This thesis examines the factors causing cost overruns in public building construction projects in Addis Ababa, Ethiopia. The study identifies the primary causes of cost overruns through a literature review, questionnaires to project stakeholders, interviews, and a desk study analysis of past projects. The research finds that the most common causes of cost overrun are low labor productivity, inflation increasing material prices, changes in exchange rates for imported materials, and lack of control over excessive change orders. Consultants are often blamed the most for cost overruns, followed by clients. Cost overruns have consequences like delays, additional funding requirements, and damaged reputations. The thesis concludes by recommending improved coordination, planning, and collaboration among all stakeholders to minimize cost over

1. LUNAR INTERNATIONAL COLLEGE
School of Business and Economics
Department of Project Management
Thesis Defense
BY Yosef Yirga
Factors causing cost overrun in public building construction projects in Addis Ababa
Addis Ababa, Ethiopia
June 2022

2. CONTENTS
01
02
03
04
05
INTRODUCTION
Background, statement of problem, research
question, objectives & significance of the study
REVIEW OF RELATED
LITERATURE
General, Theoretical, Empirical & Conceptual
Framework
RESEARCH METHODOLOGY
Research design and approach, sample size,
method of data collection & data analysis
PRESENTATION, ANALYSIS,
DISCUSSION AND INTERPRETATION
OF RESULTS
Response rate, discussion, ranking of causes of
cost overrun, interpretation & triangulation analysis
CONCLUSION AND
RECOMMENDATION
Conclusion and recommendation for future studies

3. CHAPTER ONE
INTRODUCTION
1.1 Background of the study
• Ethiopia has lately completed magnificent projects such as urban
development projects, bridges, dams, and industrial projects, among
others.
• Cost is one of these performance indicators, particularly for industry
initiatives.
• Building projects, in particular, have issues with construction processes
and administration, as well as budget and time constraints.
• cost overruns in public building construction continue to be a bottleneck
to project completion.

4. 1.2 Research Problem
• The initiation of this research was largely due to personal observation
and the low performance of the construction projects in terms of cost
and time.
• The first motive to undertaking this research was to learn more about
the factors that cause cost overruns during public building
construction projects in Addis Ababa town.
• However, due to the limitations with regard to accessibility of data on
private construction projects, this thesis will focus on public building
construction projects.

5. 1.3 Research Questions
• What are the primary reasons for the cost overrun in public building
construction projects in Addis Ababa?
• Who is the responsible party for the respective causes of cost
overrun?
• What is the extent of cost overrun for different types of public
building construction projects?
• What are the factors that are causes for cost overruns in public
building construction projects?

6. 1.4 Research Objective
1.4.1 General Objective
• To assess the main factors causing project cost overruns on public construction
projects in Addis Ababa and possible mitigation strategies in this industry.
1.4.2 Specific Objectives
• To examine the primary reasons of cost overruns in public building
construction projects in Addis Ababa, as well as their overall effects.
• To identify the related responsible party for the causes of cost overrun.
• To assess the cost overrun rate for different types of public building
construction projects.
• Determine the factors that are causes for cost overruns in public building
construction projects in Addis Ababa.

7. 1.5 Significance of the Study
• describes causes and solutions that contribute to construction time
and cost overruns in public building construction project.
• it enabled researchers to do more in-depth studies on public building
construction projects, and they were able to use this study as a
source of knowledge.
• adds to our understanding of the critical and major factors that
contribute to cost overruns in public-sector construction projects.
• it establishes a foundation for treating the multiple risk factors that
contribute to cost overruns

8. CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 General
A "construction project" is a high-value, time-sensitive, unique
construction mission to develop a facility or service with established
performance targets defined in terms of quality, time, money, and
other limitations.

9. 2.2 Empirical literature
• A lot of studies have been conducted on the variables that cause cost overruns in
building projects in various nations (developed and developing).
• Researchers in the past looked at the elements that influence building costs from
numerous angles.
• Various countries, however, have different cost variables to consider.
• Following the literature review, the researcher discovered the following
information:
 Group of causative factors of cost overrun in construction which are :- material
related factors, equipment related factors, labor factors, contract management
related factors, project related factors, external related factors.

10. 2.3 Conceptual Frame work

11. CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research design and approach
• The study has employed survey research design
• The researcher has employed collection of data from the participant
directly through administered questionnaires, interviews & desk
study.
• Stratified sampling was selected because there were different
characteristics among teams of client, contractors and consultant.

12. 3.2 Determining the sample size
• When the population is less than 1000, we can test 30 percent of the
total population. (Gay and Airasian, 2003).
• Currently the Addis Ababa Design and construction bureau has
administered 37 public funded building construction projects and
there are 154 potential respondents.
• n= 154*0.3= 46 for the questionnaire.
• Proportional sampling is used to divide the sub population i.e. client,
consultant and contractors.

13. 3.3 Methods of data collection
• The study has used the data sources to produce the following basic
documents: respondents’ documents and archival documents.
• Questionnaires were prepared in accordance to the objectives of the
research.
• Interview is done to ensure efficient collection of information
• Building projects with contract amount greater than or equal to ten
million birr are surveyed in the desk study.
• Archival documents were mostly from completed projects.

14. 3.4 Methods of Analysis
• Descriptive, Inferential statistics and Data triangulation are employed
in the data analysis.
• In the analysis the “Mean Score” method is adopted to establish the
relative importance of the causes of cost overrun for public building
construction projects in Addis Ababa.
• The Spearman (rho) rank correlation coefficient is used for measuring
the differences in ranking between two groups of respondents scoring
for various factors.

