Showing papers on "Cost overrun published in 2010"

Evaluation of Risk Factors Leading to Cost Overrun in Delivery of Highway Construction Projects

Abstract: Accurate owner budget estimates are critical to the initial decision-to-build process for highway construction projects. However, transportation projects have historically experienced significant construction cost overruns from the time the decision to build has been taken by the owner. This paper addresses the problem of why highway projects overrun their predicted costs. It identifies the owner risk variables that contribute to significant cost overrun and then uses factor analysis, expert elicitation, and the nominal group technique to establish groups of importance ranked owner risks. Stepwise multivariate regression analysis is also used to investigate any correlation of the percentage of cost overrun with risks, together with attributes such as highway project type, indexed cost, geographic location, and project delivery method. The research results indicate a correlation between the reciprocal of project budget size and percentage cost overrun. This can be useful for owners in determining more realistic decision-to-build highway budget estimates by taking into account the economies of scale associated with larger projects.

Hierarchical Structuring of PPP Risks Using Interpretative Structural Modeling

Abstract: Project risk management emphasizes the need to rank and prioritize risks in a project to focus the risk management efforts. This risk prioritization is of special significance in public-private partnership PPP projects, since project success depends upon the efficient allocation of risks to the party who can best manage it. Previous studies on risk identification and assessment of PPP project risks have only produced an unstructured list of such risks and prioritizing them on the basis of probability and impact. This paper suggests the use of interpretative structural modeling ISM to prepare a hierarchical structure as well as the interrelationships of these risks that would enable decision makers to take appropriate steps. MICMAC matrice d'impacts croises-multiplication applique a un classemen analysis is also done to determine the dependency and driving power of the risks. ISM, along with MICMAC analysis, provides a useful hierarchy of risks whose individual relationships are unambiguous but whose group relationships are too complex to organize intuitively and can help practitioners better understand risk dependencies and prioritize risk-mitigation efforts. This study identified 17 risks encountered during the development phase of PPP projects in Indian road sector and found that fourteen risks were weak drivers and weak dependents. Delay in financial closure, cost overrun risk, and time overrun risk have been found to have the highest dependence on other risks. The analysis can be extended by practitioners for risk analysis in other infrastructures such as railways, seaports, airports etc.

Significant Factors Causing Cost Overruns in Telecommunication Projects in Nigeria

Abstract: Information and Communication Technology (ICT) provides enormous benefits to economic development. However, cost overruns are a worldwide phenomenon and pose a serious threat to the development of telecommunication infrastructure, which is the platform for ICT. It is imperative to examine the possible factors that could lead to cost overruns, in order to avert the associated catalytic effects on the development of other sectors of the economy. This study involves a questionnaire survey of 42 factors that were identified as having the potential to cause cost overruns in 53 telecommunication projects that are scattered over the six geopolitical zones in Nigeria. The results indicated that construction-related factors top the list of categories that cause cost overruns in telecommunication projects. The following factors were identified as major causes of cost overruns and are ranked in their order of importance: the lack of contractor experience on the telecommunication projects, the high cost of imported materials and the fluctuation in the prices of materials that are necessary for the telecommunication projects. The study recommends that contingency provisions should be put in place to mitigate these factors at the project conception stage.

Cost performance for building construction projects in Klang Valley

Abstract: Since seventies, the economic of Malaysia has undergone rapid growth. Construction industry constitutes an important element of Malaysian economy. It shows how important to control and manage the projects in good quality and efficiently. There are four fundamental constraints needed to be considered when managing the construction projects, which are scope, cost, time, and quality. In order to manage the projects successfully, it is necessary to consider whether the project is within those four constraints. However, it found that there were many problems on cost performance in many countries. One of the major problems was cost overrun in construction projects. In Malaysia, the problem of cost overrun considered significance in construction industry. There were many factors that contribute to cost overrun in Malaysian construction projects. The factors might become risks and lead to negative effect to the projects. Hence, this research is to identify factors that contribute to cost overrun and potential measures to overcome the problem with the focus given to construction projects within Klang Valley. The method used in this research is quantitative based. A questionnaire survey conducted to collect data from the respondents that consisted of project manager, quantity surveyor, M & E Engineer, C & S Engineer, and other related respondents. Questionnaires were distributed to 30 respondents from construction firms in Klang Valley. Data collected form a database for analysis using Statistic Package for Social Sciences (SPSS) version 17.0. Descriptive statistics and ranking analysis were used in data analysis. The result shown that the most serious factor contributes to cost overrun was inaccurate or poor estimation of original cost and the factor do not affect most was mistake in design. The most important method to control construction cost is proper project costing and financing. On the other hand, the least important approach was establishing a system in design. In conclusion, the problem of cost overrun is not a small issue but could cause serious problems to the construction industry in Malaysia.

