions will be useful for gathering factual data
and will be easier to respond to because the range of possible responses will be limited.

3.5 Sampling
In this research, the population for the study includes clients, contractors, consultants, and others.
This ensures that the data will be collected from each item of the population and the results will
be more accurate and reliable. There are 17 total numbers of participants in this research which are
categorized into three groups.

3.6 Method of Data Analysis

In the data analysis, descriptive and inferential statistics are used. Specifically, to analyze the
qualitative one, thematic analysis (i.e., summarizing and categorizing comments or opinions of the
respondents based on their majority of similarities and analyzing them thematically) was applied
to analyze and explain the results of the questionnaire and discussion.
And the quantitative one has been analyzed based on all collective responses of groups of
respondents (contractors, consultants, and owners) to obtain significant results. The data were
analyzed by calculating the relative important index model to rank the hypothesized factors based
on their importance and frequency which is derived from the views of the respondents of the three
groups.

14
The data gathered through the questionnaire's closed-ended questions were analyzed using
explanatory statistics. Calculating the Relative Importance Index (RII) and ranking factors in each
group based on the Relative Importance Index.

Where w is weighting given to each factor by the respondent, ranging from 1 to 5. For example,
n1 = the number of respondents for strongly Disagree, n2 = the number of respondents for Disagree,
n3 = the number of respondents for neutral, n4 = the number of respondents for agree, n5 = the
number of respondents for strongly agree). A is the highest weight (i.e., 5 in the study) and N is
the total number of respondents. The relative importance index ranges from 0 to 1 (Tam and Le,
2006).

3.7 Validity and Reliability

Validity and reliability are important components of any research study. Validity refers to whether
the research measures what it claims to measure and reliability is a measure of the consistency of
the results. Content validity is addressed in this study to ensure that the tools produce correct
answers by carefully including major topics highlighted in the literature analysis, with feedback
from experts in the field, while sticking to the objectives. The study ensured that the measurements
are accurate and that the data collected is relevant to the research project. When looking into the
causes of a project cost overrun, project performance indicators such as time, tasks completed, and
cost will be used to determine whether the project was over budget.
The research checks that the data is measured with controlled variables that the research design is
consistent, and that errors are minimized. For example, data is collected and analyzed in the same
manner across all project sites, and the same measures are used each time data is collected. The
questionnaire was reliable in that it used the same questions for all respondents and was answered
similarly. The questions were used from previously done studies that were subject to critics and
the content validity was addressed in that all questions represented all the variables intended to
measure for the desired objective of showing the impacts of the independent variables on the
dependent variable.

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3.8 Variable measurements

Ordinal scales were used in this study. The ordinal scale is a ranking or rating system that uses
integers in ascending or descending order to rank or rate data. The numerical value assigned to the
degree of influence did not imply that the intervals between scales are equal, nor did it imply
absolute quantities. They're all stickers with numbers on them. The factors were rated on a scale
of 1 to 5, with higher scores indicating strong agreement and lower scores indicating strong
disagreement. On a 5 -point Likert scale, respondents demonstrated their degree of agreement
with each evaluative argument regarding construction project time and cost overruns. The
researcher did this analysis using the criterion validity measurement method to check the
instrument's validity before distrusting the questionnaires. This analysis used the following format,
as shown in table 5, based on the Likert scale. Although the item scores are discrete, a Likert scale
is considered to be an interval scale.
Table 2: Variable measurement using Likert’s scale
Item Strongly Agree Neutral Disagree Strongly
Agree Disagree
Scale 5 4 3 2 1

3.9 Ethical considerations

When performing research, it is important to follow ethical guidelines. The study’s objectives
were explained to the participants, with the emphasis that the data would only be used for the
study's intended academic purpose. Respect for the study subjects' rights, wishes, and values,
as well as data confidentiality and acknowledgment of sources of information, were all
carefully considered. The research is conducted in an unbiased manner, and the results are not
influenced by any conflicts of interest. The privacy and confidentiality of participants are
protected.

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 CHAPTER FOUR: RESULTS AND DISCUSSION

4.1 Introduction

This section of the research deals with the analysis and discussion of the data gathered from the
desk study and questionnaire survey. It comprises determining the existence and degree of cost
overrun, the primary causes of cost overrun, the rate of occurrences of cost overrun variables, and
the influence of cost overrun variables on the project's final/total cost. Finally, the impact of cost
overruns on various stakeholders, the construction sector, and the overall economy will be
discussed.
The approach for assessing the data was designed to determine the relative relevance of the various
cost overrun sources and their impacts. The questionnaire asked each responder to select the
component most likely to cause cost overrun by responding "I strongly disagree," "I disagree," "I
agree," and so on; the frequency of cost overrun variables; and the implications of each cost
overrun variable on the project's ultimate cost. For the study, the percentages of responses were
prioritized for each cost overrun variable. It was feasible to determine the most important elements
that caused cost overrun in Addis Ababa public building construction projects based on the ranking
of the variables by the various groups. A range of completed public building construction projects
across Addis Ababa was surveyed through a literature review.

4.2 Response Rate

The questionnaire was prepared and sent through Google forms by technical means to three
contracting groups of the classmate, namely contractors, clients, and consultants, who are currently
working on public building construction sites including any other respondents who may not work
in the three parties. The project owners, consultants, and contractors engaged in the construction
of public buildings have certain roles and tasks, all of which are crucial to the project's success.
As a result, the research concentrated on the three major parties. Twenty-two (22) questionnaires
were given to the group of stakeholders after classifying respondents into three groups.
Client: -which accounts for the customers working at the Addis Ababa Construction Works. From
the distributed questionnaire, no client has participated.
Consultants: - The consultants which are involved in the public projects in Addis Ababa.

17
Contractors: - are those who are participating in direct involvement in the construction of public
buildings. Of the total of 17 participants in this research, only 11 of them responded to the
presented questionnaire. The response rate is shown in the following table below.

4.3 Respondent’s Profile

Table 3: Number and percentage of responses gathered through the questionnaire

1. Respondent‘s Gender

Frequency Percent Valid Cumulative

Percent Percent

Valid Male 9 81.8 81.8 81.8

Female 2 18.2 18.2 100.0

Total 11 100.0 100.0

2. Respondent's organization/company type

Frequen Percent Valid Cumulative

cy Percent Percent

Valid Consultant 4 36.4 36.4 36.4

Contractor 6 54.5 54.5 90.9

Other 1 9.1 9.1 100.0

Total 11 100.0 100.0

3. Respondent‘s educational level

Frequency Percent Valid Cumulative

Percent Percent

Valid BSC 11 100.0 100.0 100.0

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 4. Respondent‘s title in the company
Frequen Percent Valid Cumulative
cy Percent Percent
Valid Project 4 36.4 36.4 36.4
manager
Site 2 18.2 18.2 54.5
Engineer
Office 3 27.3 27.3 81.8
Engineer
Other 2 18.2 18.2 100.0
Total 11 100.0 100.0

5. Relevant work experience (years)

Freque Percen Valid Cumulative
ncy t Percent Percent
Valid <4 3 27.3 27.3 27.3
4-8 4 36.4 36.4 63.6
8-12 1 9.1 9.1 72.7
. >12 3 27.3 27.3 100.0
Total 11 100.0 100.0

4.5
4
3.5
Consultant 3
9% 2.5
36% Contructor 2
1.5
55% other 1
0.5
0
Office other Project Site
Engineer manager Engineer

Figure 1: Respondent’s category ratio

Source: own survey, 2023
The survey revealed that among the 11 respondents (64.7%)working on public building
construction projects in Addis Ababa, there were more males than females. According to Table 3,
100% of individuals who answered the survey had a bachelor's degree. As a result, the poll reveals

19
that more highly trained professionals, who are supposed to have a deeper understanding of the
issue, were well-represented.
According to the results, 3 (27.3%) of the 11 respondents had less than four years of work
experience, 4 (36.4%) had four to eight years of work experience, 1 (9.1%) had nine to twelve
years of work experience, and 3 (27.3%) had more than twelve years of work experience. This
shows that the results will be trustworthy. The majority of responders have appropriate experience
working in construction enterprises, according to the overall profile. This indicates that the
respondents were able to answer all of the questionnaire's questions completely.
In terms of respondent title in the company,4(36.4%) were project managers, 2 (18.2%) were site
engineers, 3 (27.3%) were office engineers, 0(0%) were Forman, and 2(18.2%) working in other
titles participated in the questionnaire. The majority of the surveys were filled out by experts
directly involved in public building construction projects, according to the percentage distribution
of different professionals. The great majority of responders are office engineers and project
managers, who have a lot more expertise with the research subject.

4.4 Relative Important Index (RII)

The reasons for cost overrun are discovered from the questionnaire survey based on respondents’
responses to each cost overrun variable in creating cost overspend. For example, causes of cost
overrun identified by different researchers, as described in the literature review section of this
thesis, may or may not be causes of cost overrun in Ethiopian construction industry cases, so it is
critical to ask respondents for their agreement on each specific cost overrun variable, Then,
depending on the incidence of cost overruns, reasons of cost overruns are identified. For example,
force majeure-related causes of cost overrun occur less frequently, but their impact, when they do,
is devastating, and they significantly increase the cost of the project; thus, determining the rate of
occurrence alone cannot assist in identifying the critical causes of cost overrun that are more
prevalent in Ethiopian construction. To identify the most prevalent reasons for cost overrun, first
identify the sources of cost overrun for Addis Ababa public building construction projects, then
determine their frequency, and finally determine their influence on the project's overall cost. This
section contains the findings and a discussion of the elements that influence cost overruns. The
SPSS version 20 statistical software kit was used to collect and analyze the questions. The Relative
Importance Index was used to establish the ranking of elements.

