Haileleul Wudneh - Causes and Effects of Cost Overrun in Construction Projects

The major cause factors and effects of cost overrun in the construction industry, 2021
the case of Addis Ababa governmental housing construction
DECLARATIONS
I, Haileleul Wudneh, registration number/I.D. number:-GSR696/09, do hereby declare that this
thesis is my original work and that it has not been submitted partially; or in full, by any other
person for an award of degree in any other university/institution.
Submitted by:
Full Name Haileleul Wudneh Signature ------------------------------- Date ------------------
Approved by:- This Thesis has been submitted for examination with my approval.
Name of Advisor ---------------------------- Signature --------------------------Date ---------------------
Haileleul Wudneh Page i

APPROVAL
The undersigned certify that they have read and hereby recommend to Debre Markos University
and Yom Institute of Economic Development to accept the Thesis submitted by Haileleul
Wudneh and entitled “CUASES AND EFFECTS OF COSTOVERRUN IN
CONSTRUCTION PROJECTS: THE CASE OF ADDIS ABABA CITY
GOVERNMENTAL HOUSING CONSTRUCTION PROJECTS” in partial fulfillment of the
requirements for the award of a Master’s Degree in PROJECT PLANNING AND
MANAGEMENT.
Submitted by:
Full Name___________________ Signature _______________Date_____________
Approved by:
Name of Advisor_____________________ Signature _____________Date__________
Name of Internal Examiner ______________Signature___________ Date _________
Name of External Examiner _______________Signature ___________ Date__________
Name of Head of Department______________ Signature ___________ Date__________
Haileleul Wudneh Page ii

ACKNOWLEDGEMENTS
Firstly, my acknowledgment is goes to the ALMIGHTY GOD, for granting me to complete this
thesis, strength and health to accomplish the second milestone on my academic development.
Secondly, my deep gratitude goes to my dear wife for understanding, continual supporting and
courage me in the whole ups and downs throughout my life.
I would also like to express my sincere gratitude to my advisor Dr. Belay Tizazu for his patience,
supervision, guidance, expert advice and support during the accomplishment of this research.
I am very grateful to thank YOM institute of economic development in valuable contribution in

the academic sector, and for your patience in letting me complete my thesis with kind follow up
and repeated motivation.
Last but not least, I thank you all who have contribution in my life in positive or negative way.
“My challenges” are also needs to be thanked, you made me better person day by day in
exploring knowledge and wisdom.
Haileleul Wudneh Page iii

Table of Contents
Table of Contents ......................................................................................................................................... iv
ABSTRACT .................................................................................................................................................. 1
CHAPTER 1 : INTRODUCTION .................................................................................................................... 2
1.1 Background of the Study ..................................................................................................................... 2
1.2 Statement of the problem ................................................................................................................... 3
Objectives of the Study ............................................................................................................................. 6
1.2.1 General Objective ......................................................................................................................... 6
1.2.2 Specific Objective ......................................................................................................................... 6
1.3 Research Questions ............................................................................................................................. 6
1.4 Significance of the study...................................................................................................................... 6
1.5 Scope of the Study ............................................................................................................................... 7
1.6 Organization of the Thesis Report ....................................................................................................... 7
CHAPTER 2 : LITRATURE REVIEW .............................................................................................................. 8
2.1 Definition of terms and concepts ........................................................................................................ 8
2.2 Theoretical Literature .......................................................................................................................... 8
2.2.1 The concept of project ................................................................................................................. 8
2.2.2 Construction project ..................................................................................................................... 9
2.2.3 The Iron triangle ......................................................................................................................... 10
2.2.4 Construction cost........................................................................................................................ 12
i) Direct construction costs: ............................................................................................................ 12
i) Indirect costs: .............................................................................................................................. 13
2.2.5 Cost management ...................................................................................................................... 13
2.2.6 Cost Overrun............................................................................................................................... 16
2.2.7 Causes of cost overrun ............................................................................................................... 17
2.2.8 Effects of cost overrun................................................................................................................ 24
2.3 Empirical Literature Review............................................................................................................... 24
2.3.1 Cost overrun in global cases ....................................................................................................... 25
2.3.2 Cost overrun in Africa ................................................................................................................. 25
2.3.3 Cost overrun in Ethiopia ............................................................................................................. 26
2.4 Conceptual Framework ..................................................................................................................... 27
CHAPTER 3 : RESEARCH METHODS ......................................................................................................... 28
3.1 Research Design................................................................................................................................. 28
3.2 Population, Sample Design and Sample Size ..................................................................................... 28
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3.3 Sources and types of data ................................................................................................................. 29

3.4 Methods of data collection ............................................................................................................... 29
3.5 Methods of data analysis and Model specification ........................................................................... 30
3.6 Data Reliability and consistency: ....................................................................................................... 33
CHAPTER 4 : RESULT AND DISCUSSION .................................................................................................. 34
4.1 Introduction ....................................................................................................................................... 34
4.2 Contextual background of the study ................................................................................................. 34
4.2.1 Construction in Ethiopia-Addis Ababa ........................................................................................ 34
4.3 The action area of the study .............................................................................................................. 35
4.4 Survey response rate ......................................................................................................................... 37
4.5 Demographics and Descriptive statistics of Respondents................................................................. 38
4.6 Investigating the Existence of cost overrun ...................................................................................... 40
4.7 The cause factors of cost overrun and its relative importance index (RII)........................................ 42
4.7.1 Weighted average and its description........................................................................................ 47
4.7.2 Summary of Weighted average of causes of cost overrun ........................................................ 51
4.8 The effects of cost overrun and its relative importance index ......................................................... 56
4.9 Tests for agreements on causes and effects of cost overrun............................................................ 59
4.10 Testing of data reliability and internal consistency ......................................................................... 61
4.10.1 Model Estimation ..................................................................................................................... 63
4.10.2 Post estimation ......................................................................................................................... 64
CHAPTER 5 : CONCLUSSION AND RECOMENDATION ............................................................................. 67
5.1 Conclusion ......................................................................................................................................... 67
5.2 Recommendation .............................................................................................................................. 68
References ............................................................................................................................................... 70
Apendix I :- Introductory Letter ............................................................................................................... 75
Appendix II: Survey Questionnaire .......................................................................................................... 76
Appendix III: Stata out puts ..................................................................................................................... 81
Appendix III : Spearman’s rank table....................................................................................................... 85
Appendix IV: Sample of respondents Response Questionnaire .............................................................. 86
Haileleul Wudneh Page v

List of tables
Table 2. 1 : Contextual definition of important terms ..................................................................... 8
Table 2. 2:Summary of causes of cost overrun by different authors ............................................. 19
Table 3. 1: cronbach alpha index, Source: Manerikar, (2015)----------------------------------------------- -------33
Table 4. 1: package 3 condominium sites list, Source (AAHDCo, 2021) third quarter report 36
Table 4. 2: Distributed versus returned questionnaires ................................................................. 38
Table 4. 3: Respondents sex ratio versus their designation in the company ................................. 39
Table 4. 4: Respondents experience and specific experience in the housing construction industry
........................................................................................................................................................ 39
Table 4. 5: Status of the projects versus the cost of projects respondents involved ...................... 41
Table 4. 6: Projects status in terms of budget ................................................................................ 41
Table 4. 7: Cost exceeded beyond the contract amount ............................................................... 42
Table 4. 8:Relative importance index (RII) of cause of cost overrrun among the three
stakeholdesr.................................................................................................................................... 43
Table 4. 9 : Classification of RII .................................................................................................... 46
Table 4. 10: composition of significant cause factors of cost overrun .......................................... 53
Table 4. 11: Rellative importance index and ranking of effects of cost overrun ........................... 56
Table 4. 12: Spearman correlation coefficient of pair respondent groups ..................................... 60
Table 4. 13: Data reliability of respondents across client .............................................................. 61
Table 4. 14: Data reliability of respondents across contractor....................................................... 62
Table 4. 15: Data reliability of respondents across consultant ...................................................... 62
Table 4. 16; Stata regression result ................................................................................................ 63
Table 4. 17: Stata VIF result .......................................................................................................... 64
Table 4. 18:hettest result ................................................................................................................ 64
Table 4. 19: ovtest result ................................................................................................................ 65
Table 4. 20Shapiro-Wilk test result ............................................................................................... 65
Haileleul Wudneh Page vi

List of figures
Fig 2. 1: Distorting the iron triangle to illustrate cost overrun (Davies, 2002) 11
Fig 2. 2: Price/Cost structure of a generic building project (adopted from Abukar Warsame,
2006) 12
Fig 2. 3: Major process in project cost management (PMI, 2004) 14
Fig 2. 4: Inputs, tools, Techniques and outputs of resource planning 14
Fig 2. 5: Inputs, Tools, Techniques and outputs of cost estimating 15
Fig 2. 6: Inputs, Tools, Techniques and Outputs of cost budgeting 15
Fig 2. 7: Inputs, Tools, Techniques and Outputs of Cost Control 16
Fig 2. 8. Conceptual Frame work 27
Fig 4. 1: Approximate location map of package 3 condominium sites (12 Sites)------------------------- 37
Fig 4. 2: Legend for Classification of Cause of Cost overrun ...................................................... 47
Fig 4. 3: legend for classification of effects of cost overrun ......................................................... 57
Fig 4. 4: The correlation coefficient scale ..................................................................................... 61
Fig 4. 5: Graphical Presentation (kernel density) .......................................................................... 65
Fig 4. 6: Graphical Presentation (pnorm) ...................................................................................... 66
Fig 4. 7: Graphical Presentation (qnorm) ...................................................................................... 66
Haileleul Wudneh Page vii

List of Acronyms
AA: Addis Ababa
AACRA: Addis Ababa Roads Authority
AAHDC: Addis Ababa City Housing Development Corporation
AAHDP: Addis Ababa Housing Development Program
AAHPO: Addis Ababa Housing Project Office
AAWSA: Addis Ababa Water and Sewerage Authority
AU: African union
FIDIC: Fédération Internationale Des Ingénieurs-Conseils /International Federation of
Consulting Engineers
GDP: Growth and Domestic Product
GTP: Growth and Transformation Plan
HICES: Household Income, Consumption and Expenditure Survey
IHDP: Integrated Housing Development Program
MoWUD: Ministry of works and Urban Development
MUDCo: Ministry of Urban Development and Construction
MUDH: Ministry of Urban Development and Housing
OLS: Ordinary Least Square
PASGR: Partnership for African Social and Governance Research
PMI: Project Management Institute
RE: Resident Engineer
RII: Relative Importance Index
ROW: RIGHT of Way
Haileleul Wudneh Page viii

ABSTRACT
Construction projects experience cost overrun especially in Addis Ababa governmental housing
construction projects faces severe cost overrun that makes the unit house price unaffordable for
the beneficiaries. Taking into account the unaffordability of the housing units, government and
the housing development sector faces challenge to manage the cost of housing construction
projects in Addis Ababa. Therefore, this research aimed to identify the major causes of cost
overrun in governmental housing construction projects and its effect on the construction sector. A
total of 89 questionnaires were distributed for contractors, client and consultants. Out of which
68 questionnaires were returned with an overall response rate of 76.4% and analyzed using both
descriptive and inferential statistics. The existence of cost overrun found to be 91.18% out of
which 25.81% found to be severe cost overrun which was exceeded 25% of the contract amount.
From the 72 identified causes of cost overrun and included in the questionnaire, the result
showed that 64 cause factors of cost overrun had been found to be significant factors with RII of
above 0.6. Among the significant cause factors, four cause factors were found to be the most
significant factors with RII of greater than 0.8. These were escalation and fluctuation of building
material prices with RII of 0.844, schedule delay with RII of 0.838, delay of material delivery
with RII of 0.806 and cash flow and financial difficulties faced by the contractor with RII of
0.803. In the composition of significant cause factors of cost overrun it is found to be that
consultant related factors shared 27%, contractor related factors shared 23%, external related
factors shared 17%, client related factors shared 16%, project related factors shared 9%, labor
related factors shared 6% and contract related factor shared 2% for cost overrun contribution.
The research also identified 11 effects of cost overrun and all of these effects found to be
significant. Out of these, two effects of cost overrun found to be the most significant effect with
RII of greater than 0.8. These were; delay during construction with RII of 0.888 which were
found to be contractual related effects and additional cost with RII of 0.85 which were found to
be financial related effect. Spearman correlation analysis was used to evaluate the agreement of
ranking of factors and effects between pair of respondents group (client versus consultant, client
versus contractor and consultant versus contractor) and the result found to be there were
agreement in ranking of causes and effects. Therefore, these findings will be helpful to control
the control cost overrun.
Key Words-- cost overrun, cause, effect, RII, housing construction, Addis Ababa.
Haileleul Wudneh Page 1

CHAPTER 1 : INTRODUCTION
1.1 Background of the Study

Construction industry in the contemporary world plays a very crucial role towards the
development of certain country economic growth. Recent studies witnessed that this sector
become one of the leading industries so as to that its scope and complexity gets increasing from
time to time along with the technological advancement of the world. Delivering construction
projects on time, with in the planned budget and quality in developing country is becoming
chronic problem (Angelo and Reina, 2002). Cost overrun is the most critical problem for the
developing countries with their tiny economy as to refer in local language “በእንቅርት ላይ ጆሮ
ደግፍ” and it brings greater demand to the project managers to manage the issue from the grass
root level (Nega, 2008)
In Ethiopia also, the construction industry is played main role in achieving the GDP of the
country. Construction project in Ethiopia is somewhat difficult to manage and meet the
requirements set as professional project management practices and skills of planning, designing,
and managing activities throughout the project life cycle (kissi and ansah, 2013).
Following the housing shortage in Addis Ababa, which is the main problem of the city,
construction of houses is getting high attention and it takes the lion share of the city’s
governmental construction projects. According to the Addis Ababa city housing development
project office, Addis Ababa city had 1.2million housing units’ shortage increased by 100,000
housing units every year. More than 860,000 of Addis Ababa‘s dwellers have registered in the
10/90 and 20/80 housing schemes in 2012 housing demand registration (MUDH, 2017).
Since 2004 the Addis Ababa city government forced to construct 250,000 houses in different
housing programs (AAHDP, 2004). This housing demand is now exasperated along with the
highly increased rate of new household formation through natural population growth and
migration. Rapid urbanization rate has posed several socio-economic challenges and housing is
one of them with multidimensional effect.
The city government planned to alleviate this problem through the integrated housing
development plan (IHDP).The Government is responding with ambitious plan for building a
large number of housing units. Currently 140,000 housing units are under construction and
430,000 more is planned in the second GTP.

