Thesis on the Respondent’s Perception on Cost Overrun Mitigation Measures in the Construction industry Projects: Galliford Try, UK Case Study
Industries specializing in construction projects significantly contribute to development of economic growth in any country. Recent studies have shown that construction industry is becoming among the leading industries across the world. Construction projects are increasingly becoming more complex which indicates that there is rising demand for construction managers who are able to deliver projects within estimated budget, with expected quality and on time. Among the major challenges facing construction industry in both developing and developed countries is the problem of cost overruns which is chronic. Cost overrun can also be referred to as budget overrun or cost increase and entails costs incurred which exceed projected amount as a result of underestimation of actual cost in the process of budgeting. Flyvberg et al., (2002) did comprehensive study and found out that 9 out of 10 construction projects registered cost overrun. It means the cost overrun problem is a key factor that deserves serious attention and studies in order to mitigate its effects on future construction projects. There are two main categories of incidences causing cost overruns – those attributed to forces beyond the control of management, and those attributed to poor planning and management of resources. There’s little management can do over incidences that are beyond its control but for everything else, it is important for project management to do everything within its scope of power to exercise control over cost performance of construction projects to make sure that the construction cost is not beyond projected budget. Hence project cost management is necessary for keeping construction projects within their defined budget.
For a project to be said to be completed successfully, it must have been done within budget. Niazi and Painting (2017) note that a construction company’s productivity is known through its cost management of projects. To know the cost overrun of a project, find the difference between the estimated planned cost and actual cost on project completion. Since costs have a direct correlation with cost overrun, the project work unit’s cost consists of various cost elements which include plant and machinery costs, material costs, labour costs, and administration costs among other expenses.
1.1 Sources of Cost Overrun
As Aljohani et al. (2017) observed that 90% of projects end up being cost overrun. Their study found at least 173 causes of cost overrun with the main culprits being finances, design changes, payment delays, contractor inexperience, poor cost estimation, poor material purchasing, and management. Olawale and Sun (2010) highlighted that cost overrun as a rule in the construction industry applies to construction projects in UK. For example, Kunda, Barley, and Evans (2002) listed major important projects undertaken in UK which suffered cost overruns. Construction of new office of parliament situated proximally to the House of Parliament and which was considered as among the most expensive buildings constructed in the UK encountered cost overruns. The cost overruns encountered were attributed to delay in approval of costs and designs, inflation changes and problems of underground stations located under the construction site. Another construction project whose final cost was thrice of the base budget is the British Library which was constructed in 1998.