20
4.4.1 Ranking causes of cost overrun Using RII
As previously stated, determining the rate of occurrence alone will not assist in identifying factors
that are critical in causing cost overrun; regardless of the likelihood of occurrence, the significance
of each factor must be assessed independently in terms of its severity when it occurs during the
construction phase. The relative impact of all cost overrun factors evaluated in this study is shown
in Table 5 below. Based on the ranking of the elements by the different classes, it was feasible to
categorize the most relevant factors that caused project cost overruns from the perspectives of the
contractor and consultant. A total of 22 factors identified in the literature that have a substantial
influence on building cost overruns have been researched and addressed. The participants in the
study were asked to rank these 22 characteristics in order of their impact on project cost overruns.
As a consequence, the opinions of the respondents were utilized to evaluate the companies, which
were classified into three categories: owner, consultant, and contractor. The RII value was used to
calculate it for each group of respondents as well as the total number of respondents. The total and
group-level RII of the variables that professionals perceive that influence their capabilities to
monitor and manage construction project costs are shown. Based on their overall RII, the variables
were ranked.
Table 4: Ranking of causes of cost overrun in group level RII.
I. Owner-Related Factors RII Rank
1. Increase in project volume/scope 0.76 3
2. Inflationary increase in materials price and scarcity 0.60 5
3. Repeated Design Change 0.78 2
4. Lack of communication and coordination 0.75 4
5. Less follow-up on the project 0.87 1
II. Contructor-Related Factors RII Rank
1. Poor planning and scheduling in construction Projects 0.89 1
2. Unreasonable delay highly 0.85 2
3. Financial problems usually between contractor and sub-contractor 0.76 4
4. Inadequate material estimation 0.82 3
III. Labour-Related Factors RII Rank

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 1. Less productivity 0.65 2
2. Project Budget 0.71 1
IV. Contract Management-Related Factors RII Rank
1. Change Orders or Variations Orders 0.80 1
2. Change of consultants for design, supervision, and contract management 0.65 3
3. Low experience of project managers 0.80 1
4. Poor communication between major parties of the project 0.67 2
V. External Related factors RII Rank
1. Scarcity of utilities (water and electricity) 0.56 2
2. Force Majeure activities 0.49 3
3. Lack of Government control 0.64 1
From each group of factors affecting cost overrun, the following major causes were identified.
Table 5: the main factors identified from each group
Factors RII Rank
Less follow-up of project progress 0.87 2
Poor planning and scheduling in construction Projects 0.89 1
Project Budget 0.71 4
Change Orders or Variations Orders 0.80 3
The low experience of project managers 0.80 3
Lack of Government control 0.64 5
Table 6: Ranking overall causes and effects of cost overrun using RII.
Factors of cost overruns RII Rank
An increase in project volume/scope 0.76 7
Inflationary increase in materials price and scarcity on project cost overrun 0.60 13
Repeated Design Change is a major practice during Project exception 0.78 6
Lack of communication and coordination 0.75 8
Less follow-up of project progress 0.87 2
Poor planning and scheduling in construction Projects 0.89 1
Unreasonable delay 0.85 3

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 0.76 7
Inadequate material estimation can highly affect the project cost variation 0.82 4
Less productivity 0.65 11
Project Budget 0.71 9
Change Orders or Variations Orders 0.80 5
Change of consultants for design, supervision, and contract management 0.65 11
The low experience of project managers 0.80 5
Poor communication between major parties of the project 0.67 10
Scarcity of utilities (water and electricity) 0.56 14
Force Majeure activities 0.49 15
Lack of Government control 0.64 12

Poor planning and scheduling Less follow up of project progress

Unreasonable delay Inadequate material estimation
Change Orders or Variations Orders Low experience of project managers
0.89

0.87

0.85

0.82

0.8

0.8

R II
Figure 2: The five most important factors of cost overrun based on their RII Value
The top most commonly observed causes of cost overrun include Poor planning and scheduling,
Less follow-up of project progress, Unreasonable delay, and Inadequate material estimation. The
major element responsible for project cost overruns in the public building construction projects
in Addis Ababa is seen in the figure above. According to consultant and contractor perceptions,

23
the three most important factors influencing cost overrun were poor planning and scheduling,
Less follow-up of project progress, and unreasonable delay. With an RII score of 0.89, the first
most important factor was Poor planning and scheduling. With an RII of 0.87, the second most
important factor was less follow-up of project progress. Unreasonable delays were placed third
most important factor of project cost overrun with an RII value of 0.85. Fourthly, Inadequate
material estimation can highly affect the project cost variation. Inadequate material estimation
can have a significant impact on cost overruns in construction projects. When the material
required for a project is not accurately estimated, it can result in, the over-ordering of materials,
under-ordering of materials, unforeseen costs for additional materials, and increased labor costs.
In conclusion, an inadequate material estimation can have a significant impact on cost overruns
in construction projects, as it can result in additional costs for storage, handling, transportation,
labor, and additional materials. The major reasons for cost overruns stated by respondents are
listed below.
 Inflation
 Design changes
 Inappropriate work amount estimation
 Improper cost planning
 Performance of contractor which leads to delay in completion and cost overrun
 Seeking undue advantage
Based on the information on the open-ended question, inflation is high affecting the project by
increasing the project cost. Inflation is a common cause of cost overruns. Inflation refers to a
sustained increase in the general price level of goods and services in an economy over some time.
As prices rise, the cost of goods and services also increases, leading to an increase in the cost of
construction projects. This increase in costs can result in a cost overrun, which means that the final
cost of a project exceeds the original budget.
Cost overruns due to inflation can occur in various stages of a construction project, including the
design phase, procurement phase, and construction phase. For example, the cost of raw materials
and labor can increase as a result of inflation, causing the overall cost of a project to increase.
Additionally, delays in the project timeline can also contribute to cost overruns, as they can
increase the amount of time that prices are subject to inflation. To minimize the impact of inflation

24
on construction projects, it is important to carefully plan and budget for the project, taking into
account the potential impact of inflation on costs. In some cases, contracts can also be written to
include provisions for inflation adjustments to ensure that the project budget remains accurate even
if inflation occurs.

4.4.2 Ranking of Effects of cost overrun (RII)

Cost overruns can have significant impacts on various stakeholders, including the following,
Project sponsors, Project managers, Project stakeholders, Government agencies, and Society.
Additionally, cost overruns in infrastructure projects can lead to increased taxes, fees, and charges
for the public. Cost overruns can have far-reaching effects on various stakeholders and can impact
both the short- and long-term success of a project. It is important for project managers to closely
monitor project budgets and take proactive measures to mitigate cost overruns. The Relative
Importance Index (RII) is a method used to rank the effects of cost overruns based on their relative
importance or significance. The RII is calculated by multiplying the magnitude of the effect (i.e.,
the degree to which the cost overrun affects a specific aspect of the project) by its probability of
occurrence. Based on their overall RII, the variables were ranked as shown in the table below.
Table 7: Ranking overall effects of cost overrun using RII.
Effects of Cost overrun RII Rank
1. Decrease in overall financial returns 0.82 2
2. Delay in project completion 0.85 1
3. Contractor's bankruptcy 0.85 1
4. Loss of reputation and decreasing credibility 0.78 3

25
 Decrease in overall financial returns
Delay in project completion
Contractors Bankruptcy
Lose of reputation & decreasing credibility

0.85

0.85
0.82

0.78
R II
Figure 3: The prevalent effects of cost overrun based on their RII Value
The most commonly observed effect of cost overrun includes delay in project completion,
contractor bankruptcy, and a decrease in overall financial returns. According to consultant and
contractor perceptions in this research, the most important effect of cost overrun was project
completion and contractor bankruptcy with an RII score of 0.85. Cost overruns can have a
significant impact on the completion date of a project. If a project experiences a cost overrun, it
means that the project is going over budget, and the project sponsor may have to allocate additional
resources to cover the additional costs. This can cause delays in the project schedule, as the
additional resources might not be immediately available, or the project team might have to pause
work on other tasks to focus on the areas affected by the cost overrun. In some cases, the cost
overrun can be significant enough to push the project beyond its original completion date. This
can happen if the project team has to spend more time and resources on certain tasks to stay within
budget, or if the project sponsor decides to cut back on scope or quality to reduce costs. In addition
to the direct impact on the project schedule, cost overruns can also have indirect impacts, such as
increased risk, reduced stakeholder confidence, and decreased morale among the project team.
These indirect impacts can further delay the project and make it more difficult to complete it on
time. Therefore, it is important for project managers to closely monitor project costs and to have
contingency plans in place to address potential cost overruns. By taking proactive measures to
address cost overruns, project managers can minimize their impact on the project schedule and
help ensure the project is completed on time and within budget. Also, Cost overruns can have a
significant impact on contractors and can lead to bankruptcy in some cases. When the cost of a
construction project exceeds the original budget, the contractor may have to bear the additional

26
costs, which can strain their finances and make it difficult for them to cover their expenses. This
can lead to cash flow problems and make it difficult for the contractor to pay suppliers and
employees, meet debt obligations, and maintain their business operations. In some cases, cost
overruns can lead to disputes with the owner or project manager, which can further strain the
contractor's financial situation. If the contractor is unable to secure additional funding to cover the
cost overruns, they may be forced to declare bankruptcy. Therefore, contractors need to have
adequate financial planning and risk management in place to help mitigate the impact of cost
overruns and other financial challenges. This can include having sufficient cash reserves, having
contingency plans in place for unexpected costs, and negotiating favorable payment terms with
suppliers and lenders.

With an RII of 0.82, the second most important effect was a decrease in overall financial returns.
Cost overrun is an increase in project expenses beyond the original budget. This can have a
significant impact on the overall financial return of a project. If a project experiences a cost
overrun, it will result in higher project expenses, which can reduce the profit margins or even result
in a loss. This can also make it difficult for the project to generate enough revenue to cover its
costs, which can affect the overall financial return of the project. In addition to affecting profit
margins, cost overruns can also impact the project's ability to secure additional funding. Investors
and lenders may be less willing to provide funding if a project has a history of cost overruns, as
they may perceive the project as being risky. Furthermore, cost overruns can also have an impact
on the project's reputation and future business prospects. If a project is seen as being plagued by
cost overruns, it may damage the reputation of the company and reduce its chances of securing
future business opportunities. Therefore, cost overruns can have a significant impact on the overall
financial return of a project and should be carefully managed to minimize their impact.
Losing the reputation of the contractor by decreasing their credibility was placed third most
important factor of project cost overrun with RII =0.78. Cost overruns can have a significant
impact on a company or organization's reputation and credibility. A cost overrun occurs when the
actual cost of a project exceeds the estimated cost, and this can happen due to a variety of factors,
such as unexpected expenses, poor planning, or mismanagement. When a project experiences a
cost overrun, it can damage the reputation of the company or organization responsible for it. This
is because a cost overrun can indicate that the company or organization was not able to effectively

27
manage the project, which raises questions about their ability to complete projects on time and
within budget. Additionally, a cost overrun can also indicate that the company or organization was
not transparent about the project's budget and expenses, which can erode public trust and
confidence. In addition to damaging a company's reputation, cost overruns can also hurt its
credibility. Credibility is based on the perception of a company or organization's ability to deliver
on its promises, and a cost overrun can indicate that the company or organization was not able to
deliver the project as planned. This can make it more difficult for the company or organization to
secure future contracts or projects, as potential clients may doubt their ability to deliver on time
and within budget. In conclusion, cost overruns can harm a company or organization's reputation
and credibility, and it is important for companies and organizations to effectively manage their
projects and be transparent about their budgets and expenses to maintain public trust and
confidence. The major impacts of cost overruns stated by respondents were:-
 Delay on construction completion date since until amended project cost the contractors will
be idle
 Employees/workers couldn't get their wages on time
 Machinery renting companies couldn't get their payment as required or on time
 A disagreement could happen between the contractor and the client
 Due completion date, the employer will fail to afford to pay the wages of employees which
will affect the total performance of the project
 Conflict of interest will occur between the consultant and the contractor