According to Addis Ababa housing project office Addis Ababa city administration has delivered
105,000 houses to tenants in the last 10 years (AAHPO-2016). Every year the city administration
budgets 6.3 billion birr for the construction of 10/90 and 20/80 housing schemes.
In response to this severe problem, the office planned to construct 335,000 houses in the five
years plan of GTP II. However, the office has been undertaken cost adjustment on each unit for
both housing schemes to compensate the increment of the project construction cost because of
the cost overrun it faces indifferent time.
The aim of this research is to identify and sort out in order the causes of cost overrun in Addis
Ababa governmental housing construction projects that may are arise from contractor, client and
consultant or may be from other related problems and further more assesses their possible
consequential effects of cost overrun on those above mentioned stakeholders.
1.2 Statement of the problem

The construction industry in Ethiopia it faces many challenges due to the nature of the
construction projects, such as complexity and uniqueness in nature, mobile workforce, ingrained
culture, working conditions and project based setup, diverse sub-contractors and suppliers and
engagement of many stakeholders (Alias et al, 2012).
Recent studies on the performance of Ethiopian construction industry demonstrated that “the
level of construction project management practice in terms of adapting general project
management procedures, project management functions, tools & techniques to be unsatisfactory.
Particularly the level of practice in terms of safety, risk and time management was found to be
very low. Regarding challenges, the study identified that time, cost, quality and risk management
as the most challenging issues for professionals in managing their day to day’s
activities”(Ayalew et al, 2016).
Now a days, many construction projects are undergoing in the city of Addis Ababa as of the
housing sector goes the same. But the construction projects performance is in question to meet
the performance indicators that could be related to various dimensions such as cost, time, quality,
client satisfaction, business performance, health and safety (Enshassi et al, 2009)
Consequently, the government-led housing supply which is mainly implemented in the form of
integrated housing development plan (IHDP) is unable to meet the demand of beneficiaries. It is

not affordable for the bottom of 40% of the population because of the prices escalated for
materials, poor project performance and misplacement of subsidization. Although the program is
remarkable in terms of total volume of housing created, it is still only meeting 10% of annual
housing demand (MUDCo, 2017).
The government aim to provide affordable housing, but IHDP is likely unaffordable to poorer
households. This is a consequence of two factors: (i) the high amount households need to save to
make down payments and (ii) the high cost of paying back mortgages. Often the amount that
needs to be saved to qualify for down payments exceeds a household’s annual consumption many
times over, while the monthly cost of paying back a mortgage exceeds a household’s monthly
consumption (assuming that housing costs, primarily rent, should not exceed 30% of household
consumption). Households in this program are unlikely to be able to afford two bedroom and
three bed room IHDP units while one bed room units are likely affordable only under the 40/60
housing scheme. This is because of increasing of the average total cost to government to deliver
one unit of IHDP combining the cost of land, infrastructure services, construction cost,
administrative cost, duty exemptions and so on (MUDH, 2017).
Ethiopia’s housing sector is characterized by significant deficits, both quantitatively and

qualitatively. The demand for new housing far exceeds the pace of supply, with annual projected
demand of 381,000, in addition to replacement housing. The housing displays one of the highest
levels if urban population living in informal settlements in sub-Saharan Africa (World Bank,
2015)
In Addis Ababa housing supply is the most critical to the middle and low income groups of the
population but the supplying of houses is in poor performance because of lack of diversified
housing delivery system. The absence of a robust and affordable housing construction industry
and the absence of diversified housing financing system are all factors that continuously affect
the stock supply. The IHDP efforts to provide the condominium units to beneficiaries at lower
price than the market value but it is still unaffordable to meet the ability to pay of beneficiaries
from the time when the cost of housing units have surged between 200 and 300 percent (PASGR,
2017).
So In the main time as the studies contemplate to answer the question of the construction
industry, the governmental housing construction sector in Addis Ababa faces challenges in

attaining the desired goals to alleviate the housing shortage of the city which is the most
concerning issues of the government of Ethiopia as well the city administration.
According to Mamuye (2016), study on the construction of 40/60 saving houses project in Addis
Ababa and finds out that late material supply, financial difficulties faced by the contractor,
problem of electric supply, problem of water supply, equipment unavailability, delayed payments
to the contractors, poor site management, ineffective planning and scheduling, late design review
and approval and slowness in decision making process are the major causes for time delay on the
project and consequently lead to cost overrun to the client and the contractor.
Nega (2008) also studied the causes and effects of cost overrun and public building construction
projects in Ethiopia, the finding shows that from 70 projects 67 projects face cost overrun which
is 95.7% of projects suffer cost overrun in their execution also the range of actual cost overrun is
from zero to 126%. He further identified 39 causes of cost overrun and categorizes the cause of
cost overrun in four groups; consultant related factors, contractor related factors, owner related
factors and others.
The researcher, who is an architect, had deep engagement in the construction industries in Addis
Ababa and around so in his experience the researcher demonstrates and faces different
construction projects which are in cost overrun due to different factors. These could be the initial
motivation of the researcher to conduct study on the above specified topic. However, many
studies conducted on the construction performance related to cause and effects of cost overrun in
Addis Ababa, the cause factors of cost overrun are limited to the category of client, contractor,
consultant and others. As far as the knowledge of the researcher is concerned, the researcher
further notices that there are buffers between these categories and needs to be further rectified
and studied. Therefore, this study has conducted to identify the causes and effects of cost overrun
in the governmental housing construction industry with extra detailed category than the above
studies did, and thereby the researcher exerts the maximum effort to exploit the subject matter
further for contributing new findings and filling research gaps.

Objectives of the Study
1.2.1 General Objective
 The general objective of the research is to identify the major cause factors of
cost overrun and its effect on the housing construction projects in Addis
Ababa governmental housing construction projects.
1.2.2 Specific Objective
The specific objectives of the study are:-

 To identify the key causes of construction cost overrun and sort out in order
with their significance level
 To analyze the effects of the construction cost overrun and sort out in order
with their significance level
 To investigate how clients, contractors and consultants are perceived this
sorting with their respective duties and responsibilities in the housing
construction project.
1.3 Research Questions

With respect to the above specific objective of the research the researcher will attempt to
answer the following research questions.
1. What are the major causes of cost overrun in the Addis Ababa governmental housing
construction projects?
2. Which are the major effects of cost overrun in the Addis Ababa governmental housing
construction projects?
3. How respondents of different stakeholders perceive sorting of causes of construction cost
overrun?
1.4 Significance of the study

The Addis Ababa city administration and housing development corporation invest lots of money
in the housing construction sector every year but the cost of housing becoming unaffordable for
the poor because of the following two reasons. The first reason is households need to save high to
make down payments and the second is the high cost of paying back mortgages. There for this
proposed research will provide significant information for policy makers how to make housing

affordable for the poor by alleviating/controlling the cost overrun and furthermore it will provide
valuable information for different stakeholders commonly clients, contractors and consultants
about how the housing construction projects affected by cost overrun in Addis Ababa.
The result of the research provides helpful information to service providers in the construction
industry to fill the gap and will improve the housing program implementation further. It also
contribute in the field of construction management and provides valuable contribution for
researchers, government and other NGOs, who will conduct further research on the related
problems.
1.5 Scope of the Study

The geographical coverage of the study is limited to Addis Ababa city administration. Even
though there are many housing construction projects across, due to time limitation the study is
confined to governmental housing construction projects which under construction and
administered by the Addis Ababa city housing development corporations. The study is conducted
in 2021. It focuses on the project, contract, contractor, client, consultant, labor and external
related cause factors of cost overrun on the city governmental housing construction industry and
how far these causes affect these projects. This study will not consider the private construction
sector and even the governmental construction sectors beyond the housing construction projects.
1.6 Organization of the Thesis Report

This thesis report is organized in five chapters. The first is the introductory chapter which gives a
brief introduction to the back ground, problem statement, objective, research question,
significance, scope and organization of this study. The second chapter incorporates discourses on
related theoretical and empirical literatures and draws theoretical framework. Chapter three
presents the research methods which discussed the research design, data type and sources,
methods and instruments of data collection and analysis. Chapter four present the discussion,
results and key findings of the data of the study. Finally chapter five draws the conclusion and
recommendations.

CHAPTER 2 : LITRATURE REVIEW

2.1 Definition of terms and concepts
This chapter presents a literature review of the cause and effects of cost overrun of construction
project. It analyses various definitions, theories, models and scope of a construction project
management as given by scholars and academicians. This includes definition of important terms,
theoretical review, empirical review, and conceptual frame work based on the existing literature
of relevant to the study.
Table 2. 1 : Contextual definition of important terms
Housing Project: Building governmental housing construction projects constructed in the

last five years (package 3) from 2016-2021 E.C under Addis Ababa city
administration
Building: A permanent or temporary construction used for the purpose of
education, office, hall, Training center, residence or etc. ( institution of
civil engineers, 2004)
Contractor: A corporate body that runs a contracting business that entails the
provision of Materials or a service to clients for a fee. (FIDIC, 2006)
Consultant: the person or entity appointed by the owner to establish and agree all
budgets, and implement and manage the necessary performance
indicators on the project (FIDIC, 2006)
Owner/client: the person on the entity who owns and funds the project (FIDIC, 2004)
Performance: the accomplishment of a given building construction projects
Against the contractual cost, time and quality standards or indicators.
Cost overrun: Excess of actual cost over budget. It is also sometimes called
Cost escalation, cost increase, or budget overrun (Al-Najjar, 2008).
Project: A project is a temporary endeavor undertaken to create
a unique product, service or result (PMI, 2008)
2.2 Theoretical Literature

2.2.1 The concept of project
Project introduces a change, in an environment where operations can’t bring success (Malcolm,
2015). To be successful, Organizations must not only maintain current operation, but also
transform processes and products in order to improve and survive in the future. There are lots of

definitions for project by different scholars, but the following definitions are provided by the four
respected project management standard organizations
PRINCE2 (2009) “A project is a temporary organization that is created for the purpose
of delivering one or more business products according to an agreed Business Case.”
PMI PMBOK (2013) “A project is a temporary endeavor undertaken to create a unique

product, service or result.”
APM BOK (2012) “A project is a unique, transient endeavor, undertaken to achieve

planned objectives, which could be defined in terms of outputs, outcomes and benefits. A
project is usually deemed to be a success if it achieves the objectives according to their
acceptance criteria within an agreed timescale and budget”.
BS6079: (2010) “A unique set of coordinated activities, with definite starting and
finishing points, undertaken by an individual or organization to meet specific
performance objectives within defined schedule, cost and performance parameters.”
2.2.2 Construction project
According to a Wikipedia, A construction is a process that consists of the building or assembling

of infrastructure. It further defines building construction as the process of adding structure with
walls to real property or construction of buildings. If these buildings are not designed and
constructed by professionals they might lead to undesirable results such as structural collapse,
cost overrun and disputes.
Construction is all about the recruitment and utilization of capital, specialized personnel,
materials and equipment on specific site in accordance with drawings, specifications and contract
documents prepared to serve the purposes of clients. Construction contributes to the economic
development of any country by satisfying some of the basic objectives of development including
output generation, employment creation and income generation and re distribution; it also plays a
major role in satisfying basic physical and social needs, including the production of shelter,
Infrastructure and consumer goods (Gollenbeck, 2009; Jinadu 2007).
The construction industry is considered one of the oldest industries organized on a project basis
(Gollenbeck, 2009). It mentioned the Egyptian pyramids built in 3rd ,millennium B.C and the
aqueducts carrying water to cities and industrial sites built in Rome in 312B.C as an example to

justify both have in common is that the use of both human and material resources which are
planned, organized, coordinated and controlled for the sole aim of realizing the projects. It also
involves a complex structure of different trades and professionals working in harmony towards
the realization of the projects.
Construction project is subset of a project and a project is a temporary endeavor undertaken to

create a unique product, service or result (PMI, 2008). Hilson (2009), justify all Projects are risky
with three different reasons. The first reason is that all projects introduce uncertainty which is an
inevitable with commonly shared characteristics that projects are unique, complex, involve
assumptions and constraints, performed by people and involve change from a known to present
unknown future. The second reason is all projects are done for a reason to attain certain specific
objectives. The third reason is that projects are untaken in condition where the external
environment affects it.
The construction industry worldwide accounts for a sizeable proportion of a nation’s economic
activities and globally accounts for about 10% of the world economy (Adindu, 2012; freeman,
2011). Approximately 70% of construction investment is in the USA, Western Europe, and
Japan. The continent of Africa accounts for about 1%. Per capita investment in construction in
the developed world is approximately 2500$ per annum whereas in Africa it is 46$ per annum
(Freeman, 2011)
2.2.3 The Iron triangle
After the enclosure of a project, three parameters are questioned whether the project succeed or
failed. This major questions are did the project complete on schedule (time), with in the budget
(cost) and was delivered on the specified quality and specification (scope). In most cases if the
answer to any of these questions is no, then project categorized as a failed project even the other
two answers are yes. These three parameters are bonded strongly each other. The effect of one
parameter has high impact on the other and because of these strong integrations they have been
called “The Iron Triangle of the project” as it is explained on the diagram fig 2.1. (Ossien, 1971;
Barnes, 1988; Weaver, 2007)

Fig 2. 1 The Iron Triangle (weaver, 2012)
The interaction of these three project constraints are not intuitive (Weaver, 2012). Output is
inversely connected to the other two dimensions: less output is may be bad, but less time and cost
is potentially good. Increases in scope have high probability to increase cost and time whereas
increases in cost and/or time may not be necessarily related with scope. If the project time is
reduced it may lead to an increase in cost and a decrease in scope. In the same way if the projects
budget decrease then it will have effect on the other two constraints disproportionately.
The problem of the iron triangle is, it is a narrow perspective of measuring the project success
and failure (Davies, 2002). So the difference between achieving the project product success
which is measured against the realized benefits of the project and managing the project
successfully which is measured against the three iron triangle constraints is quite different since
there are other factors beyond the iron triangle.
Distorting the triangle (fig 3) might be a very simple representation of the actual status against
plan estimates but this would be only a weak illustration that cannot show the complexity and
real magnitude of the project success and failure.
Fig 2. 1: Distorting the iron triangle to illustrate cost overrun (Davies, 2002)

2.2.4 Construction cost
Construction cost is all the expenditure reasonably incurred (or to be incurred) by the contractor,
whether on or off the site, including overhead cost and similar charges, but does not include
profit. (MDB FIDIC, 2006). When the construction cost includes profit it will be the
construction total price that the contractor often claims (Wasame, 2006).
The categorization of the final total construction costs is not much different from the total
construction cost that is typically measured in the following two ways. The first is input approach
where the costs of all the elements are summed up to give the total cost and the second way is
output approach where the final price or costs are inclusive of profit produced by the construction
companies (DTZ research, 2004). The main difference between the two approach is only
including the profit or not, the remaining all considerations are the same.
Fig 2. 2: Price/Cost structure of a generic building project (adopted from Abukar Warsame,
2006)
Warsame, (2006) categorizes construction costs as direct construction cost, indirect cost and risk
allowance with their detail descriptions as follows.
i) Direct construction costs:
The direct construction cost covers the largest portion of the total project cost which includes all
the costs that can be specifically recorded with an activity in the project scope. These costs are
mainly included the direct material cost, direct labor cost, direct equipment costs and subcontract

costs. The direct construction cost can be budgeted, monitored and controlled effectively more
than the other indirect costs.
ii) Indirect costs:
All the costs that cannot be directly booked under a specific activity in a construction project to
keep the whole construction project operation is called indirect cost. These costa are sometimes
called overhead costs or operation costs which mainly include the head office overhead cost and
site overhead cost
Head office overhead costs: These costs are the total costs that required for running the whole
operation of the construction company. These includes senior management costs, indirect labor
costs ( salaries and benefits of staffs other than the senior management members), head office
building costs, bidding expenses, expertise service costs ( costs for external auditors, lawyers,
management consultants and external trainings), office furniture and equipment, office running
expenses, workshops, garages and warehouses, bank charges, insurance charges, transportation
and travel expenses and miscellaneous expenses.
Site overhead costs: These costs are all the costs required for running the operation at specific
project site level. These include: site management costs, indirect labor costs( salaries and benefits
of staffs other than the site management members working at the project site such as site
engineers, office engineers, administrative and finance staffs), mobilization and demobilization
costs, site offices, site office furniture and equipment, office running expenses, radio
communications, camp facilities, access roads, water and power supply, workshops, garages and
warehouses, bank charges, transportation and travel expenses.
Risk allowance: These costs are incurred on the direct and indirect construction costs as a
compensation cost for negative impacts of risks arise from contractual, technical, political and
economic uncertainties. These are the costs for contractual uncertainties, technical uncertainties,
political uncertainties and economic uncertainties
2.2.5 Cost management
Project cost management is a management activity that deals with forecasting, control, cost
finding, analysis and evaluation of the contractors and it is used to control project cost (Zhen,
2008). According to the standard project management perspective cost management consists of

four arguments that are hierarchically associated with each other: Resource planning, cost
estimating, cost budgeting and cost control (PMI, 2004).
Fig 2. 3: Major process in project cost management (PMI, 2004)

Each of these cases consists of three parts; input, processing and output and the output of each
section is the input for next section.
Resource planning determines resources, including manpower, materials and equipment, and
their number that needed to complete the projects each activity. The input of resource planning
includes work breakdown structure, historical information, scope statement, organizational policy
and activity duration estimates.
Fig 2. 4: Inputs, tools, Techniques and outputs of resource planning

Cost estimating, estimates from the costs of resources needed to complete project activities which
are associated with uncertainty. The degree of uncertainties in every phase of the construction
project is different. So in estimating it is approximating the cost so the estimator should consider
the cause of variation of the final estimate for the purpose of better managing the project. Cost
estimating involves developing an assessment of the likely quantitative result- how much will it
cost the performing organization to provide the product or service involved? The input

parameters for cost estimating includes work break down structure, resource requirement,
resource rate, activity duration estimate, estimating publication, historical information and risk
for the activity.
Fig 2. 5: Inputs, Tools, Techniques and outputs of cost estimating
Cost budgeting is the total estimated cost for the project is allocated separately to each of the
project activities so that the basis for the cost to be defined which is called cost base line.
Following the project cost base line is used to measure project effectiveness. The cost base line is
a time phased budget that will be used to measure and monitor cost performance on the project.
The input parameters for cost budgeting involves work breakdown structure, project schedule
and risk management plan.
Fig 2. 6: Inputs, Tools, Techniques and Outputs of cost budgeting

