ADDIS ABABA UNIVERSITY

School of Commerce

Project cost management

Group assignment 1

Project Cost Overrun and Analysis on a Local Building

Group Members

1. Ablene Melese ---------------- GSR/9921/14

2. Ashenafi Hailemariam------- GSR/0512/14
3. Bethel Tesfaye ---------------- GSR/3070/14
4. Egziharia Solomon------------ GSR/4590/14
5. Hiwot Girma -------------------- GSR/2198/14
6. Muse Abebaw ----------------- GSR/0131/14
7. Yeabsira Solomon ------------ GSR/2464/14

April 2022
Table of Contents

1, What is project overrun?................................................................................................2

2, Project analysis..............................................................................................................3
3, Reference......................................................................................................................6
1, What is project overrun?

When a project’s initial cost goes beyond the actual budget to finish the expected task is
called Project overrun. Project overrun is unexpected change which results increasing
the total amount and has the power to completely stop, or delay the project depending
on the amount (size). Cost overrun is a trait for a project success unless they are
properly identified and addressed.
According to CHRON study at least 85 percent of every project face project overrun to
some degree which some of this are beyond the project managers or the responsible
persons capacity since they often happen unexpectedly.
Yuvika Iyer, on his article what is cost overrun that was written in July 29, 2021 he
categorized the factors in to three main and common factors which are Economic
factors (caused by erroneous project budgeting and unclear scope),Technical reasons
(caused by inaccurate estimates or incorrect data gathering), Psychological (caused by
decrease in project commitment levels).
Another article that was published in 2017 by Samuel Famiyeh,
Charleseye Amoatey, Ebenezer Adaku, Collins Sena Agbenohevi titled as “Major
causes of construction time and cost overruns: A case of selected educational sector
projects in Ghana” found that the key factors for project overrun is a result of financial
problems both at national stage and on the stakeholder, poorly structure and seated
working schedule and contract duration, poorly stated project scope, change in interest
by the client, lack of clear task division with poor performance specially the supervisor,
complexity of the project, poor method and mechanisms to do the job, poor site and
project management, policies and regulations, and so on causes project overrun.
When a project is about to go project overrun it shows signs that needs to be addressed
immediately to avoid it. This signs can be grouped to initial signs and enduring signs.
When we say initial signs it includes also proper and well detailed budget outlet, not
reviewing past project experiences and historical data etc. and when we say enduring
signs unexpected costs, lack of proper project tracking tools, poor resource utilization
plan, poor work breakdowns, poor documentation. (Yuvika Iyer,July 29, 2021)
Project overrun can be solved to some extents depending on the causes. The project
manager is responsible to give major attentions to the phenomena that he/she can
control and this can be achieved by organizing a proper risk management system within
the organization that is able to analysis, justify, and give solution to the current and
future risks that the project might face. The other system that will help to avoid cost
overrun is properly estimated project cost hiring the a well-qualified and experienced
specialist along with different project participants and other professionals must engage
in the cost estimation to make it precise and feasible (the specialist needs to consider
any financial inflation at both national and global level). Controlling scope changes will
play a significant change in avoiding cost overrun understanding the complexity of the
project, meeting deadlines or working as per the schedule, proper documentation and a
great communication with every participant will fill the gap and to focus on finishing
projects on budget. Furthermore, a (5 Primary Causes of Cost Overruns)
In conclusion a Project success depends on the accurate cost estimation. Many projects
in the world are failing to meet their estimate initial budgets due to several factors that
mentioned on the above paragraphs therefore project manager must give high attention
and time to avoid cost overruns and he/she must be well organized in resource
coordination, introducing new technologies, hiring qualified employees, and must control
the performance of the project and are obligated to take rapid decisions.

2, Project analysis

The project we wanted to do a project overruns

analysis on is a local 4B+G+19 headquarter
building that is located around 22 square. The
building is owned by Hidasse telecom shared
company. It was designed by BKW consultants,
architects, planners, and engineers PLC. The
building contains headquarters offices, rentable
offices, shops, and a showroom. Even though
the project is still under construction different big
local construction companies such as
Tekelbhran Amaby, Anchor foundation, and FE
construction companies participated in the
construction.

