CAUSES OF COST OVERRUN AND COST MANAGEMENT ON ROAD PROJECTS

Abstract

Many projects experience cost overruns and thereby exceed initial contract amount. In Ethiopia, the number construction projects are increasing from time to time. However, it becomes difficult to complete projects in the allocated cost and time. Taking into account the scarce financial resources of the country, cost overrun is one of the major problems in Ethiopia. Therefore, these researches were carried out to analyze and discuss the factors that cause cost overrun during construction and cost management practice of construction projects in Arbaminch area. Arbaminch town is serving as a capital of Arbaminch Zuria Woreda and Gamo Gofa Zone. The altitude ranges from 1300 to 3000 m.a.s.l across various agro-ecology. The researcher tried to use solvins formula in determination of sample size. And in the method of data collection both respondent documents and archival documents were used. As a method of analysis, descriptive statistics were used with the aid of computer software statistical package for social science (SPSS). Questionnaire surveys together with desk study, including interview questions were used to collect data on cost overrun. A total of 88 questionnaires from client, consultants and contractors was collected and in desk study, seven on progress road construction projects in Arbaminch area were investigated. From the results of desk study, 100% of the road construction projects suffered both time and cost overrun in the study area. It is found that 22,641,333.14 to 496,204,508.39ETB additional cost due to different reasons in which the projects are not totally completed. The researcher found seventeen major variables as a cause that affects the cost of the project in the study area. Of those seventeen variables, six which were poor estimation of original cost, improper cost planning, improper time planning, unpredictable weather condition, Inflation, lack of experience on the part of the contractor concurrently chosen by those stakeholders. And there are many effects of overrun to the stakeholders in the construction industry. From this research clients are those who are severely affected by cost overrun, since they are forced to look for additional money to complete the construction projects. Project cost management is one of the ten knowledge areas and it includes the process involved in planning, estimating, budgeting and controlling. But interviewed open ended question result clearly implies the gap of project managers and literally best management tools and techniques in order to complete projects with a specified cost of the work.