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ASSESSMENT OF COST-OVERRUN IN THE CONSTRUCTION INDUSTRY: A

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ASSESSMENT OF COST-OVERRUN IN THE CONSTRUCTION INDUSTRY: A

REVIEW
Abdulraheem Aliyyu Abiola

Department of building and quantity surveying, University of Abuja
Precious Oluwatofunmi Gbenga

Department of Surveying and Geo-informatics, Federal University of Technology
Abstract
The construction industry is pivotal in global economies, fostering infrastructure
development, job creation, and economic prosperity. Despite its vital role, construction
projects encounter a persistent challenge in the form of cost overruns, affecting both
developed and developing nations. This study conducts a comprehensive literature review,
centering on the construction industry, to examine cost overruns in-depth. Drawing from
diverse sources, including peer-reviewed articles and case studies, the research identifies
critical contributing factors such as technical intricacies, communication gaps, and
environmental influences. The ensuing discussion underscores the critical role of effective
project planning, consideration of weather impacts, and robust communication among
stakeholders in averting cost overruns. Furthermore, the study delves into the significance of
adopting advanced cost management practices, particularly knowledge management, to
address the multifaceted challenges encountered in construction projects. Case studies from
various regions offer nuanced insights, illustrating the diverse nature of cost overruns and the
practicality of control measures. In conclusion, the study advocates for proactive cost
management measures, emphasizing the augmentation of knowledge management and
communication strategies to mitigate the adverse impact of cost overruns. Through a
reflective approach that incorporates lessons from past experiences and embraces tailored
strategies, stakeholders can adeptly navigate the intricacies of construction projects, thereby
contributing to the sustainable development of the construction industry.
Keywords: Construction industry, Cost control measures, Cost overrun, Project cost
performance, Project planning
1.1 Overview of the Construction Industry

The construction industry, crucial to the economy, involves building, maintaining, and
repairing structures. It is a significant capital investment, providing job opportunities and
contributing to countries'
GDP (Faten et al., 2020). The industry encompasses designing, planning, constructing, and
maintaining buildings throughout their life cycle. The construction industry is one of the most
significant industries contributing to socio-economic growth, especially in developing
countries. The Nigerian construction industry is no exception (Saidu et al., 2017). The
construction industry has grown wealthy in the past year by building appropriate
infrastructure for ancillary sectors like health, education and transportation (Olanrewaju et al.,
2018; Liu et al., 2020). Fonseca (2018) acknowledged that the construction industry played a
substantial role in the socio-economic development of nations.
368
1.2 Project cost overrun

Cost overrun can mean the excess of actual costs over the approved budget. It is frequently
used in infrastructure, construction, or engineering projects (Quoc Vu et al., 2020). Cost
overrun, an increase or decrease in the budgeted cost, involves unexpected incurred costs
(Amini et al., 2023). These terms apply when these costs exceed budget due to
underestimating the actual cost during budgeting (Ankrah and Manu, 2023). Cost control aims
to monitor the formation of costs and expenditures during construction and provide solutions
to ensure the construction costs are within the approved budget (Kermanshachi and
Pamidimukkala, 2023). Cost control is an ongoing process to limit construction costs within a
budget without cost overruns (Tu and Giang, 2018).
In recent years, several studies have been conducted to identify influencing factors of project
cost overruns in the global construction industry. Derakhshanalavijeh et al. (2017) described
project cost overrun as the positive difference between the actual cost upon project
completion and the agreed estimation of the project budget. Andric et al. (2019) examined the
cost overruns in Asian infrastructure projects. According to their research, cost overruns are
as common as cost underruns, and the mean value of cost overruns (26.24%) is higher than
that of cost underruns (-12.24%). Cost overruns in infrastructure projects in Asia decrease
approximately every year. Railway projects are more prone to cost overruns than roads and
energy sector projects. Senouci et al. (2016), in their research on increasing terms and costs in
construction contracts in Qatar, showed that costs increased and deadlines extended.
Huo et al. (2018) researched the cost performance of mega transport projects in Hong Kong.
One of the essential conclusions of their research was that there was no significant statistical
relation between project size and the year of the decision to build on cost overruns.
According to Andric et al. (2019), the fundamental causes of cost overruns were the
increasing cost of resources construction materials, equipment, and labour), construction
works, changes in design specifications, land acquisition and resettlement, and changes in
currency exchange. Chen et al. (2019) identified the main reasons for cost overruns: delays in
the construction period, increased engineering quantity, and lack of technical skill and
experience. Controlling them can effectively prevent risk propagation to avoid cost overruns.
Researchers and practitioners have attempted to enhance construction project performance but
have not found a standardized solution (Spalek, 2014). Common issues in construction
include cost overruns and schedule delays (McCord et al., 2015). More than half of the
construction projects in Malaysia experience cost overruns, with the project type influencing
the extent of overruns (Shehu et al., 2014). Notably, the public sector experiences more minor
cost overruns than private enterprises, and nearly all substantial projects exceed the budget by
less than 10% (Shehu et al., 2014).
2.0 Methodology
This study employs a literature review to explore the overview of cost overruns in the
construction industry. A comprehensive search of scholarly databases, including Google
Scholar, ResearchGate and Google search, was conducted using keywords such as
"construction industry," "cost overrun," and "cost management." The inclusion criteria
focused on peer-reviewed articles and reputable reports from academic and industry sources.
The quality of selected literature is assessed based on source credibility, research
methodology, and relevance to the study's objectives. Overall, this methodology ensures a
rigorous and comprehensive examination of the challenges associated with cost overruns in
construction projects. This study aims to contextualize global insights into cost overruns and
contribute to a nuanced understanding of the factors influencing cost overruns and effective
management practices.
369
3.1 Causes for Cost Overruns