Cost control includes identifying changes in the cost of the project, change management and
evaluation of changes occurring at the moments of acceptance of changes. During the

construction process it is vital to ensure the success of a project by controlling the cost
performance. The cost control is a key activity, which consists of 5 steps
 Determine the desired cost that the project costs are controlled under that base
 Calculate the real base line cost on planned project
 Comparison of the real cost and the cost of the project
 Analysis of the level, degree of effects and cause of deviations
 Recommend ways to correct operation
Input parameters in cost control involves cost baseline, performance reports, change requests,
and cost management plan. Among the listed tools and techniques in cost contra, Earned value
management (EVM) obtained much emphasis in cost control of construction projects.
Fig 2. 7: Inputs, Tools, Techniques and Outputs of Cost Control
2.2.6 Cost Overrun
Cost overrun is defined as excess of actual cost over budget (zhu et al 2004). It is also sometimes
called cost escalation, cost increase, or budget overrun. (Al-Najjar 2008). (Choudhry, 2004)
defined cost overrun as the difference between the original cost estimate of project and actual
construction on completion of works of a commercial sector construction project (Ubani et al,
2015)
Cost overrun is defined as an increase in which the provision of contracted goods or services are
claimed to require more financial resources than was originally agreed between a project sponsor
and contractor, (Nega, 2008). Wideman, (2002), defined cost overrun as the amount by which
actual costs exceed the baseline or approved costs. This calculation can be converted to a

percentage for the case of comparison. For the purpose this research cost overrun is defined as
the deference between the actual construction cost at the completion and the original cost
estimate of the project at inception.
–
----------------------Eq. 1
2.2.7 Causes of cost overrun
Cost overrun factors are generally categorized in seven groups (Karunakaran et al, 2018), these
are project related factors, contract related factors, client related factors, contractor related factors
and consultant related factors. These classifications are further discussed as bellow.
Project- related factors (PF): it defines the uncertainties of project complexities that are being
noticed after the contract has been signed between the contacted parties. Due to the presence of
the unforeseen circumstances in the project life cycle, uncertainties usually happened in complex
projects (Azhar et al., 2008). But this uncertainties can solved in early stage through proper
communications. If these uncertainties cannot resolved on time and scope this may cause
overruns in time and affect cash flow.
Right of way problems that cause problem for acquisition of land , lately decision made by the
client after the signed of the contact, unexpected site location difficulties, access road that cause
difficulties for mobilization and other social issues lead to cost overrun by incurring extra cost on
the project to mitigate those problems.
Contract-related factors: this group of factors happened in contract agreement process due to
the involvement of irresponsible contractor, consultant and client when signing up an agreement.
The over budget cash flow usually from the tendering process itself due to the improper contract
rewarding process by the consultant on behalf of their client. Even if awarding the lowest bidder
in price is recommendable by the procurement legislation, the bid price must be optimized and
ensured that it covers the technical content of the project. Contractors with expectations of
contractual claims (extension of time with extra cost) are probably won the bid with least price
without acknowledging the consequences of their action. So this type of causes of cost overrun
is among the group contract related factors.
Client-related factors: it defines the group of cost overrun factors that occurs only because of
the clients. Design changes and scope changes are among the client related factors that normally

occurs due to the interference of the clients during the constructions. Any changes related to the
designs would take a lengthy period to make decisions among all the parties involved, extra time
would be needed for improvements to be made, extra time to re-evaluate the design and will
lengthen the delays in drawings approval. This changes made by clients could also lead to late
decision makings and arose disputes among the project participants. The longer decision makings
the higher the chances for project schedule delays and cost overrun (Karunakaran et al, 2018).
Contractor-related factors: This group defines the cost overrun factors that are caused by the
contractor. Ensuring of the capability, capacity and productivity of equipment’s in the
construction phase is the responsibility of the contractor to achieve the highest level of job
completion in a shorter period. Mishandling of the equipment (Koushki et al., 2005) and misuse
of the material (Kaliba et al., 2009) will cause the generation of waste at the site and significantly
contribute for cost overrun. In addition, inadequate quality assurance of the project to seek extra
benefit by using low quality material or reduce the quantity of material below the specification as
stated in the design will cause loosing strength and lead to reworks. This reworks will incur more
time and cost than the specified contract amount on the construction project.
Consultant-related factors: This group categorizes the cost overrun factors under the
consultant. Consultants with lack of required data are undergoing with unrealistic and
incomplete/poor design drawings that lead to inaccurate price estimation at the time of tender
preparation (Moura et al., 2007). The rework to correct those errors will lead to long delay in
design and the higher chance for project cost overrun. Poor design drawings, provision of
ambiguous design details, impractical and complicated designs, inaccurate site investigation are
some of the indicators of inadequate consultant teams experience.
Labor-related factors: This group classifies the cost overrun factors caused by labor. (Jackson
and Steven, 2001) states that labor productivity is the most essential requirements to ensure the
successful completion of the construction project. Poor skilled labor (producing poor quality),
labor absenteeism (crating labor shortage), low payment for labor (depressing workers
motivation) and cultural diversification of labors (cause frequent argument and poor relationship)
will affect the construction phase and lead to cost overrun at the end. Besides that, problems arise
from financial difficulties from the client or the contractor may subsequently end up in labor
strike and this will lag the construction until the problem solved.

External-related factors: This group defines the unexpected circumstances causing construction
cost overrun beyond the control of the construction stakeholders (Olawale and Sun, 2010) such
as nature controlled factors (weather changes, earthquake, floods and so on), law and regulations
related factor (delay in approval in local authorities), political related factors (political decision,
directions and policy changes) and even other environmental related factors (inflation, instability
of economy). The labor, material, equipment and transportation cost and other unforeseen
elements would turn unpredictable during the construction phase due to the inflations and
economic instability of the country.
Table 2. 2:Summary of causes of cost overrun by different authors

(Karunakaran et al
(Ullah et al 2017)
( Durdyev, 2020)
(Valentine et al
Suliman, 2017)
(Sweis, 2013)
(Azhar et al ,
(Abusafiya &
(Alghonamy,
(Nega, 2008)
Category by
( Muneeb &
Reza,2020)
no. causes of cost overrun
frequency
,2018)
2018)
2008)
2015)
Lack of coordination between
1 construction parties √ √ √ √ √ √ √ √ 8
project related factors

2 Conflict between project parties √ √ √ 3
Large number of participants within the
3 project √ √ √ 3
4
Slow information flow between parties √ √ 2
5 Lack of communication between parties √ 1

6 Complexity of the project
contract √ √ √ √ √ 5
-related
7 Corruption factors √ √ √ 3
8 Contractual claims √ √ √ 3
Cash flow and financial difficulties

√ √ √ √ √ √ √
related factors
9 faced by the contractor 7

contractor-
Lack of skilled workers to operate

10 special equipment √ √ √ √ √ √ 6
Outdated/obsolete construction
11 /technology/ methods √ √ √ 3

Use of poor quality of materials

12 initially, leading to reconstruction √ √ √ √ √ √ 6
13 Lack of equipment and materials at site √ √ √ √ √ 5

Mistakes during construction by
14 contractors √ √ √ √ √ √ 6
15 Wastage on site √ √ √ √ 4
16 Poor experience of constructors √ √ √ √ √ √ 6
17 Schedule delay √ √ 2
18 Incompetent subcontractors √ √ √ 3
19 Poor financial control on site √ √ √ √ 4
20 Poor site management √ √ √ √ 4
21 High cost and shortage of machineries √ √ √ √ 4
22 Delay of material delivery √ √ √ √ √ 5
23
Payment delays √ √ √ √ √ √ √ √ 8
client- related factor
24 Land acquisition √ √ √ √ 4
25
Additional work √ √ √ √ √ √ 6
26 Lack of inventory √ √ 2
Lack of availability of funds/poor
27 economic conditions √ √ √ √ √ √ √ 7

28
Change in the scope of the project √ √ √ √ √ √ √ 7
29
Delays in decisions making √ √ √ √ 4
30 Frequent change of heads √ 1
31 Practice of assigning lowest bidder √ √ 2
32 Owner interference √ √ 2
Mistakes and errors in design and

33 drawings √ √ √ √ √ √ √ 7
34 Frequent design changes √ √ √ √ √ √ 6
Inaccurate estimation of project
35 duration and cost √ √ √ √ √ √ √ 7
consultant- related factors

36 Lack of proper professional software √ √ √ √ √ 5
Amendments in work due to error in
37 design √ √ 2
Improper project planning of project
38 tasks √ √ √ √ √ √ 6
Lack of effective site management and
39 supervision √ √ √ √ 4
40 Inadequate monitoring and control √ √ √ √ √ 5
41 Poor project contract management √ √ √ √ √ 5
42 Inaccurate quantity take-off √ √ √ 3
43
Incomplete design at the time of tender √ √ √ √ 4

Change in design at the time of

44 construction √ √ √ 3
45 Unclear specification √ √ 2
46 Delays in design √ √ √ √ 4
Addition/omission and errors in the bill
47 of quantity √ √ 2
48 Delay of material/test approval √ √ √ √ √ √ √ 7
49 Insufficient geotechnical investigation √ 1
50 Shortage of labours/site workers √ √ √ √ √ √ √ 7
labor- related factors

51 Low productivity level of labours √ √ √ √ √ √ 6
52 Unskilled manpower √ √ √ √ √ 5
53 Labour absenteeism √ √ 2
54 High cost of labour √ √ 2
55 Strikes by site personnel √ 1
56 Dispute on site √ √ √ 3
57 Material shortage in the market √ √ √ √ √ √ √ √ 8

external -related
Escalation and fluctuation of building

√ √ √ √ √ √ √ √ √
factors
58 material prices 9
59 Tax liabilities √ √ √ 3
Delay in government procedures/
60 Bureaucracy √ √ √ 3

61 Work accidents √ 1
62 Natural disasters/ Act of GOD √ √ √ 3
63 Location/condition of site √ √ √ √ √ √ √ √ √ 9
64 Economic instability √ √ √ 3
65 Uneven weather conditions √ √ √ √ √ √ √ 7
66 Government policies √ √ √ √ 4
67 Monopoly by suppliers √ √ √ 3
68 Political situation √ √ √ √ 4
69 Social and cultural impacts √ √ √ 3
Problems with neighbors ( right of way
70 problem) √ √ √ √ 4
71 Government interference √ 1
Change in foreign exchange rate( for
72 imported materials) √ √ 2
Total no of causes identified by the

respective authors 35 31 38 37 18 26 33 43 41

2.2.8 Effects of cost overrun
Effect of cost overrun is the consequences that will be encountered when cost overrun occurs on
the construction projects. Cost overruns have obvious effects for the key stakeholders in
particular, and on the construction industry in general. To the client, cost overruns implies added
costs over and above those initially agreed upon at the onset, resulting in less returns on
investment. To the professionals, cost overrun implies in ability to deliver value for money and
could well tarnish their reputations and results in loss of confidence reposed in them by clients.
Finally to the contractor, it implies loss of profit for non-completion, and defamation that could
jeopardize his/her chances of winning further jobs, if at fault. To the industry as a whole cost
overrun could bring about project abandonment and a drop in building activities, bad reputation,
and inability to secure project finance or securing it at higher costs due to added risks (Mbachu,
et al, 2014).
Construction clients demand the timely and on budget completion of projects without delay or
additional cost. However cost and time overruns and interest accumulation on capital are the
most frequent effects of delay in the construction industry although the effects of delay are
slightly more on time overruns than cost overruns. This could be as a result of the contractors’
inability to honour contract deadlines and using shortages of material as an excuse or the
consultant’s inability to implement proper design and obtaining adequate knowledge about the
usage of materials (Akinsiku and Akinsulre, 2012).
The study of Nega (2008) further identified the following as the major effects of cost overrun;
delay during construction, supplementary agreement, additional cost, budget shortfall, adversial
relationship between participants of the project, loss of reputation to the consultant, the
consultant will be viewed as incompetent by project owners, high cost of supervision and
contract administration to the consultant, delayed payment to the contractor – the contractor will
suffer from budget shortfall of the client and poor quality workmanship.
2.3 Empirical Literature Review

The empirical literature review part presents various local as well as global cases that researches
conducted on assessing the causes and effects of construction cost overrun.
2.3.1 Cost overrun in global cases
Azis et al, (2013) studied on controlling cost overrun factors in construction projects in Malaysia
and found out eight categories of causes of cost overrun. Among the eight category of cost
overrun it found that “contractor’s site management” is ranked as the most severe contributor of
cost overrun with 90% respondents ranking and followed by information and communication
category with 81% respondents ranking while the least severe category is financial management
with 71.4% respondents rate .
Abdulaziz, (2016) conducted a research on the “cost overrun in construction projects in Saudi
Arabia; contractors’ perspective” to identify the cause of cost overrun and ranks them based on
severity index (S.I) and frequency index (F.I). He identified 34 causes for cost overrun through
literature review and found that the top cost overrun causes are bid award for lowest price with
S.I 63 and F.I 52.35, frequent changes in design with S.I 64..74 and F.I 59.31, improper planning
with S.I 71.36 and F.I 64.53, long period between design and time of implementation with S.I
63.87 and F.I 60.18, and payment delay with S.I 74.22 and F.I 61.92.
Abusafiya and Suliman, (2017) done research on causes and effects of cost overrun on
construction project in Bahrain: Part I (Ranking of cost overrun factors and risk mapping). A totl
of 45 factors were short listed which found through past literatures and used as part of the
questionnaire. Based on the result and ranking using importance index (I.I) it found that frequent
design changes with I.I 68.22, mistakes during construction with I.I 64.03, and schedule delay
with I.I 59.44 were considered as the most important factors of cost overrun causes.
Muneeb and Reza, (2020) conduct research on “analysis on cost overrun in construction projects
in Kashimir Valley” to identify and evaluate the causes of cost overrun based on relative
importance index (RII) by conducting a questionnaire using likert scale (1-5). As per the findings
the root causes of cost overrun in Kashimir valley are corruption (RII-0.833) , lack of availability
of funds/poor economic conditions (RII-0.8133), Land acquisition (RII-0.7533), payment delays
(RII-0.7583), delay in government procedures (RII-0.7467) and inaccurate evaluation of project
duration and cost (RII-0.0733).
2.3.2 Cost overrun in Africa
Khabisi, (2013) on studying causes and effects of cost overruns in public sector construction
projects in south Africa founds the causes of cost overrun by groups that contractor related

factors are the most causes for cost overrun with highest cronbach’s alpha of 0.856. The financial
related factors are ranked on second with cronbach’s alpha of 0.843. The consultant related
factors, site management factors, and design related factors are also causes of cost overrun with
cronbach’s alpha of 0.82, 0.817, and 0.793 respectively. The price related factors are ranked the
least for causes of cost overrun with cronbach’s alpha of 0.765. Further he found that the groups
for effects of cost overrun that contract related factors are the highest with cronbach’s alpha of
0.88 and financial related factors are the second with cronbach’s alpha of 0.804.
Valentine et al, (2018), on his study about the critical factors causing delay and cost overrun in
public building projects in Dare-Es-Salaam, Tanzania, identifies and ranks cause factors based on
frequency index (F.I) and severity index (S.I). The finding revealed that; delay in decision
making with F.I 77.13% and S.I 76.06%, incomplete design and estimate at the time of tender
with F.I 68.09% and S.I 74.47%, improvement of standard drawings/design changes during
construction stage with F.I 72.87% and S.I 71.28% and errors and omission in drawing and in bill
of quantity with F,I 68.62% and S,I 70.21% were found to be the most severe factors.
2.3.3 Cost overrun in Ethiopia
Nega, (2008) studied the causes and effects of cost overrun on public construction projects in
Ethiopia, and found that out of 70 public building construction projects 67 (95.7%) of the
building projects suffer cost overrun and by this statement he concluded that the building projects
suffer cost overrun in Ethiopia is higher than in any country by referring Flyvbjerg et al, (2003).
He further identified 39 causes of cost overrun. Among this 39 causes the most frequent causes
are inflation or increase in the cost material construction materials with weighted average of 3.05,
fluctuation in cost labor with weighted average of 2.82, change in foreign exchange rate for
imported materials with weighted average of 2.74, change order and/or lack of control on
excessive change orders with weighted average of 2.68, and additional costs due to variations
(clause 51.1) with weighted average of 2.66 are found to the top five causes for cost overrun in
Ethiopian context. Among the stake holders share of being the cause for cost overrun, the
consultants are the most responsible body for causing cost overrun followed by the client
however client is found to be severely affected by the cost overrun since they are forced to cover
the additional money to complete projects.
The most common effects of cost overrun to stakeholders in the public building construction
industry are; delay, supplementary agreement, budget shortfall of project owners, adversial

relationship among stakeholders, and loss of reputation for professionals on the construction
industry especially to consultants (ibid).
2.4 Conceptual Framework
Project related Factors

