This study examined the causes of cost overruns in building construction industries. Specifically, the study examined the profile characteristics of the building construction project workers, examined also the nature of cost overruns in building projects execution in Nigeria, identified the main causes of cost overruns on building construction projects in Nigeria, ascertained the effects of cost overruns on building construction industry and on the economy of Nigeria, in general and determined the factors that can prevent cost overruns in public building construction projects in Nigeria. Multistage sampling technique was used to select a sample of 100 building construction project workers. Data were collected using structured questionnaire and were analysed using mean, frequency counts and percentages. Results showed that 80% of the workers were males, 54% were between the ages of 26 – 35, and 80% were married, 85% had secondary and tertiary education. The result also showed that cost overruns occur when there is an underestimation of actual cost during the budgeting of the building construction project (X = 2.19), when cost escalation occurs due to factors such as inflation (X = 2.28), when construction projects are not completed on time, within budget and with the appropriate technical or quality performance (X = 2.46), and when there is an extra cost incurred beyond the contractual cost agreed during the tender stage of the project (X = 2.23). The results also showed that the effects of cost overruns on the building construction and on the Nigerian economy in general include added cost over and above those initialy agreed upon by the client (X = 2.40), less returns on investment on the part of the contractor (X = 2.39), higher prices to the end user (X = 2.38), tarnishing of the reputations of the professionals (X= 2.15),and loss of profits for the contractor (X = 2.40). The effects on the construction industry is project abandonment and drop in building activities (X = 2.48), The results also showed that the factors that can help reduced or prevent cost overruns in public building construction projects in Nigeria include the application of project management scheduling tools (X = 2.68),working strictly within the scope originally planned for a project (X = 2.60), planning projects properly before the commencement of project execution (X = 2.58), selection of contractors with adequate experience/ the financial ability to handle building construction projects contract ( X = 2.33) and ensuring that communication gaps do not exist between the stakeholders of the building construction projects (X = 2.35). The study therefore, recommends that building construction projects delivery decision makers should endeavour to implement the findings of research in order to encourage project execution success.
1.1 Background of the study
Cost overrun is a global phenomenon in the construction industry where very rarely projects are finished within the budgeted cost. In a global study on construction project performance, cost overrun was identified the major problem where 9 of 10 projects faced the overrun in the range of 50 to 100%. The problem of cost overrun in the construction industry is a global phenomenon (Ameh et al. 2010). Many factors are responsible for these cost overruns such as underestimation of costs to make the projects more viable, addition of scope during later stages of project planning and even during construction, changed conditions, etc. One of the most important contributing factors to the magnitude of cost overrun in large transportation projects are project delays. Furthermore, the length of project development phase from planning to construction seems to be a major factor in the extent of cost overrun (Touran and Lopez, 2006).
In today’s construction industry, cost overrun is a very common phenomenon worldwide. The problem of cost overrun is critical and needs to be studied more to alleviate the issue (Angelo and Reina, 2002). In a study conducted by Omoregie and Radford (2006), it was reported that a minimum average of cost escalation in construction projects in Nigeria is 14% every year. Cost overruns in building construction projects can occur due to various causes, and a number of researchers have investigated the various causes of cost overruns. For instance, Ameh et al., (2010) in his study investigating 42 cost overrun cases, found that lack of experience of contractors, cost of material, fluctuation in the prices of material, frequent design changes, economic stability, high interest rates charged by banks on loans and mode of financing, bonds and payments as well as fraudulent practices and kickbacks were dominant factors causing cost overruns in Nigeria. Doloi (2011) found out in his work that factors causing cost overruns in construction projects in Nigeria were increment of materials prices, delay in supply of raw materials and equipment by contractors, fluctuations in the cost of building materials, unsettlement of the local currency in relation to dollar value, project materials monopoly by some suppliers, resources constraint of funds and
associated auxiliaries, not being ready, lack of cost planning/monitoring during pre-and post-contract stages, improvements to standard drawings during construction stage, design changes and inaccurate quantity take-off. The problem of cost overruns is not only a Nigerian thing. It is a problem worldwide for example, Le-Hoai et al. (2008) found out that poor site management and supervision, poor project management assistance, financial difficulties of owner, financial difficulties of contractor, design changes were most severe and common causes of cost overrun in Vietnamese construction industry. Also, Memon et al. (2010) investigated large projects in Malaysia and found out that cash flow and financial difficulties faced by contractors, contractor’s poor site management and supervision, inadequate contractor experience, shortage of site workers, incorrect planning and scheduling by contractors were most severe factors that cause cost overruns, while changes in scope of project and frequent design changes were least affecting factors on construction cost. Koushki et al. (2005) studied private residential projects in Kuwait and concluded that contractor related issues, material related problems and financial constraints were major reasons of cost overruns.