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 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusion

Due to the scarcity of financial resources in developing nations like Ethiopia, cost-related concerns
in the building sector are sensitive. As a result, doing study in this field will be extremely
important. To prevent or eliminate cost overrun in the construction sector, it is necessary to identify
the sources of cost overrun. The primary goal of this study is to identify and explore the significant
reasons for cost overruns in Addis Ababa public building construction projects. The causes of cost
overrun were discovered by a questionnaire survey and literature. The frequency of cost overrun
factors and their effects on the project's final cost were also investigated. The findings of the
questionnaire were analyzed using descriptive analysis.
The following conclusions are taken from the findings of the desk research and the replies of the
respondents.
The overall amount of cost overrun for the various types of public building construction projects
analyzed in this study varies significantly.
The respondents identified 22 causes of cost overrun based on the findings of this thesis. Based on
the comments of the respondents, the sources of cost overrun were discovered. The most common
reasons for cost overrun are also discovered by the research, which ranks the rate of occurrences
of cost overrun factors. include Poor planning and scheduling, Less follow-up of project progress,
Unreasonable delay, and Inadequate material estimation
According to the findings of the study, contractors are most often held accountable for cost
overruns in the construction business, followed by the consultant.
Cost overruns have several consequences for building sector stakeholders. The most typical
consequences of cost overruns in the construction business include delay in project completion,
contractor bankruptcy, a decrease in overall financial returns, loss of reputation, a disagreement

29
between the contractor and the client, fail to afford to pay the wages of employees which will affect
the total performance of the project, and Conflict of interest will occur between the consultant and
the contractor

5.2 Recommendations

The following recommendations are requested from major role players in building projects based
on the research findings.

5.2.1 Expected from Consultants

The consultant is a significant participant in building projects who interprets the demands and
ideas of the customers into plans and drawings and monitors the translation of these plans and
drawings into observable physical structures. Consultants are anticipated to provide the following
suggestions.
 Continuous coordination and direct contact will avoid design conflicts, flaws, and
omissions, as well as provide specialists the opportunity to properly evaluate the contract
agreements. This would aid in the elimination of modification orders or variations as a
result of contract document discrepancies.
 Provide any necessary details to make interpreting the designs and laying out the works
easier. Ensure suitable and realistic specifications of materials and procedures are provided
in the contract agreements; specifications should be standardized as much as feasible for
simplicity of comprehension by project participants.
 To minimize variations and late adjustments during the building phase, a detailed and
complete site study should be conducted during the design phase.
 Avoid intricate designs as much as feasible, and while attempting to attain aesthetic appeal,
consider the issue of buildability in the design.
 To eliminate communication gaps, implement effective information retrieval and
dissemination methods; answer as promptly as possible to contractor and client inquiries
and requests for clarification to avoid delays and uncertainty, which will result in cost
overruns.

5.2.2 Expected from Clients/Project Owners

30
Clients are one of the most significant parties that spend their money on the implementation of a
construction project, and they play a major role in the project development, construction, and
operation. Clients are required to provide the following suggestion.
 Clients should budget enough time to complete project briefings and other feasibility
assessments. Allow enough time for thorough feasibility studies, planning, design,
documentation, and tender submission. This helps to eliminate mistakes and omissions,
which helps to avoid or minimize cost overruns.
 Ensure that owner and end-user objectives and requirements are articulated and
communicated during briefing meetings; client goals should be precise and reasonable.
 Fulfill contractual duties, particularly in terms of payment for completed contractor work,
settlement of consultant fee accounts, and ownership of the construction site. Before
projects begin, clients should verify that sufficient funds are available to pay contractors in
line with the contract agreement.

5.2.3 Expected from Contractors

Contractors are one of the stakeholders that work directly on building projects, hence they are
required to make the following suggestions.
 Collaborate with the customer to order building supplies and other goods ahead of time.
 Proactively solve problems and suggest solutions to building projects.
 On building projects, minimize confrontational relationships with stakeholders.
 To minimize delays and, as a result, cost overruns, ensure effective time management
through adequate resource planning, duration estimation, and schedule preparation and
control.
 All stakeholders in the construction industry must work together to improve the sector's
outputs and ensure that it continues to expand healthily. Consultants, contractors, and
customers, in particular, must have a comprehensive approach to solving problems in the
construction business; they must get aware of the newest technologies and methodologies
for problem resolution and seek solutions proactively. It will need a collaborative effort
from all stakeholders to put the findings of building research into practice.

31
 REFERENCES
Ali, A. (2018). Risk Factors That Leading to Cost and Time Overrun in Mega Construction
Projects in Malaysia. ABC Research Alert.
Delivery, P., State, I., Ikechukwu, A., Emoh, I., & Kelvin, O. (2017). Causes and Effects of Cost
Overruns in Public Building Construction. V:19,7. 13-20.
Fugar, F. D. K., & Agyakwah-Baah, A. B. (2010). Delays in building construction projects in
Ghana. Australasian Journal of Construction Economics and Building, 103–116.
Ifedolapo, H., Oyewale, B., & Ojo, J. (2016). An Investigation into Factors Affecting the
Performance of Public Construction Projects in Ondo State, Southwestern, Nigeria. 72-79.
Olawale, Y. A., & Sun, M. (2010). "Cost and time control of construction projects: inhibiting
factors and mitigating measures in practice. Construction Management and Economics,
28(5), 509-526.
Rauzana, A. (2016). The Effect Of The Risk Factors on the Performance of Contractors in Banda
Aceh , Indonesia,, V:11,15. 9496-9502.
Xie, W., Deng, B., Yin, Y., Lv, X., & Deng, Z. (2022). Critical Factors Influencing Cost Overrun
in Construction Projects : A Fuzzy Synthetic Evaluation. Xie, W., Deng, B., Yin, Y., Lv, X.,
& Deng, Z. (2022). Critical Factors Influencing Cost Overrun in Construction Projects :
A Fuzzy Synthetic Evaluation, 1-19.

32
 Appendices
Appendix 1: Final Thesis Proposal

Appendix 2: Originality Report

Appendix 3: Grammer Checker Report

Appendix 4: Refferencing Software Usage

Appendix 5: Data Collection Tools

Appendix 6: Journal Manuscript and Submission Process

33
Appendix 1: Final Thesis Proposal

Addis Ababa Science and Technology University

College of Architecture and Civil Engineering
Department of Civil Engineering
(Construction Technology and Management)

CAUSES OF COST OVERRUN AND ITS IMPACT ON CONSTRUCTION

PROJECTS IN ADDIS ABABA

MSC THESIS RESEARCH PROPOSAL

BY

MIHERET ANILEY (GSE014/14)

ADVISOR: BELACHEW ASTERAY (PhD)

Addis Ababa, Ethiopia

January, 2023
 DECLARATION
I hereby declare that the work presented in this proposal is original and has been conducted by
me with the guidance of my advisor Belachew Asteray (PhD). The work contained here in this
thesis proposal has not been submitted for any other degree or professional qualification. Any
sources used in the preparation of this thesis proposal have been fully acknowledged and
referenced appropriately. I take full responsibility for the content of this proposal and any errors
or omissions that may be present.

i
 ABSTRACT
The construction industry is a vital sector of the economy, but it is also one that is prone to cost
overruns. Cost overruns occur when the actual costs of a construction project exceed the original
budget. These overruns can have a significant impact on the project and its stakeholders.
The purpose of this proposal is to investigate the causes of cost overruns in construction projects
and to examine the impact that these overruns have on the project and its stakeholders.
The research will focus on identifying the most common causes of cost overruns in construction
projects, including but not limited to: scope changes, lack of proper planning and budgeting,
inadequate contractor performance, and unforeseen site conditions. In addition, the research will
investigate the impact of cost overruns on the project and its stakeholders, including the owner,
the contractor, and the community. The research will be conducted using a combination of
literature review and case study on the bank of Abyssinia specific building project.
The literature review will provide an overview of existing research on the causes of cost
overruns and their impact on construction projects. The case study will be used to provide
specific examples of cost overruns and their impact on real-world projects. The research will
provide insights into the factors that contribute to cost overruns and the impact that these
overruns have on the project and its stakeholders. The findings of the research will be used to
develop recommendations for improving the management of construction projects to reduce the
likelihood of cost overruns and minimize their impact.
The proposed research will provide valuable insights into the causes of cost overruns in
construction projects and the impact that these overruns have on the project and its stakeholders.
The findings of the research will be used to develop recommendations for improving the
management of construction projects to reduce the likelihood of cost overruns and minimize
their impact. This research will be beneficial for the construction industry, owners, contractors,
and communities, as it will provide them with the knowledge and tools needed to better manage
construction projects and avoid costly overruns.
To achieve the purpose of this research work cross-sectional survey research design of both
primary and secondary data collection methods will be used. For analyzing the research data,
Statistical Package for Social Science (SPSS) software will be used for statistical analysis.

ii
 TABLE OF CONTENTS
DECLARATION............................................................................................................................ i

ABSTRACT ................................................................................................................................... ii

TABLE OF CONTENTS ............................................................................................................ iii

LIST OF ABBREVIATIONS & ACRONYMS ......................................................................... v

LIST OF TABLES ....................................................................................................................... vi

CHAPTER 1: INTRODUCTION ................................................................................................ 1

1.1 Background of the Study .................................................................................................. 1

1.2 Statement of the Problem ................................................................................................. 3

1.3 Objective of the study ...................................................................................................... 4

1.3.1 General Objective ..................................................................................................... 4

1.3.2 Specific Objectives ................................................................................................... 4

1.4 Significance of the Study ................................................................................................. 4

1.5 The Scope of the Study .................................................................................................... 5

CHAPTER 2: LITERATURE REVIEW .................................................................................... 6

2.1 Introduction ...................................................................................................................... 6

2.2 Theoretical literature review ............................................................................................ 6

2.2.1 Definitions of Cost Overruns .................................................................................... 7

2.2.2 Project Cost management ......................................................................................... 7

2.3 Empirical literature ........................................................................................................... 8

2.3.1 Major Causes of Cost Overrun ................................................................................. 8

2.3.2 The responsible parties to the causes of cost overrun ............................................... 9

2.3.3 Effects of Cost Overruns ......................................................................................... 10