Three-Stage Least-Squares Analysis of Time and Cost Overruns in Construction Contracts

Abstract: Construction cost overrun and time overrun (delay) are a significant problem in highway-construction project delivery. Previous research studies have provided insight into the factors that affect overruns; however the findings may have been limited because they do not explicitly consider the simultaneous relationship between cost and time overruns. In this paper, we use data from Indiana highway projects to provide empirical evidence that a simultaneous relationship exists between cost and time overruns and that analysis of these two contractual outputs need to take due cognizance of such simultaneity. Using the three-stage least-squares technique, we identify a number of factors that significantly affect cost overrun and time overrun and we show how the effect of these variables vary by attributes such as project type and results of the bidding process. The models developed in this paper can help agencies enhance the estimation of the expected overruns of final cost and the delay in completion time for their planned projects.

Why Cost and Schedule Overruns on Mega Oil Sands Projects

Abstract: Developing and constructing oil sand megaprojects are huge technological, engineering, and construction achievements for Alberta and Canada. Thousands of engineering and project management professionals and workers are contributing to the current effort with great pride and sense of satisfaction. But recent large capital oil sands construction projects have all experienced significant cost and schedule overruns. There are a number of reasons for these overruns. This paper provides a definition of a “megaproject,” illustrates the challenges in delivering oil sands megaprojects, and lists a number of reasons for cost and schedule overruns.

Causes of variation orders in construction projects in the Gaza Strip

Abstract: The maximum project performance would be achieved if the work invariably flows smoothly within time limits and anticipated budget. Variation orders result in time delay, cost overrun, quality defects, and other negative impacts. This is common in construction projects in Gaza Strip. The main objective of this study was to analyze the causes of variation orders in construction projects in Gaza Strip. The causes of variation orders in construction process in Gaza Strip were investigated through questionnaire survey of 36 classified construction companies, 25 consultants and 15 owners. 64 causes of variation orders were identified from literature review. The study results identified the top ten most important factors that include lack of materials and equipment spare parts due to closure, change in design by consultant, lack of consultant's knowledge of available materials, errors and omission in design, conflicts between contract documents, owner's financial problems, lack of coordination among pro...

Contractors perception of factors contributing to project delay: case studies of commercial projects in Klang Valley, Malaysia

Abstract: Delay in construction projects is a situation where the project cannot be completed under the planned time. It is a common issue faced in the construction industry all over the world especially in developing countries. In the Malaysian construction industry, 17.3% of construction projects experience more than 3 months delay and some of them are abandoned. Hence, the study of factors contributing to delay is very important in order to reduce the number of projects that experience delay in project delivery. Three objectives of the research have been formulated, namely (1) to identify factors that contribute to delay in construction projects; (2) to analyse and rank the causes of delay rated by contractors; and (3) to study the effects of delay in construction projects. One hundred questionnaires were distributed during data collection stage and only 36 responses received. The respondents only consist of contractors and sub-contractors because the scope of the research focuses on contractors. perception. The data collected was analysed using SPSS software. Seven factors that contribute to delay were identified through literature review, namely contractors. financial difficulties, construction mistakes and defective work, labour shortage, coordination problems, shortage of tools and equipment, material shortage and poor site management. Of those factors, the three most important factors were found to be labour shortage, contractors. financial difficulties and construction mistakes and defective works. Besides project delay, the research shows that cost overrun and extension of time (EOT) are the most common effects of delay in construction projects. Keywords: Delay, Commercial Project, Construction Management, Malaysia

The accuracy of risk‐based cost estimation for water infrastructure projects: preliminary evidence from Australian projects

Abstract: Infrastructure projects are still being plagued by cost overruns, delays and revenue shortfalls despite decades of practice and research. Risk‐based estimating (RBE) is growing in popularity and has the potential to overcome the two main cost overrun factors—optimistic bias and strategic misrepresentation. Yet, little is known about the accuracy of RBE and its performance drivers. A comparison of water projects using RBE with a sample of construction projects using the conventional estimating approach shows that the projects estimated using RBE have better estimation accuracy than those estimated using more conventional approaches. In addition, the projects using RBE appear more likely to be under‐budget while the ones using the conventional approach appear more likely to be over‐budget. Further, through interviews and observations of the RBE process, three main performance drivers for the RBE method were identified to include outside view/collective experience, attention focusing and probabilistic, botto...