Contract related effects
 Delay of work
Contract related
 Supplementary
Factors agreement
 Adversial
relationship
Contractor related
 Reputation to the
Factors consultant
 Poor quality
Consultant related COST workmanship
Factors  Dissatisfaction
OVERRUN
 Abandonment
Client related Factors Financial related

effect
Labor related Factors  Additional Cost
 Budget shortfall
 High cost of
supervision and
External Factors contract admin
 Delayed payment
Causes of cost overrun Effects of cost overrun

(Independent variable) (Dependent variable)
Fig 2. 8. Conceptual Frame work

CHAPTER 3 : RESEARCH METHODS

3.1 Research Design
The type of the research design that the researcher used is descriptive study design to enhance
gathering of data from stake holders (contractors, Consultants and clients) about what were the
causes and effects of cost overrun on governmental housing constructions in Addis Ababa which
are on undergoing. In addition explanatory study design also applied to quantify and explains the
factors that contribute for the problem of cost overrun.
3.2 Population, Sample Design and Sample Size

The targeted populations are all contractors from category 1 to category 6 BC/GC contractors
who are currently engaged on the package 3 (three) of Addis Ababa governmental housing
construction projects in 20/80 and 40/60 scheme. On package 3 (three) construction project there
are 12 sites, 890 building blocks, 372 contractors, and 23 consultants with 6 client’s project
offices. Their lists were taken from the Addis Ababa city, housing development Corporation’s
construction supervision and contract administration directorate archives. The targeted
individuals were those professionals who belong for each stakeholders of the project. Individuals
From the contractors (project managers, site engineers, office engineers and other professionals),
consultants (Resident engineer, site engineer, and others) and owners (Addis Ababa city, housing
development corporation’s head office and project offices staffs) were selected with personal
judgment of the researcher.
The researcher choose the Addis Ababa governmental housing projects as case study was for
accessibility of the targeted population to make the data collection process easy since time and
cost were major constraints of the researcher. Limiting the scope of the research in such area
were help full to produce quality study that could help and improve on reduction of cost overrun
which were the most frequent challenges in the construction industry.
The technique the researcher used is a non-probabilistic purposive sampling to identify potential
respondents based on the researcher personal judgment, how much knowledge and exposure they
had to understand and answer properly about the subject matter. Purposeful/Purposive sampling
is used when the subject matter needs more knowledge and understanding so that the researcher
decide to choose respondents by his own personal judgment when he believe he can get the best

data of them. Based on this assumption respondents were selected from contractors, consultants
and owner’s staffs.
The sample size of this research was calculated by Yamane (1997) formula of calculating the
sample size for research that can help the researcher to acquire highest sample size.
Assuming the proportion (p) to be 50% and q value will be 1-p which is 50% (0.5) and 95%
confidence interval=1.96, 10% margin of error (e=0.1). The total numbers of contractors were
372.
( )
So --------------------------------- Eq.2
( )
( )
( )
Therefore,
The sample size used for this research is 89.
3.3 Sources and types of data

The researcher were collected the primary data through questionnaire to get the raw data on the
subject matter from different individuals who have concern and participated in the Addis Ababa
governmental housing construction project. The secondary sources of data the researcher used
were published sources of data (journals, articles, books etc.) and unpublished data that were
available in the Addis Ababa city housing development corporation archives (Annual reports,
contract agreement documents, procurement documents, payment certificates, directives etc.).
3.4 Methods of data collection

The researcher collected all primary data through research questionnaire that the researcher
distributed it in person only. The questionnaire developed by the researcher through review of
different related literatures and extracted 72 causes of cost overrun and 11 effects of cost overrun
that incorporated in the questionnaire to collect both qualitative and quantitative data. the
questionnaire was organized with three parts: the first part focus on the respondents demographic
data, the second parts was focus on questions about to grasp information on how respondents
knowledge, experience and awareness on the subject matter and the third part was contain the

main aim of the research acquiring respondents knowledge and experience towards causes and
effects cost overrun. This questionnaire was matrix questions crafted by using likert scale (rating
scale) technique ranging from 1 to 5 to collect data based on proportioned weight for respective
questions.
Causes of cost overrun were structured with ranges;
E.S. = Extremely Significant (5):

V.S. = Very Significant (4):
M.S. = Moderately Significant (3):
S.S. = Slightly Significant (2):
N.S. = Not Significant (1)
And effects of cost overrun were structured with ranges;
1= Strongly Disagree 2= Disagree 3= Slightly Disagree 4= Agree 5= Strongly Agree

The secondary data were collected from Addis Ababa city housing development Corporation in
hard and soft copy according to the availability the data.
3.5 Methods of data analysis and Model specification

The researcher used both the descriptive and inferential statistics in the data analysis to find
results in a summarized way and to infer the results of the sample towards the whole population.
Method of Ranking: The cause factors which compiled from different literatures and listed on
the questionnaire were analyzed accordingly the weights given by the respondents. Further these
cause factors of cost overrun were weighted and ranked with the measurement of relative
importance index (RII).
The relative importance index was computed by the following equation
∑
RII = ----------------------------------Eq 3
Where;
RII= Relative Importance Index
W= Weight is given to each cause factor by the respondents and ranges from 1 to 5
A= the highest weight 5
N= the total number of respondents

Method of Measuring of strength and agreement/disagreement:

The spearman (rho) rank correlation coefficient, was implemented for measuring the strength in
ranking between two groups of respondents scoring for various factors
i.e., Clients versus Consultants,
Clients versus Contractors
Contractors versus Consultants
The spearman (rho) rank correlation coefficient was computed by the following equation
∑
Rho ( )=1- --------------------------------------------Eq 4
( )
Where:
Rho ( )= Spearman rank correlation coefficient
= the difference in ranking between each pair of factors
N= Number of cause factors (variables)
Hypothesis testing: the following procedures were implemented

1. Define the null hypothesis ( ) and the alternative hypothesis ( )
2. Choose a value for .(the significance level)
3. Calculate the value of the test statistic, Rho ( )
4. Compare the calculated value with a table of the critical values of the test statistic
5. If the calculated value of the test is less than the critical value from the table, then accept
the null hypothesis ( ). Whereas, if the calculated value of the test is greater than the
critical value from the table, then reject the null hypothesis ( ) and accept the alternative
hypothesis ( ).
 The Null Hypothesis (HO): -There is no significant agreement in the ranking of
cause factors of cost overrun between two groups of respondents.
 The Alternative Hypothesis ( ):-There is significant agreement in the ranking
of cause factors of cost overrun between two groups of respondents.
Method of Regression: The researcher used ordinary least square (OLS) regression method for
data analysis. The collected data were coded and organized in Excel for regression analysis with
STATA MP-13 for descriptive statistics and for inferential statistics.

Model Specification: To specify the mathematical and Econometric model, first the researcher
defined the “Y” (dependent variable) and the “X” (independent variables). Then the
mathematical model crafted with linear equation and then because of uncertainties /errors in the
data analysis the researcher also considered random errors to compute the econometric model.
Dependent Variables; the dependent variables are the effects of cost overrun that were
continuous variables which measured in likert scale
Independent variables: the independent variables are the cause factors of cost overrun which
categorized in seven groups. These are:
 Project Related Factors ( ) – cause factors of cost overrun originated from the project
nature which measured in likert scale.
 Contract Related Factors ( ) – cause factors of cost overrun originated from the
contract behavior which measured in likert scale
 Contractor Related Factors ( ) – cause factors of cost overrun originated from the
contractor side which measured in likert scale
 Owner/Client Related Factors ( ) – cause factors of cost overrun originated from the
client side which measured in likert scale
 Consultant Related Factors ( ) – cause factors of cost overrun originated from the
consultant side which measured in likert scale
 Labour Related Factors ( ) – cause factors of cost overrun originated from labors side
which measured in likert scale
 External Related Factors ( ) – cause factors of cost overrun originated from external
environment that were beyond the control of the above six factors which measured in
likert scale.
Cost overrun Effects = F (cause factors of cost overrun)

Y= + + --------Mathematical Model
= + + + ----Econometric Model
Where:
Y = cost overrun effects (dependent variables)
X = cause factors of cost overrun (the independent variables), ordered as per the above list
= Constant / the intercept/
= disturbance/ error

3.6 Data Reliability and consistency:

The researcher used the coefficient alpha or Cronbach alpha for estimation of the reliability or
consistency of statistical test. Cronbach alpha is a coefficient of internal consistency and
reliability used when every single question have many option of different choices for giving
answer eg. like likert scale. It was first named alpha by Lee Cronbach in 1951 Cronbach, (1951).
Cronbach alpha is a measure of the reliability of a data on the questionnaire and the result ranges
from 0 to 1 to indicate the respondents rate the same question. If all respondents choose the same
weight for the same question the alpha value will be 1 and vice versa. The minimum level of
cronbach alpha coefficient for reliability is 0.7 (Fellows & Liu, 2007).
The cronbach alpha is computed as:
∑
= [ ]------------------------Eq 5
Where ,
K = the number of items in scale
= the variance of item i and
= the variance of the observed total test scores
Table3.1 shows the level of Internal consistency of data by cronbach alpha
Table 3. 1: cronbach alpha index, Source: Manerikar, (2015)
Cronbach alpha, Internal Consistency

Excellent (High Stakes
0.9 ≤ α
Testing)
0.7 ≤ α< 0.9 Good (Low Stakes Testing)
0.6 ≤α < 0.7 Acceptable
0.5 ≤ α< 0.6 Poor
α< 0.5 Unacceptable

CHAPTER 4 : RESULT AND DISCUSSION
4.1 Introduction
This part of the research deals with the analysis and discussion of the data gathered from the
document review and questionnaire survey.
The main purpose of this section is to identify and extract the major cause factors of cost overrun
after examining the existence of cost overrun with its extent. As well these cause factors of cost
overrun will analyze further to numerate their significance level based on the calculated relative
importance index. The effects of cost overrun also analyzed and sorted out in order with their
agreement level.
4.2 Contextual background of the study

4.2.1 Construction in Ethiopia-Addis Ababa
Ethiopia is located in the horn of Africa with an area of 1.13 million square kilometers. It is
estimated that about 20 percent of the total population of Ethiopia currently lives in urban areas,
which has rendered it as one of the least urbanized countries in sub Saharan Africa. Even though
the level of urbanization is this low as compare to other countries, the country has one of the
highest urbanization rate even compare to the developing countries which is estimated at 4.1
percent that is more than the national population growth rate 3 percent per annum.
(MUDHCo,2014).
The level of urbanization in Ethiopia gets increment from time to time in different decades as of
the population gets increased drastically. In 1960 the level of urbanization has been only 6
percent that has increased to 11 percent in 1984. This level increased by 3 percent to 14 percent
within 10 years from 1984 to 1994. With approximately equivalent 3.2 percent rate form
previous projection it already reached 17.2 percent level of urbanization in 2013. This population
level is projected to account for 30 percent of the total population by year 2025 (ibid).
This figurative data shows that the construction industry is only confined within a small portion
of the country since the majority of the construction is held in urban areas. The construction
industry is the most enabler factor for the overall development specifically for least developing
countries like Ethiopia. It is among the leading industries in producing employment and it
contributes to the national development at large for any country (Abraham, 2007 and Kassim,
2008).

Addis Ababa the capital city of Ethiopia and the diplomatic center of Africa takes the major share
of urban areas in the country. It is a true primate city with more than 3.2 million people which is
14 times bigger than Mekelle, the second largest city in the country. About 60 percent of the
urban areas are estimated to be slum, shortage of basic services and infrastructures since the
available evidence shown that happened when the pace of urbanization is faster than the increase
in service delivery due to population pressure (MUDHCo, 2014)
The urban population pressure resulted mainly by rural-urban migration, consequently that bring
growing welfare and housing problems for the new urban poor, and increasing unemployment.
According to HICES results, about 25 percent of the nation’s urban populations were living
below the poverty line. There is thus an equal need for an urban poverty, housing and welfare
focus to the strategy for urban development as there is for the functional focus on urban areas to
national economic growth.
The government designed and implemented an indigenous urban housing development program
called Integrated Housing Development Program (IHDP) since 2005 to construct houses and to
create job opportunity). The IHDPV has built 142,802 housing units between 2006 and 2010 that
is a significant achievement considering the previously limited capacity of the Ethiopian housing
sector (UNHABITAT, 2010).
4.3 The action area of the study

The action area of the research is package three condominium construction projects which are
under construction. These sites are listed below on table 4.1.
As it is mentioned on the methodology part these research held on the package three
condominium sites which are under construction. These sites are on the verge of completion and
expected it would be transferred to the beneficiaries in near future.
On the planning stage package 3 condominium were assumed to be twenty sites as it indicates on
the above table but eight sites; bole beshale 20/80, bole cheri, bole beki, koye feteche new
number1, koye fetche kersa, bole jarso, and bole katila were not implemented because of the land
acquisition problem. The rest twelve sites are now under construction and this study completely
exerted on these sites. The approximate location and distribution maps of these sites are
presented on fig 2.10.

Table 4. 1: package 3 condominium sites list, Source (AAHDCo, 2021) third quarter report
S.No. Condominium Sub No of Typology No. of Populati WW

Name City Blocks Houses shop on flow rate
(m3/day)
1 Furi Hana N/Lafto 49 G+7, G+4 3090+236 16290 1791.9
2 Kolfe Kolfe 53 G+7, G+4 2915+139 14853 1633.83
(Bereket)
3 Kolfe Kolfe 16 G+7, G+4 860 4105 451.55
(Sodo/Wetade
r)
4 Kolfe (Fanuel) Kolfe 37 G+7, G+4 1737 8401 924.11
5 Jemo Gara Kolfe 19 G+4 761 3815 419.65
6 Yeka Tafo Yeka 178 G+7, G+4 5310 26870 2955.7
7 Goro Silasie Bole 35 G+7, G+4 2223 11115 1222.65
9 Summit Bole 10 G+12 400 2000 220
8 Bole Beshale Bole 58 G+15, 6596 32980 3627.8
40/60 G+13,
G+11
10 Bole Arabsa G+12
IV
11 Bole Beshale Not
20/80 identified
12 Bole Cheri
13 Bole Beki
14 Koye Fetche
New number 1
15 Koye Fetche
Kersa
16 Bole jarso
17 Bole Katila
18 Arabsa -3 Bole 169 G+7, G+4 10290 121,250 13,338
19 Arabsa -5 Bole 152 G+7, G+4
20 Arabsa -6 Bole 122 G+7, G+4

Yeka Tafo
Jemo Gara Summit
Goro Slassie
Fanuel
Arabssa 3
Wetader
Bereket
Arabssa 6
Arabssa 5
Furi Hana
Fig 4. 1: Approximate location map of package 3 condominium sites (12 Sites)

Source: (AAHDCo, 2021)
4.4 Survey response rate

Questionnaires extracted from different literature were organized in a way that was suitable for
grouping were distributed for the targeted groups. The targeted groups also identified based on
the field survey that which stake holders are the direct actors in the construction of governmental
housing. Based on these the direct actors were the client (the Addis Ababa housing development
corporation), the contractors (involved in these projects) and the client (that were responsible in
managing these projects).

Based on the result found on the methodology part of determined sample size, a total of 89
questionnaires were distributed for above identified three stakeholders. For the contractor and
client 30 questionnaires were distributed for each and 29 questionnaires were distributed for the
consultant. Out of the total 89 questionnaires distributed, 68 questionnaires were filled and
returned and this is 76.4% response rate. These responses are beyond the limit of the minimum
acceptable response rate 30% - 40% set by burgess, (2011). The distributed questionnaires and
returned questionnaires for individual stakeholders were analyzed as per the following table.
Table 4. 2: Distributed versus returned questionnaires
Questionnaire Questionnaire Response

Respondents Distributed Returned Rate
No’s (%) No’s (%) (%)
Client/Owner 30 33.7 26 38.2 86.7
Contractor 30 33.7 25 36.8 83.3
Consultant 29 32.6 17 25 58.6
Total 89 100 68 100 76.4
Source: Field survey (2021)
4.5 Demographics and Descriptive statistics of Respondents
According to the questionnaire section one, the respondent’s demographic and other related data
are presented here under as per the stata output.
From the total of 68 returned questionnaires responded, 16.18% respondents were female and the
remaining respondents were male with ratio of 83.82%. This shows that the participation of
females in Addis Ababa city governmental housing construction project were very low in all
stake holders.
In reviewing the composition of the respondents designation the company which involved in the
construction of 12 sites, project managers were taken the major share of respondents (32.35%)
followed by site engineer (14.71%). Contract engineers, office engineers and team leaders were
shared (11.76%) for each. The rest others (as specified on the questionnaire), site supervisors and
resident engineers were among the respondent with share of (7.35%), (5.88%) and (4.41%)
respectively.