2.3.4 Possible Solution that Can Reduce Cost Overruns ................................................. 12

2.3.5 Summary of Research Gaps .................................................................................... 12

iii
CHAPTER 3: MATERIALS AND METHODS (RESEARCH METHODOLOGY)............. 14

3.1 Introduction ......................................................................................................................... 14

3.2 Research Design ............................................................................................................. 14

3.3 Sources of Data .............................................................................................................. 15

3.4 Data Collection Tools..................................................................................................... 16

3.4.1 Questionnaire Approach .............................................................................................. 16

3.5 Sampling......................................................................................................................... 16

3.6 Method of Data Analysis .................................................................................................... 16

3.7 Validity and Reliability ....................................................................................................... 17

3.8 Ethical Considerations......................................................................................................... 17

CHAPTER 4: EXPECTED RESULTS ..................................................................................... 19

CHAPTER 5: RESEARCH BUDGET AND WORK PLAN .................................................. 20

5.1 Research Budget ..................................................................................................................... 20

5.2 Research Work Plan ................................................................................................................ 21

REFERENCES ............................................................................................................................ 22

iv
 LIST OF ABBREVIATIONS & ACRONYMS
GDP- Gross Domestic Product
BOQ- Bill of Quantity
BC- Building Contractors
ESC- Estimate at Complete
EAC- Estimate at Completion
PMP- Project Management Plan
BAC- Budget at Completion
CV- Cost Variance
SV- Schedule Variance
BCWS- Budgeted Cost of Work Scheduled
BCWP- Budgeted Cost of Work Performed
SPSS-Statistical Package for Social Science

v
 LIST OF TABLES
Table 1. Summary on cause and effects of cost overrun .............................................................. 11
Table 2: The Budget needed for accomplishing the research work. ............................................. 20
Table 3: The time schedule to finish the research work ............................................................... 21

vi
 CHAPTER 1: INTRODUCTION

1.1 Background of the Study

In today's construction industry, cost overrun is a very common phenomenon worldwide. Cost
overrun is a serious problem that needs to be investigated further in order to be resolved (Angelo,
W.J. and P. Reina, 2002). Because most developing countries spend a considerable amount of
their GDP on construction projects, it is critical to pay attention to the performance of projects in
the sector in order to ensure efficient use of tax payer’s money. The construction sector, like
other industries, has key performance indicators. Cost is one of these performance indicators,
particularly for industry initiatives. This is because every client or construction project sponsor
wants the project to be finished within a budget that has been established. Cost overruns in
construction projects can be caused by a variety of factors, and a number of scholars have looked
at the reasons of cost overruns.
The issue of cost overruns is not unique to Ethiopia. It is a global issue for instance (Doli A.,
2011) discovered in his research that the following factors contributed to cost overruns in
Nigerian construction projects: increase in materials prices, delays in contractors supplying raw
materials and equipment, variances in the cost of building materials, unsettlement of the local
currency in relation to the dollar value, project raw material monopoly by some providers,
resources constraint of funds and associated auxiliaries, not being fully prepared, a lack of cost
planning and monitoring during the pre- and post-contract periods, updates to standard drawings
during construction, and design changes. Poor site management and supervision, poor project
management support, financial problems with the owner, financial troubles with the contractor,
and design revisions were discovered by (Le-Hoai, L., Y.D. Lee and J.Y. Lee, 2008) to be the
most severe and common causes of cost overruns in the Vietnamese construction industry.
One of the most important indicators of a project's success is its cost. This is particularly true for
public projects in underdeveloped nations such as Ethiopia, where public building projects are
carried out with little financial means. Cost, time, and quality are typically considered to be the
common criterion for project success in most literature reviews on building projects. A project is
considered successful if it was completed on budget, on time, satisfied user expectations, met

1
specifications, achieved quality of workmanship, and caused the least amount of construction
stress (Olawale, Y. A., & Sun, M., 2010).
In Ethiopia, a project is recognized successful if it is completed within a specified cost or
budget, if it is put into service by a particular date, if it meets technical specifications, and if the
project participants are very satisfied with the project outcome. The current situation of
Ethiopia's construction industry falls short of satisfying domestic and international quality
requirements, as well as the sector's performance expectations. Building projects, in particular,
have issues with construction processes and administration, as well as budget and time
constraints. The failure to execute projects on time, poor quality work, and cost overruns are the
most serious issues. During the execution phase of most construction projects, schedule and cost
overruns occur often. By conducting research on the building sub-sector of Ethiopian
construction project delivery, this study will add to the body of knowledge.
Cost overrun refers to the amount by which actual costs surpass the baseline or authorized costs.
The gap between the original cost and the final price is known as cost overruns. For the purposes
of this study, cost overrun is defined as the difference between a construction project's final or
real cost at completion and the contract amount agreed upon by the customer (the project owner)
and the contractor upon contract signing.
Cost overrun is a common issue in construction projects and refers to the situation where the
actual costs of a project exceed the original budget. This can happen for a variety of reasons,
such as changes in scope, unexpected issues or delays, or poor cost estimation. Poorly defined
scope, lack of detailed design and inadequate project planning can lead to cost overruns.
Unforeseen changes in the scope of work, design modifications, and delays can all result in
additional costs. Cost of materials and labor can increase over the course of a project, leading to
cost overruns. Poor project management, including lack of oversight and communication, can
lead to cost overruns. Some specific examples like underestimating the cost of materials, failing
to account for inflation, changes in project scope or design, poor project planning and
scheduling, delays caused by weather or other uncontrollable factors, and disputes between
contractors and project owners will cause project cost overrun.
Project cost overruns can have a significant impact on an organization, as they can lead to
decreased profits, increased debt, or a negative impact on reputation. It can delay the completion

2
of a project, reduce the overall quality of the finished product, and strain relationships between
project stakeholders. Additionally, cost overruns can also have a negative impact on the
reputation of the contractor or developer. To prevent or mitigate project cost overruns,
organizations may use various tools and techniques such as project management methodologies,
risk management, and cost control measures.

1.2 Statement of the Problem

In Ethiopia, the construction industry receives the largest share of the government's capital
budget for development and investment. Construction industry is very big, difficult, and needs
huge investments. It shares considerable amount of the country‘s scarce financial resources.
However, project cost overrun is one of the most prevalent problems in the construction industry
today in Ethiopia. It significantly impacts the project scope. Time delay is frequently associated
with exceeding budget, often leaving the construction project in great trouble. In Ethiopia, the
number of public building construction projects is increasing from time to time. However, it
becomes difficult to complete projects in the allocated cost and time. Taking into account the
scarce financial resources of the country, cost overrun is one of the major problems in Ethiopia.
The causes of cost overrun are greatly varied, thus making the task of construction cost
management difficult for clients. It is becoming difficult to complete projects in the allocated
cost. Thus, addressing this problem is vital to achieve sustainable growth and accelerated
development of the construction sector.
The most common causes of cost overrun are construction material inflation, poor planning &
design, erroneous project cost estimation, change orders, Poor site management, poor
communication, improper resource planning and late payments.
The seeds of this study will seek to uncover important influencing elements or bottlenecks that
based on the findings of the previous study, determine the incidence of cost overruns in public
building construction projects. To facilitate the present study, the researcher will examine the
factors that leads to cost overrun in public construction project as well as its effects. Thus, the
first motive to undertake this research is to learn more about the factors that cause cost overruns
during construction and how they affect public building projects in Addis Ababa town. However,
relationship or correlation of causes and effects on cost overrun of public building construction
projects were uncovered. Therefore, this study covered this with a tool of regression analysis.

3
Besides, the magnitude of the causes and effects of cost overruns in public building construction
projects will also investigated in this study. Therefore, this research will help fill a knowledge
gap by examining the causes and effects of cost overruns on public building construction projects
in Addis Ababa and facilitate appropriate measures to avoid the problem and attempts to provide
answers for the following basic research objectives; This research will focus on studying cause &
effects of cost overrun on construction projects in Addis Ababa and facilitate appropriate
measures to avoid the problems and attempts to provide answers for the following basic research
objectives.

1.3 Objective of the study

1.3.1 General Objective
The general objective of this study is to assess the main factors and impacts of cost overrun on
in the building projects and identify possible mitigation strategies.

1.3.2 Specific Objectives

This study will be undertaken with the following specific objectives:
 Identifying the major Causes of cost overrun on construction project.
 Identifying the responsible parties to the causes of cost overrun.
 Identifying effects of cost overruns
 Determining solutions that can help prevent cost overruns in building construction
projects.

1.4 Significance of the Study

The study adds to our understanding of the critical and major factors that contribute to cost
overruns in construction projects, and more importantly, it establishes a foundation for treating
the multiple risk factors that contribute to cost overruns in construction projects.
The initiation for the study of this research is largely due to personal observation and low
performance of the construction project for building project in terms of cost and time. In general
the research is vital to be studied due to the following reasons.
 Most Construction projects in Addis Ababa, Ethiopia suffers cost overruns. The root
cause and its effect as well as the possible remedial measures shall be identified to take
action and support the construction industry.

4
  The study will contribute knowledge on problems of cost overruns, their causes and their
overall effects stake holders prior to the engaging themselves into a real contract.

1.5 The Scope of the Study

This research will be conducted in Addis Ababa, Ethiopia, with a focus on both public and
private building projects focused on the client, contractor, consultant, and external stakeholders
that cause cost overruns in public building projects. The factors influencing budget increases in
building projects will the focus of this report. Examination of the various factors that can
contribute to cost overruns in a project, as well as an analysis of the impact that such overruns
can have on the overall success and completion of the project. Some of the key areas that might
be studied include project management practices and processes, the availability and quality of
resources, and the level of oversight and accountability in the project. Additionally, the study
will examine the impact of cost overruns on project stakeholders, including project sponsors,
project managers, and end users. The study will also include recommendations for how to
mitigate and prevent cost overruns in future projects.

5
 CHAPTER 2: LITERATURE REVIEW

2.1 Introduction
Construction project is a mission, undertaken to create a unique facility, product or service
within the specified scope, quality, time, and cost [Chitkara, 2004]. In practice, however, some
construction projects encounter cost overrun, delay on completion time or poor workmanship
upon completion. Cost overrun, poor quality workmanship and delay of construction projects
require an in-depth investigation to improve the outputs of the construction industry.

It is not uncommon to see construction projects failing to achieve their mission of creating
facilities within the specified cost and time. Hardly few projects get completed on time and
within budget since construction projects are exposed to uncertain environments because of such
factors as construction complexity; presence of various interest groups such as the project
owners, end users, consultants, contractors, financiers; materials, equipment, project funding;
climatic environment; the economic and political environment and statutory regulations.
The successful execution of construction projects, keeping them within estimated cost and
the prescribed schedules, primarily depends on the existence of an efficient construction
sector capable of sustained growth and development in order to cope with the requirements
of social and economic development and to utilize the latest technology in planning and
execution. According to Chalabi, et al, (1984), adequate planning at the early stages of a
project is crucial for minimizing delays and cost overruns.
Cost overrun is common in infrastructure and building construction projects. Researches on
construction projects in some developing countries indicate that by the time a project is
completed, the actual cost exceeds the original contract price by about 30 % (Al-Momani, 1996).

