Risk Of Cost Overruns Research Articles

Assessing Project Contingency Reserves with the Expected Cost Overrun Risk Measure

Assessing Project Contingency Reserves with the Expected Cost Overrun Risk Measure

Reality Capture in Construction Project Management: A Review of Opportunities and Challenges

Reality Capture (RC) is a state-of-the-art technology for digital data gathering and visualization of the actual environment through virtual means. In recent years, RC has contributed significantly to the digitalization of the construction industry globally. However, there are no systematic critical analyses of the benefits and challenges of RC technologies in construction project management (CPM) to drive its adoption. This research provides a detailed overview of the potential benefits and constraints of RC to tackle CPM concerns successfully and efficiently. This study uses the PRISMA procedure to conduct a systematic literature review. Based on the inclusion and exclusion criteria set for the study, 96 articles were considered relevant for review. The articles were analyzed using content analysis techniques to synthesize identify emerging themes. A four-step procedure was used to classify the articles into pre-construction planning, designing and construction. The review show that (a) RC is useful during the planning and designing stage, as the success of a construction project depends on accurate data to reduce the risk of cost and time overruns; (b) the benefits of RC adoption are accurate data, reduced time spent on project monitoring, progress tracking, and quality assessment; (c) RC on a construction site aids in the resolution of the industry’s fragmented nature through collaboration; quick and prompt decision making through remote monitoring and control of projects. RC is used as a visualization tool and for digital documentation of as-built models, construction verification, and flaw discovery, thereby improving work processes to achieve project success; (d) the most challenging aspect of incorporating RC on a construction site is the high investment cost. In the digital revolution era, this study could aid in the knowledge and optimal use of Reality Capture in numerous areas of CPM.

Understanding Smart Energy Transitions as a New Source of Distrust:The Perspectives of Hong Kong Citizens on the Risks of Regional Intercity Energy Collaboration in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA)

Hong Kong has an ambitious carbon neutral goal to meet by 2050. Achieving this goal requires a departure from a traditional city-scale centralised, fossil fuel-based energy infrastructure to a more decentralised, locally-generated renewable energy (RE) while expanding the regional intercity smart grid system to accommodate RE import in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). Such energy transitions inevitably bring new social challenges, but how Hong Kong citizens perceive such transitions in the GBA context is not well studied. This study draws on quantitative and qualitative data derived from an online deliberative poll (DP) (N = 174) on smart energy transitions. We have four key findings. Firstly, citizens showed a low level of trust in the national, provincial, and city governments whilst a high level of trust towards the incumbent electricity companies. Secondly, citizens showed distrust to the governments, suspecting that the genuine motives of the governments were to prioritise regional RE import over local RE production. Thirdly, citizens raised concerns over five types of risks (price volatility risks, energy reliability risks, cost overrun risks, data privacy risks, and environmental risks) that contributed to new sources of public distrust in governments’ competence. Fourthly, the public distrust toward multilevel governments was found to be underpinned by demographic factors (age group and family size) and a sociopolitical context of recent social movements against government policies. Our findings suggest that policymakers in the GBA need to give sufficient attention to enhancing public trust, and thereby the policy legitimacy of regional smart energy transitions.

Dynamic Modeling for Analyzing Cost Overrun Risks in Residential Projects

Dynamic Modeling for Analyzing Cost Overrun Risks in Residential Projects

Cost Early-Warning Model System of Large-Scale Construction Project.

China's construction industry has been suffering from high cost, high efficiency, and maladjustment of management. The traditional management mode makes the construction project face the risk of cost overruns and delays, which cannot achieve the effect of cost control. Therefore, by summarizing the characteristics of construction projects and the classification of costs, this paper analyzes the foundation of earned value management method in construction and combines it with cost management; in addition, the actual development of Company A is taken as an example, where a cost early-warning system suitable for construction projects is constructed, including the design of the organizational structure, operation platform, and early-warning model of this system, which can improve the cost management level of construction enterprises to a certain extent.