Table 4. 3: Respondents sex ratio versus their designation in the company
Respondents designation in the company
`percentage
Supervisor
Total
Engineer
Engineer
Engineer
Engineer
Manager
Resident
Contract
Sex
Project
Leader
Others
Office
Team
Site
Site
female 0 2 1 1 3 2 1 1 11 16.18
male 3 20 9 7 5 6 3 4 57 83.82
Total 3 22 10 8 8 8 4 5 68 100
The respondents experience was analyses further to check how much respondents have
knowledge and experience in the subject matter. 22.06% respondents had 0 to 5 years of
experience, 32.35% of respondent had 6 to 10 years of experience, 22.06% respondents had 11 to
15 years of experience, 5.88% respondents had 16 to 20 years of experience, 7.35% respondents
had 21 to 25 years of experience, and 10.29% respondents had above 25 years of experience.
This shows respondents with experience of 6 to 10 years were the major share followed by
respondents with experience of 0 to 5 years and 11 to 15 years equally. The rest were respondents
with experience of above 25 years, 21 to 25 years and 6 to 20years experience in order.
Based the respondents specific experience in the housing construction composition, respondents
with experience of 0 to 5 years took the major share of 41.18%, respondents with experience of 6
to 10 years were the second with share of 39.71%. The third and fourth experience category were
respondents with 11 to 15 years of experience and a respondent with above 25 years of
experience with share of (17.65%) and (1.47%) respectively. There were no respondents with
specific experience of 16 to 20 years and 21 to 25 years in the housing construction projects.
In regards of respondents experience and specific experience in the project there were much
difference that most of respondents had exposure and know about the subject matter in well
depth.
Table 4. 4: Respondents experience and specific experience in the housing construction industry

Respondents Respondents specific

Experience experience experience
frequency percent frequency percent
0 to 5 years 15 22.06 28 41.71
6 to 10 years 22 32.35 27 39.71
11 to 15 years 15 22.06 12 17.65
16 to 20 years 4 5.88 - -
21 to 25 years 5 7.35 - -
above 25 years 7 10.29 1 1.47
4.6 Investigating the Existence of cost overrun

This section will assess the existence of cost overrun based on the responses of respondents on
part2 of the questionnaire. This will investigate respondent’s knowledge on the status of the
project, total cost of the project, status of the budget and percentage of exceeding beyond the
budget.
i) Construction status and cost of the projects
The statuses of the projects of respondents involved in are indicator for the knowledge on the
subject matter. Based on the analysis 4.41% project were completed, 14.71% projects were under
construction and 80.88% project were both completed and on construction. This indicates that
much of the respondents had rich experience in demonstrating the cost overrun faces in the
project.
Based on the returned questionnaire result, the respondent’s engagement in the construction of
housing projects in terms of total cost is summarized here under as shown on table 4.5. The result
shows that 20.59% respondents were participated in the projects costs less that 50 million Etb.
17.65% of respondent were participated in cost of projects between 50 to 100 million Etb.
Whereas those participated in the total cost of the project from 101-150 million Etb were 22.06%
respondents, 2.94% respondents were participated in 151-200 million Etb and 7.35% respendents
were participated in 201-250 million Etb of project cost. The remaining respondents and the
largest share of 29.41% were participated in the project which costs more that 250 million Etb.

This shows that huge amount of money were deployed in the sector and large number of
respondents involved in these projects.
Table 4. 5: Status of the projects versus the cost of projects respondents involved
cost of the housing construction respondents involved

Status of the projects
Mill lion
101-150
151-200
201-250
that respondents
Million
Million
Million
Million
Million
Total
51-100
>250
< 50
involved
Completed 1 1 0 0 1 0 3
On construction 1 3 1 1 1 3 10
Both 12 8 14 1 3 17 55
Total 14 12 15 2 5 20 68
ii) Project status and exceeded amount in terms of budget
As it is observed on table 4.6 result respondents (91.18%) were responded the existence of cost
overrun and the rest respondent (1.47%) of the projects were completed under budget and
respondents (7.35%) were confirmed that the projects were completed on budget. These the last
two results show there were no cost overrun and it took 8.82% share of the total respondents. The
majority 91.18% shows the existence of cost overrun.
Table 4. 6: Projects status in terms of budget
Project status in terms of budget Freq. Percent
Less in budget 1 1.47

On budget 5 7.35
Above budget 62 91.18
Total 68 100
So if these respondents confirm the existence of cost overrun, then what is the extent of the cost
exceed beyond the contract amount? Table 4.7 result illustrates the exceeded percentage of the
cost beyond the price in the contract amount. In these result six of respondents were exempted
because the above reason they were responded there are no cost overrun. So the remaining sixty
two respondents were filled the question for further investigation.

Based on this 6.45% respondents responded the exceeded budget is below 5%, 69.68% of
respondents were responded the exceeded budget is 5-10%, 37.1% of respondents were
responded the exceeded budget is 11-15%, 17.74% respondents were responded the exceeded
budget is 16-20%, respondents (3.23%) were responded the exceeded budget is 21-25%, and the
remaining respondents (25.81%) were responded the exceeded budget is more than 25%.
Table 4. 7: Cost exceeded beyond the contract amount
Percent of exceeded budget Freq. Percent

<5% 4 6.45
5-10% 6 9.68
11- 15% 23 37.1
16 – 20% 11 17.74
21 – 25% 2 3.23
> 25% 16 25.81
Total 62 100
4.7 The cause factors of cost overrun and its relative importance index (RII)
In the litrature review different scholars (Nega, 2008; Valentine et al, 2018; Abusafiya and
Suliman, 2017; Azhar et al, 2008; Sweis, 2013; Ullah et al,2017; Durdyev, 2020; Muneb and
Reza, 2020) were identified the cause factors of cost overrun in different time and in different
scenarios exercised on the construction industry. As it is summarised on the table:1, an enclusive
of all mentioned factors by different litratures were generated to made 72 cause factors of cost
overrun. These generalisation of adopting all the factors is by considering that scenarions faced
in constrcution industry anywhere would be the same and the researcher believed that testing of
these all factors in the case of Addis Ababa governmental housing constrction projects will be
more valuable than sticking with limited factors.
So, in total of 72 cause factors of cost overrun were included in the questionaire with
categorisation of seven groups. These categorisation also made carefully based on the
karunakaran et al (2018) classification criteria as it is narrated in the litrature review part. These
questinaires were distributed for 89 respondents but returned on 68 questionaires. Each cause
factors in the questionnaire contain likert sacle of 5(Exteremely significant), 4(Very significant),
3(moderately significant), 2(slightly significant) and 1(not significant). The researcher used these
scaling system to made the importance index ( weighted average) of the factors appropratley.

These importance index was calculated as per eq. 3 described on the methodology part. Each of
the cause factors . the result of the relative importance index ( weighted average) discussed on
bellow table. These weights also calaculated with the stakeholders (client, contractor and
cosnultant) perspectives.
Table 4. 8:Relative importance index (RII) of cause of cost overrrun among the three
stakeholdesr
Clients Contractor Consultant Weighted
Group
perspective perspective Perspective average
Cause factors
RII Rank RII Rank RII Rank RII Rank
escalation and fluctuation of
0.846 2 0.792 3 0.918 1 0.844 1
building material prices
schedule delay 0.877 1 0.76 4 0.894 3 0.838 2
delay of material delivery 0.823 4 0.72 17 0.906 2 0.806 3

cash flow and financial
difficulties faced by the 0.754 9 0.824 2 0.847 7 0.803 4
contractor
material shortage in the
0.785 5 0.76 4 0.859 6 0.794 5
market
government policies 0.585 60 1.048 1 0.729 44 0.791 6
change in foreign exchange
rate ( for imported 0.700 25 0.776 4 0.882 4 0.774 7
materials)
incompetent subcontractors 0.838 3 0.664 32 0.824 14 0.771 8
inaccurate estimation of
0.731 17 0.736 11 0.835 10 0.759 9
project duration and cost
delays in decisions making 0.731 17 0.728 12 0.824 14 0.753 10
large number of participants

0.731 17 0.72 17 0.812 17 0.747 11
within the project
lack of coordination
0.746 13 0.728 12 0.765 31 0.744 12
between construction parties
economic instability 0.685 30 0.728 12 0.824 14 0.735 13
incomplete design at the
0.754 9 0.64 43 0.835 10 0.732 14
time of tender
political situation 0.700 25 0.728 12 0.788 22 0.732 14

mistakes and errors in

0.738 15 0.672 29 0.800 19 0.729 16
design and drawings
payment delays 0.646 43 0.744 8 0.835 10 0.729 16
inadequate monitoring and
0.746 13 0.632 49 0.835 10 0.726 18
control
poor financial control on
0.700 25 0.704 21 0.788 22 0.724 19
site
frequent design changes 0.677 33 0.672 29 0.871 5 0.724 19
lack of effective site
management and 0.754 9 0.648 41 0.776 26 0.721 21
supervision
low productivity level of
0.638 47 0.744 8 0.812 17 0.721 21
labours
unskilled manpower 0.646 43 0.752 7 0.788 22 0.721 21
lack of communication
0.715 13 0.68 27 0.776 26 0.718 24
between parties
poor site management 0.769 6 0.64 43 0.753 36 0.718 24
wastage on site 0.762 8 0.68 27 0.706 46 0.718 24

poor project contract
0.754 9 0.64 43 0.765 31 0.715 27
management
change in design at the time
0.738 15 0.656 36 0.765 31 0.715 27
of construction
frequent change of heads 0.769 6 0.608 56 0.776 26 0.712 29
delay in government
0.692 29 0.744 8 0.694 49 0.712 29
procedures
delays in design 0.715 21 0.672 29 0.729 42 0.703 31
high cost and shortage of
0.662 37 0.688 23 0.776 26 0.7 32
machineries
outdated/obsolete
construction /technology/ 0.715 21 0.728 12 0.635 61 0.7 32
methods
owner interference 0.723 20 0.648 41 0.741 40 0.7 32
monopoly by suppliers 0.662 37 0.696 22 0.765 31 0.7 32

improper project planning of
0.708 24 0.688 23 0.694 49 0.697 36
project tasks
lack of equipment and 0.631 49 0.664 32 0.788 22 0.682 37

materials at site
slow information flow
0.669 36 0.664 32 0.706 46 0.676 38
between parties
inaccurate quantity take-off 0.654 40 0.608 56 0.800 19 0.674 39
government interference 0.654 40 0.632 49 0.765 31 0.674 39

poor experience of
0.677 33 0.624 54 0.729 42 0.671 41
constructors
amendments in work due to
0.685 30 0.656 36 0.671 54 0.671 41
error in design
land acquisition 0.638 47 0.584 63 0.847 7 0.671 41
tax liabilities 0.646 43 0.688 23 0.671 54 0.668 44

addition/omission and errors
0.677 33 0.64 43 0.682 52 0.665 45
in the bill of quantity
complexity of the project 0.615 52 0.576 65 0.847 7 0.659 46
lack of availability of funds/
0.615 52 0.656 36 0.729 44 0.659 46
poor economic conditions
delay of material/test
0.700 25 0.608 56 0.659 57 0.656 48
approval
insufficient geotechnical
0.662 37 0.552 71 0.800 19 0.656 48
investigation
lack of skilled workers to
0.623 50 0.688 23 0.647 59 0.653 50
operate special equipment
unclear specification 0.646 43 0.576 65 0.776 26 0.653 50
Additional work 0.600 56 0.632 49 0.753 36 0.65 52

change in the scope of the
0.600 56 0.64 43 0.741 40 0.65 52
project
practice of assigning lowest
0.623 50 0.608 56 0.753 36 0.65 52
bidder
use of poor quality of
materials initially, leading to 0.600 56 0.664 32 0.671 54 0.641 55
reconstruction
mistakes during
0.615 52 0.584 63 0.753 36 0.638 56
construction by contractors
problems with neighbors
0.685 30 0.560 69 0.682 52 0.638 56
(right of way problem)
lack of proper professional
0.654 40 0.632 49 0.600 64 0.632 58
software

shortage of labours / site

0.569 62 0.72 17 0.600 64 0.632 58
workers
Corruption 0.562 65 0.656 36 0.694 49 0.629 60
lack of inventory 0.600 56 0.656 36 0.635 61 0.629 60
labour absenteeism 0.615 52 0.624 54 0.659 57 0.629 60

conflict between project
0.569 62 0.608 56 0.706 46 0.618 63
parties
high cost of labour 0.585 60 0.712 20 0.494 71 0.609 64
Contractual claims 0.554 66 0.632 49 0.624 63 0.6 65
location/condition of site 0.546 68 0.592 61 0.647 59 0.588 66
dispute on site 0.569 62 0.536 72 0.553 68 0.553 67
uneven weather conditions 0.477 71 0.592 61 0.600 64 0.55 68
social and cultural impacts 0.485 70 0.640 43 0.518 69 0.55 68
work accidents 0.485 69 0.568 68 0.600 64 0.544 70
strikes by site personnel 0.554 66 0.576 67 0.471 72 0.541 71

natural disasters/ Act of
0.338 72 0.560 69 0.518 69 0.465 72
GOD
The relative importance index (RII) used as the measuerement for significance level of cause
factors of cost overrun. These indexes further categorised to ractify which inteval of the index are
most significant, significant, moderately significant, slightly significant and not significant at all.
Nabilla and Hisham set category for these classifcations as folows.
Table 4. 9 : Classification of RII

No Level of preference Range Of RII
1 Not Significant at all RII < 0.2
2. Slightly Sigmificant 0.2 < RII < 0.4
3. Moderately Significant 0.4 < RII < 0.6
4. Significant 0.6 < RII < 0.8
5. Most Significant 0.8 < RII < 1.0

Classification of Causes of Cost Overrun
LEGEND:
Consultant Related Factors

Contractor Related Factors
Contract Related Factors
Project Related Factors
Labor Related Factors

Client Related Factors
External Factors
Fig 4. 2: Legend for Classification of Cause of Cost overrun
4.7.1 Weighted average and its description
The weighted average of the causes of cost overrun indicates the cumulative relative importance
index given by each stake holders. This result can be taken us the relative importance index of
cause of cost overruns mutually agreed by respondents.
Based on the classification of relative importance index table shown above there are only four
cause factors laid in between the intervals of most significant factors. These are Escalation and
fluctuation of building material prices which ranked first with Relative importance index of
0.844, Schedule delay ranked second with RII of 0.838, delay of material delivery ranked third
with RII of 0.806 and cash flow and financial difficulties faced by the contractor ranked Fourth
with RII of 0.803. These four factors are the most significant cause of cost overrun.
This result shows that the cause factor ranked first (escalation and fluctuation of building
material prices) is in the category of External factors. Karunakaran (2018) describe that external
factors are the factors of cost overrun which are beyond the control of the construction industry
major/direct actors (Client, Contractor and Consultant). These result also fit with the researcher

physical observation that there were high fluctuation and escalation of building material prices
such as cement, steel, ceramics and other input materials especially imported materials. The very
chronic challenge in the construction industry is with the escalation and fluctuation price of
materials and it is beyond the control of construction industry actors.
The second, third and fourth cause factors which labeled as the most significant factors of cost
overrun are laid in the category of contractor related factors. The contractors are responsible in
managing these factors. Schedule delay, delay of material delivery and cash flow and financial
difficulties faced by the contractor are the bottle neck for the contractors. The first two factors are
deals with time (schedule delay and delay of material delivery) and the third is deal with finance
that the contractors need care of time and cost management.
The result of the weighted average shows that 60 (sixty) cause factors of cost overrun are laid in
the interval of 0.6 < RII < 0.8 which are significant for causing cost overrun. This is huge figure
that shows how much the construction industry is complicated to manage every cause of cost
overrun one by one. All category of cause of cost overruns and stakeholders are touched in in this
interval so that it is the responsibility of all actors to manage all these cause factors of cost
overrun. To summarize the result, 6 of 6 project related factors, 1 of 2 contract related factors, 11
of 14 contractor related factors, 17 of 17 consultant related factors, 10 of 10 client related factors
5 of 7 labor related factors and 5 of 16 external related factors are laid in this interval.
The remaining 8(eight) causes of cost overrun are below the significant level of interval. These
are 5(five) from external related factors, 1(one) from the contract related factors and 2(two) from
the labor related factors. Even though the first (most significant) cause factor with RII of 0.844 is
from the external related factors, the last (least significant) cause factor with RII of 0.465 is also
from the external factors.
Generally 64 (sixty four) cause factors are laid between the interval of 06 < RII < 0.8 and 0.8 <
RII < 1.0 to which they considered as significant causes of cost overrun. This generalization
doesn’t mean that the rest remaining factors are negligible and/or have no contribution for cause
of cost overrun. It simply indicates their contribution is relatively less than the other 64 causes.
As the name indicates “relative” relative importance index only shows a relative comparison
between significance level of the one over the other.
Ranking of cause factors from the perspective of stakeholders :

