Cost Overrun ppt.pptx
Transcript of Cost Overrun ppt.pptx
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Factors of ost Overrun
in onstruction Industry
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Group Members
Mian Hassan Naveed
Siddra QayyumKhadija Mawra
Saddam Hussain
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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
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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.
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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
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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
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Cost Overrun
The larger the project, the larger theamount and rate of cost overruns
Why? The larger a project, the greaterthe complexity
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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
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Broad Categories of cost
overrun Macro Economic Factors
Management Factors
Business and Regulatory Environment
Factors
Environmental Factors
Financing & Social Factors
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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
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Management Factors
Additional work
Poor project site management
Improper planning
Inconsistent cash flows
Design error and changes
Inaccurate estimate
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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
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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
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Environmental factors
level of competitors
Manipulation of suppliers
absence of construction-cost data economic instability
effects of weather
government policies
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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
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Financing & Social factors
Currency exchange
Inflationary pressure
Project financing Corruption and bribery
Political interests
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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.
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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
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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)