2.2 Theoretical literature review

Any country's growth is dependent on its construction industry. Buildings, highways, and
bridges can be used to calculate a country's economic development (Fugar, F. D. K., &
Agyakwah-Baah, A. B., 2010). Various parties, procedures, different phases and steps of work,
and a great deal of feedback from both the public and private sectors are all involved in the
implementation of a construction project, with the main goal of getting the project to a
successful conclusion Wang (1994). The quality of the relevant parties' managerial, financial,

6
technological, and organizational efficiency is used to determine the success of building project
creation while taking into account the related risk management, the market climate, and
economic and political stability (Duncan 1990). As construction becomes more complex, Wang
(1994) claims that a more sophisticated approach is needed to deal with initiating, preparing,
funding, designing, authorizing, implementing, and completing a project. According to (Duncan
1990) Contractors play a critical role in the completion of construction projects. Their key
responsibilities begin when the project hits the implementation point, which is when the
project's actual work is completed. When it comes to the building sector, project success is
crucial. Client satisfaction and on-time completion are often used as performance indicators.
The effectiveness of construction projects is determined by the ability of the construction
project manager to fulfill his job functions with the expected efficacy. According to Azeb
(2016) a stakeholder is a person or community who has a stake in, or can affect, the
construction project's success, whether they are within or outside the project. Construction
projects may have a variety of stakeholders, but for the purposes of this article, the stakeholders
are limited to contractors.

2.2.1 Definitions of Cost Overruns

Cost overruns are common in the construction industry. Only a small portion of projects are
completed on schedule and within budget. Cost overrun refers to the amount by which actual
costs surpass the baseline or agreed-upon costs. According to (Memon, March 2013) "Cost
escalation," "cost increase," and "budget overrun" are all terms used to describe cost overrun.
Cost overrun is also described by Memon as a percentage of actual costs over the project's
projected costs, as shown below.
𝐀𝐜𝐭𝐮𝐚𝐥 𝐂𝐨𝐬𝐭 − 𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭
𝐂𝐨𝐬𝐭 𝐎𝐯𝐞𝐫𝐫𝐮𝐧 =
𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭
2.2.2 Project Cost management
Project cost refers to the financial effort required to manufacture a construction product, such as
a building. To summarize, the total amount of money required to complete all project activities is
known as the project cost (Jemal, 2015). Estimating, scheduling, gathering and analyzing cost
data, and finally implementing measures to resolve construction cost problems are all part of the
construction cost management process (Nega, 2008). Cost control is used to align the scope,

7
quality specifications, and budget during the planning, design, and construction phases of a
project. The following three steps can be summarized as part of the approach:
1. Define the scope, the required level of quality, the completion time, and the budget.
2. Ensure that the scope, quality, time and budget are aligned,
3. Throughout the life of the construction project, keep an eye on the balance of these
elements.
The process of project cost control starts with the selection of the owner's goals and ends when
those goals are reached. In Ethiopia, a similar study revealed significant delays in construction
projects (Zinabu, 2016). Different factors make it difficult to maintain effective time
management. According to Olawale and Sun (2010), the following are the top five factors that
obstruct successful project time management, in order: Changes in design, inaccurate project
time/duration estimates, job difficulty, project risk and uncertainty, and poor performance by
subcontractors and nominated suppliers are all factors to consider.

2.3 Empirical literature

2.3.1 Major Causes of Cost Overrun
Cost overruns are widespread, according to several studies of large projects. Cost overruns in
construction projects have a variety of factors, some of which are not only hard to forecast but
also difficult to manage (Morris, 1991). Inflationary pressures, increases in material prices and
labor wages, difficulties in obtaining building materials, construction delays, inadequacies in cost
estimates provided by public agencies, and unexpected sub soil conditions were identified as the
most significant sources of cost overruns in a study conducted in Turkey by Arditi, et al, (2011).
Kaming, et al, (1997), studied the factors that influence construction time and cost overruns for
high-rise projects in Indonesia, and found that material cost increases owing to inflation,
imprecise material estimating, and the degree of project complexity were the most significant
contributors to cost overruns. Mansfield, Ugwu, and Doran, (1994), found that Cost overruns are
caused by a variety of factors, including poor contract management, material shortages, changes
in site conditions, design changes, errors and discrepancies in contract documents, mistakes
during construction, price fluctuations, inaccurate estimating, delays, additional work, contract
period shortening, and fraudulent practices and kickbacks. Ibbs, (1928), attributes Cost overruns
are due to various reasons that are either uncontrollable or unmanageable to varied degrees. They

8
include factors such as the accuracy of the initial cost estimate, the level of government
regulation and control, construction completion delays, the amount of design revisions, and
labor-related issues including availability, skills, and increases in fringe benefits. According to
Robert, (2007), Project cost overruns are caused by incomplete designs, a poor pre-planning
process, rising material costs, a lack of timely options, and excessive modification orders,
according to project owners. According to Cantrelli, (2007), Poor project management, design
revisions, unforeseen ground conditions, inflation, material shortages, change in exchange rates,
inadequate contractors, funding challenges, and so on are all variables that affect the cost of
construction projects over time. In developing countries, Construction projects that are not
properly phased can cause the economy to become 'overheated'. As a result, construction
materials will be in short supply since demand will outstrip supply; This, in turn, causes an
increase in the cost of construction materials, which eventually leads to project cost overruns,
with inflationary consequences and a decline in efficient construction activity (Ugwu, 1994).

2.3.2 The responsible parties to the causes of cost overrun

Construction cost overruns can be caused by a variety of factors, and different parties may be
responsible for these overruns. Some of the major parties that may be responsible for
construction cost overruns include:
 Owners/Clients: Owners or clients may contribute to cost overruns by making changes
to the project scope, failing to provide accurate cost estimates, or failing to properly
budget for the project.
 Contractors: Contractors may contribute to cost overruns by failing to properly manage
the project, underestimating the cost of materials or labor, or failing to properly plan for
potential complications.
 Architects and Engineers: Architects and engineers may contribute to cost overruns by
making design errors, failing to properly plan for the project, or failing to properly
coordinate with other parties involved in the project.
 Government Agencies: Government agencies may contribute to cost overruns by
failing to provide necessary approvals or permits in a timely manner, or by imposing
unexpected regulations or requirements on the project.
 Financiers: Financiers may contribute to cost overruns by failing to provide sufficient

9
 funding for the project, or by imposing unexpected financial constraints on the project.
It's important to note that cost overruns are often the result of a combination of factors, and that
different parties may be responsible for different aspects of the overruns. It's also important to
note that Construction projects are often complex, involving many different parties, each with
their own set of responsibilities, and that cost overruns can be caused by a failure of any one of
these parties to adequately perform their duties.

2.3.3 Effects of Cost Overruns

Cost overruns have clear consequences for key players as well as the construction industry as a
whole. Cost overruns suggest additional costs beyond those previously agreed upon, resulting in
lower returns on investment for the client. The extra costs are passed on to the customer in the
form of higher rental/lease rates or prices. To experts, cost overrun indicates a failure to give
value for money, which could degrade their reputations and cause clients to lose faith in them.
If the contractor is found to be at fault, it can result in a loss of profit as well as defamation,
which could endanger future job opportunities. Cost overruns could lead to project cancellation
and a downturn in building construction, as well as a bad reputation, trouble obtaining project
funding or acquiring it at higher costs due to increased risks (Mbachu, et al., 2004). All of these
implications jeopardize the construction industry's viability and long-term viability. According
to Arditi, et al., (2011). The consequences of cost overruns are not limited to the construction
industry, but can reflect the status of a country's broader economy. They claim that construction
project delays and cost overruns prohibit the expected rise in property and service production
from occurring, and that this occurrence, in turn, has a negative impact on the rate of national
growth. Angelo and Reina, (2002), state that the issue of cost overrun is essential, and more
research is needed to find solutions in the future. Cost overruns can delay payments and limit
the client's or project owner's early return on investment.

10
 Table 1. Summary on cause and effects of cost overrun
Causes of cost overrun Effects of cost overrun
-Inflationary pressures, -Lower returns on investment
-Increases in material prices and labor -Degrade their reputations and
wages due to inflation -Cause clients to lose faith in them
-Difficulties in procuring building -Loss of profit as well as defamation,
materials -Endanger future job opportunities
-Construction delays, -Project abandonment and
-Inadequacies in cost estimates given by -Decline in building construction
public agencies -Negative reputation,
-Unexpected sub soil conditions -Difficulty to acquire project funding or
-Imprecise material estimating, and securing it at higher costs due to
-The degree of project complexity increased risk
problems with finance and payment -Negative impact on the rate of national
arrangements, growth
-Poor contract management, -Delay payments and limit the client's
-Material shortages, or project owner's early return on
-Changes in site conditions, design investment
changes, mistakes and discrepancies in
contract documents,
-Mistakes during constructions,
-Contract period shortening, and
fraudulent practices and kickbacks
-Incomplete drawings, poor pre-planning
process,
-Lack of timely decisions and excessive
change orders
-Inappropriate contractors, funding
problems & Inaccurate BOQ & take-off
- Inaccurate evaluation of project time
duration, -poor site management and
supervision.

11
2.3.4 Possible Solution that Can Reduce Cost Overruns
Experts believe conscious estimating, which requires the estimator to double-check the estimate
and include supplier and contractor pricing, can prevent or mitigate cost overruns. To eliminate
avoidable errors and evaluate estimates, a triple check by a qualified person, ideally a project
manager, is required. Comparing cost by whatever unit measure is an appropriate practice. Using
change orders is another approach to avoid cost overruns. When conditions are unknown to the
contractor and sufficient paperwork is lacking, submitting a change order request might be
problematic. The practicality of a client might help determine whether or not to issue a change
order. Another strategy to avoid cost overruns is to plan rental equipment in an efficient manner.
This will help you avoid wasting money. Doloi, A. (2011), Rental tools and equipment should
not be allowed to stay on a project if they are not being used. Another strategy to avoid expense
overruns is to thoroughly review all invoices. Invoices must be compared to the purchase order,
as well as delivery and pick-up receipts. Cost overruns, according to experts, can also be avoided
by using the effective project management tools and techniques. Also, the importance of efficient
communication among the stakeholders cannot be underestimated. During project delivery, there
should be no communication gaps between the client, the professionals, the contractor, and the
rest of the project team members.