Client; ranks the causes of cost overun with respect to its own perspective and so that its ranking
and weight are differ from the other stake holder even from the wieghted average rank. Based on
the result four factors are laid on the interval of most segnificant level (0.8 < RII < 1.0).
 Schedeule delay ranked 1st with RII of 0.877

 Escalation and fluctuation of building material prices ranked 2nd with RII of 0.846
 Incompetent Subcontractors ranked 3rd with RII of 0.838
 Delay of material delivery ranked 4th with RII of 0.823
From the four most significant factors of cause of costoverrun, three factors ( 1st, 3rd and 4th ) are
contractor related factors. This is why client highly concerned about the efficiency and
performance of the conractors , that client is ultimate beneficiery of the project. The 2nd factor,
escaltion and fluctuation of building material prices, is also the most significant factor which is
beyond the control of the client. In some senarios when the client provide the building material
and the client contracted only labor and machienery cost, this casue factors is high challenge for
the client by incuring additional and an expected cost over the planned value.
Fifty one cause factors are ranged from 0.6 < RII < 0.8 that is lablled as significant. From these
bunch of casuse 10 of 14 are contractor related factors, all of consultant related factors, 5 of 7
project related factors, none of contarct related factors, 7 of 10 client related factors, 3 of 7 labour
related factors and 10 of 16 external related factors were laind in this interval.
The remaining 18 of 72 cause factors of cost overrun are laid under the significant level of RII.
The last (least significant cause factors of cost overrun) is natural desaster ( Act of GOD) with
relative importace index of 0.338. this indicates that the occurrence of natural desaster in project
is un common.
Contractor; is the doer of the project and vulnerable for many cause factors. Basde on the RII
result from the perspective of the contractor only two cause factors of cost overrrun are most
significant. These are Government policies which ranked 1st with perfe score of RII of 1.0 and
cash flow and financial difficulties faced by the contractor which ranked 2nd with RII of 0.824.
the first cause was emanated from the external factor which is the contractor cant be responsibkle
whereas the second is emanated from the contractor it self.
Fifty eight cause factors of cost overrun are significant with the interval of 0.6 < RII < 0.8 from
the perspective of contractor. These facotors are 5 of 6 project related factors, 1 of 2 contract

related factors, 15 of 17 consultant related factors,9 of 10 client related factors, 5 of 7 labor

related facots and 10 of 17 external factors. The remainging 12 cause facots are bellow the
seginificant level. The last (least significant cause factor) is dispute on site with RII of 0.536.
Consultant; is the facilitator who execute the monitoring and evaluation of the project
predominantely who always act as a mediator btween the clinet and ocntractor. Based on the
client perspective 18 cause factors are most significant. These are:
 Escalation and fluctuation of building material cost ranked 1st with RII of 0.918
 Delay of material delivery ranked 2nd with RII of 0.906
 Schedule delay ranked 3rd with RII of 0.894
 Change in foreign exchange rate (for imprted materials) ranked 4th with RII of 0.882
 Fequent design changes ranked 5th with RII of 0.871
 Material shortage in the market ranked 6th with RII of 0.859
 Complexity of the project, Cash flow and financial difficulties faced by the contractor,
and Land acquisition are ranked 7th with RII of 0.847
 Inaccurate estimation of project duration and cost, incomplete designat the time of tender,
in adequate monitoring and control, and payment delays are ranked 10th with RII of 0.835
 Incompetent subcontracotrs, delays in decisiion making, ecomonoic instability are ranked
14th with RII of 0.824
 Large number of participants with in the project, and low productivity level of labors are
ranked 17th with RII of 0.812
Fourty five cause of cost overrun factors are laid in the interval between 0.6 < RII < 0.8. these are
4(four) from project related factors, 2 (two) / all from the contarct related factors, 10(ten) from
contractor related factors, 9(nine) from consultant related factors, 7(seven) from client related
group, 2(two) from labor related factors and 8(eight) from labor related factors.
The remaining nine cause factors are bellow the significant level and these all are from external
related factors (5) and labor related problems (4). The last and least causes of cost overrun is
strikes by site personnel with RII of 0.471 from labor related factors that the consultant assumes
there are less or minimum stirkes occurred.

4.7.2 Summary of Weighted average of causes of cost overrun
The major cause factors cost overrun are 4 (four) cause factors which are ranked from 1st upto 4th
that have the significant level of in between 08 < RII < 1.0.
The significant cause factors of cost ovcerrun which have significant level beyond the inetrval of
0.6 < RII < 0.8 are 64 (sixity four) factors and are summarise on the bellow table. These casue
factors are reffered as significant cause factors of cost overru afterwards.
Table 4. 10: List and rank of significant cause factors of cost overrun
Weighted
No Cause factors Average Catagory
RII Rank
1 escalation and fluctuation of building material External
0.844 1
prices
2 schedule delay 0.838 2 Contractor
3 delay of material delivery 0.806 3 Contractor
4 cash flow and financial difficulties faced by Contractor
0.803 4
the contractor
5 material shortage in the market 0.794 5 External
6 government policies 0.791 6 External
7 change in foreign exchange rate ( for imported External
0.774 7
materials)
8 incompetent subcontractors 0.771 8 Contractor
9 inaccurate estimation of project duration and Consultant
0.759 9
cost
10 delays in decisions making 0.753 10 Client/Owner
11 large number of participants within the project 0.747 11 Project
12 lack of coordination between construction Project
0.744 12
parties
13 economic instability 0.735 13 External
14 incomplete design at the time of tender 0.732 14 Consultant
15 political situation 0.732 14 External
16 mistakes and errors in design and drawings 0.729 16 Consultant
17 payment delays 0.729 16 Client/Owner
18 inadequate monitoring and control 0.726 18 Consultant
19 poor financial control on site 0.724 19 Contractor
20 frequent design changes 0.724 19 Consultant
21 lack of effective site management and Consultant
0.721 21
supervision

22 low productivity level of labors 0.721 21 Labor

23 unskilled manpower 0.721 21 Labor
24 lack of communication between parties 0.718 24 Project
25 poor site management 0.718 24 Contractor
26 wastage on site 0.718 24 Contractor
27 poor project contract management 0.715 27 Consultant
28 change in design at the time of construction 0.715 27 Consultant
29 frequent change of heads 0.712 29 Client/Owner
30 delay in government procedures 0.712 29 External
31 delays in design 0.703 31 Consultant
32 high cost and shortage of machineries 0.7 32 Contractor
33 outdated/obsolete construction /technology/ Contractor
0.7 32
methods
34 owner interference 0.7 32 Client/Owner
35 monopoly by suppliers 0.7 32 External
36 improper project planning of project tasks 0.697 36 Consultant
37 lack of equipment and materials at site 0.682 37 Contractor
38 slow information flow between parties 0.676 38 Project
39 inaccurate quantity take-off 0.674 39 Consultant
40 government interference 0.674 39 External
41 poor experience of constructors 0.671 41 Contractor
42 amendments in work due to error in design 0.671 41 Consultant
43 land acquisition 0.671 41 Client/Owner
44 tax liabilities 0.668 44 External
45 addition/omission and errors in the bill of Consultant
0.665 45
quantity
46 complexity of the project 0.659 46 Project
47 lack of availability of funds/ poor economic Client/Owner
0.659 46
conditions
48 delay of material/test approval 0.656 48 Consultant
49 insufficient geotechnical investigation 0.656 48 Consultant
50 lack of skilled workers to operate special Contractor
0.653 50
equipment
51 unclear specification 0.653 50 Consultant
52 Additional work 0.65 52 Client/Owner
53 change in the scope of the project 0.65 52 Client/Owner
54 practice of assigning lowest bidder 0.65 52 Client/Owner
55 use of poor quality of materials initially, Contractor
0.641 55
leading to reconstruction
56 mistakes during construction by contractors 0.638 56 Contractor
57 problems with neighbors (right of way External
0.638 56
problem)

58 lack of proper professional software 0.632 58 Consultant

59 shortage of labors / site workers 0.632 58 Labor
60 Corruption 0.629 60 Contract
61 lack of inventory 0.629 60 Client/Owner
62 labor absenteeism 0.629 60 Labor
63 conflict between project parties 0.618 63 Project
64 high cost of labor 0.609 64 Labor
In the composition of significant cause factors of cost overrun it is found to be that consultant
related factors shared 26.56%, contractor related factors shared 21.88%, external related factors
shared 17.19%, client related factors shared 15.63%, project related factors shared 9.38%, labor
related factors shared 7.81% and contract related factor shared 1.56%.
Table 4. 10: composition of significant cause factors of cost overrun
Composition of
No. of significant
Cause factors catagories catagories in siginifacnt
casue facotrs
cause factors (%)
Project related factors 6 9.38
Contract related factors 1 1.56
Contractor related factors 14 21.88

Consultant related factors 17 26.56
Client related factors 10 15.63
Labor related factors 5 7.81
External related facotrs 11 17.19

Total 64 100
The 72 cause factors were gruoped in seven catagrories and furtherly analyised that the above 64
cause factors of cost overrun are significant causes. So based on the relative importance index
level and rank with respect to their category are listed bellow.
Project realated factors: in this group there were six cause factors, and from the result all of
thes factors were siginificant cause factors of overrun. these are
 large number of participants within the project, ranked 11th with RII of 0.747
 lack of coordination between construction parties, ranked 12th with RII of 0.744
 lack of communication between parties, ranked 24th with RR of 0.718
 slow information flow between parties, ranked 38th with RII of 0.676

 complexity of the project, Ranked 46th with RII of 0.659

 conflict between project parties ranked 63rd with RII of 0.618
Contract related factors: in this group there were two cause factors of cost overrun but only one
factors is siginificant cause factor. This is
 Corruption, ranked 60th with RII of 0.629
Contractor related factors: in this category there were fourteen cause factors of cost overrun
and all these fourteen cause factors are significant.
 schedule delay , ranked 2nd with RII of 0.838

 delay of material delivery, ranked 3rd with RII of 0.806
 cash flow and financial difficulties faced by the contractor, ranked 4th with RII of 0.803
 incompetent subcontractors, ranked 8th with RII of 0.771
 poor financial control on site, ranked 19th with RII of 0.724
 poor site management and wastage on site, ranked ranked 24th with RII of 0.718
 high cost and shortage of machineries and outdated/obsolete construction /technology/
methods, ranked 32nd with RII of 0.7 32
 lack of equipment and materials at site, ranked 37th with RII of 0.682
 poor experience of constructors, ranked 41st with RII of 0.671
 lack of skilled workers to operate special equipment, ranked 50th with RII of 0.653
 use of poor quality of materials initially, leading to reconstruction, ranked 55th with RII of
0.641
 mistakes during construction by contractors, ranked 56th with RII of 0.638
Consultant related factors: in this group of cause factors there were seventeen cause factors of
cost overrun and all these factors are significant causes.
 inaccurate estimation of project duration and cost, ranked 9th with RII of 0.759
 incomplete design at the time of tender, ranked 14th with RII of 0.732
 mistakes and errors in design and drawings, ranked 16th with RII 0.729
 inadequate monitoring and control, ranked 18th with RII of 0.726
 frequent design changes, ranked 19th with RII of 0.724
 lack of effective site management and supervision, ranked 21st with RII of 0.721
 poor project contract management and change in design at the time of construction,
ranked 27th with RII of 0.715
 delays in design, ranked 31st with RII of 0.703
 improper project planning of project tasks, ranked 36th with RII of 0.697
 inaccurate quantity take-off, ranked 39th with RII off 0.674
 amendments in work due to error in design, ranked 41st with RII of 0.671
 addition/omission and errors in the bill of quantity, ranked 45th with RII of 0.665
 lack of proper professional software, ranked 58th with RII of 0.632

 delay of material/test approval and insufficient geotechnical investigation, ranked ranked

48th with RII of 0.656
 unclear specification, ranked 50th with RII of 0.653
 lack of proper professional software, ranked 58th with RII of 0.632
Client related factors: these category contained 10 cause factors of cost overrun. based on the
result all this factors are significant and lised as per bellow.
 delays in decisions making, ranked 10th 0.753

 payment delays, ranked 16th with RII of 0.729
 frequent change of heads, ranked 29th with RII of 0.712
 owner interference, ranked 32nd with RII of 0.7
 land acquisition, ranked 41st 0.671
 lack of availability of funds/ poor economic conditions, ranked 46th with RII of 0.659
 Additional work, change in the scope of the project and practice of assigning lowest
bidder, ranked 52nd with RII of 0.65
 lack of inventory, ranked 60th with RII of 0.629
Labor related factors: the sixth category of cause factors of cost overrun is labor related factors.
Among the seven labor related cause factors two cause factors ( strikes by site personel and
dispute on site) are not significant causes factors of costoverrun. The remaining five causes are
significant and are listed bellow.
 low productivity level of labors and unskilled manpower, ranked 21st with RII of 0.721
 Unskilled manpower,
 shortage of labors / site workers, ranked 58th with RIIof value of 0.632
 labor absenteeism, ranked 60th with RII value of 0.629
 high cost of labor, ranked 64th with RII value of 0.609
External related factors: these factors are causes of cost overrun that affects the project cost
which are out of the above six catagories. A total of sixteen cause factors are listed in this group.
Among these 11 (eleven) cause factors are siginifact cause factors and remainiong five cause
factors are not significant. These are location/condition of site with RII of 0.558, uneven weather
condition with RII of 055, social and cultural impacts with RII of 0.55, work accidents with RII
of 0.544 and natural disasters/act of GOD with RII of 0.465. The siginificant cause factors are the
following.
 escalation and fluctuation of building material prices, ranked 1st with RII of 0.844
 material shortage in the market, ranked 5th with RII of 0.794
 government policies, ranked 6th with RII of 0.791
 change in foreign exchange rate ( for imported materials), ranked 7th with RII of 0.774
 economic instability, ranked 13th with RII of 0.735
 delay in government procedures, ranked 29th with RII of 0.712
 political situation, ranked 14th with RII of 0.732

 monopoly by suppliers, ranked 32nd with RII of 0.7

 government interference, ranked 39th with RII of 0.674
 tax liabilities, ranked 44th with RII of 0.668
 problems with neighbors (right of way problem), ranked 56 with RII of 0.638
4.8 The effects of cost overrun and its relative importance index
The effects of cost overrun are the quencequences after the happening of existence of cost
overrun. a total of 11 (eleven) effects were found through litarature review. According to
Nega,(2008) catagorisation of cost overrun, these eleven effects are grouped in two category.
These are the contractual effect category that have contractual impact/ implication and the
financial effect category that have finance related imlication/impact on the addis ababa
governmental housing constrcution projects.
In these category of effects of cost overrun 7(seven) of the effects of cost overrun were grouped
on the contractuat effect category wheras the remaining 4(four) in the financial effect category.
Furthurely these effects of cost overrun were analyised and ranked based on the agreement level
of respondents by using the mean measurement. The questionaire used likert scale choise ranged
from strongly agree (5) to strongly disagree (1).The analysis and result of these effect of coat
oveerun based on the data of respondents who paticiated in the project are peresented on the
bellow table.
Table 4. 11: Rellative importance index and ranking of effects of cost overrun
Weighted
Effects of cost Client contractor consultant Cata-
Average
overrun gory
RII Rank RII Rank RII Rank RII Rank
Delay during
0.915 1 0.840 3 0.918 1 0.888 1
construction
Additional cost 0.808 2 0.856 2 0.906 2 0.850 2
Budget shortfall 0.731 3 0.808 4 0.894 3 0.800 3
Supplementary
0.731 3 0.744 5 0.894 3 0.776 4
agreement
Delayed payment to
0.662 8 0.88 1 0.753 8 0.765 5
the contractor

Dissatisfaction by
project owners and
0.708 7 0.728 7 0.847 5 0.750 6
consequently by end
users,
Adverse relationship
0.662 8 0.744 5 0.776 6 0.721 7
b/n parties
Poor quality
0.715 6 0.712 9 0.741 10 0.721 7
workmanship
High cost of
supervision and
0.723 5 0.64 10 0.753 8 0.700 9
contract administration
to the consultant
Total abandonment of
0.585 11 0.72 8 0.765 7 0.679 10
project
Loss of name to the