Probabilistic Approach for Budgeting in Portfolio of Projects

Abstract: This paper presents a mathematical model for calculating the budgetary impact of increasing the required confidence level in a probabilistic risk assessment for a portfolio of projects. The model provides a rational approach for establishing a probabilistic budget for an individual project in such a way that the budget for a portfolio of projects will meet a required confidence level. The use of probabilistic risk assessment in major infrastructure projects is increasing to cope with major cost overruns and schedule delays. The outcome of the probabilistic risk assessment is often a distribution for project costs. The question is at what level of confidence (i.e., the probability that budget would be sufficient given the cost distribution) should be used for establishing the budget. The proposed method looks at a portfolio of such projects being funded by the same owner. The owner can establish a target probability with respect to its annual budget. The model can help the owner establish confidence level ...

'Best practice' cost estimation in land transport infrastructure projects

Abstract: In the road transport sector, some projects, especially large scale or complex infrastructure projects run over budget. The cost overrun is mainly because cost computations do not consider uncertainty and risk elements inherent in the projects. This paper introduces the element of risk in the cost estimation of land transport infrastructure projects. The paper is structured on the recommendations from the Evans and Peck (2008a) report on ‘Best Practice Cost Estimation for Publicly Funded Road and Rail Construction’ undertaken and adopted by the Department of Infrastructure, Transport, Regional Development and Local Government (DITRDLG). The essentials of risk analysis are provided, including several issues encountered by practitioners. A comparison of the P50 versus P90 cost estimation, including discussions on how to deal with the current practice of pricing contingencies in project cost estimation is undertaken. With the use of a generic project example, an empirical application of the P50 and P90 cost estimation is demonstrated. This paper is intended to draw the attention of transport agencies to the Best Practice Cost Estimation (‘the Standard’) in the preparation of cost estimates for any proposed project(s) that require funding from the Australian Government.

11.4.2 Systems Engineering Return on Investment

Abstract: Research work continues into Systems Engineering Return on Investment (SE-ROI) following prior work on Value of Systems Engineering and Systems Engineering Effectiveness. This paper presents major results in the form of statistically proven relationships between systems engineering (SE) activities and the technical, schedule and cost success of programs. It has been found that all defined SE activities correlate positively with program success as measured in three of four success metrics used (cost overrun, schedule overrun and perceptive success). When the effect of program characterization parameters is included, the correlation is strong with optimum levels of SE activities as much as 25% of a program cost. The paper presents quantified values for the relationships, indicating appropriate levels of each SE activity that correlate to optimum levels of success. Results show a surprising lack of correlation between SE activities and the technical quality of the product system, for which some possible explanations are provided.

Risk Analysis of Infrastructure Projects: A Case Study on Build-Operate-Transfer Projects in India

Abstract: The growth of the infrastructure sector in India has been relatively slow compared to that of the industrial and manufacturing sectors. Energy shortage, inadequate transportation network, and insufficient water supply system have caused a bottleneck in the country’s economic growth. The Build-Operate-Transfer (BOT) scheme is now becoming one of the prevailing ways for infrastructure development in India to meet the needs of India’s future economic growth and development. There are tremendous opportunities for foreign investors in this field. However, undertaking infrastructure business in India involves many risks and problems that are mainly due to differences in legal systems, market conditions and culture. It is crucial for foreign investors to identify and manage the critical risks associated with investments in India’s BOT infrastructure projects. The main purpose of this paper is to investigate the critical risks associated with BOT projects in India. Based on a survey, the following critical risks, in descending order of criticality, are identified: delay in approval, change in law, cost overrun, dispatch constraint, land acquisition and compensation, enforceability of contracts, construction schedule, financial closing, tariff adjustment and environmental risk. The measures for mitigating each of these risks are also discussed. Finally, a risk management framework for India’s BOT infrastructure projects is developed.

Risk allocation and double moral hazard in construction contract

Abstract: In this paper, the contract schemes for construction projects in the developing countries are formulated in the form of an incomplete contract model, whereby the double moral hazard issues driven by the owners as well as contractors are investigated. The effort levels of the owners and the contractors are supposed to be unverifiable and mutually complementary with respect to costs risk reduction. It is shown that the moral hazard by the owner, who transfers the excessive cost overrun caused by the owner's indulgence to the contractor, may trigger the moral hazard by the contractor; thus, the moral hazard issues by the owner may lead to the overall inefficiency of the project. In this paper, the optimal risk allocation scheme between the owner in the developing countries and the contractor, which can deter the double moral hazard issues and enhance the project efficiency, is theoretically investigated.