Although the project is still under a construction

its experiencing cost overruns that are caused by different micro and macro factors from
the initial stage (design part) till the current building stage. This analysis tried to sum up
the factors and group them into 7 points.
1, Design Variation and Client Need Growth
To begin with, the first project design was completed in 2017 with all the required
architectural, structural, electrical, and sanitary working drawings along with the bill of
quantity however, due to the company’s financial capacity growth they were able to
purchase the plot area next to the original plot land. This added another additional cost
to the company since all of the architectural, structural, electrical, and sanitary working
drawings and bill of quantity must be done all over again which took around 4 months
including the legal process. This period caused an extra delay to start the project since
the process includes a lot of negotiations between shareholders and consultants, hiring
newly qualified staff for the specific project, and redesigning according to the modified
government policies and regulations. As you can see in the diagrams below the first
design covered 818 m2 but the new building covers around 1653m2 which is twice the
previous plot.

2, Poor Understanding of The Scope and The Complexity of The Work

After the approval of the design by the responsible parties, the consultant and the
clients were obligated to hire an eligible contractor through bid screening. Many private
construction companies compete for this work at the end a level one private
construction company won the bid. (The name of the construction company is not
mentioned for the sake of confidential procedure)
As we all know most construction bidder organizations don’t see and experience the
complexity of the project, the site character such as the topography, the existing
elements within the site, and other significant challenges, and they don’t clarify the
scope of the project before proposing a price. This challenge was witnessed at this
specific project due to the location and topography of the site, it made it very hard for
the contractor to do the substructure work according to their work schedule and they
were forced to add more new technologies, and qualified staff to meet deadlines. As a
result of this, the initial cost couldn’t and the cost that was needed to finish the task was
not equal.
3, Poor Schedule and Unrealistic Contract Durations
As stated in the above paragraph the complexity of the site made it impossible for the
contractor to meet deadlines and deliver what is expected. Their work performance
wasn’t aligned with the work schedule.
4, a dispute between the contractor and the consultant
The dispute between the three parties (stakeholders, consultant, and contractor) forced
the contractor to terminate the work and contract as it was and forced to pay a penalty
to the client for all the delays they caused.
After this, the client was obligated to have another bid screening to choose an
alternative eligible contractor to finish the construction work which took up to almost 2
months in other words it brings another expense to be added and postpone the project.
5, design change as per the defects on the built elements
Around 99% of constructions will face design modification throughout their construction
lifetime. This can be caused due to many reasons but the most common causes are;
poor workmanship, Forman’s capacity to do the work and lead according to the design,
lack of proper technologies, poor construction materials, and other forces from outside
of the specific project affects it as well. Like all construction, this project also faced all
the above causes that results in demolishing and redesigning to give a solution.
6, poor methods and workmanship and site management
It’s very frustrating and costly for contractors especially when it is caused by a poor site
management system. As mentioned in factor 5 not being able to assign a qualified work
crew with an efficient number of workforces on any task disrupt the given work
schedule, lack of proper Work breakdown structure affects the project performance.
7, Material price fluctuations.
As we all know currently, we are facing price inflation at a global and national level
which is highly affecting the construction industry for example 2 or 3 years ago the cost
for a single radius 8mm reinforced bar was below 100 birrs but now it’s two or three
times higher. Another example can be cement 1 pack of cement used to cost 200-300
birr but now it’s around 900-1200 birr. To summarize any delay that is caused by the
client, contractor, and also by the supervisor is causing a price cost overrun on the total
cost.
In conclusion, Project cost overrun must be one of the major concerns of a project
manager as it brings social, economic, and political which by also affects the overall
stability and success of a project. As stated earlier, one of the biggest factors of failures
in an ongoing project is the budget overrun and the low estimation of how it should go.
Having to see what new factors and unexpected happenings that can occur will keep
guard from unwanted failures and losses while ensuring a successful completion in
alliance with the satisfaction for all project participants including stakeholders.
3, Reference

-CHRON study
-Article “What is cost overrun?” by Yuvika Iyer,  July 29, 2021
-Article “Major causes of construction time and cost overruns: A case of selected
educational sector projects in Ghana” by Samuel Famiyeh , Charlseye Amoatey,
Ebenzer Adaku and Collins Sena Agbenohevi 2017
- Article “5 Primary Causes of Cost Overruns”
-BKW C.A.P.E PLC (bkwarchitects@gmail.com)
-Architect Bisrat (bkwarchitects@gmail.com)
- Resident engineer Kassahun (bkwarchitects@gmail.com)