Causes of cost overruns in building construction projects in Asian countries; Iran as a case study

PurposeCost overruns have been identified as the most significant challenge for construction sector stakeholders. Like many developing countries, the Iranian construction industry suffers from poor cost performance. So, the current research aims to investigate the causes of cost overrun in Iranian construction projects. This paper also reviews the findings of similar studies conducted in several Asian countries.Design/methodology/approachThis paper includes a literature review and a quantitative method with a questionnaire survey. The review is limited to the studies investigating the causes of cost overrun in an Asian country in the last decade. Moreover, the current research was conducted through a questionnaire prepared based on 43 common factors identified through the literature review. The required data were gathered from the representatives involved in handling construction activities in Iran. The collected data were analyzed based on relative importance index (RII), using the SPSS software package.FindingsThe results showed that poor site management, improper planning, fluctuation of prices of materials, lack of experience, and poor economic condition are the critical reasons for cost overrun in Iranian construction projects. The findings also indicated that among the studies conducted in Asian countries, the first three factors have the highest frequency.Originality/valueThis paper highlighted most studies concerning the cost overrun factors in construction projects in different Asian countries in recent years. Up-to-date knowledge helps to understand the complexity of this field in various periods and therefore minimizes the risk of cost overrun. This research can also be used as a benchmark for further studies to clarify similar issues in other developing countries.

The impact of the design team characteristics on the sustainable building construction cost: structural equation model analysis

ABSTRACT The objective of this study was to identify impact of the design team characteristics and project characteristics on the sustainable building construction cost (SBCC) using the structural equation model (SEM). The cost data was drawn from 72 built LEED certified buildings in the United States. The design team characteristics are latent variables used to measure a design team’s performance in the early design stages, which are reflected in six observed variables: skill, experience, communication, collaboration, innovation, and procurement. The project characteristics are also latent variables and are measured in five observed variables: level of sustainability, building type, construction type, technical complexity, and project location. The SEM analysis illustrated that the design team characteristics negatively affected the unit cost (coefficient = −3.119) and cost overrun (coefficient = −0.939). The SEM also showed that project characteristics positively affected the unit cost (coefficient = 1.00). The conclusion indicates that the higher the design team’s skill, the more experienced the design team was, and the fewer communication channels there were, the better the team could mitigate potential risks and uncertainty during the construction phase, hence reducing the risk of cost overrun.

Managing Cost Risks in Oil and Gas Construction Projects: Root Causes of Cost Overruns

This study identifies and classifies the root causes (i.e., the primary precursors) of cost overruns in oil and gas construction projects. Past studies generally focused on identifying the most immediate precursors of cost overruns and failed to address the need to identify their root causes. Specific root causes are inherent in projects with certain characteristics (e.g., projects in a particular domain or sector). Accordingly, research is needed to identify various cost overrun factors and their root causes in a context-specific manner. This study used content analysis to identify 38 recurrent cost overrun factors and 11 root causes in oil and gas construction projects. The cost overrun factors were classified based on their common root causes. The Delphi method was used to verify this classification. The evidence from 12 construction projects in the oil and gas sector that had faced cost overruns was used to verify the outcome of this study. The findings of the study will assist practitioners in mitigating the risk of cost overruns in oil and gas projects and meeting their budget goals.

Re-analysis, measurement and misperceptions of cost overruns at Olympic Games

ABSTRACT The so-called ‘Oxford Study’ by Flyvbjerg et al shows Olympic cost overrun of 170-750% with a substantial risk of a further cost overrun above this range in the future. The aim of this paper is to re-analyse the results by using a method in accordance with the international convention of comparing across time and geographies. The dataset used has abundantly more governmental data than in the Oxford Study. The results of the Oxford Study for the period of 2000–2016 could not be replicated. It is argued why the statistical analysis and their data reliability are misleading, thus leading to a discovery of six typical misperceptions. In contrast to those authors, this paper shows cost overruns (Olympics 2000–2014) for direct non-OCOG investments in the range of 13–178%. Further, it shows that the costs of the Olympic Games represent less than 0.28% of the GDP; hence, it is clear that the Games cannot cause a severe national economic crisis. This paper provides a discussion on the underlying assumptions of the Oxford study, thus providing valuable insights for politicians who intend to submit an Olympic bid, and contextualises cost overruns caused by fixed deadlines and long planning horizons. I disagree with the claim by Flyvbjerg et al. that hosts give a blank cheque to the IOC and I contend that demands and a tight coupling are fixed in the Host City Contract, thus negating the blank cheque assertion.

