Risk Factors That Leading to Cost and Time Overrun in Mega Construction Projects in Malaysia

Abstract

The construction industry is truly the engine of national economy through which the total of physical development is achieved. The construction industry is a vital element of the economy and has a     significant effect on the efficiency and productivity of other industry sectors. One cannot think of   widespread investment in manufacturing, agriculture, or service sectors unless the construction    results of infrastructure facilities are in place. In some of the developing countries, the growth rate of construction activity outstrips that of population and of GDP (Chitkara, 2004).

Cost, time, and quality are used to measure the project performance and success. Generally, the success of a project is defined by accomplishing it within specified cost, time and quality. However, the     construction industry is full of projects that are completed with significant time and cost overruns  (Amhel et al.,2010). According to Faridi et al. (2006) delays have an adverse impact on project success in terms of time, cost, quality and safety. The effects of construction delays are not confined to the   construction industry only, but influence the overall economy of a country.

Construction industry is a very important industry in a country’s development and it can increase or generate economic development of the country. A study showed that since seventies, the economic in Malaysia has undergone rapid growth. It found that construction industry constitutes an important  element of Malaysian Economy However, majority of the construction are facing problem in achieving the completion of project within stipulated time and cost. In other words, time and cost overrun is a common issue that frequently happens in the construction project worldwide generally, time overruns happen when a task within a project is not completed by the time the project plan specifies. Meanwhile, cost overrun occurs when the expenses required to complete a project exceed the amount budgeted.

Since seventies, the economics of Malaysia has undergone rapid growth. Construction industry     constitutes an important element of Malaysian economy. It shows how important to control and   manage the projects in good quality and efficiently. There are four fundamental constraints needed to be considered when managing the construction projects, which are scope, cost, time, and quality. In order to manage the projects successfully, it is necessary to consider whether the project is within those four constraints. Cost has its proven importance as the prime factor for project success.

Most of the significant factors affecting project costs are qualitative such as client priority on       construction time, contractor’s planning capability, procurement methods and market conditions   including the level of construction activity (Elchaig et al, 2005). A project otherwise completed may not be regarded as a successful endeavor until and unless it satisfies the cost limitations applied to it. Cost is among the major considerations throughout the project management life cycle and can be regarded as one of the most important parameters of a project and the driving force of project success.

Despite its proven importance it is not uncommon to see a construction project failing to achieve its objectives within the specified cost. Cost overrun is a very frequent phenomenon and is almost      associated with nearly all projects in the construction industry. This trend is more severe in developing countries where these overruns sometimes exceed 100% of the anticipated cost of the project.

The construction industry is large, complex, volatile, risky, and requires tremendous capital outlays and tight money. It provides a bigger challenge to maintain its scheduled time, budgetary cost, and  appropriate quality (Shaikh et al., 2010). A major criticism facing the construction industry is the   growing rate of cost overrun and delays in project delivery. Enshassi et al. (2003, 2008) explain that the increasing complexity of construction projects and the environment within which they are     constructed place greater demands on construction managers to deliver projects on time, within budget and with high quality. On-time completion and conformity with assigned cost of every project are the most important factors in the success of project plans. However, completing construction   projects on time and within budget has been a major problem (Flyvbjerg et al., 2003; Sanders and   Eagles, 2001).

Construction delay and cost overrun occurs all over the world and many studies have been carried out to assess the causes of cost and time overruns in construction projects. For example, in Malaysia    construction industry is highly dynamic sector and plays very important role in the development of country and hence in Malaysia, construction industry started a rapid growth since its independence. However, construction industry in Malaysia is facing chronic problems including poor performance of time and cost, construction waste, poor productivity and over dependent of foreign workers. Of these challenges, poor time and cost performance is considered as a critical issue. As reported by only 46.8% of public sector and 37.2% of private sector projects were found completed within the stipulated budget in Malaysia while only 20.5% of the public projects 33.35% of the private sector projects were completed within the time.