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Afetornu, C and Edum-Fotwe, F T (2005) Characterising project contingency budget in construction. In: Khosrowshahi, F (Ed.), Proceedings 21st Annual ARCOM Conference, 7-9 September 2005, London, UK. Association of Researchers in Construction Management, Vol. 1, 259–68.
- Type: Conference Proceedings
- Keywords: construction; projects; budget; contingency; cost; roads
- ISBN/ISSN: 0 902896 93 8
- URL: http://www.arcom.ac.uk/-docs/proceedings/ar2005-0259-0268_Afetornu_and_Edum-Fotwe.pdf
Project contingency estimation is based on a percentage allocation of the total project budget and is often established by a rule of thumb. The use of contingency in the construction industry provides a tacit acknowledgement of the perennial problem of cost overruns in the delivery of projects. The effects of cost overruns are adverse consequences such as projects becoming non- viable, or in extreme cases being abandoned. The economic impact of cost overrun includes delays in payback for investment by the client and occupancy of the facility or development by the end- user. Within this paper, the authors argue that the occurrence of cost overruns can be deemed as symptomatic of inadequate planning and budgeting of projects. The planning inadequacy in turn is a consequence of the accuracy of costing data employed for estimating project budgets. It has been argued that the elimination of cost overruns on projects or zero-cost growth on projects requires an improved understanding of the nature and scale of current cost overruns on projects. Understanding the nature and factors that account for the overruns should assist in establishing more accurate project costs. Within this paper, the authors present the first phase of a study that is aimed at exploring the nature and scale of project cost overrun in construction to provide information for planning future projects. The study is based on projects drawn from the roads sub-sector. It proposes an outline of a concept for accounting for the overruns in the contingency budgeting of similar future road projects.