Studies have identified a broad spectrum of causes for cost overruns in infrastructure projects.
Faten et al. (2020) advocate for improving processes and methods in the initial phases to
minimize cost overruns. The findings extend across different phases of the project life cycle,
aiming for minimal cost overrun since 1985 (Durdyev, 2021). Research suggests that
identifying causal factors of cost overruns is crucial for improving project cost performance
(Durdyev et al., 2017).
Technical factors, including lack of experience, project size, design mistakes, overall price
fluctuations, and inaccurate estimations, lead to cost overruns (Memon et al., 2011). Olaniran
et al. (2016) deduced that up to 64% of new projects globally suffer from cost overruns.
Factors like project complexity, human resources, technology, structure, and culture generally
contribute to cost overruns in hydrocarbon megaprojects (Mashali et al., 2023). Nguyen and
Nguyen (2020) assessed 28 risks for design-build projects in Vietnam, identifying delays in
project approval, interest rate fluctuations, and technical specification deficiencies as the three
most important.
Al-Hazim et al. (2017) investigated determinants of cost overruns, identifying inaccurate
quantity take-off, material price fluctuations, inadequate review of contract documents, cost
underestimation, lack of coordination at the design phase, delayed supply of raw materials and
equipment, inaccurate evaluation of project time duration, lack of cost planning or monitoring
during pre and post-contract stages, and lack of experience of technical consultants as the
main barriers to cost overruns.
Effective project planning, considering possible obstacles throughout project milestones, is
crucial for success (Durdyev et al., 2018). Conversely, poorly planned projects face
consequences such as project delays (Durdyev and Hosseini, 2019). Alfouzan (2013) notes
various factors leading to cost overrun in construction projects in KSA, including decision-
making regarding tenders based on contractor size, classification status, and the type of main
client, corruption in selling lands, and the government's poor role in monitoring materials
prices.
Durdyev et al. (2017) highlight weather as a significant causative factor which is experienced
by certain countries. Infrastructure projects are potentially subject to similar weather
conditions (Lind and Brunes, 2015). Santoso and Soeng, (2016), opine that work interruption
due to severe weather conditions, causing a significant loss in work rhythm, especially in
projects involving mainly open-space activities, such as transportation projects. Detailed
project planning, incorporating any weather impacts, is required (Ballesteros-Pérez et al.,
2023). Any delays and subsequent project cost overruns should be included in contractual
agreements between project stakeholders (Lessing et al., 2017).
Effective communication among construction stakeholders is crucial for project success
(Wang et al., 2020). Bad communication ranks among the top factors causing project cost
overruns, attributed to the fragmented structure of the construction industry (Durdyev and
Hosseini, 2019). The scarcity of proper information flow leads to conflicts and disputes
among stakeholders, influencing project schedule performance (Naveed and Khan, 2022).
Communication plays a vital role in project management (Pham et al., 2019). Poor
communication affects project progress and the quality of duties executed by subcontractors
(Suleiman, 2022). Contractors failing to provide adequate information may be responsible for
compensating subcontractors. Shanmuganathan and Baskar, (2015), mention that junior
factors causing cost overruns in India include incomplete initial designs, poor contracts,
ineffective construction management, poorly established cost control systems, poor project
and site management, poor cost control, additional work, improper planning, and changes or
discrepancies during the construction period.
370
Yakoub, (2016), identified several junior causes of cost overruns in Egypt, including changes
in project scope, material prices, poor estimation of project cost, additional works at the
owner's request, donor policy favoring the lowest price in bidding, fluctuations in the cost of
building materials, delay in project completion time, fraudulent practices, kickbacks,
corruption, economic instability, and political insecurity. Client actions, such as delays in
approval, frequent changes in design and scope of work, delays in payments, prior approval of
the budget, and a short period for project completion, can also contribute to cost overruns
(Idrees and Shafiq, 2021). Delays in dealing with design changes, where owners were
ineffective, resulted in longer times for approval of design changes, impacting contractors'
initial construction plans, and causing cost overruns and delays (Pham et al., 2020).
3.2 Cost Overun Control