2.3.5 Summary of Research Gaps

Research on the causes of construction cost overruns has been conducted for many years, and
there is a significant body of literature on the topic. However, there are still gaps in our
understanding of this issue, and further research is needed to fully understand the causes and
potential solutions for construction cost overruns. Some of the major research gaps in this area
include:
Lack of standardization: There is a lack of standardization in the way construction cost
overruns are defined and measured, making it difficult to compare studies and identify common
causes.
Limited generalizability: Many studies on construction cost overruns have been conducted in
specific geographic regions or on specific types of projects, making it difficult to generalize their
findings to other contexts.

12
Limited focus on specific causes: While many studies have investigated the causes of
construction cost overruns, they often focus on only a few specific causes, rather than looking at
the issue from a holistic perspective.
Limited focus on solutions: While many studies have investigated the causes of construction
cost overruns, there is a lack of research on effective solutions for preventing or mitigating these
overruns.
Lack of focus on developing economies: Research on construction cost overruns is mostly
focused on developed economies, which may have different causes and solutions than those in
developing economies.
Overall, there is a need for more comprehensive and standardized research on the causes of
construction cost overruns, as well as research that focuses on solutions for preventing or
mitigating these overruns. Studies that are conducted across different contexts, both in developed
and developing economies, and that consider the issue from a holistic perspective would be
particularly valuable.

13
 CHAPTER 3: MATERIALS AND METHODS (RESEARCH
METHODOLOGY)

3.1 Introduction

Cost overrun refers to a situation where the actual costs of a project exceed the estimated costs.
There are various causes of cost overruns, including poor project planning, inadequate risk
management, changes in project scope, and unexpected events. To study the causes and effects
of cost overruns, researchers typically use a combination of quantitative and qualitative methods.
Quantitative methods may include statistical analysis of project data to identify patterns and
trends in cost overruns, while qualitative methods may include interviews and case studies to
gain a deeper understanding of the underlying causes and effects. One commonly used
methodology in studying cost overruns is the case study approach. This involves in-depth
examination of one or more specific projects to understand the factors that contributed to cost
overruns and the impact they had on the project. Another approach is to conduct a survey, either
online or in person, of project managers or other stakeholders to gather information on the causes
and effects of cost overruns. Additionally, cost estimation techniques such as parametric cost
estimation, bottom-up, and top-down cost estimation, and earned value management, etc. can be
used to prevent cost overrun by providing more accurate cost estimates for the project. Overall,
the material and methodology for studying causes and effects of cost overruns can vary
depending on the specific research question and the resources available, but a combination of
quantitative and qualitative methods is often used to gain a comprehensive understanding of the
issue.

3.2 Research Design

The study will employ survey research design that will allow collection of data from the
participant directly through administered questionnaires, moreover this design will enable the
researcher to capture opinions, characteristics and conditions of the study population. Also this
design will be non-experimental because there will be no manipulation of variables.
This research could include the following steps:

14
 1. Define the research question: What are the main causes and effects of cost overruns in
construction projects?
2. Review the literature: Conduct a thorough review of existing literature on the topic of
cost overruns in construction projects to identify key causes and effects, as well as any
gaps in the existing research.
3. Identify a sample of construction projects: Select a sample of construction projects that
have experienced cost overruns and a sample of projects that did not experience cost
overruns.
4. Collect data: Collect data on the causes and effects of cost overruns for the selected
sample of projects using methods such as interviews, surveys, and case studies.
5. Analyze the data: Analyze the collected data using statistical techniques to identify
patterns and relationships between the causes and effects of cost overruns.
6. Draw conclusions and make recommendations: Draw conclusions about the main
causes and effects of cost overruns in construction projects and make recommendations
for how to prevent or mitigate cost overruns in the future.
7. Report and communicate findings: Report the findings of the research and
communicate them to relevant stakeholders such as construction companies, project
managers, and government agencies.

3.3 Sources of Data

Both primary and secondary data will be employed in this study where by the primary data will
involve collection of information from the participants directly through administered
questionnaire and interviews thus will make that will make that data to be original.
The secondary data will be obtained to the authorized personnel and through available literatures
concerning the issues of cost overrun for building construction projects under force account in
construction industry (Maryland, 2016).

15
3.4 Data Collection Tools
3.4.1 Questionnaire Approach
In this research, questionnaires will be prepared in accordance to the objectives of the research.
The questionnaires will be divided into three parts; first part requesting on general information
about respondent, second part to cover the probable cause and effect of cost overrun. And third
part shall inquire the possible mitigation approaches against cost overrun.
The questionnaire will consist open and closed questions which allows to collect both
qualitative and quantitative data (Mwangi & Njoka, 2011). Closed-ended questions will be
useful for gathering factual data and will be easier to respond because the range of possible
responses will be limited.

3.5 Sampling
Defines the population as the entire mass of the observation, which is the parent group from
which a sample is to be formed. Also, population denotes a collection of individuals, objects, or
items from which a sample is collected for measurement, as well as a whole group of people or
elements who share a common characteristic. In this research, the population for the study will
includes clients, contractors and consultants. According to jothikumar (2005), census is a method
of sampling where every element of the population is included in the investigation. This ensures
that the data will be collected from each and every item of the population and the results will be
more accurate and reliable, because every item of the universe is required.
On the other hand, non-probability sampling will be used in this study whereby non-probability
sampling/purposive sampling shall enable the researcher to choose the sample purposively so as
to meet the intended objectives of the study (Asiamah et al, 2017), here the researcher will
purposively choose key staff to conduct interview from the project implementation team (who
are; Engineers, Quantity Surveyors, Architects, Technicians, Artisans and other workers).

3.6 Method of Data Analysis

For analyzing the research data, SPSS (Statistical Package for Social Science) software will be
used for statistical analysis. SPSS (Statistical Package for the Social Sciences) is a software
package commonly used for data analysis in the social sciences. To analyze the causes and

16
effects of project cost overrun using SPSS, we would first need to collect data on the various
factors that may be contributing to cost overruns, such as project scope changes, delays, and
unforeseen circumstances.
Once data is collected, SPSS will be used to perform statistical analyses, such as correlation and
regression analysis, to identify relationships between the different factors and the cost overruns.
Additionally, we can use SPSS to create tables and charts to visualize the data, making it easier
to understand and interpret the results.
It's important to note that, to conduct a thorough analysis it is necessary to use specific statistical
tests, it depends on the nature of the data and the research question to be answered.

3.7 Validity and Reliability

Validity and reliability are important components of any research study. Validity refers to
whether the research actually measures what it claims to measure, and reliability is a measure of
the consistency of the results. Content validity will be addressed in this study to ensure that the
tools produce correct answers by carefully including major topics highlighted in the literature
analysis, with feedback from experts in the field, while sticking to the objectives. The tools will
be pretested to ensure that they are understandable by participants. The study will ensure that the
measurements are accurate, and that the data collected is relevant to the research project. When
looking into the causes of a project cost overrun, project performance indicators such as time,
tasks completed, and cost will be used to determine whether the project was over budget. The
study seeks to ensure that the research design is able to account for any external factors that
could influence the outcome of the project.
The research will check that the data is measured with controlled variables that the research
design is consistent, and that errors are minimized. For example, data will be collected and
analyzed in the same manner across all project sites, and that the same measures are will be used
each time data is collected.

3.8 Ethical Considerations

Ethical issues shall to be considered while conducting research and especially in collecting data
by considering informed consent, privacy, confidentiality, compensation clearance

17
While conducting this research, there are several ethical considerations that should be taken into
account. First, it is important to ensure that the research is conducted in an unbiased manner, and
that the results are not influenced by any conflicts of interest. Second, it is important to obtain
informed consent from any participants in the research. This may involve explaining the purpose
of the research and any potential risks or benefits to the participants, and ensuring that they
understand and agree to participate. Third, it is important to protect the privacy and
confidentiality of participants. This may involve taking measures to anonymize data or obtain
additional consent for the use of personal information.
Finally, it is important to consider the potential impact of the research on any stakeholders,
including project managers and other individuals or organizations involved in the project. This
may involve taking steps to mitigate any negative impacts or to ensure that the results of the
research are used to improve the management of future projects.

18
 CHAPTER 4: EXPECTED RESULTS
The expected result on this research would likely identify factors that contribute to cost overruns,
such as poor project planning, inadequate cost estimation, and unexpected site conditions. The
research may also identify the effects of cost overruns, such as delays in completion, budget
overruns and loss of reputation. Additionally, the research may provide recommendations for
managing and minimizing cost overruns in future projects.
The research will be likely to provide an in-depth analysis of the factors that contribute to a
project's budget exceeding its original estimates. The research may examine internal and external
factors, such as poor project management, unexpected changes in scope or requirements,
inadequate resources, and economic or market conditions. The research may also explore the
effects of budget overruns, such as delays, reduced quality, and increased costs. Finally, the
research may recommend potential measures to prevent or mitigate budget overruns, such as
better project planning, risk management, and cost control. Overall, the research will provide
insights and strategies to help organizations successfully manage project budgets and avoid
budget overruns.

19
 CHAPTER 5: RESEARCH BUDGET AND WORK PLAN

5.1 Research Budget

A budget plan for this research outlines the estimated costs for all aspects of the research,
including personnel, equipment, materials, and any other expenses. It is important to note that
this is a sample budget plan and actual expenses may vary depending on the scope and specific
details of the research project
The budget plan for this particular research is shown in the table below.
Table 2: The Budget needed for accomplishing the research work.
No. Item/ description Unit Quantity Unit cost Total cost
(ETB) (ETB)
1 Flash disk Pcs 1 400.00 200.00
2 Paper Packet 2 150.00 300.00
3 Pen Pcs 10 10.00 100.00
4 Hard disc Pcs 1 5,500 5,500.00
5 Computer Pcs 1 20,000 20,000.00
6 Printing (Proposal ) Pages 30 2 60.00
7 Research paper color print Pages 150 15 2,250.00
8 Binding Pcs 1 50 50.00
9 Transportation cost to the study area 20 4 months 150/day 12,000.00
days/month
10 Telephone card & Internet Package Month 4 months 400/month 1,600.00
Total 42,060.00

Un Expected Cost (10% Contingency) 4,206.00

Total 46,266

20
5.2 Research Work Plan
Table 3: The time schedule to finish the research work
Activity January 2023 February March 2023 April 2023
2023
w1 w2 w3 w4 w1 & w3 & w1 & w3 & w1 w2 w3 w4
w2 w4 w2 w4
Preparing interview
questionnaires
Locating and defining
the target group
Literature review

Finalizing questionnaires

Data collection

Data processing

Analyzing & interpretation

First draft writing

Draft literature & Complete

remaining chapter
Revise overall draft

Submit draft and defense

Correction of the final draft
Submission of final
research paper

21
 REFERENCES
Nayak and Singh. (2016). Fundamentals of Research Methodology: Problems and Prospects.
New Delhi: ISBN No. 978-93-8357-556-5.
Al-Momani, A. H. (1996). Construction cost prediction for public school buildings in Jordan.
Construction Management and Economics, 14:4, 311-317.
Angelo, W.J. and P. Reina. (2002). Megaprojects Need More Study Up Front to Avoid Cost
Overruns. McGraw-Hill New York.
Doli A. (2011). The rising cost of building construction, Shelter for Nigerians. NIA Publication,
pp.18-19.
Fugar, F. D. K., & Agyakwah-Baah, A. B. (2010). Delays in building construction projects in
Ghana. Australasian Journal of Construction Economics and Building, 103–116.
Le-Hoai, L., Y.D. Lee and J.Y. Lee. (2008). "Delay and Cost Overruns in Vietnam Large
Construction Projects": A comparison with other selected countries. KSCE J. Civ. Eng.,
12(6): 367-377.
Olawale, Y. A., & Sun, M. (2010). "Cost and time control of construction projects: inhibiting
factors and mitigating measures in practice. Construction Management and Economics,
28(5), 509-526.