Cost is one of the primary measures of a project’s success. This is true, especially for public projects in developing countries like Nigeria, because public construction projects in these countries are executed with scarce financial resources. Most literature review on construction projects suggested that the common criteria for project success are generally considered to be cost, time and quality Frimpong et al, (2003). A project is deemed successful if it was completed on budget, on schedule, conformed to user expectations, met specifications, attained quality of workmanship and minimized construction aggravation Olawale et al., (2010). Generally, a project is considered successful in Nigeria if the project is completed within a stated cost or budget, getting the project into use by a target date, meets the technical specification, and if there is a high level of satisfaction concerning the project outcome among the project participants.
1.2 Statement of the problem
In Nigeria, the present state of the construction industry falls short of meeting domestic and international quality standards and the performance demand expected from the sector. Construction projects especially building projects, have problems with construction techniques and management as well as limitations of funds and time. The critical problems are inability to complete the projects on schedule, low quality work and cost overruns.. In general, most (if not all), construction projects experience time overrun and cost overruns during their execution phase. An examination of the records of more than four thousand construction projects by Morris et al, (1990), showed that projects were rarely finished on time or within their allocated budgets in Nigeria.
Based on the above previous study the seeds of present study were attempting to find major influencing factors or bottlenecks that affect the occurrences of cost overrun in construction project. It is believed that the challenges for cost overrun were indicated socio political factor due to political interference and instability, economic factor due to economic instability, exchange rate fluctuation, fluctuation in raw material price, managerial factors due to delays in decision making process, poor project management leadership style and owners interference, construction techniques and design factor due to frequent design change, design error and mistakes, incomplete design at the time of tender, deficient design and delays in design process and risk management strategy and time lines of payment and financial factor due to delay in progress payment by clients, poor financial control on site were identified as causes of cost overrun in public construction project. To facilitate the present study, the researcher examining the factors that leads to cost overrun in public construction project. Thus, the first motive to undertake this research was to fill the research gap that were not addressed by any one of the earlier studies,specifically problems associated with cost overrun in public construction project in Imo state. Therefore, this study were prove critical in bridging the knowledge gap by identifying the cases of cost overrun and facilitate appropriate measures to avoid the problem and attempts to provide answers for the following basic research questions; In privies most studies focused on factors leading to cost overrun occurrence in construction project in developed and developing country. There was little study was conducted in sub Saharan country especially in Nigeria, however there was an attempt made on other regional and national levels. Therefore, this study may prove critical in bridging the knowledge gap by identifying the factors that cause cost overrun on public building construction project.
1.3 Objective of the study
The main objective of this study is to critically review the causes of cost overrun in construction industries in developing countries. Specifically, the study aims to:
- examine the profile characteristics of the building construction project workers,
- examine the nature of cost overruns in building projects execution in Nigeria,
iii. identify the main causes of cost overruns on the building construction projects in Nigeria,
- ascertain the effects of cost overruns on the building construction industry and on the economy of Nigeria in general,
- determine the factors that can help prevent cost overruns in public building construction projects in Nigeria.
1.4 Research question
The following research questions will be answered by the study in order to achieve the research objectives
i. what is the profile characteristics of the building construction project workers ?
- What is the nature of cost overruns in building projects execution in Nigeria ?
iii. What are the main causes of cost overruns on the building construction projects in Nigeria ?
- What is the effects of cost overruns on the building construction industry and on the economy of Nigeria, in general ?
- what are the factors that can help prevent cost overruns in public building construction projects in Nigeria ?
1.5 Significance of the study
The Nigerian construction sector is facing some challenges in which a greater percentage of the problems are management oriented. It is therefore important to plan and ensure due process in the cost overrun construction projects so to achieve the best practice and quality delivery of the products. Also, this research work will enable the entire construction actors (i.e clients, contractors and consultants) to be able to appreciate the importance of best practice of construction management in Nigeria right from the design stage to the commissioning stage.
1.6 Scope of the study
This research work is designed to critically review the causes of cost overrun in construction industries in developing countries. The study will be carried out in construction industries in Imo state Nigeria. The study could not cover other states due to in-adequate disclosures in the cost overrun from these states.
1.7 Limitation of the study
In the process of carrying out this study, the following problems were encountered by the researcher, this includes:
– Time Factor:– The time within which this work must be completed and submitted for appraisal stood as an impediment to this project work.
– Financial Resources:– Due to lack of finance at the disposal of the researcher, affected the quality of this work, cause my sponsor(parents) prefers to spend money on my younger once admission into the University recently (2019/2020) academic session) rather than devoting huge financial resources on this study that will be of economic and academic importance in years to come.
1.8 Definition of terms
For the clarity of this study, some basic terms have to be defined in the context, they are used in this study, they are:
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost.
A cost overrun, also known as a cost increase or budget overrun, involves unexpected incurred costs. When these costs are in excess of budgeted amounts due to an value engineering underestimation of the actual cost during budgeting, they are known by these terms.
Construction is a general term meaning the art and science to form objects, systems, or organizations, and comes from Latin constructio and Old French construction. To construct is the verb: the act of building, and the noun is construction: how something is built, the nature of its structure.
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