Establishment of prediction system for cost of defect liability phase in construction project

PurposeThis study aims to establish a new system to predict the defect liability phase (DLP) cost using the Six Sigma methodology, which investigates sources of variations and reduces the error level to 3.4 per million through five phases: define, measure, analyze, design and verify.Design/methodology/approachAfter the initial handover of the construction project, the DLP follows the practical completion. During this stage, the contractor is responsible for the remedy of any defects that appeared in the project. Many researchers have studied defect reasons and their associated costs in different industries, while the construction industry remains a green field for this kind of research. The objective of this study was to develop a model to predict the DLP cost. The research methodology adopted the five stages of the Six Sigma cycle: defining objectives, measuring the data, analyzing performance, designing the model and verifying the results. Twenty factors were identified as potential factors affecting the DLP cost. Factors were categorized into two main clusters: project data and organization data. Interviews were conducted with 42 project management experts, who have 8–35 years of experience in construction project management, to rank the 20 factors based on their importance. Simo’s procedure was used to obtain the weight of each factor affecting the DLP cost based on the opinions of the experts. The Pareto principle was used to select the “Vital Few” factors affecting the DLP cost, and six factors were selected. The design of experiments (DOE) was used to establish a dynamic model to predict the DLP cost using a sample of 41 construction projects obtained from the above-mentioned 42 project management experts. The model accuracy was verified using data obtained from a different sample of five construction projects, which were not used to establish the model.FindingsThe results showed that among the 20 factors, only six were found to have a cumulative impact of 50% over the cost of the DLP: type of project, project contract value, nationality of the employer, project manager experience, DLP duration and sector of the employer. A model was established through the DOE to predict the DLP cost using the values of the aforementioned factors.Research limitations/implicationsAs a natural limitation of using DOE, the newly developed model can be applied to predict the DLP cost based on data within the range of data used during the model development, which means that model is confined within the specific measured values of factors. Furthermore, it will be beneficial for future studies to study the impact of other factors related to the types of materials or equipment used in building the project because it was not considered during this study because of the huge diversities in these factors and difficulties in determining its impact on the DLP cost.Practical implicationsThe unique results of using DOE through Minitab software facilitated obtaining of a dynamic model, which means that researchers can modify any value of the six factors and monitor instantly the expected change in the DLP cost, which will allow a better understanding of the impact of each factor on the DLP cost. Moreover, the new model will help contractors to predict the expected DLP cost to be added for their project budget, which will mitigate the risk of cost overrun resulted from the cost of defect rectification.Originality/valueA dynamic model was established to predict the DLP cost using the DOE. The new model was validated, and the prediction error ranged from −18% to +21%.

Double Moral Hazard and Risk-Sharing in Construction Projects

Construction projects are riddled with risks that should be shared by both owners and contractors alike. The principal-agent theory has proven to be an influential theoretical apparatus in designing optimal risk-sharing rules and provides contractors with proper incentives to improve project efficiencies. According to the principal-agent theory, it is optimal to let the contractor assume all of the risk if it is risk-neutral. However, this article argues that this theoretical model may lead to a biased incentive structure. To demonstrate this point, this article analyzes the necessity of risk-sharing between the owner and risk-neutral contractor in construction projects. Taking into account cases where the respective planning efforts of the owner and contractor are supposed to be unverifiable and mutually complementary in terms of cost overrun risk, we find that either double moral hazard (i.e., both parties take opportunistic strategies) or inefficient breach of contract by the contractor occurs if the contractor assumes the entire cost overrun risk. An optimal risk-sharing strategy, therefore, plays an important role in coordinating both parties to choose efficient strategies.

Capital cost estimation for advanced nuclear power plants

The first-of-a-kind (FOAK) nuclear plants built in the last 20 years are 2X over budget and schedule in the US and some European countries. One of the nuclear industry's proposed remedies is the small modular reactor (SMR). SMR designs leverage five factors to be more economically competitive than large reactors: 1) multiple units; 2) increased factory production and learning; 3) reduced construction schedules; 4) plant design simplification and 5) unit timing. There are currently no bottom-up studies that quantitatively account for these factors and compare different near-term light water reactor SMRs with Gen III + large plants. This work presents a nuclear plant cost estimating methodology using a detailed bottom-up approach for over 200 structures, systems, and components. The results compare relative costs for two large pressurized water reactors, one with active safety and one with passive safety, to two SMR designs, one with multiple reactor power modules and one with a single reactor module. Passive safety systems showed noticeable savings at both the large and small-scale reactors. The power uprating of an SMR by 20% resulted in ∼15% savings in the overnight unit capital cost. Overall, if built by an inexperienced vendor and work force, the two SMRs' overnight costs were higher than large reactors, since significant on-site labor still remains while losing economy of scale. However, the single-unit SMR had significantly less total person-hours of onsite labor, and if built by an experienced workforce, it could avoid cost-overrun risks associated with megaprojects.

