Cost Overruns Factors In Construction Industry of Pakistan

Cost is considered to be the prime factor for projects success, even if a project is complete it
will not be considered a successful project unless it satisfies the cost limitations decided for it.
Despite the proven importance of cost in the success of a project, we rarely come across a
projects without cost overruns. Cost overrun is now a phenomenon frequently associated with
almost every construction project.
Construction industry now-a-days is facing severe problems of poor cost management resulting
in huge amount of cost overrun. The problem of poor cost management and overrun in project
cost is serious issue in both developed and developing countries. This needs serious attention
for improving the construction cost performance as rarely projects are completed within
budget (Chimwaso, 2001).
Azhar, Farooqui, and Ahmed (2008) conducted a study to identify the major factors of cost
overrun in the construction sector of Pakistan and can also serve as a way forward for future
work in coping with these overruns.
The authors believe that the trend of cost overruns is more sever in developing countries and
Pakistan is no exception. According to Thungphanich (1997) these overruns, at times, exceed
100% of the allocated cost budget in developing countries. Hartley and Okamoto (1997) believe
that all construction projects that experience overruns, experience an increase of 33% on
average.
A thorough literature review highlights numerous factors that causes construction cost to be
higher than expected, of which; poor quality of material resulting in material loss is one major
factor. Expert opinions were also taken from developing countries which helped in identifying a
number of causes of cost overruns in the global perspective.
A sample of 31 construction firms were selected and approached via postal main and personal
interviews. The targeted sample were asked to rank the 42 factors identified from the expert
opinions and literature review. The respondents were asked to rank the initially identified
overrun factors according to their severity level on a given scale, information regarding
maximum-average-minimum cost overrun ranges, and overruns over large and small projects.
The response rate was 80.64%. The responses were collected and analyzed in two sections:
Cost Overrun factor analysis and existing cost overrun scenario.
42 Cost overrun factors were arranged into three groups: Macro Economic Factors,
Management Factors & Business and Regulatory Environment, for assessing the treatment
measures that can be applied to improve the overrun scenario.
The results highlighted 10 factors that cause cost overrun in construction projects, they are:
fluctuations in prices of raw material, unstable cost of manufactured materials, high cost of
machineries, lowest bidding procurement procedures, poor project management & poor cost

control, delays between design and procurement phases, inappropriate methods of cost
estimation, additional work, improper planning, and unsupportive government policies.
The results also highlighted another finding regarding cost overrun tendency of medium sized
construction firms, that they experience a greater percentage of cost overruns than small or
large firms because of their tendency to assume greater risk for the purpose of business
development.
The authors concluded that 88% of the cost overrun factors lie in the medium severity range,
these should be controlled and neutralized since they cause considerable cost overruns. Both
internal and external business settings cause the cost to increase, management related cost
overrun factors can be controlled and prevented easily as they are in-house factors, Macro
Economical factors have the most severe effect on cost, 10% increase in the estimated cost is
the minimum cost overrun range, and that the dysfunctional business and regulatory
environment requires drastic changes, and orthodox practice should be replaced by proven
ones.
Keeping the analysis and findings in mind, the authors recommend that to stabilize the cost of
materials, their supply must be in abundance and that the monopoly of few suppliers should be
dissolved. They further recommend that vigilant planning of the cost estimation process will
lead to smoother implementation and achievement of desired cost controls. The government
need to step in and up where and whenever necessary to ensure smooth implementation.
This study highlighted factors that cause cost overruns, future researches can be done on
remedial measures in order to bring the severity of these factors to an acceptable limit if not
eradicated completely. This study focused on contractors only, future researchers can include
other stakeholders in the sample to have their perspective on the issue. The frequency of
occurrence of the identified factors can also be researched upon in relation to their severity.