University of Twente Student Theses


Evaluation of different projects regarding cost overrun

Top, N. van den (2022) Evaluation of different projects regarding cost overrun.

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Abstract:Construction projects have the characteristic that there can often be cost overruns. Civil Works, a civil engineering consultancy firm, experiences this problem as well. Civil Works wants to know what are causes of cost overrun. This resulted in the main question of this thesis; ‘What are causes of cost overrun in construction projects?’. In order to answer this question a literature study was conducted to investigate potential causes for cost overrun in construction projects and whether these causes are correlated to the type of contract used in the project. Data was gathered by setting up a survey under contacts of Civil Works with project management experience and also by researching four projects provided by Civil Works. First a document study about these projects has been carried out, where the relevant data was extracted from the projects and then there were subsequent interviews for further explanation of both the survey answers as the case studies. The literature identifies four different categories for explanations of cost overruns; technical – e.g. price rises or scope changes, political – e.g. manipulation of forecasts or private information, economical – e.g. deliberate underestimation due to lack of incentives or resources and psychological – e.g. optimism bias or cognitive bias. The survey shows that respondents think technical explanations are the most common cause of cost overrun, with forecasting errors and scope changes being the two most important causes of these technical explanations. Forecasting errors can be due to technical, economical and/or political reasons. In this thesis only the technical part of forecasting errors are taken into account, since according to the survey technical reasons are the most occurring ones. Another potential cause of cost overruns that follows from the survey is the lack of collaboration between client and contractor. In projects with cost overruns, collaboration between client and contractor is judged from ‘mixed’ to ‘often bad’. One of the four projects of the case study did not have a cost overrun, the reason for that was good communication and collaboration between client and contractor. If there were any problems, these were openly discussed and solved together. There were still cost overruns for certain components, but due to the communication and collaboration this also resulted in reduced costs for certain components. This caused that the final cost at the end of the project was within budget. For the other three projects technical explanations were the main cause of the cost overruns. The conclusion of the research question ‘What are causes of cost overrun in construction projects?’ is that technical explanations, such as scope changes and forecasting errors are the most important causes found in this research. The reason behind scope changes and forecasting errors being a big factor is that these are causes based on, for example, random sampling of the area or based on assumptions which are based on experience and are very hard to get exactly right. The type of contract does not seem to have a direct correlation with cost overruns, instead the quality of collaboration in these projects do seem to have a connection to cost overruns. Cost overruns are hard to completely avoid, so in order to manage the cost overruns that do appear, it seems that steering on a good collaboration and communication between client and contractor is an important factor to keep costs under control. Recommendations for next research would be to investigate more projects in order to have a better validation of the results. As stated before, this thesis focusses on the technical explanations of forecasting errors. It can be investigated further what the political and economic reasons for forecasting errors are. There can also be further research done whether collaboration and communication are directly related to cost overruns in construction projects.
Item Type:Essay (Bachelor)
Faculty:ET: Engineering Technology
Programme:Civil Engineering BSc (56952)
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