Cost Overrun ppt.pptx

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Factors of ost Overrun

in onstruction Industry



Group Members

Mian Hassan Naveed

Siddra QayyumKhadija Mawra

Saddam Hussain



Introduction to Cost

Overrun Cost overrun is the major Problem in construction

industry in developing countries as well as indevolved countries

Cost overrun found 50% to 100% were common,overrun found in each of the 20 nations and fivecontinents

Approximately 55 % Projects are cost overrun inMalaysia in public sector projects

In 1997 found that 77% of highway projects inAmerica are cost overrun



Cost Overrun in Pakistan

In Pakistan in 2010 one hundred & thirty milliondollar loan by world bank to cost overrun for thecompletion of road projects

Approximately in Pakistan every project facingthe problem of cost overrun

Minimum range of cost overrun is estimated 10%of the project total cost.



Example of cost overrun

project in Pakistan Nelum jehlum hydropower project initial cost is

167 million dollar in start then 935 million dollar in2011 and now its cost is 2.89 billion dollar.

Bhasha dam

Kashmir highway

Bahria ICON Tower

New Benazir International Airport



Cost Overrun definition

Cost Overruns are the additional percentage

or dollar amount by which actual costs

exceed estimates

Cost overrun is defined as excess of actual

cost over budget. Cost overrun is also

sometimes called "cost escalation," "cost

increase," or "budget overrun." (Zhu et al

2004).

Cost overrun is defined as the change in

contract amount divided by the original

contract



Cost Overrun

The larger the project, the larger theamount and rate of cost overruns

Why? The larger a project, the greaterthe complexity



Cost Estimating Factors

Cost of labor

Cost of machinery

Transportation cost

High machinery maintenancecost

High interest rates by bankers

Wrong estimation method Cost of insurance

Bureaucracy in tendering method

Waste on site



Broad Categories of cost

overrun Macro Economic Factors

Management Factors

Business and Regulatory Environment

Factors

Environmental Factors

Financing & Social Factors



Macro Economic Factors

Fluctuation in price of raw materials

Unstable cost of manufactured materials

High Cost of machineries

The current state of the local economy

The quality of materials and workmanshiprequired

Simple supply and demand



Management Factors

Additional work

Poor project site management

Improper planning

Inconsistent cash flows

Design error and changes

Inaccurate estimate



Business and Regulatory

Environment Lowest bidding procurement method

Long period between design and time ofbidding/Tendering

Methods used for cost estimation during projectcost scheduling

Inappropriate government policies

Occurring disputes between owner and

contractor



Factors related to project

participants

Disputes on site

Lack of coordination between constructionparties

Poor financial control on site

Poor planning

Previous experience of contract

Relationship between managers and labors



Environmental factors

level of competitors

Manipulation of suppliers

absence of construction-cost data economic instability

effects of weather

government policies



Environmental factors

Inadequate production of raw materials by thecountry

Monopoly by suppliers

Number of competitors

Number of projects going at the same time

Political situation

Poor productivity Project location

Social and cultural impacts



Financing & Social factors

Currency exchange

Inflationary pressure

Project financing Corruption and bribery

Political interests



CONCLUSION:

Factors Client Consultant contractor

Planning&monitorin

g

• Clear scope

and qualityspecs.

• Agreementon budgetand time.

• Avoid

variationsregardingscope

• Analysis of

requirements

• Clear ChangeRequests.

• Consideration of

specializedresources

• Accurate schedule

and work flowplanning

• Details of resourcesrequired

• Understanding ofscope and design

Projectcharachteristics

• Size &complexityof project

• Projectlocation

• Design a& structures• Clear assessment of

geologicalconditions

• Understanding ofsite, accessibilityand buildibality

issues

• Site related risks,safety

• Accurateassessment of siteand its specs.



Factors Client Consultant contractor

Marketcompetition

• Acquire

relevantknowledgeon themarketconditions

• Appropriat

e tenderprocess

• Selection of

appropriate design• Use of materials

based on marketconditions,including supply

and

demand analysis

• Careful

procurementplanning• Careful selection of

subcontractors• Early engagement

of subcontractors

andefficient contract

administration



References

Cost overrun Factors In Construction Industry ofPakistan ( Nida Azhar NEDUET Karachi, Rizwan U.Farooqi NEDUET Karachi, Syed M. Ahmed Florida

International University USA) Cost and Time Overruns in Highway Projects In

Pakistan ( Rafiq Muhammad Choudhry, AbdurRehman Nasir, Hamza Farooq Gabriel)

Cost overrun in the Malaysian ConstructionIndustry Projects (Zayyana Shehu, Intan RohaniEndut, Akintola Akintoye, Gray D. Holt)

Cost Overrun ppt.pptx

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