22
Appendix 2: Originality Report

23
24
Appendix 3: Grammer Checker Report

25
26
Appendix 4: Referencing Software Usage

27
Appendix 5: Data Collection Tools

28
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32
33
34
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38
Appendix 6: Journal Manuscript and Submission Process
Causes of Cost Overrun and Its Impact on Construction Projects in Addis
Ababa

Miheret Aniley

Department of Civil Engineering, Addis Ababa Science and Technology University, Addis
Ababa, Ethiopia;

Email:mihiret07@gmail.com

39
Causes of Cost Overrun and Its Impact on Construction Projects in Addis
Ababa

Abstract
The construction industry is a vital sector of the economy, but it is also one that is prone
to project cost overruns. Cost overruns occur when the actual costs of a construction
project exceed the original budget. These overruns can have a significant impact on the
project and its stakeholders. Cost overrun is one of the primary concerns in Addis Ababa,
given the country's limited financial resources. The main aim of this study was to
investigate the various factors affecting cost overruns in public building projects in Addis
Ababa and to examine their impact on stakeholders in the construction sector. The study
employed both quantitative and qualitative methods, including a literature review and a
structured questionnaire. Various factors affecting project cost overrun were identified
from the previous literature review. Data was collected using google forms and a
descriptive analysis of the data was made using SPSS data analysis software. A relative
importance index (RII) was calculated to determine the most important factors based on 5
Likert scales. The results showed that poor planning and scheduling was the major reason
for cost overrun, followed by inadequate material estimation and unreasonable delays.
The study also found that project delay was the most significant impact of cost overrun,
followed by contractor bankruptcy, decreased financial returns, and loss of reputation.
The paper concludes that addressing cost overrun is crucial for the construction sector
and the country's economy and provides recommendations for remedial measures.
Keywords: Cost Overrun, Cause, Impact, Construction, Public building.

(1) Introduction

In today’s construction industry, cost overrun is a very common phenomenon worldwide.

Because most developing countries spend a considerable amount of their GDP on construction
projects, it is critical to pay attention to the performance of projects in the sector to ensure
efficient use of tax payer’s money. The construction sector, like other industries, has key
performance indicators. Cost is one of these performance indicators, particularly for industry
initiatives. This is because every client or construction project sponsor wants the project to be

40
finished within a budget that has been established. In Ethiopia, a project is recognized as
successful if it is completed within a specified cost or budget, if it is put into service by a
particular date if it meets technical specifications, and if the project participants are very satisfied
with the project outcome. The current situation of Ethiopia’s construction industry falls short of
satisfying domestic and international quality requirements, as well as the sector’s performance
expectations. Building projects, in particular, have issues with construction processes and
administration, as well as budget and time constraints. The failure to execute projects on time,
poor quality work, and cost overruns are the most serious issues.
Cost overrun refers to the amount by which actual costs surpass the baseline or authorized
costs. The gap between the original cost and the final price is known as cost overrun. Project cost
overruns can have a significant impact on an organization, as they can lead to decreased profits,
increased debt, or a negative impact on reputation. It can delay the completion of a project,
reduce the overall quality of the finished product, and strain relationships between project
stakeholders. Additionally, cost overruns can also harm the reputation of the contractor or
developer. To prevent or mitigate project cost overruns, organizations may use various tools and
techniques such as project management methodologies, risk management, and cost control
measures.

1.1 Statement of the Problem

The construction industry is very big, difficult, and needs huge investments. It shares a
considerable amount of the country‘s scarce financial resources. However, project cost overrun is
one of the most prevalent problems in the construction industry today in Ethiopia. Taking into
account the scarce financial resources of the country, cost overrun is one of the major problems
in Ethiopia.

Time delay is frequently associated with exceeding budget, often leaving the construction project
in great trouble. In Ethiopia, the number of public building construction projects is increasing
from time to time. However, it becomes difficult to complete projects within the allocated cost
and time.

41
The causes of cost overrun are greatly varied, thus making the task of construction cost
management difficult for clients.

Thus, addressing this problem is vital to achieving sustainable growth and accelerated
development of the construction sector.

(2) Literature Review

Any country's growth is dependent on its construction industry. Buildings, highways, and
bridges can be used to calculate a country's economic development (Fugar, F. D. K., &
Agyakwah-Baah, A. B., 2010). Various parties, procedures, different phases and steps of work,
and a great deal of feedback from both the public and private sectors are all involved in the
implementation of a construction project, with the main goal of getting the project to a
successful conclusion Wang (1994). According to (Duncan 1990) Contractors play a critical
role in the completion of construction projects. Their key responsibilities begin when the
project hits the implementation point, which is when the project's actual work is completed.
When it comes to the building sector, project success is crucial. Client satisfaction and on-time
completion are often used as performance indicators. The effectiveness of construction projects
is determined by the ability of the construction project manager to fulfill his job functions with
the expected efficacy. According to Azeb (2016), a stakeholder is a person or community who
has a stake in or can affect, the construction project's success, whether they are within or
outside the project. Construction projects may have a variety of stakeholders, but for this
article, the stakeholders are limited to contractors.

2.1 Definitions of Cost Overruns

Cost overrun refers to the amount by which actual costs surpass the baseline or agreed-upon
costs. According to (Memon, March 2013) "Cost escalation," "cost increase," and "budget
overrun" are all terms used to describe cost overrun. Cost overrun is also described by Memon as
a percentage of actual costs over the project's projected costs, as shown below.
𝐀𝐜𝐭𝐮𝐚𝐥 𝐂𝐨𝐬𝐭−𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭
𝐂𝐨𝐬𝐭 𝐎𝐯𝐞𝐫𝐫𝐮𝐧 = (1)
𝐄𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝 𝐂𝐨𝐬𝐭

42
2.2 Major Causes of Cost Overrun

Cost overruns in construction projects have a variety of factors, some of which are not only hard
to forecast but also difficult to manage (Morris, 1991). Inflationary pressures, increases in
material prices and labor wages, difficulties in obtaining building materials, construction delays,
inadequacies in cost estimates provided by public agencies, and unexpected sub-soil conditions
were identified as the most significant sources of cost overruns in a study conducted in Turkey
by Arditi, et al, (2011). According to Robert, (2007), Project cost overruns are caused by
incomplete designs, a poor pre-planning process, rising material costs, a lack of timely options,
and excessive modification orders, according to project owners. According to Cantrell, (2007),
Poor project management, design revisions, unforeseen ground conditions, inflation, material
shortages, change in exchange rates, inadequate contractors, funding challenges, and so on are all
variables that affect the cost of construction projects over time. In developing countries,
Construction projects that are not properly phased can cause the economy to become
'overheated'. As a result, construction materials will be in short supply since demand will outstrip
supply.
1.1.1 2.2.1 The responsible parties to the causes of cost overrun

Construction cost overruns can be caused by a variety of factors, and different parties may be
responsible for these overruns. Some of the major parties that may be responsible for
construction cost overruns include:
 Owners/Clients: Contractors: Contractors may contribute to cost overruns by failing to

properly manage the project, underestimating the cost of materials or labor, or failing to

properly plan for potential complications.

 Architects and Engineers: Architects and engineers may contribute to cost overruns by

making design errors, failing to properly plan for the project, or failing to properly

coordinate with other parties involved in the project.

43
  Government Agencies: Government agencies may contribute to cost overruns by failing

to provide necessary approvals or permits promptly, or by imposing unexpected

regulations or requirements on the project.

 Financiers: Financiers may contribute to cost overruns by failing to provide sufficient

funding for the project, or by imposing unexpected financial constraints on the project.

2.3 Effects of Cost Overruns

Cost overruns have clear consequences for key players as well as the construction industry as a
whole. Cost overruns suggest additional costs beyond those previously agreed upon, resulting in
lower returns on investment for the client. If the contractor is found to be at fault, it can result in
a loss of profit as well as defamation, which could endanger future job opportunities. Cost
overruns could lead to project cancellation and a downturn in building construction, as well as a
bad reputation, trouble obtaining project funding, or acquiring it at higher costs due to increased
risks (Mbachu, et al., 2004). All of these implications jeopardize the construction industry's
viability and long-term viability. According to Arditi, et al., (2011). The consequences of cost
overruns are not limited to the construction industry but can reflect the status of a country's
broader economy. They claim that construction project delays and cost overruns prohibit the
expected rise in property and service production from occurring and that this occurrence, in turn,
harms the rate of national growth. Angelo and Reina, (2002), state that the issue of cost overrun
is essential, and more research is needed to find solutions in the future. Cost overruns can delay
payments and limit the client's or project owner's early return on investment.
2.4 The case of the Nigerian Building Construction Industry

The building construction industry is an important industry that plays a vital role in the socio-
economic growth of Nigeria. Economically, it contributes to significant improvement in the
overall GDP of the country. It also improves the quality of life by providing the necessary
infrastructure such as roads, hospitals, schools and
other basic and enhanced facilities. Hence, it is fundamentally crucial to make construction
projects complete successfully within time, budget, and expected quality. However, being a
complex, fragmented, and schedule-driven industry it always faces chronic problems such as low

44
quality of productivity, cost overruns, time overruns, construction waste management, and
others. Of these, cost overrun is a severe problem Olawale et al, 2010) because it affects the
overall development of the country. Cost overruns are a global phenomenon in the construction
industry where, very rarely, projects are finished within the budgeted cost. In a global study
(Flyvbjerg et al., 2003) on construction project performance, cost overrun was identified as the
major problem where 9 out of 10 projects faced an overrun in the range of 50 to 100% and these
overruns produce immediate effects on construction stakeholders and on the country's
economy (Azhar et al., 2010). This is because the construction industry plays a vital role in the
economic and social growth of any country. To prevent poor cost performance, it is often
required to evaluate a project's vulnerability of cost overruns before it is too late (Cha and Shin,
2011). According to Ibrahim et al. (2010), in Nigeria, very little research has been carried out by
academic and practitioners on problems faced by the construction industry; more specifically
there is lack of investigation on construction cost factors (Delivery et al., 2017).
(3) Research Methodology

3.1 Research Design

The study uses a survey research design that will allow the collection of data from the participant
directly through administered questionnaires; moreover, this design will enable the researcher to
capture the opinions, characteristics, and conditions of the study population. Also, this design
will be non-experimental because there will be no manipulation of variables.