0.569 10 0.608 11 0.718 11 0.621 11
consultant by owner
Classification of Effects of Cost Overrun
LEGEND:
Contractual Effect Financial Effect
Fig 4. 3: legend for classification of effects of cost overrun
Ranking of effects of cost overrun from the perspective of stakeholders :
Client: client considers the completion of the project with the required quality, time and
budget. In this regards; client rates the effect of cost overrun . Based on the result among
the eleven effects of delay nine effects are significant and the rest two effects are not
significant.
The significant effects are delay during construction ranked 1st with RII of 0.915, additional
cost ranked 2nd with RII of 0.808, budget short fall and supplementary agreement ranked 3rd with
RII of 0.731, high cost of supervision and contract administration to the consultant ranked 5th
with RII of 0.723, poor quality workmanship ranked 6th with RII of 0.715, dissatisfaction by

project owners and consequently by end users ranked 7th with RII of 0.708, delayed payment to
the contractor and adverse relationship b/n parties ranked 8th with RII of 0.662,
The insignificant effects of cost overrun are loss of name to the consultant by owner ranked 10th
with RII of 0.569 and Total abandonment of project ranked 11th with RII of 0.585.
Contractor: contractor involved in the project with seeking profit and collecting experience.
With this perspective contractor rates the effect of cost overrun and the result shows all effects of
cost overrun are significant.
The contractor ranks delayed payment to the contractor 1st with RII of .88, additional
cost 2nd with RII of 0.856, delay during construction 3rd with RII of 0.840, budget shortfal
4th with RII od 0.808, supplementary agreement and Adverse relationship b/n parties 5th
with RII of 0.744, dissatisfaction by project owners and consequently by end users 7th
with RII of 0.708, adverse relationship b/n parties 9th with RII of 0.712, high cost of
supervision and contract administration to the consultant 10th with RII of 0.64 and loss of
name to the consultant by owner 11th with RII of 0.608.
Consultant: cosnsultant is the intermediary party between the contractor and clien so that
always seeking the completion of the project with in the contractaul parameters. In this
regard client rates the effects of cost overrun and the result shows all effects are
significant. These are; delay during constrcution ranked 1st with RII of 0.918, Additional
cost ranked 2nd with RII of 0.906, budget shortfall and Supplementary agreement ranked
3rd with RII of 0.894, dissatisfaction by project owners and consequently by end users
ranked 5th with RII of 0.847, adverse relationship b/n parties ranked 6th with RII of 0.765,
total abandonment of project ranked 7th with RII of 0.765, high cost of supervision and
contract administration to the consultant and delayed payment to the contractor ranked
8th with RII of 0.753, Poor quality workmanship ranked 10th with RII of 0.741 and loss of
name to the consultant by owner ranked 11th with RII of 0.718.
Summary of wieghted average off effects of cost overrun
The summarized weighted average shows the average the three stakolders rate and by
then it consider as the aggregate result for the effects of cost oveerrun. Based on the result
there are three most signifcant effects of cost overun, the rest all effects are siginficant.
The most significant effects of cost overrun are Delay during construction ranked 1st with
RII of 0.888, additional cost ranked 2nd with RII of 0.850 and budget shortfall ranked 3rd
with RII 0.8.
The significanteffects of cost overrun are supplementary agreement ranked 4th with RII of
0.776, delayed payment to the contractor ranked 5th with RII of 0.765, dissatisfaction by
project owners and consequently by end users ranked 6th with RII of 0.75, adverse

relationship b/n parties and Poor quality workmanship ranked 7th with RII of 0.721, high
cost of supervision and contract administration to the consultant ranked 9th with RII of
0.7, Total abandonment of project ranked 10th with RII of 0.679 and loss of name to the
consultant by owner ranked 11th with RII of 0.621.
Significant cause factors with respect to its catagories :

The effects of cost overrun are categorized in to two classifications. These are contractual effect
and financial effects. Based its classifications the results weighted average of the effects of cost
overrun presented bellow;
Contractual effects: effects of cost overrun which have no direct relation with cost are
categorized. In this category there are seven effects and the results of these effects are as follows
 Delay during construction ranked 1st with weighted average of 0.88

 Supplementary agreement 2nd with weighted average of .776
 Dissatisfaction by project owners and consequently by end users ranked 6th with
weighted average of 0.750
 Adverse relationship b/n parties and Poor quality workmanship ranked 7th with weighted
average of 0.721
 Total abandonment of project ranked 10th with weighted average of 0.679
 Loss of name to the consultant by owner ranked 11th with weighted average of 0.621
Financial effect: in this category only financial and effects that directly affect the finance are
included. A total of four effects are listed in this group. Based on the result those four effects are
significant and the result is presented below.
 Additional cost, ranked 2nd with weighted average of 0.850

 Budget shortfall, ranked 3rd with weighted average of 0.8
 Delayed payment to the contractor, ranked 5th with weighted average of 0.765
 High cost of supervision and contract administration to the consultant, ranked 9th with
weighted average of 0.7
4.9 Tests for agreements on causes and effects of cost overrun

The test for agreement needed to check and investigate whether there is mutual agreement or not
on the weighting of the cause and effect variables between the respondents based on the
responses. Spearman correlation coefficient used to measure the correlation of respondents
group’s weighting and ranking of the cause factors and effect of cost overrun in the case of Addis
Ababa governmental housing construction projects. The tested groups are; Client vs Contractor,
Client vs Consultant and contractor vs consultant. These test groups are tested by having
hypothesis and this hypothesis extracted from literature back ground. This helps much to make

sure that judgments are made with concrete evidence and to avoid being deceived by chance of
occurrences.
Hypothesis testing:
 The Null Hypothesis (HO): -There is no significant agreement in the ranking of

cause factors of cost overrun between two groups of respondents.
 The Alternative Hypothesis ( ):-There is significant agreement in the ranking
of cause factors and effects of cost overrun between two groups of respondents.
The spearman correlation coefficient ( ) is calculated by the above formula stated on eq.4. and
the result presented on table … To reject or accept the null hypothesis, comparison between the
( )and ( ) is made. ( ) is 0.1982 for 68 respondent with the significance level of
95%(P=0.05) from the spearman correlation coefficient table.
Table 4. 12: Spearman correlation coefficient of pair respondent groups
Pair of Respondents Critical value of ρ ( for Reject/Accept

Group Rho ( ) the respondent no of 68) the null hypothesis
Client Vs Contractor 0.9805 0.1982 Reject Ho
Client Vs Consultant 0.9788 0.1982 Reject Ho
Contractor Vs Consultant 0.9686 0.1982 Reject Ho
Therefore, ρcal (Rho) for the above three pair of respondent groups (Client Vs
Contractor=0.9805, Client Vs Consultant = 0.9788 and Contractor Vs Consultant =0.9686) is
greater than the critical value of ρtab (Rho). So the null hypothesis is rejected which states there
is no significant agreement and the alternative hypothesis is accepted which states there is
significant agreement between two pair of respondents group in ranking of cause factors and
effects of cost overrun.
The value of the correlation coefficient varies between –1 and +1: and the sign –ve or +ve sign
 -1 indicates a perfect negative correlation
 0 indicates no relationship
 +1 indicates a perfect positive correlation

Fig 4. 4: The correlation coefficient scale

To test the strength of the agreement of ranking of cause factors and effects of cost overrun
between the two pair of respondent groups;
 The ρcal (Rho) of Client Vs Contractor is 0.9805 which is in between +0.6 and +1 thus
these two respondent groups have very strong positive relationship (agreement) in
ranking of the cause factors and effect cost overrun..
 The ρcal (Rho) of Client Vs Consultant is 0.9788 which is in between +0.6 and +1 thus
these two respondent groups have very strong positive relationship (agreement) in
ranking of the cause factors and effect cost overrun..
 The ρcal (Rho) of Contractor Vs Consultant is 0.9686 which is in between +0.6 and +1
thus these two respondent groups have very strong positive relationship (agreement) in
ranking of the cause factors and effect cost overrun.
4.10 Testing of data reliability and internal consistency

The reliability and consistency of data on the questionaire is measured by the cronbach alpha
values. The results range from 0 to 1. Based on data collected the reliability of the data across the
main actors/stakeholders of the project were analysed and peresented bellow with conclussion
results. The analysis was computed by eq.3 described in methodology part.
Table 4. 13: Data reliability of respondents across client
Internal
Variables Description Values consistency
K no of items 85
sum of the
∑ item variance 95.8449
variance of Excellent
total score 1790.5636 (High Stakes
cronbach alpha 0.9577 testing)

Table 4. 14: Data reliability of respondents across contractor
Internal
K no of items 85
sum of the item

∑ variance 203.3636
variance of total
score 2519.4336 Excellent (High
cronbach alpha 0.9302 Stakes testing)
Table 4. 15: Data reliability of respondents across consultant
Internal
K no of items 85
sum of the item

∑ variance 78.8651
variance of total
score 2154.4429 Excellent (High
cronbach alpha 0.9749 Stakes testing)
According to the interval set by Manerikar (2015) when the cronbach alpha value is greater than
0.9, the data reliability and consistency is Excellent (High stakes testing). So in all cases the
calculated cronbach alpha value is greater than 0.9. So the reliability and consistency of data was
excellent means that all respondents have knowledge and awareness on the subject matter and
they had relatively approximate level of response. On the other hand this may shows the quality
of the questions in the questionnaire are clear to understand and easy to respond.

4.10.1 Model Estimation
The model specified in the methodology part is estimated with systematically arranged data with
seven independent variables and was regressed to cost overrun.
Table 4. 16; Stata regression result
Source SS df MS Number of Obs 66

F(7,58) 4.98
Model 9.54825644 7 1.36403663
Prob > F 0.0002
R-squared 0.3756
Residual 15.8734006 58 0.273679322
Adj R-squared 0.3002
Total 25.4216571 65 0.391102417 Root MSE 0.52314
Effects of Cost
P >/t/
overrun Coef. Std.Err. t [95% Conff.Interval]
Project related
factors -0.0324343 .1192593 -0.27 0.787 -0.2711577 0.2062891
Contract related
factors 0.0119712 .0818869 0.15 0.884 -0.1519434 0.1758857
contractor
related factors 0.0063336 .1856483 0.03 0.973 -0.3652819 0.377949
Consultant
related factors 0.2399893 .1570738 1.53 0.132 -0.0744281 0.5544067
Client related
factors 0.1907898 .1399004 1.36 0.178 -0.0892514 0.4708309
Labor related
factors -0.1694771 .1092612 -1.55 0.126 -0.3881872 0.0492329
External factors 0.263716 .1030525 2.56 0.013 0.057434 0.469998
__-cons 2.015874 .4162238 4.84 0.000 1.182712 02.849037
Therefore, the estimated model is
= ( )+
( ) ( )
( ) ( )
( ) ( )
The coefficients of the model is indicates that a unit change of the single cause factor of cost
overrun will change its respective coefficient value on effects of cost overrun, when other factors
remains constant (citrus paribus).
The regression table result shows that the p value (0.0002) is less than the critical value of 0.05
so the overall model is good. In addition the value of the adjusted R-squared 0.3002 shows that
all the explanatory variables are explaining the model by 30.02%

4.10.2 Post estimation
Test for Multicollinearity
Multicollinearity is the occurrence of high intercorrelations among two or more independent

variables in a multiple regression model. The VIF (variation inflation factor) result shows
whether there is Multicollinearity or not. According to velenampy & Sivesan, (2012), if the VIF
value is less than 10 there is no Multicollinearity and if it is greater than 10 there is
Multicollinearity problem.
So the result from table 4.17 shows that the mean of the VIF as well the VIF value of all
independent variables are less than 10. Therefore, there is no Multicollinearity.
Table 4. 17: Stata VIF result
Variable VIF 1/VIF

contractor related
factors 3.72 0.268827
Consultant related
factors 3.41 0.293599
Client related factors 2.8 0.356551
Project related factors 1.78 0.562303
Labor related factors 1.72 0.581396
External related factors 1.69 0.592134
Contract related factors 1.52 0.656651
Mean VIF 2.38
Test for Heteroscedasticity BY Bruesch Pagan-Godfrey
It refers to the error variance, or dependence of scattering, within a minimum of one independent
variable within a particular sample. Draw hypothesis the run hottest command
Ho= there is constant variance (no hetroscedasticity problem)

H1= there is no constant variance (hetroscedasticity problem)
Table 4. 18:hettest result
fitted values of cost overrun

chi2(1) 31.58
Prob > chi2 0.0000
Therefore, the probability value of constant variance (Prob > chi2) 0.000 is less than 0.05 and Ho
is rejected and there is hetroscedasticity problem in the model.To correct the heteroscedasticity
problem it is used “robust” command. The robust command doesn’t correct the result of
heteroscedasticity test but it validates the inference.

Test for omission of Relevant Variable
To test whether there are omitted variables or not draw hypothesis, computing ovtest
Ho= model has no omitted variables

H1= Model has omitted variable
The result shows the value of probability of variables omitted (Prob > F) 0.9058 is greater than
0.05. Therefore Ho is accepted and the model has no omitted variables.
Table 4. 19: ovtest result
F(3, 55) 0.19

Prob > F 0.9058
Test for Normality of Residuals
Ho= there is normal distribution of residuals in the model

H1= there is no normal distribution of residuals in the model
Table 4. 20Shapiro-Wilk test result
Variable obs W V Z Prob>z
r 66 0.97024 1.746 1.208 0.11347
The result shows the value of the normal distribution of residuals (Prob>z) 0.11347 is greater
than 0.05. Therefore null hypothesis is accepted and the distributions of residuals are normal.
Kernel density estimate

1
.8
.6
Density
.4
.2
0
-2 -1 0 1 2
Residuals
Kernel density estimate

Normal density
kernel = epanechnikov, bandwidth = 0.1712
Fig 4. 5: Graphical Presentation (kernel density)

1.00
0.75
0.50
0.25
0.00
0.00 0.25 0.50 0.75 1.00

Empirical P[i] = i/(N+1)
Fig 4. 6: Graphical Presentation (pnorm)

2
1
Residuals
0
-1
-2
-1 -.5 0 .5 1
Inverse Normal
Fig 4. 7: Graphical Presentation (qnorm)

CHAPTER 5 : CONCLUSSION AND RECOMENDATION

5.1 Conclusion
It is worth full conducting research on identifying and knowing the cause factors of cost overrun
in the construction industry since cost overruns are severe case and harm the economy of the
developing country at large. Also understands the consequential effect of cost overrun helps to
give emphasis for the issue.
The main objective of the study is to identify and investigate cause factors and effects of cost
overrun and its severity on the construction industry in Addis Ababa. Secondary data sources are
used in assessing the cost related problems and 72 cause factors of cost overrun are constructed
in the questionnaire. Questionnaire survey and desk study in combined used to assess the
existence and extent of cost overrun in the housing construction sector. A potential of 72 cause
factors and 11 effects of cost overrun are deployed in the questionnaire and prepared for analysis.
Group of respondents from the main actors (stakeholders) in the housing construction sector;
client, consultant and contractor are asked to identify the causes and effects of cost overrun. The
data gathered from the questionnaire are analyzed using the relative importance index (RII) and
rankings are made depending on the relative importance index (RII). The agreement between
groups of respondents is tested by using spearman correlation coefficient (rho, ρ). The conclusion
of the study has drawn bellow.
 Ensuring of the existence of cost overrun is mandatory for the study and 91.18% of
projects are faced cost overrun and 25.81% of projects faces sever cost overrun which
exceed the budget by 25% and above.
 64 significant cause factors of cost overrun were identified by the respondent. The most
significant cause factors of cost overrun were also identified based on the relative
importance index and ranking of these factors also made. The most significant causes of
cost overrun are escalation and fluctuation of building material prices, schedule delay,
delay of material delivery and cash flow and financial difficulties faced by the contractor.
 Consultants are the most responsible actor in controlling causes of cost overrun in the
construction industry followed by the contractor.
 There is very strong agreement between the groups of respondents in ranking of causes of
cost overrun, i.e, between client and contractor, client and consultant and contractor and
consultant.