Don quixote reborn? — Managing offshore wind turbine projects

Abstract: Offshore wind turbine power plants are expected to grow by 45% during the period 2009–2015. These large scale infrastructure energy projects are characterised by a number of risks. These projects are high-profile but at the same time, they suffer from time delay and cost overrun. They may trigger mechanisms such as scope creep and strategic political considerations similar to those found in other infrastructure investments, such as railroads, motorways, tunnels etc. This paper explores the possibilities of using “Reference Class Forecasting” (RCF) as a means to create a more precise and instrumental governance of these projects. RCF improves budgeting by identifying a relevant sample of previous similar projects, based on which a statistical distribution of outcomes for the reference class projects is generated. This method is officially endorsed by the American Planning Association. Using publicly available data, the paper analyses whether differences in geotechnical conditions, technological differences in turbines, towers, foundations, cables, installation methods and more variability of previous offshore wind turbine power plant projects justify classification into two reference classes. It is claimed that RCF and a life cycle scope are needed to improve future investments in offshore wind energy.

Towards a risk management framework for Libyan house-building projects

Abstract: Time and cost overrun problems are commonplace throughout the world in the construction industry. Libyan House-Building Projects (LHBP) experience the same dilemma and often to a greater extent. This is attributed to both unexpected and expected factors in which risk and uncertainty were not effectively dealt with. A focus on risk management is therefore necessary to improve the current project's poor performance. The purpose of this study is to provide a Libyan Risk Management Framework (LRMF) to improve the performance of the construction project management process in LHBP through investigating and analysing time and cost overrun causes. In addition, establishing a comprehensive risk response to eliminate or mitigate the major threats in these types of projects. The proposed framework will be developed to critically reflect a synthesis of the international risk management frameworks, the available literature regarding time and cost overrun factors, and expert's professional knowledge and expertise of working in the Libyan Construction Industry (LCI). The developed framework begins with risk identification which, in this particular work, was based on two means, namely: the review of previous published studies that are concerned with time and cost overrun in the construction industry; and semi-structured interviews and discussions with construction professionals. The main objective of this phase of research (first phase) was to gather a list of risk factors that could be responsible for time and cost overrun in LHBP. This list was further filtered, validated, and assessed through group discussion session conducted with a number of Libyan experts which represented the second phase of research. Based on the information obtained from the two earlier phases, a structured interview template was drawn up. This constituted the third phase of the study (i. e., the survey phase). Hence, a survey targeting construction professionals which comprises: local contractors; government officials; consultants; and international companies was carried out. A Kruskal-Wallis test has been used to test the variance in responses. The outcomes of this test revealed that, there is a consensus among the four construction-related groups with regard to assessing risk likelihood and risk consequences for the majority of the identified risk factors A statistical analysis has been employed to test the strength of relationship between the results of group experts and the findings of each individual group. Based on the results of Pearson's rank correlation test, it was concluded that there are strong associations between different groups on ranking the identified risk factors. The research outcomes concluded that "delays in progress payments causing cash flow problems to the contractor"; "shortage of skilled labour"; "unqualified decision makers"; and "slowness of the owner's decision making process causes suspension of work" were identified as the most important risk factors leading to construction delay and cost overrun in LHBP. Therefore, risk responses, in the form of recommendations to relevant parties, have been suggested to eliminate or mitigate these major threats.

Study on Cost Control System of Railway Construction Projects

Abstract: At present, being in a rapid stage of development, China Railway Construction requires substantial capital, which makes cost overrun received people's more attentions. In the paper, the factors affecting cost control in railway construction project are analyzed, a conclusion is obtained that effective cost control is not only from the micro-level in whole process of railway construction project, but also from the macro-level (institution) and meso-level (governance). A model of cost control from macro-meso-micro level of railway construction project is established.

Massive Cost Overrun to Webb Threatens Other NASA Missions

Abstract: A project intended to revolutionize astronomy now threatens to derail NASA9s entire space sciences program. An independent panel reported last week that overruns on the James Webb Space Telescope could reach $1.7 billion, bringing its total cost to as much as $6.8 billion. NASA officials and the U.S. astronomy community are now scrambling to find a way out of the mess, which could defer the telescope9s launch for up to 3 years, to 2017.

The Problem of Cost

Abstract: Cost is the management parameter that attracts the most attention in the organization and implementation of a project. As discussed in Chapter 2, the focus on costs is considered by some to be excessive relative to other parameters, such as project relevance. In the long-term view, it may turn out that cost overruns are only of minor importance in project profitability and benefit. Yet in other cases, cost overruns may comprise a death blow. Cost is eminently suitable as a management parameter, because it is expressed quantitatively with great precision and is continuously updated as a part of all transactions in a society. Costs are suited to making participants accountable, to gauging progress and result attainment and to comparing expenses with income to assess economic viability over time.