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Risk factors leading to cost overrun in the delivery of highway construction projects

Creedy, Garry D. (2006) Risk factors leading to cost overrun in the delivery of highway construction projects. PhD thesis, Queensland University of Technology.

Abstract

Accurate client budget estimates are critical to the initial decision-to-build process for the highway construction projects. This decision-to-build point in a project's development is seen as the international standard for measuring any subsequent cost estimate inaccuracies involved (National Audit Office/Department of Transport, 1992; World Bank, 1994; Nijkamp and Ubbels, 1999), with accuracy being defined as the difference between the initial project estimate at the decision-to-build stage and the real, accounted project cost determined at the time of project completion. Expressed as a percentage of estimated cost, this is often termed cost escalation, cost overrun or cost growth, and occurs as a result of many factors, some of which are related to each other, but all are associated with forms of risks. The analysis of these risks is often a necessary step for the improvement of any given estimating system and can be used to diagnose trouble spots and to pinpoint areas where project estimating accuracy improvement might be obtained.

In this research, highway projects in Queensland, Australia that have suffered significant cost overrun are analysed. The research seeks to address the gap in the knowledgebase as to why highway projects overrun their costs. It focuses on understanding how client projects budgets go wrong, when dealing with project risk.

The foundation for this research is drawn from the post-mortem analysis of highway projects, each costing in excess of A$1m and whose final total expenditure exceeded budget by 10% or greater. The research identifies client risk variables which have contributed to significant cost overrun and then uses factor analysis and also expert elicitation, using nominal group technique, to establish groups of importance ranked client risks. Stepwise multivariate regression analysis is then used to investigate any correlation of these risks, along with project attributes such as highway project type, indexed project cost, geographic location and project delivery method to the percentage of cost overrun.

The research results indicates a correlation between the reciprocal of project budget size and percentage cost overrun that can be useful in clients determining more realistic decision-to build highway budget estimates when taking into account project size in relation to economy of scale.

Impact and interest:

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ID Code: 16399
Item Type: QUT Thesis (PhD)
Supervisor: Skitmore, Ronald& Sidwell, Anthony
Keywords: highway construction, project budgeting, cost performance, construction management
Divisions: Past > QUT Faculties & Divisions > Faculty of Built Environment and Engineering
Past > Schools > School of Urban Development
Department: Faculty of Built Environment and Engineering
Institution: Queensland University of Technology
Copyright Owner: Copyright Garry D. Creedy
Deposited On: 03 Dec 2008 14:02
Last Modified: 29 Oct 2011 05:47

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