Assessing TBM performance in heterogeneous rock masses

A major challenge that TBM performance is requested to deal with for a successful and effective progress is tunnelling through lithologically and geomechanically heterogeneous rock masses. Such heterogeneous environments are common and recent tunnel examples in the UK include the Hinckley Point C offshore cooling tunnels being driven through interbedded carbonaceous mudstone/shales and argillaceous limestone and the Anglo American’s Woodsmith Mine Mineral Transport System tunnel in Redcar Mudstone with beds of ironstone. This inherent geological heterogeneity leads to difficult tunnelling conditions that initially stem from predicting a sound and representative ground model that can be used to preliminary assess the TBM performance. In this work, an exhaustive review of existing TBM Penetration Rate (PR) methods identified that no models address the issue of parameter selection for heterogeneous rock masses comprising layers with different rock strengths. Consequently, new approaches are required for estimating rock mass behaviour and machine performance in such environments. In the presented work the Blue Lias Formation (BLI), which is characterised by its layered rock mass, comprising very strong limestone, interbedded with weak mudstone and shales, is investigated. BLI formation is considered herein being a representative example of lithological heterogeneity. Based on the fieldwork carried out in three localities in the Bristol Channel Basin (S. Wales and Somerset), geological models are produced based on which a geotechnical model is developed, and four ground types are determined. Implications of the current findings for TBM performance are assessed, including faulting, groundwater inflow and excavation stability with a particular focus on both PR and advance rate. A modified approach using the existing empirical models is proposed, developed and presented in this paper that can be used as a guide to determine TBM performance in heterogeneous rock masses reducing the risk of cost and time overruns.

Cost Escalation in Road Construction Contracts

This paper presents a study of cost escalation in unit price road construction contracts. The aim is to investigate why the final cost of contracts differs from the agreed contract cost following tendering, both to identify causes of observed discrepancies and to suggest measures that could improve the planning and delivery of future projects. Road projects often consist of several contracts and as they account for the biggest costs of the projects, cost escalation in the contracts may increase the risk of project cost overrun. Even if contract cost performance is an important indicator of project success, it may be too simplistic to equate this with project success. It is quite possible to deliver a project within budget even if contract costs escalate, as long as the project cost contingency is adequate to cover such escalations. However, escalations in contracts increase the risk of project overrun and may lead to other problems such as conflicts and delays. The results show that most of the studied contracts experienced cost escalation. The main cause of the escalation was change orders to the scope that were not covered by the original contract. In addition, the results indicate that complexity represented by contract size, duration, and urban location increases the risk and size of cost overrun. Based on these findings, the paper presents some recommendations on how contract delivery can be improved as well as some implications for future research.

Mega-Events and Rapid Transit: Evaluating the Canada Line 10 Years After Vancouver 2010

This article examines the Canada Line rapid rail transit project in Vancouver, British Columbia, a decade after its completion and the 2010 Winter Olympic Games for which it was accelerated. The case resides at the intersection of two project classes with well-documented patterns of underperformance: transit mega-projects and sporting mega-events. Beyond connecting a number of Vancouver 2010 venues, the Canada Line is notable for its use of a public-private partnership procurement (PPP) model, as well as the significant real estate development seen nearby. In particular, the article focuses on outcomes classified under three headings: procurement model, community impact, and land use impact. Prior to providing avenues for future research, this article finds that while the PPP model avoided substantial cost overrun risks, the lucrative operational concession was where the growth coalition pushing the project was able to make it sufficiently attractive for private partners, while externalizing cost on third-parties.

Enterprise adoption of cloud computing with application portfolio profiling and application portfolio assessment

With the continued appeal and adoption of cloud computing, an assessment of cloud run costs and migration affordability prior to adoption would assist enterprises that have several legacy applications targeted for cloud migration. However, as cloud migrations have become more prevalent, many have been characterised by unsuccessful migration or application modernisation attempts. The primary reason behind the failed attempts is insufficient planning upfront, to identify which legacy applications are suitable to realise the benefits of public or private cloud, leading to time and cost overruns. There is a need for strategic decision making for application portfolios to mitigate the risks of cost overruns and migration delays. Thus, a Rough Order of Magnitude (ROM) of cloud run costs for an application portfolio is required in the planning phase as an input into IT governance. To obtain the ROM cloud run costs, it is necessary to baseline application data, preferably through automated discovery, and perform quantitative analysis of the applications. Therefore, we propose an approach to (a) baseline application data using Application Portfolio Profiling (APP), and (b) perform quantitative analysis of applications using an Application Portfolio Assessment (APA), to inform the legacy application migration decision. APP and APA are proposed as part of a Cloud Computing Considerations for Companies (CCCC) framework that enables an enterprise to make an informed decision regarding which legacy applications are to be migrated as part of enterprise Cloud Computing adoption. This decision is important because of the change in operating model, infrastructure requirements, hidden costs and commercial models inherent with cloud computing adoption. We validate the proposed framework through applying it to a real-world use case scenario that provides the necessary coverage to test the proposed framework.

