Risk Factors Leading to Cost Overrun in Ethiopian Federal Road Construction Projects and its Consequences

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Addis Ababa University


Infrastructure projects, such as road constructions, are one of the most important projects in Ethiopia. Growth in this sector is critical for growth in national income as it is among the largest sectors that generates employment within the country as well as a key driver for economic development of Ethiopia. Like many other developing countries, Ethiopia is also facing critical project management related problems among which cost overrun is quite prominent. The assessment of the accomplishment of the 12 years Road Sector Development Program (RSDP I, II and part of RSDP III) revealed this. There are several factors that are contributing to these cost overruns. Hence, identification and analysis of these factors for effective cost control in Ethiopian road infrastructure project needs to be done in order to better support the economic development. Accordingly, this research attempts to identify the extent of cost overrun, the major risk factors leading to cost overrun and its consequential effects in the Ethiopian Federal road construction sector; which can serve as the way forward for future work in coping with these overruns. A thorough literature review and desk study was done, through which a number of cost overrun risk factors were identified in global and local construction industry scenarios. To obtain expert opinions from the sector, in total fifty four (54) factors and 16 possible effects were identified and made part of the survey questionnaire and the survey was conducted with stakeholders from contractors, client, construction professionals and consultants. In addition other questions which enable to achieve the objectives of the research were developed; and the research design was based on exploratory survey, desk study, and descriptive approaches for open ended questions. The result of the desk study indicated that out of 30 upgrading and rehabilitation road construction projects investigated, 24 projects (80%) suffered cost overrun in their execution. The average rate of cost overrun in these projects was 26.95% of the contract amount. And 100% of the respondents to the questionnaire have recognized cost overrun as one of the major problems in Federal road construction projects. Unexpected inflation/ material price escalation, delays on completion time, scope changes, unstable cost of manufactured materials, inadequate site investigation and right of way problems (access to site and quarry) are identified as major factors leading to cost overrun in Risk Factors Leading to Cost Overrun in Ethiopian Federal Road Construction Projects & its Consequences Ethiopian Federal road construction projects. Findings revealed that both internal and external aspects of risk factors contribute to cost overruns in local road construction projects. Consultants and clients/employers were identified to be more responsible in initiating most of the factors. The study also identified: reduction in planned increase of road network, damage professional relations, inability to secure project finance/securing it at higher costs, loss of clients’ confidence in consultants, for professionals inability to deliver value to clients and decreased rate of national growth as a major effects and client as the most affected contracting party as a result of effects of cost overrun. Results indicated that the majority of cost overrun risk factors (65%) lie in the medium severity impact range, indicating that major attention should be paid to these factors as they collectively cause considerable increase in the cost of the project initially estimated. It was also found that the cost estimating practices in local road construction industry varies greatly and needs standardization and proper database; this shows that the estimating practice itself is contributory to the problem of cost overrun. Major recommendations include: Establish consistent guidelines for price escalation computation and forecasting, set adequate contract duration─ providing for potential delays, stabilizing cost of materials, providing appropriate contingency allowances, more involved cost estimation processes, careful project planning, proper documentation of cost escalation trends in the sector and the country for better knowledge transfer, standardization of estimating practices among stakeholders and institutional capacity building.



Federal road construction projects