Construction project cost overruns stem from many factors, with some within control and
others beyond control (Alshihri et al., 2022). Therefore, cooperation among all parties
involved in the project is essential to mitigate the negative effects of cost overruns (Faten et
al., 2020). Rahman et al. (2013), used a statistical method to identify causes, highlighting the
major importance of site management factors. They suggest that improved site management
and supervision of contractors can help control cost overruns.
Faten et al., (2020), emphasized the importance of providing necessary financing for the
project before awarding it, reducing many causes of cost overruns for both the owner and
contractor. Accurate designs and tender documents, reviewed by specialists after completion
by the design team, improve cost performance in construction projects.
Avoiding deficiencies in project planning involves having a master plan that outlines a
breakdown of project activities at every stage, from conceptualization to project closeout (Al-
Keim, 2017). Without this basic data, reference class forecasting becomes challenging, and
organizations should be able to present past project costs and reasons for cost overruns.
Brunes and Lind, (2013), illustrated a framework for this purpose, emphasizing the
importance of knowing who was responsible for specific tasks to determine a track record.
Even if the questionnaire does not give a strong for the idea of increasing individual
consequences of cost overruns, this aspect seems important from a
transaction cost theory perspective where individual utility maximizing based on expected con
sequences is a fundamental idea.
Knowledge management is a growing area in many sectors of the economy Ilina, (2010), for
an overview knowledge management from the perspective of cost overruns it concerns:
i. Systematic evaluation of earlier projects and finding patterns that can make it easier to see
what can lead to cost overruns in specific projects and what can be done to avoid this in
coming projects. This is of course the core aim in reference class forecasting.
ii. Collecting information about other organizations' experiences, e.g., traffic agencies in other
countries.
iii. Recruitment of staff with the right combination of training and experience.
iv. Policies to develop the competence of the staff. Increased competence was also seen as
important by many respondents in the questionnaire.
Lili, (2016), exemplified that, the specific cost management practices that must be followed
are:
i. Make a reasonable construction period, reasonable prediction of the construction period
ensures a smooth implementation of the project, improves construction efficiency, and
ensures project quality and economic benefits of the enterprises.
371
ii. Allocating human resources scientifically. In view of the uneven technical level and
comprehensive quality of the labor forces, it is necessary to screen and allocate human
resources reasonably, control construction pace and quality strictly, eliminate waste, and
control the construction cost-effectively in the construction site.
iii. Control use of building materials accounts for as high as 70% of the total project cost, so
reasonable control of the price and use of raw materials is a major content of project cost
control, specifically purchase, transportation, and use of building materials should be
supervised and checked strictly, reasonable price of materials confirmed, use of material
controlled properly, so as to reduce the building cost and control the project cost.
iv. Beneficial control of issuing the certificate and design modification. In construction
practices, changes in design schemes and construction plans are inevitable, which results in
extra expenditures, so these changes should be considered in advance to make a reasonable
budget.
As noted by Otim et al., (2016), controlling project cost involves various techniques such as
examination of works, site gatherings, recordkeeping, work programs, assessment of
completed works, project budget analysis, and checking work and cost performance.
3.3 Cost Management