Multi-Year Stochastic Transmission Network Expansion Planning Considering Line Uprating

Transmission network expansion planning (TNEP) has become increasingly challenging due to the worldwide transformation of power systems, with the fast deployment of renewable energies as one of the key drivers. Given current socio-environmental concerns, building new lines to integrate new renewable energy sources may take several years and has a significant risk of delays and cost overruns. A sound strategy to achieve a more adapted expansion plan is to include the option of uprating existing lines among planning candidates. This paper presents a novel model for multi-year stochastic TNEP considering line uprating options, such as line reconductoring, voltage uprating, and adding series compensation, along with adding new lines, simultaneously. Compared to adding new lines, line uprating can be performed with low out-of-time service and has lower socio-environmental impact, thus being a cost-effective alternative, especially in cases where acquiring new right-of-ways is difficult and expensive. Illustrative results demonstrate that including line uprating options within the TNEP problem allows us to obtain more economic expansion plans with fewer new line projects in comparison to traditional approaches. This in turn results in less environmental impact of the optimal expansion plan, which makes construction permissions easier to obtain, thus reducing the risk of having delays and cost overruns. Additionally, considering line uprating options also helps the integration of renewable energies by deferring investment decisions until more information regarding future development of renewable energies becomes available.

A system dynamics approach to conceptualise causes of cost overrun of construction projects in developing countries

PurposeThis study aimed at developing and empirically testing a system dynamics causal loop (SDCL) model for investigating factors related to the risk of cost overruns, associated with the performance of construction projects in developing countries.Design/methodology/approachUsing data derived from the Ghanaian construction industry (GCI), a conceptual system dynamics model was hypothesised and empirically tested.FindingsSupported by empirical evidence, the study established that the low technical capacity of consultants is the underlying cause of cost overruns in government projects. There is a strong proof of the relationship between the results of the SDCL model and poor contract planning and supervision, change orders, competence of the project team and the lack of effective coordination amongst the contractual parties.Practical implicationsThe final SDCL model has revealed key risk components that would require standard mitigation measures in order to achieve “acceptable success” in construction projects.Originality/valueThe study presents an interactive approach for construction practitioners in developing countries to prioritise the causes of cost overruns in order to initiate quick responses.

Multi-mode resource-constrained project scheduling with uncertain activity cost

The multi-mode resource-constrained project scheduling problem under uncertain activity cost (MRCPSP-UAC) has a wide range of applications in production planning and project management. We first build a new mixed-integer nonlinear programming (MINLP) model with the objective of minimizing the risk of project cost overrun, which provides a vehicle to obtain optimal solutions. To overcome the computational challenge of exact method for solving large instances, we devise a construction heuristic (CH) with a multi-pass greedy improvement procedure to obtain a feasible solution efficiently. To further improve solution quality, a hybrid CH and genetic algorithm (CH-GA) is developed with a custom fitness function to properly calibrate the quality of an individual. A comprehensive computational study is performed to examine the impact of various problem parameters on the optimal solutions, and the performance of our algorithms. Our hybrid CH-GA performs well for large instances with significantly less computational time than the exact method.

Prediction of Cost Overrun Risk in Construction Projects

The paper proposes a cost overrun risks prediction model, the structure of which is based on the fuzzy inference model of Mamdani. The model consists of numerous inputs and one output (MISO, multi-input-single-output), based on processes running consecutively in three blocks (the fuzzy block, the interference block, and the block of sharpening the representative output value). The input variables of the model include the share of element costs in the building costs (SE), predicted changes in the number of works (WC), and expected changes in the unit price (PC). The developed rule base makes it possible to determine the risk of cost overruns in the following categories: “very low”, “quite low”, “average”, “quite high”, and “very high”. Twenty-seven rules were assumed in the interference block. The operation of the model was illustrated by the example of selected elements of a road object and was validated by checking the correctness of the assumptions made at the design stage of the inference block rule base. It has been proven that with the increase of the share of element costs in the building costs (SE), predicted changes in the number of works (WC), and expected changes in the unit price (PC), the value of the risk exceeding the costs of a given element of the construction project (R) increases naturally and smoothly. It was emphasized in the conclusions that the cost overrun risks prediction model is intended for general contractors who subcontract many stages of works to their subcontractors in accordance with the agreed division into work elements.