 Contractual and financial effects of cost overrun are analyzed and client is the most
affected stakeholder, further impact of cost overrun is for all who are participated in the
construction sector.
 The most significant effects of cost overrun are delay during construction and additional
cost for the client.
5.2 Recommendation
Recommendations have been made based on the respective stakeholders and their contribution
towards the causes and effects of cost overrun. The main actors (consultant, contractor and client)
are responsible stakeholders along with the government who is the governing and law maker
body especially for those external factors of cost overrun. The following recommendations have
been drawn to make improvement on controlling and reducing cost overrun in the construction
projects.
 Improving the coordination and communication of the construction parties

 Creating plat form for integrating their works since there are large number of participants
in the project
 Minimizing corruption and other fraud activities.
 Government policies, procedures and interferences are valuable for the acting of rule of
law but these should be as compatible as the construction projects character.
 Handling of the political situation in a proper way should be a very agenda of the
government since construction projects are run only when in peaceful situation.
 Controlling inflation should also be mandatory since the economic instability of the
market lead the escalation and fluctuation of construction materials, change in foreign
exchange rate especially for imported materials and construction material availability in
the market.
 Adhering to justice should also be priority that can capacitate to fight and minimize
corruption and fraud activities the construction industries.
 Consultants should control and avoid the garbage in garbage out (GIGO) scenario, So the
consultant should act seriously from the beginning of the planning phase.
 Avoid mistakes and errors in the design and drawings and complete all necessary designs
based on sufficient geotechnical investigation before the tender process.
 Estimate the project duration and cost reasonably

 Execute accurate quantity in bill of quantity, takeoff,

 Follow very strict and applicable project management and supervision methodology to
execute the monitoring and evaluation process effectively.
 Manage the cash flow and overcome the financial difficulties
 Hire competent subcontractors by considering their ability to work beyond searching
cheap subcontractor. If not so, it will fire back at the end in different case.
 Hire competent and skilled man powers to fasten the work and reduce mistakes and
reworks.
 Use the up-to-date construction technologies and methods; this will help to complete the
work in time and in budget. Completing projects in time and in budget is profit by itself.
 Should secure early the land acquisition issue before contract is made
 Practice the assigning of lowest bidder minimal and combine it with other methods
(giving more emphasis on technical requirements).
 Minimize the interference of clients and government in the project technical parts, let the
professionals do their best alone with their knowledge and skill
 Do not change the heads frequently unless it is mandatory. The work flow will be
disturbed and fluctuated in the middle of process.
 Give fast and precise decision when necessary and pay on time that will pay you back
when the project complete on time and on budget.

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Apendix I :- Introductory Letter
This questionnaire skeleton is adopted from Yetesha, (2020)
Dear esteemed respondent,
First of all, I would like to thank you for taking the time to fill this questionnaire and share the
information you know. The information is required for the academic research entitled “the cause
factors and effects of cost overrun in construction projects, the case of Addis Ababa city
governmental housing construction projects) being conducted as a partial fulfillment for my
MSc degree in project planning and management.
The objective of this research is to identify the main causes /factors that lead to project cost
overrun and the consequential effects of cost overrun impose on the achievement of
governmental housing construction projects in Addis Ababa. To meet this research objective, it is
necessary to have the contribution of contractors, client and consultants currently working on
the scheme project and hence you are one of the stakeholders recruited to conduct this
questionnaire.
Therefore, your response is highly valuable to the outcome of the research and I would like to
assure you that all your identity and respective responses would be treated with utmost
confidentiality and not be used for other purpose than this research.
Please mark (√) on the appropriate box to your response.
Appreciating your cooperation in advance, I remain.
With Regards,
Haileleul Wudneh
+251910081024/

hailearch@gmail.com
Appendix II: Survey Questionnaire
Part I: General Information
1) Name :(Optional) ____________________

2) Company Name: _____________________
3) Email: ______________________________
4) Sex: Male Female
5) Which stakeholder do you represent?
Owner Contractor Consultant
6) Respondent’s designation in the company?
Resident Engineer Project Manager Site Engineer
Contract Engr. Office Engineer. Team Leader
Counterpart Engr. Site Supervisor Other (Specify) _________
7) General Years of Experience in Construction?
0 to 5 years 6 to 10 years 11 to 15 years
16-20 years 21-25 years above 25 years
8) Specific years’ Experience in Housing Construction Projects?
0 to 5 years 6 to 10 years 11 to 15 years
16-20 years 21-25 years above 25 years
9) Total cost of the housing projects you have been involved in?
< 50 Million 51-100Million 101-150 Million
151-200 Million 201-250 Million > 251 Million
Part II: Survey Questions

1. A project you are/have been involved is:
Completed Under Construction Both (completed & under construction)
2. Have the completed projects you were involved in before :
Completed less in budget Completed on budget Completed over budget
3. If your answer for Question No 2 is completed over budget, by how much percent it exceeded?
<5% 5-10% 10-15% 15-20% 20-25% >25%

Part III: Cost overruns Factors
During the period of construction, which factors you think contribute to cost overrun in the
project?
Please indicate the significance of each cause by ticking the appropriate boxes. You can add any
remarks relating to each cause on the last row
e.g. as to the reasons, the critical factors or the suggested solutions.
E.S. = Extremely Significant (5):
V.S. = Very Significant (4):
M.S. = Moderately Significant (3):
S.S. = Slightly Significant (2):
N.S. = Not Significant (1)
S/ E.S V.S M.S S.S N.S

N A. Project Related Factors (5) (4) (3) (2) (1)
1 lack of coordination between construction parties
2 conflict between project parties
3 large number of participants within the project
4 slow information flow between parties
5 lack of communication between parties
6 complexity of the project
S/ E.S V.S M.S S.S N.S

N B. Contract Related factors (5) (4) (3) (2) (1)
1 Corruption
2 Contractual claims
E.
S/ S V.S M.S S.S N.S
N C. Contractor related factors (5) (4) (3 (2 (1)
1 cash flow and financial difficulties faced by the contractor
2 schedule delay
3 incompetent subcontractors
4 poor site management
5 poor financial control on site
6 delay of material delivery
7 high cost and shortage of machineries
8 poor experience of constructors
9 wastage on site
10 lack of skilled workers to operate special equipment
11 outdated/obsolete construction /technology/ methods
12 use of poor quality of materials initially, leading to reconstruction
13 lack of equipment and materials at site

14 mistakes during construction by contractors
E.
S/ S V.S M.S S.S N.S
N D. Consultant related factors (5) (4) (3) (2) (1)
1 mistakes and errors in design and drawings
2 frequent design changes

3 inaccurate estimation of project duration and cost
4 lack of proper professional software
5 amendments in work due to error in design
6 improper project planning of project tasks
7 lack of effective site management and supervision
8 inadequate monitoring and control
9 poor project contract management
10 inaccurate quantity take-off
11 incomplete design at the time of tender
12 change in design at the time of construction
13 unclear specification
14 delays in design
15 delay of material/test approval
16 insufficient geotechnical investigation
17 addition/omission and errors in the bill of quantity
E.S V.S M.S S.S N.S

S/N E. Client related factors (5) (4) (3 (2 (1)
1 payment delays
2 land acquisition
3 Additional work
4 lack of inventory
5 lack of availability of funds/poor economic conditions
6 change in the scope of the project
7 delays in decisions making
8 frequent change of heads
9 practice of assigning lowest bidder
10 owner interference
E.S V.S M.S S.S N.S

S/N F. Labour related factors (5) (4) (3 (2 (1)
1 shortage of labours/site workers
2 low productivity level of labours

3 unskilled manpower
4 labour absenteeism
5 high cost of labour
6 strikes by site personnel
7 dispute on site
E.S V.S M.S S.S N.S

S/N G. External- related factors (5) (4) (3 (2 (1)
1 material shortage in the market
2 escalation and fluctuation of building material prices
3 tax liabilities
4 delay in government procedures
5 work accidents
6 natural disasters/ Act of GOD
7 location/condition of site
8 economic instability
9 uneven weather conditions
10 government policies
11 monopoly by suppliers
12 political situation
13 social and cultural impacts
14 problems with neighbors ( right of way problem)
15 government interference
16 change in foreign exchange rate( for imported materials)

Part IV: Cost overruns Effects

4.1 Please rank effects of cost overrun below in what you consider to be the most influential effect of
delay. The five point scale ranged from 1 to 5.
1= Strongly Disagree 2= Disagree 3= Slightly Agree 4= Agree 5= Strongly Agree
Importance and Ranking of Cost overruns Effects
1 2 3 4 5
S. Effects of project cost overrun
No /Owner related effect Strongly Slightly Strongly
Disagree Disagree Agree Agree Agree
1 Delay during construction
2 Supplementary agreement
3 Adverse relationship b/n parties
Loss of name to the consultant
4 by owner
5 Poor quality workmanship
Dissatisfaction by project owners
6 and consequently by end users,
7 Total abandonment of project
1 2 3 4 5
S. Effects of project cost overrun
Strongly Disagre Slightly Strongly
No /Financial related effect
Disagree e Agree Agree Agree
1 Additional cost
2 Budget shortfall
3 High cost of supervision and
contract administration to the
consultant
4 Delayed payment to the
contractor
4.2. If you have comments regarding effects of cost overrun, please specify here:
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
4.3 What is your general comment regarding causes of cost overruns and their effects on the of
governmental housing construction projects in Addis Ababa city:
--------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

Appendix III: Stata out puts
. tab designation exp
Respondents
designation in the Experience of respondents
company 0 to 5 ye 5 to 10 y 11 to 15 16 to 20 Total
Resident Engineer 0 1 2 0 3
Project Mnager 1 9 5 1 22
Site Engineer 5 2 2 1 10
Contract Engineer 1 5 0 1 8
Office Engineer 5 2 1 0 8
Team Leader 2 0 3 1 8
Site Supervisor 1 3 0 0 4
Others 0 0 2 0 5
Total 15 22 15 4 68
Respondents Experience of
designation in the respondents
company 21 to 25 above 25 Total
Resident Engineer 0 0 3
Project Mnager 2 4 22
Site Engineer 0 0 10
Contract Engineer 0 1 8
Office Engineer 0 0 8
Team Leader 1 1 8
Site Supervisor 0 0 4
Others 2 1 5
Total 5 7 68
. tab sex stakeholder
respondents representing
stakeholder
sex Client Contracto Consultan Total
female 4 4 3 11
male 22 21 14 57
Total 26 25 17 68

. tab sp_exp t_cost
Specific
Experience of
Respondents in Total cost of the housing construction
the housing respondents involved in
sector < 50 Mill 51-100Mil 101-150 M 151-200 M Total
0 to 5 years 6 7 3 2 28
6 to 10 years 5 5 9 0 27
11 to 15 years 3 0 3 0 12
above 25 years 0 0 0 0 1
Total 14 12 15 2 68
Specific Total cost of the

Experience of housing construction
Respondents in respondents involved
the housing in
sector 201-250 M >250 Mill Total
0 to 5 years 3 7 28
6 to 10 years 2 6 27
11 to 15 years 0 6 12
above 25 years 0 1 1
Total 5 20 68
. tab t_cost st_project
Total cost of
the housing
construction Status of the projects that
respondents respondents involved in
involved in Completed On constr Both Total
< 50 Million 1 1 12 14
51-100Million 1 3 8 12
101-150 Million 0 1 14 15
151-200 Million 0 1 1 2
201-250 Million 1 1 3 5
>250 Million 0 3 17 20
Total 3 10 55 68
. tab t_cost st_project
Total cost of
the housing
construction Status of the projects that
respondents respondents involved in
involved in Completed On constr Both Total
< 50 Million 1 1 12 14
51-100Million 1 3 8 12
101-150 Million 0 1 14 15
151-200 Million 0 1 1 2
201-250 Million 1 1 3 5
>250 Million 0 3 17 20
Total 3 10 55 68

. tab pr_budget _exceed
Project status
interms of
budget that
respondents %_exceed of the budget
involved in <5% 5-10% 11-15% 16-20% Total
above budget 4 6 23 11 62
Total 4 6 23 11 62
Project status
interms of
budget that %_exceed of the
respondents budget
involved in 21-25% >25% Total
above budget 2 16 62
Total 2 16 62
. spearman cons cont cl

(obs=68)
cons cont cl
cons 1.0000
cont -0.4402 1.0000
cl -0.4543 -0.5999 1.0000
. reg costov proj_rlf ctrct_rlf cont_rlf cons_rlf cl_rlf labr_rlf extr_rlf
Source SS df MS Number of obs = 66

F( 7, 58) = 4.98
Model 9.54825644 7 1.36403663 Prob > F = 0.0002
Residual 15.8734006 58 .273679322 R-squared = 0.3756
Adj R-squared = 0.3002
Total 25.4216571 65 .391102417 Root MSE = .52314
costov Coef. Std. Err. t P>|t| [95% Conf. Interval]
proj_rlf -.0324343 .1192593 -0.27 0.787 -.2711577 .2062891

ctrct_rlf .0119712 .0818869 0.15 0.884 -.1519434 .1758857
cont_rlf .0063336 .1856483 0.03 0.973 -.3652819 .377949
cons_rlf .2399893 .1570738 1.53 0.132 -.0744281 .5544067
cl_rlf .1907898 .1399004 1.36 0.178 -.0892514 .4708309
labr_rlf -.1694771 .1092612 -1.55 0.126 -.3881872 .0492329
extr_rlf .263716 .1030525 2.56 0.013 .057434 .469998
_cons 2.015874 .4162238 4.84 0.000 1.182712 2.849037

. vif
Variable VIF 1/VIF
cont_rlf 3.72 0.268827

cons_rlf 3.41 0.293599
cl_rlf 2.80 0.356551
proj_rlf 1.78 0.562303
labr_rlf 1.72 0.581396
extr_rlf 1.69 0.592134
ctrct_rlf 1.52 0.656651
Mean VIF 2.38
. hettest
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of costov
chi2(1) = 31.58
Prob > chi2 = 0.0000
. ovtest
Ramsey RESET test using powers of the fitted values of costov

Ho: model has no omitted variables
F(3, 55) = 0.19
Prob > F = 0.9058
. swilk r
Shapiro-Wilk W test for normal data
Variable Obs W V z Prob>z
r 66 0.97024 1.746 1.208 0.11347

Appendix III : Spearman’s rank table

Appendix IV: Sample of respondents Response Questionnaire


Haileleul Wudneh - Causes and Effects of Cost Overrun in Construction Projects

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The major cause factors and effects of cost overrun in the construction industry, 2021

the case of Addis Ababa governmental housing construction

Full Name Haileleul Wudneh Signature ------------------------------- Date ------------------

Name of Advisor ---------------------------- Signature --------------------------Date ---------------------

Haileleul Wudneh Page i

Name of Internal Examiner ______________Signature___________ Date _________

Name of External Examiner _______________Signature ___________ Date__________

Name of Head of Department______________ Signature ___________ Date__________

Haileleul Wudneh Page ii

I am very grateful to thank YOM institute of economic development in valuable contribution in

Haileleul Wudneh Page iii

Haileleul Wudneh Page iv

3.3 Sources and types of data ................................................................................................................. 29

Haileleul Wudneh Page v

Haileleul Wudneh Page vi

Haileleul Wudneh Page vii

Haileleul Wudneh Page viii

Haileleul Wudneh Page 1

1.1 Background of the Study

Haileleul Wudneh Page 2

1.2 Statement of the problem

Haileleul Wudneh Page 3

Ethiopia’s housing sector is characterized by significant deficits, both quantitatively and

Haileleul Wudneh Page 4

Haileleul Wudneh Page 5

Objectives of the Study

1.2.1 General Objective

1.2.2 Specific Objective

The specific objectives of the study are:-

1.3 Research Questions

1.4 Significance of the study

Haileleul Wudneh Page 6

1.5 Scope of the Study

1.6 Organization of the Thesis Report

Haileleul Wudneh Page 7

CHAPTER 2 : LITRATURE REVIEW

Table 2. 1 : Contextual definition of important terms

Housing Project: Building governmental housing construction projects constructed in the

2.2 Theoretical Literature

Haileleul Wudneh Page 8

PMI PMBOK (2013) “A project is a temporary endeavor undertaken to create a unique

APM BOK (2012) “A project is a unique, transient endeavor, undertaken to achieve

2.2.2 Construction project

According to a Wikipedia, A construction is a process that consists of the building or assembling

Haileleul Wudneh Page 9

Construction project is subset of a project and a project is a temporary endeavor undertaken to

2.2.3 The Iron triangle

Haileleul Wudneh Page 10

Fig 2. 1 The Iron Triangle (weaver, 2012)

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2.2.4 Construction cost

i) Direct construction costs:

Haileleul Wudneh Page 12

ii) Indirect costs:

2.2.5 Cost management

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Fig 2. 3: Major process in project cost management (PMI, 2004)

Fig 2. 4: Inputs, tools, Techniques and outputs of resource planning

Haileleul Wudneh Page 14

Fig 2. 5: Inputs, Tools, Techniques and outputs of cost estimating

Fig 2. 6: Inputs, Tools, Techniques and Outputs of cost budgeting

Haileleul Wudneh Page 15

Name of Internal Examiner ________Signature_ Date _____

Name of External Examiner _________Signature _ Date______

Name of Head of Department________ Signature _ Date______