15. CHAPTER FOUR
PRESENTATION, ANALYSIS, DISCUSSION AND INTERPRETATION OF RESULTS
4.1 Response Rate
The questionnaire was produced and sent in person and by technical means to
three contracting groups, who are currently working on public building construction
sites.
• Forty-six (46) questionnaires were given to the stakeholders after considering the
respondents' participation in the project all were responded accordingly.
56%
33%
11%
Respondents Category
Client Consultant Contractor

16. 4.2 Discussion section
4.2.1 Information of interview
• The interview was conducted using a qualitative standardized interview.
• Fifteen professionals with an interest in public building construction were
available for interviews.
• According to 100% of respondents, cost overruns in public building construction
projects are major concerns that must be addressed soon.
• The most pressing difficulties stated by respondents are financial, commodity
price fluctuations, material scarcities, the Covid 19 epidemic diseases.
• The cost of a project grows as the duration of the project increases.
• The project budget restriction has been established in practice.

17. 4.2.2 Observation at the job site and in the workplace
• Observation and desk study were two of the data gathering
approaches employed in this study.
• The most common causes of cost overrun, according to the desk
study, are supplementary agreements, price fluctuation of
construction materials, change orders or variations, Labor
Productivity.
• Site works, such as fences, site sanitary installations, site electrical
installations, and internal access roads, are frequently overlooked
throughout the design, specification, and/or contract document
preparation process.
• When a project's cost exceeds 10% of the contract amount,
consultants write a "supplementary agreement.“

18. 4.3 Ranking of causes of cost overrun (RII) with High RII score
Relative importance index
Less productivity Inflationary increase of materials price
Unperiodic maintenance cost of machineries Change of consultants for design, supervision and contract management
Late delivery of material management Scarcity of materials
unskilled personnel Failure to identify problems
Poor communication between project team members Dependency on imported material
Low experience of consultants

19. 4.4 Correlation tests on factors of cost overruns
• One of the goals of this thesis is to see if stakeholders in Addis Ababa
agree on the reasons of cost overruns on public building construction
projects.
• The data indicated that there is a strong or clear interaction between
respondents' views in the client and contractor groups,
• whereas the degree of connection between respondents' attitudes in
the contractor and consultant groups is moderate.
• There is no evidence that the two parties are statistically agreeable.
• As a consequence, it was discovered that respondents' opinions of
client and consultant, as well as contractor and consultant, in terms of
how they score the factors, differ significantly.

20. 4.5 Triangulation Analysis
• The results of the literature review and the questionnaire survey,
however, differ in some ways. Delays in payments are tolerated by
local contractors in the Ethiopian construction business, but they are
not tolerated by international contractors working in Ethiopia.
• cost overrun cannot be attributed to a rise in workmen's wages,
contrary to the literature study. If workmen's wages rise owing to
inflation or other difficulties in the country, the contractor will bear
the expense.
• According to the desk research, Most of the time, consultants are
blamed by clients; project owners think that if the designs,
specifications, and contract agreements had been done and prepared
correctly from the start, there would have been no late change orders
and 'unexpected ground conditions’.

21. Chapter five
Conclusion and recommendation
5.1. Conclusion
• Public building projects investigated in the research suffered cost overrun in their
execution. For these public building construction projects, the actual cost overrun ranges
from 2.78% to 141.36% of the contract amount.
• The contract amount appears to impact the rate of cost overrun. The rate of cost overrun
is found to decrease with increasing contract amount in a regression analysis of data
acquired from a desk research for 35 public building construction projects.
• The overall amount of cost overrun for the various types of public building construction
projects analyzed in this study varies significantly. According to the report, educational
buildings have the lowest cost overrun rate, while recreational structures have the
highest.

22. Cont.…
• Labor productivity, Inflation or an increase in the cost of construction materials, a change
in the foreign exchange rate (for imported materials), change orders and/or a lack of
control on excessive change orders, and a failure to identify problems and take necessary
and timely actions are the most common causes of cost overrun.
• According to the findings of the study, consultants are most often held accountable for
cost overruns in the construction business, followed by clients.
• Clients that are badly impacted by cost overruns, as determined by this study, are those
who are obliged to seek more funding to complete the building project.
• Cost overruns have several consequences for building sector stakeholders. The most
typical consequences of cost overruns in the construction business include delays,
additional agreements, project owners' budget shortfalls, contentious relationships
among stakeholders, and a loss of reputation for construction professionals, particularly
consultants.

23. 5.2 Recommendations
• Consultants shall have continuous coordination and direct contact will avoid
design conflicts, flaws, and omissions, as well as provide specialists the
opportunity to properly evaluate the contract agreements.
• Provide any necessary details to make interpreting the designs and laying out the
works easier.
• To minimize variations and late adjustments during the building phase, a detailed
and complete site study should be conducted during the design phase.
• Clients shall budget enough time to complete project briefings and other
feasibility assessments.
• Contractors shall collaborate with the customer to order building supplies and
other goods ahead of time.
• All stakeholders in the construction industry should work together to improve the
sector's outputs and ensure that it continues to expand in a healthy manner.
• Institutions and academicians in the construction business must collaborate with
industry practitioners.
• Generally, It will need a collaborative effort from all stakeholders to put the
findings of building research into practice.

24. THANKS FOR WATCHING!
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