Management, defined as the process of administering and controlling the affairs of an
organization, encompasses planning, organizing, leading, and controlling efforts to achieve
organizational goals (Stoner and Wankel, 1986). It involves creating and maintaining a
conducive business environment where members can work together to efficiently and
effectively achieve business objectives (Northouse, 2013). The functions of management
include planning, organizing, staffing, and controlling, with project planning and control
being vital for project success (Turner and Zolin, 2012). Poor management of client
requirements and expectations at the design stage, along with a lack of integration in project
systems design, contributes to cost overruns (Jallow et al., 2014). Cost overrun refers to an
escalation in project costs beyond the budgeted level due to an underestimation of real
budgeting costs (Omini et al., 2017). Financial difficulties, late client payments, and
corruption are identified as key causes of increased construction costs (Niazi and Painting,
2017). Cost, defined as the price or money required for goods and services, is influenced by
financial problems leading to payment delays, particularly in politically unstable and
economically challenged countries (Seddeeq et al., 2019). Siraj and Fayek, (2019), identified
factors like changes to the plan, lack of experience, unfavorable climate conditions, and
uncertainty in material prices as contributors to cost uncertainty in construction projects. Cost
management is essential to ensure planned development aligns with the client's anticipated
budget, providing value for money (Potts and Ankrah, 2014). The process involves overseeing
the design and procurement of a project, ensuring construction costs remain within the client's
anticipated limits (Johnson and Babu, 2020).
Cost management practices involve managing costs in a manner unique to an organization,
particularly within the context of a construction organization (Potts and Ankrah, 2014).
Challenges arise when senior managers of property development projects struggle to control
project time and cost-effectively (Elmualim and Gilder, 2014). Ineffective coordination and
communication among stakeholders hinder the establishment of shared project objectives,
contributing to difficulties in managing costs (Elmualim and Gilder, 2014). While previous
studies on schedule delays lacked effective recommendations for senior managers and
practitioners, adopting advanced construction technology does not negate the industry's
reliance on the skills, experience, and competence of its employees (Al-Sehaimi et al., 2013).
372
3.4 Cost Management in Construction Firms

Despite the advanced construction technology used for various purposes in the construction
industry (Cho et al., 2018), the industry continues to rely on the skills, experience, and
competence of employees it has also recruited for various purposes (Troje and Kadefors,
2018). For instance, in one of the recent studies (Durdyev et al., 2018), it is reported that
regardless of skill or competence, the overall performance of a construction worker eventually
affects project productivity performance at the national level (Ozturk et al., 2019).
Project cost management is the process of monitoring, tracking, and controlling the actual cost
of any construction project. This includes:
i. Monitoring cost performance
ii. Ensuring all changes are correctly submitted
iii. Announcing any changes and impact on costs to project stakeholders
The urgency of environmental sustainability in construction introduces challenges related to
costs, lack of experience and knowledge, technical problems, and new technologies
(Opoku et al., 2019). Overcoming these barriers requires collaboration among designers,
stakeholders, consultants, contractors, and suppliers throughout the project cycle, from the
initial phases to the end life of buildings (Wibowo et al., 2018).
In construction projects, two types of costs are considered: direct and indirect costs (Okonkwo
et al., 2023). Direct costs involve the money spent directly on project completion, such as
materials, equipment, and labour. Indirect costs cover the money spent to support the indirect
completion of the project, including office costs, salaries, and general administration (Del
Pico, 2023). Viewing costs at different stages with ongoing processes involves understanding
planned and estimated costs, which represent the sum of direct and indirect costs over a given
period (Venkataraman and Pinto, 2023). Actual costs, on the other hand, represent the sum of
committed direct and indirect costs during the activity's duration (Potts and Ankrah, 2014).
3.5 The Imperative Role of Cost Management

The construction industry's extensive utilization of the world's resources necessitates effective
cost management (Sertyesilisik, 2017). Emphasizing the significance of cost management is
crucial, as it establishes the baseline for project costs (Dang-Trinh et al., 2023). Effective cost
management ensures that a project adheres to its budget and aligns with its planned scope
(Tembo et al., 2023). In the absence of cost control, companies face potential financial losses,
and costs may surpass project profits.
3.6 Cost Budgeting and Control

