AN EVALUATION OF COST OVERRUN AND ITS CAUSES IN CONSTRUCTION INDUSTRIES IN DEVELOPING NATIONS

AN EVALUATION OF COST OVERRUN AND ITS CAUSES IN CONSTRUCTION INDUSTRIES IN DEVELOPING NATIONS

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Background of the study

Cost overrun is a global phenomena in the construction business, when projects are rarely completed within the projected cost. In a global assessment on construction project performance, cost overrun was recognized as the biggest issue, with 9 out of 10 projects experiencing overruns ranging from 50 to 100 percent. Cost overruns in the building business are a worldwide concern (Ameh et al. 2010). Many variables contribute to cost overruns, including underestimating costs to make projects more viable, adding scope later in project planning and even during construction, changing circumstances, and so on. Project delays are one of the most significant contributors to the severity of cost overruns in big transportation projects. Furthermore, the length of the project development period from planning to building appears to be a significant impact in the amount of cost overrun (Touran and Lopez, 2006).

Cost overruns are a typical occurrence in today's construction business. The issue of cost overruns is crucial, and more research is needed to address it (Angelo and Reina, 2002). According to a research done by Omoregie and Radford (2006), the average cost escalation in building projects in Nigeria is 14 percent per year. Cost overruns in building construction projects can arise for a variety of reasons, and a number of scholars have explored these factors. In his study of 42 cost overrun cases, Ameh et al. (2010) discovered that lack of experience of contractors, cost of material, fluctuation in material prices, 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. In his research, Doloi (2011) discovered that the factors causing cost overruns in Nigerian construction projects were an increase in material prices, a delay in the supply of raw materials and equipment by contractors, fluctuations in the cost of building materials, an unsettlement of the local currency in relation to the dollar value, project materials monopoly by some suppliers, resource constraints of funds and associated auxiliaries, not being ready, and a lack of cost planning/monitoring duri The issue of cost overruns is not unique to Nigeria. It is a worldwide problem. For example, Le-Hoai et al. (2008) discovered that poor site management and supervision, poor project management assistance, financial difficulties of the owner, financial difficulties of the contractor, and design changes were the most severe and common causes of cost overruns in the Vietnamese construction industry. Also, Memon et al. (2010) investigated large projects in Malaysia and discovered that cash flow and financial difficulties faced by contractors, poor site management and supervision by contractors, insufficient contractor experience, a shortage of site workers, and incorrect planning and scheduling by contractors were the most severe factors that caused cost overruns, while changes in project scope and frequent design changes were the least affecting factors on construction cost. Koushki et al. (2005) investigated private residential projects in Kuwait and determined that contractor difficulties, material challenges, and finance limits were primary causes of cost overruns.

One of the key indicators of a project's success is its cost. This is especially true for public projects in underdeveloped nations like Nigeria, where public building projects are carried out with little financial resources. According to the majority of construction literature reviews, the common factors for project success are commonly believed to be cost, time, and quality Frimpong et al (2003). A project is considered successful if it was completed on time, on budget, satisfied user expectations, met specifications, achieved quality of workmanship, and reduced construction aggravation Olawale et al (2010). In general, a project is regarded successful in Nigeria if it is finished within the given cost or budget, if it is put into use by the target date, if it satisfies the technical specifications, and if the project participants are very satisfied with the project outcome.

1.2 Statement of the problem

The current situation of the construction industry in Nigeria falls short of achieving local and international quality requirements, as well as the performance demand placed on the sector. Construction projects, particularly building projects, include issues with construction processes and management, as well as budget and schedule constraints. The major issues include the failure to execute projects on time, poor quality work, and cost overruns. During the execution phase of most (if not all) construction projects, time and expense overruns occur. Morris et al. (1990) discovered that projects in Nigeria were seldom completed on schedule or within their given budgets after reviewing the records of over four thousand construction projects.

Based on the preceding study, the roots of this study were seeking to identify important influencing elements or bottlenecks that influence the occurrences of cost overruns in building projects. It is believed that the challenges for cost overrun were indicated by sociopolitical 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, incoherence, incoherence, incoherence, incoherence, incoherence, incoherence, incoherence To aid the current study, the researcher is investigating the elements that contribute to cost overruns in public building projects. Thus, the primary motivation for doing this research was to fill a research vacuum that had not been addressed by any previous studies, notably difficulties linked with cost overruns in public building projects in Imo state. As a result, this study will be crucial in bridging the information gap by identifying situations of cost overrun and facilitating suitable steps to avoid the problem, as well as attempting to offer answers to the following basic research topics; Most research in privies concentrate on the elements that contribute to cost overruns in building projects in both developed and developing countries. There has been minimal research in Sub-Saharan Africa, particularly in Nigeria, although there has been some effort at the regional and national levels. As a result, this study might be crucial in closing the knowledge gap by identifying the elements that cause cost overruns on public building construction projects.

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 nations. Specifically, the study aims to:

i. examine the profile characteristics of the building construction project workers,

ii. 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,

iv. ascertain the effects of cost overruns on the building construction industry and on the economy of Nigeria in general,

v. 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 ?

ii. 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 ?

iv. What is the effects of cost overruns on the building construction industry and on the economy of Nigeria, in general ?

v. 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:

Cost

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.

Cost overrun

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

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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