Understanding Reasons of Cost Overruns in Construction Projects from Contractors' Standpoint

Abstract

The construction sector represents one of the most significant contributors to the Georgian economy; it holds 8% of the country's total GDP. Additionally, 8.83% of Georgia's employed labour force works in construction throughout all industries. Therefore, it is essential to understand the challenges that the industry faces. Worldwide, project teams have finished nine out of ten projects with budget overruns. Many researchers have studied the factors influencing cost overruns across countries, regions, and project types. Most of these studies define cost overruns as the difference between the initially outlined budget and the final actual costs incurred. This definition simultaneously takes into account the viewpoints of all project stakeholders. In this particular research, the focus is on the point of view of construction companies. The research process is divided into three parts. The first part focuses on creating a list of all factors causing the construction project cost overruns. The second phase is dedicated to creating a questionnaire based on the final shortlist and gathering answers from experts working in construction. During the last phase, the survey results are analysed, and further desk research is conducted to provide recommendations for risk mitigation. As a result, sixteen factors are studied, the most frequent and severe ones identified as inflation, delays in getting approval from the client regarding the decisions concerning the project during the construction, and poor estimates of the project pre-construction. Several recommendations and tools are given for risk mitigation of cost overrun and protection against financial losses. Construction companies cannot eliminate all risks but can use best practices to address the most common factors they face.