Cost Overrun Design Causes Egypt

WORLD ACADEMIC JOURNAL OF BUSINESS & APPLIED SCIENCES-MARCH-SEPTEMBER 2013 EDITION

Journal of Engineering Management Research

JULY 2013 VOL.1, No,5

Cost Overrun Causes Related to the Design Phase in the
Egyptian Construction Industry

Dr. Hisham A. Bassioni, Dr. Alaa Sarhan, Ahmad S.Zaki (Corresponding author)

Department of Architectural Engineering and Environmental Design, College of Engineering and
Technology, The Arab Academy for Science, Technology and Maritime Transport.
Abu Kir AAST Campus, Alexandria. Egypt. P.O. Box 1029

Accepted 28 July 2013

Abstract
Cost overrun is one of the most common problems that threaten any construction project. As the Design
phase is responsible for many critical decisions, many of cost overrun causes are related to such phase.
This paper aims to identify the most significant causes of cost overrun related to the design phase in the
Egyptian construction industry from the point of view of owners, consultant, designers, project
managers and contractors. A list of cost overrun causes related to the design phase collected through an
extensive literature review, main causes were adapted to the Egyptian construction industry through
seven semi-structured interviews. The resultant list was submitted to a questionnaire survey for the
impact and frequency quantitative evaluation. the results of the research is expected to help the
participants in the design phase to develop more optimized design and avoid the most usual flaws that
could led to cost overruns
Key Words: Buildings ; Design management; Design Phases;

Cost overrun; Cost Control; Cost

Planning and Egypt.

1. Introduction
Construction projects could be measured or evaluated against many important performance criteria;
however cost remains the most agreed indicator of a project success (Tichacek, 2006). On other hand
due to a various number of cost overrun causes, it is usual for a construction project to witness
variations in value regarding the first approved budget estimate describing the project cost, the contract
price agreed for construction and the further final account of the project. Attempts to study and mitigate
the causes and the severe consequences of such problem started during the construction boom after
World War II; recently the construction industry in both developing and developed countries suffers
from the same problem. Cost overrun causes are diverse regarding their sources, many are directly
related to the critical pre-construction design and tender phases where most of decisions that affect the
project ability to meet the addressed expectations, are made and where changes could be implemented
with no severe impact on the project objectives. This paper aims to identify and evaluate cost overrun
causes related to pre-construction stages in the Egyptian construction industry.
2. Literature Review
Cost overrun in construction arises when the incurred costs exceeds the expected budget designated for
the building. Causes of this overrun originate from a variety of reasons and many are related to the