Budgeting involves translating an organizational plan into tangible form by allocating
resources, typically in the form of cash (Ismael and Shealy, 2018). The complexity, lack of
experience, and integration of new technologies contribute to uncertainty in sustainable
projects. A budget consists of two facets: Expenditure and Revenue (Saleem and Ali, 2023).
Similar to how budgets guide a country's economy, firms, grappling with the increasing
complexity in the construction industry, adopt budgeting as a strategic practice. Budgets serve
as instrumental tools for executing plans and converting policies into qualitative and monetary
terms that underscore the firm's fundamental objectives (Olumide, 2023). The process of
budget estimates aids firms in deciding on expansion, contraction, or maintaining the status
quo. Cost control involves the practice of identifying and reducing business expenses to
augment profits, commencing with the budgeting process (Babajide et al., 2023). This process
holds significance in sustaining and advancing profitability. Several studies have affirmed a
direct correlation between construction productivity and project cost performance
(Haugbolle et al., 2019).
373
In project management, effective cost control is challenging, given the unpredictable nature of
forecasting and managing project costs (Ankrah and Manu, 2023). Despite frequent reports of
construction projects exceeding budget and timeline expectations, such occurrences are
preventable with robust cost management strategies (Kwon and Kang, 2019).
4.0 Discussion
The examination of cost overruns in the construction industry reveals a complex interplay of
factors that significantly impact project outcomes. Key causes identified in the literature
encompass technical, environmental, and managerial aspects. Technical factors, including
design mistakes and inaccurate estimations, contribute to budgetary deviations.
Environmental factors, notably adverse weather conditions, pose challenges to project
timelines. Managerial issues such as poor communication and deficient project planning
compound the risk of cost overruns. The literature underscores the global prevalence of cost
overruns, with studies spanning regions like Asia, the Middle East (Qatar), and Africa
(Nigeria and Egypt). The consistency of these findings emphasizes the need for a nuanced
understanding of the diverse contexts in which construction projects unfold.
Furthermore, the study brings attention to the impact of cost overruns on various project
stakeholders. Contractors, subcontractors, and clients bear the brunt of unexpected expenses,
leading to disputes and delays. The public sector appears to exhibit better cost control
compared to private enterprises, hinting at potential lessons that can be derived from public
project management practices. Addressing the identified causes requires a multifaceted
approach. Effective project planning emerges as a linchpin in cost control, encompassing
elements like accurate estimations, comprehensive risk assessments, and the integration of
weather considerations. Improved communication among stakeholders is highlighted as a
pivotal strategy, with the fragmented nature of the construction industry identified as a
significant hindrance to effective information flow. The significance of knowledge
management becomes apparent in the discussion, emphasizing the need for systematic
evaluation of past projects, learning from experiences in other organizations, and the
continuous development of staff competence. Case studies provide real-world illustrations of
successful cost management strategies, offering valuable lessons for practitioners and
policymakers.
5.0 Conclusion
In conclusion, this comprehensive study sheds light on the pervasive challenge of cost
overruns in the construction industry, emphasizing the intricate web of factors contributing to
budgetary deviations. The research, spanning diverse regions and contexts, underscores the
universal nature of this issue and the imperative need for tailored solutions. The construction
industry, vital to global economies, faces persistent hurdles in managing project costs
effectively. The identified causes, ranging from technical intricacies to environmental
uncertainties and managerial deficiencies, highlight the multifaceted nature of the problem. It
is evident that a one-size-fits-all solution is elusive, given the diverse landscapes and project
types inherent in the construction sector.
The impact of cost overruns on various stakeholders, from contractors to clients, calls for
urgent attention to mitigate disputes and delays. The public sector's comparatively better
control over costs offers insights that private enterprises can potentially leverage. This
dichotomy prompts a deeper exploration of successful practices in public project management
that may be transferrable to the private sector. Effective cost control strategies emerge from
the discussion, emphasizing the pivotal role of project planning, improved communication,
and knowledge management.
374
The case studies provided offer practical illustrations of successful cost management, serving
as valuable benchmarks for future projects. Looking ahead, a proactive approach is
paramount. Continuous learning from past experiences, collaborative knowledge sharing, and
adaptive project planning are crucial components of a resilient cost management framework.
The construction industry must strive for enhanced communication channels and the
integration of advanced technologies to navigate the complexities of project execution
successfully.
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ASSESSMENT OF COST-OVERRUN IN THE CONSTRUCTION INDUSTRY: A

Conference Paper · January 2024

Aliyyu Abiola Abdulraheem Precious Oluwatofunmi Gbenga

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December 11-12, 2023 / Diyarbakır, Türkiye

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ASSESSMENT OF COST-OVERRUN IN THE CONSTRUCTION INDUSTRY: A

Abdulraheem Aliyyu Abiola

Precious Oluwatofunmi Gbenga

1.1 Overview of the Construction Industry

1.2 Project cost overrun

3.1 Causes for Cost Overruns

3.2 Cost Overun Control

3.3 Cost Management

3.4 Cost Management in Construction Firms

3.5 The Imperative Role of Cost Management

3.6 Cost Budgeting and Control

Suleiman, A. (2022). Causes and effects of poor communication in the construction

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