3.6 Data Collection Tools

A questionnaire was used to collect the necessary information. To acquire the necessary data, 22
structured questions were prepared. The survey was broken into three sections. The first section
consisted of questions regarding the respondents' overall profile, information, and background.
The second section comprised questions concerning the key and significant causes that
contribute to cost overruns in Addis Ababa public building construction projects. The third
section consists of questions regarding the possible impacts of cost overrun. The questionnaire
was created with open and closed-ended questions in mind. These questions provided many
different responses, and the respondents were free to choose the one they thought was most

45
appropriate.
3.3 Method of Data Analysis

In the data analysis, descriptive and inferential statistics are used. Specifically, to analyze the
qualitative one, thematic analysis was applied to analyze and explain the results of the
questionnaire and discussion.

And the quantitative one has been analyzed based on all collective responses of groups of
respondents (contractors, consultants, and owners) to obtain significant results. The data were
analyzed by calculating the relative important index model to rank the hypothesized factors
based on their importance and frequency which is derived from the views of the respondents of
the three groups.

The data gathered through the questionnaire's closed-ended questions were analyzed using
explanatory statistics. Calculating the Relative Importance Index (RII) and ranking factors in
each group based on the Relative Importance Index.

(2)

Where w is weighting given to each factor by the respondent, ranging from 1 to 5. For
example, n1 = the number of respondents for strongly Disagree, n2 = the number of respondents
for Disagree, n3 = the number of respondents for neutral, n4 = the number of respondents for
agree, n5 = the number of respondents for strongly agree). A is the highest weight (i.e., 5 in the
study) and N is the total number of respondents.
(4) Results and Discussion

1.1 4.1 Response Rate

The questionnaire was prepared and sent through Google forms by technical means to three
contracting groups of the classmate, namely contractors, clients, and consultants, who are
currently working on public building construction sites including any other respondents who may
not work in the three parties. The project owners, consultants, and contractors engaged in the

46
construction of public buildings have certain roles and tasks, all of which are crucial to the
project's success. As a result, the research concentrated on the three major parties. Twenty-two
(22) questionnaires were given to the group of stakeholders after classifying respondents into
three groups. Out of the total of 17 participants in this research, 11(64.7%) of them responded to
the presented questionnaire. The majority (55%) of the respondents were Contractors followed
by Consultants (36%) and 9% from other groups.

Consultant

4
Contructor

3
9% other
36%

2
55%

OFFICE OTHER PROJECT SITE

ENGINEER MANAGER ENGINEER

Figure 1: Respondent’s category ratio

Source: own survey, 2023
1.2 4.2 Ranking causes of cost overrun Using RII

The relative impact of all cost overrun factors evaluated in this study is shown in the Table

below. Based on the ranking of the elements by the different classes, it was feasible to categorize

the most relevant factors that caused project cost overruns from the perspectives of the contractor

and consultant. A total of 22 factors identified in the literature that have a substantial influence

on building cost overruns have been researched and addressed. The RII value was used to

calculate it for each group of respondents as well as the total number of respondents. The total

and group-level RII of the variables that professionals perceive that influence their capabilities to

monitor and manage construction project costs are shown. Based on their overall RII, the

variables were ranked.

Table 4: Ranking of causes of cost overrun in group level RII

47
 I. Owner-Related Factors RII Rank
1. Increase in project volume/scope 0.76 3
2. Inflationary increase in materials price and scarcity 0.60 5
4. Lack of communication and coordination 0.75 4
5. Less follow-up of project progress 0.87 1
II. Contractor-Related Factors RII Rank
1. Poor planning and scheduling in construction Projects 0.89 1
2. Unreasonable delay 0.85 2
3. Financial problem usually between contractor and sub-contractor 0.76 4
4. Inadequate material 0.82 3

III. Labour Related Factors RII Rank

1. Less productivity 0.65 2
2. Project Budget 0.71 1
IV. Contract Management Related Factors RII Rank
1. Change Orders or Variations Orders 0.80
2. Change of consultants for design, supervision and contract 0.65
management
3. Low experience of project managers 0.80
4. Poor communication between major parties of the project 0.67
V. External Related factors RII Rank
1. Scarcity of utilities (water and electricity) 0.56 2
2. Force Majeure activities 0.49 3
3. Lack of Government control 0.64 1
Table 2: The main factors identified from each group
Factors RII Rank
Less follow-up of project progress 0.87 2
Poor planning and scheduling in construction Projects 0.89 1
Project Budget is affected by unskilled personnel. 0.71 4
Change Orders or Variations Orders 0.80 3
The low experience of project managers 0.80 3
Lack of Government control 0.64 5

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 Poor planning and scheduling

Less follow up of project progress

Unreasonable delay

0.89 Inadequate material estimation

Change Orders or Variations Orders

0.87 Low experience of project managers

0.85

0.82

0.8

0.8
R II
Figure 2: The five most important factors of cost overrun based on their RII Value
With an RII score of 0.89, the first most important factor was Poor planning and scheduling.
With an RII of 0.87, the second most important factor was less follow-up of project progress.
Unreasonable delays were placed third most important factor of project cost overrun with an
RII value of 0.85.
4.3 Ranking of Effects of cost overrun Using RII

Cost overruns can have significant impacts on various stakeholders. The RII is calculated by
multiplying the magnitude of the effect (i.e., the degree to which the cost overrun affects a
specific aspect of the project) by its probability of occurrence. Based on their overall RII, the
variables were ranked as shown in the table below.
Table 5: Ranking overall effects of cost overrun using RII
Effects of Cost overrun RII Rank
Decrease in overall financial returns 0.82 2
Delay in project completion 0.85 1
Contractor’s bankruptcy 0.85 1
Loss of the reputation of stakeholders by decreasing their credibility 0.78 3

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 Decrease in overall financial returns
Delay in project completion
Contractors Bankruptcy
Lose of reputation & decreasing credibility

0.85

0.85
0.82

0.78
R II

Figure 3: The prevalent effects of cost overrun based on their RII Value
The most commonly observed effect of cost overrun includes delay in project completion,
contractor bankruptcy, and a decrease in overall financial returns. The most important effect of
cost overrun was project completion and contractor bankruptcy with an RII score of 0.85. With
an RII of 0.82, the second most important effect was a decrease in overall financial returns. Loss
of the reputation of the contractor by decreasing their credibility was placed third most important
factor of project cost overrun with RII =0.78.
(5) Conclusions and Recommendations

5.1 Conclusion

Due to the scarcity of financial resources in developing nations like Ethiopia, cost-related
concerns in the building sector are sensitive. As a result, doing study in this field will be
extremely important. To prevent or eliminate cost overrun in the construction sector, it is
necessary to identify the sources of cost overrun. According to the findings of the study,
contractors are most often held accountable for cost overruns in the construction business, with
poor planning and scheduling trends. Cost overruns have several consequences for building
sector stakeholders. The most typical consequences of cost overruns in the construction business
include delay in project completion, contractor bankruptcy, a decrease in overall financial
returns, and loss of reputation.
5.2Recommendations

50
To minimize variations and late adjustments during the building phase, a detailed and complete
site study should be conducted during the design phase. Consultants shall avoid intricate designs
as much as feasible, and while attempting to attain aesthetic appeal, consider the issue of build
ability in the design. To eliminate communication gaps, implement effective information
retrieval and dissemination methods; answer as promptly as possible to contractor and client
inquiries and requests for clarification to avoid delays and uncertainty, which will result in cost
overruns.

Clients as one of the most significant parties that spend their money on the implementation of a
construction project, and they play a major role in the project's development, construction, and
operation. Clients are required to budget enough time to complete project briefings and other
feasibility assessments. Allow enough time for thorough feasibility studies, planning, design,
documentation, and tender submission. This helps to eliminate mistakes and omissions, which
helps to avoid or minimize cost overruns. Owners must fulfill contractual duties, particularly in
terms of payment for completed contractor work, settlement of consultant fee accounts, and
ownership of the construction site. Before projects begin, clients should verify that sufficient
funds are available to pay contractors in line with the contract agreement.

Contractors are one of the stakeholders that work directly on building projects, hence they are
required to collaborate with the customer to order building supplies and other goods ahead of
time and proactively solve problems and suggest solutions on building projects. To minimize
delays and, as a result, cost overruns contractors shall ensure effective time management through
adequate resource planning, duration estimation, and schedule preparation and control.

All stakeholders in the construction industry must work together to improve the sector's outputs
and ensure that it continues to expand healthily. Consultants, contractors, and customers, in
particular, must have a comprehensive approach to solving problems in the construction
business; they must get aware of the newest technologies and methodologies for problem
resolution and seek solutions proactively. It will need a collaborative effort from all stakeholders
to put the findings of building research into practice. Clients should budget enough time to
complete project briefings and other feasibility assessments. Allow enough time for thorough
feasibility studies, planning, design, documentation, and tender submission. This helps to

51
eliminate mistakes and omissions, which helps to avoid or minimize cost overruns.
References
Al-Momani, A. H. (1996). Construction cost prediction for public school buildings in Jordan.

Construction Management and Economics, 14:4, 311-317.

Angelo, W.J. and P. Reina. (2002). Megaprojects Need More Study Up Front to Avoid Cost

Overruns. McGraw-Hill New York.

Fugar, F. D. K., & Agyakwah-Baah, A. B. (2010). Delays in building construction projects in

Ghana. Australasian Journal of Construction Economics and Building, 103–116.

Le-Hoai, L., Y.D. Lee and J.Y. Lee. (2008). "Delay and Cost Overruns in Vietnam Large

Construction Projects": A comparison with other selected countries. KSCE J. Civ. Eng.,

12(6): 367-377.

Olawale, Y. A., & Sun, M. (2010). "Cost and time control of construction projects: inhibiting

factors and mitigating measures in practice. Construction Management and Economics,

28(5), 509-526.

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Appendix 6.2 Journal Submission Process

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54