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stages preceding construction where most of the substantial decisions are made determining the ability
of the project to meet its objectives.
2.1 Design Phase Cost Management
Discussing cost overrun causes related to the pre-construction stage requires a thorough understanding
of this phase cost management activities and practices; Jaggar, Ross, Smith, & Love (2002) depicted
the notion of design phase cost management as it is the successful applying of planning, controlling and
feedback in terms of design, cost, time and quality to achieve the project objectives through : cost
planning, which define the amount to be spent on the various building components, cost controlling as
the design develops, in the form of cost checks to ensure the deliverables compliance with the cost
plan.
The RIBA Plan of Work provides an organized presentation of the essential process of the
preconstruction phase. The plan of Work is recommended by many researchers to provide a sound
pattern for the procedures of the design process, and the recommended cost management practices
(Seely, 1996). Accordingly the Pre Construction phase is divided into Preparation stage, Design stage
and the Pre Construction stage; the following lines are intended to briefly describe the main objectives
of each stage and the practical adjacent cost management practices. Figure (1) shows cost management
functions related to the plan of work stages.
2.1.1 Cost management in the preparation stage
The preparation stage generally aims to understand the client’s needs and develop a design brief that
reflects those needs effectively. Cost management through this stage intends determine the cost of
design brief through value planning and cost estimation functions. Value planning is considered as a
very helpful tool To develop a consistent, reliable and optimized design brief that offers alternative
solutions to meet the owner’s needs. Cost estimation at this stage tries to determine a cost limit for the
project either based on the client’s maximum affordability, or on historical data for similar projects. It
should be considered that during this early stage detailed information are usually unavailable, and
therefore estimates rely on the design brief as a result of business case analysis recommendations that
may quantify or describe generally the capacity of the project, the gross area or number of service units.
2.1.2 Cost management in the conceptual and schematic design stage
It is the stage where the main concept is outlined and developed into detailed design including the
building’s different systems. Cost management efforts through this stage aims to define a cost plan for
the design, which is an estimate based on the approved design concept. Furthermore as the design
develops and includes more systems and disciplines in details the cost plan is developed and divided
into cost targets for every discipline in the building as a cost limit for such discipline; and therefore the
cost plan is considered as a baseline to check whether the developed design is within the agreed cost
framework. Cost estimating is one of the most essential tools to control cost as the design develops;
unlike previously conducted estimates; estimates through this stage relies on more accurate data in the
form of quantities and specifications where prices are based on historical data, trade specialists,
sub-contractors, vendors quotations or cost book. Another essential tool of cost management is value
engineering that helps in assessing design outcomes and eliminating unnecessary costs through defining
the required function and comparing different alternatives to achieve better value design.
2.1.3 Cost management in the detailed design and construction document stage
It is the final stage of the design process that incorporates various tasks: completing final layouts that
coordinate in details all elements and components of the building; obtaining the client’s approval;
applying for statutory approvals and preparing detailed drawings and specifications needed for the
tender documents. The cost management through this stage aims to ensure the alignment of disciplines
costs and the relevant cost targets defined in the cost plan for such disciplines through performing
accurate cost estimations that tries to depict the contractors offer during tender. Value engineering and
life cycles costing are considered as helpful tools in addressing the spotted variances and proposing
modifications to maintain the cost plan. Additionally the appropriateness of tender documents and the
selected procurement method affects the ability of the design to meet its objectives during construction.
Design coordination within design documents, specifying method, risk allocation between the owner
and contractor and the procurement method for selecting the contractor are of the main important
arrangements to ensure minimizing of cost overruns during construction.
2.2 International Studies
The previous review of cost management principles during design was essential to understand the
causes of cost overrun discussed in many international studies. Twelve studies were incorporated in this
research to assemble a list of cost overrun causes. Kaming et al. (1997) classified the severity and
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frequency of ten main causes of cost overrun in developing countries’ construction projects. Jackson
(2002) identified causes of cost overrun in the UK. Koushki et al. (2005) identified causes of time delay
and cost overruns in residential construction projects in Kuwait. Le-Hoai et al. (2008) classified the
severity and frequency of factors of delay and cost overruns in Vietnamese construction industry. Azhar
et al. (2008) categorized the severity of selected forty two cause of cost overrun in the construction
sector of Pakistan. Apolot et al. (2009) ranked twenty two time delay factors and cost overrun causes in
Uganda’s public sector projects. Ameh et al. (2010) indicated the importance of significant factors that
cause cost overruns in Nigerian telecommunication projects. Bubshait & Al-Juwairah (2002) measured
the severity of factors affecting the construction costs in Saudi Arabia. Chang (2002) identify reasons of
cost and schedule increase based on four completed construction projects in the US. Durdyev et
al.(2012) evaluated factors of cost overruns in residential projects in Turkey based on their relative
importance. Ali & Kamaruzzaman, (2010) identify factors of cost overrun in construction projects in
Malysia
3. Experts Interviews
Based on the previously held literature review and findings an expert interview is performed to adapt
the selected causes according to the Egyptian construction industry. A varied sample including five
representatives reflecting various backgrounds: architects, consultants, contractors and project managers
experienced in construction each with minimum experience 20 years. The sample size in qualitative
research methods could be figured through saturation were additional interviews do not produce new
information or data (Guest et al. 2006) which was met through two additional interviews. The interview
depended on a semi structured interview design where a set of question was addressed in addition to
allowing probing when needed, the collected causes from literature review were assessed to three main
questions “From your expert opinion: What would you like to omit or remove ? What would you like to
change or modify? What would you like to add as a significant cause of cost overrun?
During the interviews cost overrun causes selected from literature were generally considered
appropriate to discuss the cost overrun causes related from the design and the later pre-construction
phases in the Egyptian construction industry, however some descriptions where slightly modified in
order to be more defined. Table (1) shows causes of cost overrun selected from literature after experts’
interviews adaptation to the Egyptian construction industry.
4. Questionnaire Survey
A questionnaire survey was conducted to quantitatively evaluate the frequency of occurrence and the
severity or impact of causes of cost overrun selected from literature and adapted through experts
interviews.
The questionnaire was divided into two parts: Part 1 – Participant’s personal information (e.g. Name,
occupation, company name, organization type, experience, age and gender) : and Part 2 – Evaluation of
causes according to Frequency and Impact, each cause was measured on a likert scale using four options:
Always, Sometimes, Rarely and Never for Frequency and Extreme, Moderate, Little and no for Impact.
A total of 115 survey questionnaire was distributed, 101 was completed successfully and involved in the
study. Participants’ organizations were distributed as: 45 owner, 11 contractor, 33 architect and 12
project manager
5. Result Analysis
5.1 Analysis of overall results
To identify the importance degree of each cause of cost overrun, an importance index was calculated
based on the frequency index and impact index in a manner similar to Assaf et al. (1995).
Frequency index is calculated according to the following equation:

Where: F.I. = Frequency index;

= Weight of response;

= Frequency of response and

i =

Response category index.
A response of “Always” was given a weight of 3; “Sometimes” was given a weight of 2; “Rarely” was
given a weight of 1 and “Never” was given a weight of 0. For example if 100 responds was received for
a certain cause where: 20 responds were “Always”; 65 responds were “Sometimes”; 10 responds were
“Rarely” and 5 were “Never” then the frequency index for this cause would be calculated as the
following equation:
= 66.67
F.I=
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Impact index is calculated according to the following equation:
Where: I.I. = Impact index;
= Weight of response;
= Frequency of response and i = Response
category index.
A response of “Extreme” was given a weight of 3; “Moderate” was given a weight of 2; “Little” was
given a weight of 1 and “No” was given a weight of 0 and the index was calculated similar to the
frequency index previously shown.
The Importance Index was calculated through using a similar methodology to that used by Assaf and
Hejji (2006):
Importance index (IMP. I.) (%) = [F.I. (%) * I.I. (%)]
The Importance indexes were calculated for the cost overrun causes where they were ranked
accordingly as shown in chart (1).
5.2 Analysis of results by Project Parties
In order to asses the cost overrun causes by each party independently, the contractors’, consultants’,
owners’, and project managers’ data were separated and analyized seperatly. This helped in in identifing
the degree of agreement between each party responses. The frequency index, impact index and
importance index was calculated according to each party respons where causes were ranked accordingly
as shown in table (2).
The following are comments on the data shown in Table (2) and Chart (2):
• “Occurrence of design variations, changes or additional work by owner or designer” is
considered as the most important factor of cost overrun causes regarding the general overall
results. Design changes and variation orders can affect the project’s estimated budget and time
for construction due to reworks and delays and subsequent claims, and this could illustrate why
the contractors’ relative importance of this cause is the lowest among the other parties.
• “Unrealistic estimation of construction period” is the second most important factor of cost
overrun causes according to the overall results. This cause recorded a high relative importance
according to the contractors’ and the project managers’ results which reflects the project
managers’ and contractor’ perception of the importance of accurate time estimation on the
project budget due to the nature of their work.
• “Inadequate design, design errors and mistakes, lack of details or contradiction in design and
conflict between design documents (drawings and specifications)”ranked a high relative
importance according to the contractors’ results unlike the other parties, showing a conflicting
opinion with other parties as the design process is merely under their responsibility unlike with
no contribution of the contractor in most of the cases.
• “Lack of communication and coordination between design participants of different
background”, recorded a much higher relative importance according to the owners’ and project
managers’ results unlike the architects’ results The results shows a conflicting opinion between
the design main participants as it is believed that it is the architect’s responsibility to assure the
integration of the design.
• “Lack of Designers understanding of cost and value and the subsequent cost implications of
what included in the design” ranked a higher relative importance according to the architects’
and contractors’ results than the owners’ and project managers’ results. Again the results show
conflicting opinions between design participants regarding what to be included in the design
and ways of cost optimization that may be not agreed by owner or project manager.
• Causes “Inadequate consideration of risks” and “Quantities taking off mistakes” recorded a
higher importance regarding the project managers’ results than other parties reflecting the
perception of the importance of considering the risks and the accurate real quantities of work;
this is due to the nature of the project manager in a construction project.
• “Lack of involving contractors or suppliers during in design” recorded a higher importance
regarding the contractors’ results than other parties; this could be justified as many problems
during construction could be avoided if contractor participation took place earlier during
design.
• “Selection of inappropriate big construction companies” recorded the lowest relative
importance among the contractors’ results. Reflecting the contradiction in opinion as architects,
owners and project managers may consider the added markups and profit may increase the cost
of the building in an avoidable way if smaller contractor companies are selected.

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6. Degree of Agreement between Parties
To quantitatively measure the agreement between parties the following two approaches are adopted:
Pearson’s Correlation Coefficient in comparing values of Importance Index; and Rank Agreement
Factor in comparing the Ranking
6.1 Pearson’s Correlation Coefficient (C.C.)
The C.C. is described as the “product moment correlation coefficient” is one of the most reliable and
common adopted statistical techniques to identify the correlation between two sets of data. The
following formula is used to calculate the C.C. (probability, Statistics & Reliability; Ayyub, B.A. &
McCuen, R.H. pp 279). The values of C.C. range from +1 which means “perfect correlation”, through 0
which means “no correlation’, to -1 which means “perfect negative correlation”. The results of
correlation between the contractor and the architect- consultant was -0.0434, between the contractor and
the owner was 0.0725, between the contractor and the project manager was 0.0490, between the
architect - consultant and owner was 0.0659, between the architect – consultant and the project
manager was 0.0424, between the owner and project manager was 0.1584.
6.2 Spearman Rank Correlation Coefficient
Spearman Rank Correlation Coefficient was calculated based on the following formula (Assaf and
Al-Hejji 2006):
Spearman rank coefficient = 1Where “d” is the difference between ranks indicated by the two parties and “n” is the number of records.
The values range from (+1) as perfect correlation, (0) no correlation and (-1) as negative correlation.
The results of correlation between the contractor and the architect- consultant was 0.67, between the
contractor and the owner was 0.6, between the contractor and the project manager was 0.63, between
the architect - consultant and owner was -0.38, between the architect – consultant and the project
manager was -0.34, between the owner and project manager was 0.99.
6.3 Rank Agreement Factor (R.A.F.)
The R.A.F is known as the average absolute difference in rank of the items (Baldwin et al. 1971). It is a
method of quantifying the agreement between the parties result.

Where “X” and “Y” are the ranks in a two party results, “N” is the number of records. Values of the
R.A.F. Range from 0 which means “perfect agreement” to N/2 which means “perfect negative
correlation, i.e. the highest agreement the lowest the R.A.F. The results of correlation between the
contractor and the architect- consultant was 3.55, between the contractor and the owner was 3.94,
between the contractor and the project manager was 3.81, between the architect - consultant and owner
was 7.48, between the architect – consultant and the project manager was 7.36, between the owner and
project manager was 0.13.
The results showed that the highest agreement factor lies between the owners’ and the project
managers’ results this is due to the contractual nature between them. The architects’ results degree of
agreement with owners or project managers showed low correlation, this due to that both parties are
mainly involved in the design stage and therefore it is likely to have opposite opinion regarding the
importance of causes. On other hand it is not usual that the contractor to be involved during design stage
and this shows why correlation levels of contractor with other parties could be considered as in
between.
7. Conclusion
The aim of the research was to identify cause of cost overrun related to the design stage in the Egyptian
construction industry. A literature review was conducted to recognize the proper technique of managing
cost during design stage and to identify causes of cost overrun that arise during the design stage and
affect the project’s budget during the later stages. Seven semi-structured interviews were conducted to
adapt the selected causes according to the Egyptian building projects. The resultant list of 16 cause of
cost overrun was raised for a questionnaire to quantitatively evaluate their importance according to their
frequency and impact.
The survey overall results showed that the most important causes are Occurrence of design variations,
changes or additional work by owner or designer; Unrealistic estimation of construction period; Lack of
information and definitions of scope due to incomplete recognizing or badly developed client's needs
and lack of involvement of the appropriate stake holders; Inadequate design, design errors and mistakes;
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lack of details or contradiction in design and conflict between design documents (drawings and
specifications); Lack of communication and coordination between design participants of different
background. The results show that the topmost important five causes of cost overrun are almost agreed
by all project parties however there are disagreement considering their ranking which extended to the
rest of causes this is due to the attempt of each party to promote the importance of causes under other’s
responsibility.
A correlation of the responses of each party showed the architect – consultant and the owner or the
project manager to have dissimilar opinions regarding cost overrun causes, while the contractor held an
intermediate position.
Further research can be conducted based on the findings of this paper. For example identifying causes
of cost overrun related to design stage in other countries which may rise different due to geographical
and socio-economic variations. Moreover, an advance research could suggest set of guide lines or
recommendations to manage costs during design or a process plan for the functions to be incorporated
within the design stage.
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Figure (1): Design cost management concept map. Adapted from Smith and love (2000)
No.

Causes of Cost Overrun

1

Lack of information and definitions of scope due to incomplete recognizing or badly developed client's
needs and lack of involvement of the appropriate stake holders

144


2

Inadequate design, design errors and mistakes, lack of details or contradiction in design and conflict
between design documents (drawings and specifications)

3

Occurrence of design variations, changes or additional work by owner or designer

4

Selection of inappropriate designer according to the project's complexity and specialty

5

Not allocating sufficient resources and time to develop appropriate design

6

Lack of Designers understanding of cost and value and the subsequent cost implications of what
included in the design

7

Lack of value management and Buildability consideration

8

Lack of communication and coordination between design participants

9

Lack of involving special trades contractors or suppliers during the design development

10

Occurrence of mistakes in quantities taking off

11

Unavailability of construction cost data to develop a realistic cost estimate

12

Unrealistic estimation of construction period

13

Inadequate consideration of risks regarding site location and the unavailability of building materials,
environmental concerns, weather, market trends, financing burdens, bonds and insurance costs,
statutory constrains and other unforeseen risks

14

Selection of inappropriate contract type or the inappropriate allocation of risks in contract

15

Adopting Tight bidding conditions during tender regarding bonds, insurances or certificates required

16

Selection of inappropriate big construction companies
presented tender price

of different background

with high mark-up and profits added to the

Table (1): Selected causes of cost overrun from literature and after experts’ interviews adaptation for
questionnaire evaluation.

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Overall results
No.

Causes
Rank

Rel.
Imp.

Owners’
Rank

Rel.
Imp.

Architects’
Rank

Rel.
Imp.

Contractors’
Rank

Rel.
Imp.

Project
Managers’
Rel.
Rank
Imp.

3

Design changes and variations

1

100.00%

2

97.50%

1

100.00%

4

90.51%

3

12


2

97.48%

4

86.67%

2

89.57%

2

100.00%

1

1

Lack of scope definition

3

95.76%

3

93.33%

3

85.91%

1

100.00%

4

2

Inadequate design, design errors and mistakes

4

90.92%

5

79.44%

4

84.76%

3

95.83%

5

8

Lack of communication and coordination

5

85.27%

1

100.00%

7

68.80%

5

88.34%

2

7

Lack of value management and
Buildability consideration

6

79.52%

6

76.39%

5

80.60%

7

73.84%

8

6

Lack of Designers understanding of cost and value in design

7

77.75%

8

66.67%

6

75.10%

6

81.22%

9

13

Inadequate consideration of risks

8

71.48%

7

68.61%

8

68.00%

11

65.96%

7

10

Quantities taking off mistakes

9

65.91%

13

52.78%

12

58.67%

9

66.74%

6

11

Unavailability of cost data

10

65.68%

9

63.33%

10

60.34%

10

66.35%

10

9

Lack of involving contractors or suppliers during in design

11

63.37%

12

54.31%

13

57.48%

8

68.46%

11

5

Not allocating sufficient resources and time to develop
appropriate design

12

60.66%

10

57.50%

9

66.00%

13

50.28%

13

4

Selection of inappropriate designer

13

57.26%

14

46.94%

11

58.80%

12

54.15%

14

16


14

52.80%

11

55.56%

14

56.51%

16

39.45%

12

14

Selection of inappropriate contract type

15

46.49%

15

44.86%

16

42.06%

14

47.96%

16

15

Adopting Tight bidding conditions

16

45.70%

16

28.89%

15

47.33%

15

43.04%

15

96.88%
100.00%
93.75%
84.13%
99.16%

69.11%

Table (2): Ranking and relative importance according to the questionnaire overall results and each party’s results

146

65.63%
78.13%
80.17%
64.90%
57.09%
54.09%
51.92%
54.81%
44.95%
50.24%

40.0
40%

30.0
30%

20.0
20%

10.0
10%

0.0
0%

to the questionnaire overall results.

Chart (2): Overall and different parties’ relative importance of causes

147

60.0

50.0

Adopting Tight bidding conditions

Imp. Index %

Selection of inappropriate contract type

61%


63%

Selection of inappropriate designer

66% 66%

Not allocating sufficient resources for design

I.I

Lack of involving contractors or suppliers during in
design

F.I

Unavailability of cost data

70.0

Quantities taking off mistakes

91%

Inadequate consideration of risks

80.0

Lack of Designers understanding of cost and value in
design

96%

Lack of value management and Buildability consideration

Lack of communication and coordination

100%
97%

Inadequate design, design errors and mistakes

Lack of of scope definition

90.0


Design changes and variations


100.0
Rel. Imp. %

100%

85%
80% 78%
90%

71%
80%

70%

57%
53%
60%

46% 46%
50%

Chart (1): Frequency index, impact index, importance index and relative importance of cost overrun cause according

Cost Overrun Design Causes Egypt

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