International Journal of Engineering & Technology IJET-IJENS Vol:15 No:04
Cost Overrun in Construction Projects in Saudi
Arabia: Contractors‘ Perspective
Abdulaziz Alghonamy
Engineering Faculty, University of Hail, Hail, Saudi Arabia
Abstract-- Cost performance of a project is usually a
particularly important consideration for the construction parties.
Often, Cost overrun is one of the most recurring problems in the
construction industry and it has an adverse impact on project
success in terms of time, cost, quality and safety. This study is
conducted to investigate the cost overrun in construction projects
in Saudi Arabia in order to identify the causes of cost overrun
and their importance according to contractors through a
questionnaire survey. A questionnaire survey was undertaken of
43 contractors working on construction projects in the Northern
Province of Saudi Arabia. 34 cost overrun causes were identified
through literature review. The study concluded that the top cost
overrun causes in construction projects in Saudi Arabia from
contractors’ perspective are: bid award for lowest price, frequent
changes in design, improper planning, long period between
design and time of implementation, and payments delay.
Index Term-- cost overrun, construction, contractors,
contributors, risk matrix.
I NTRODUCTION
The construction industry is at or near the top in the annual
rate of business failures and resulting liabilities compared to
other industries. This is because it is a risky business with too
many uncertainties that management has to deal with
(Enshassi et al., 2007). The construction process is subjected
to the influence of highly changing variables and
unpredictable causes, such as: resources availability,
environmental conditions, financial problems, political
conditions, poor productivity, and contractual relations. Cost,
time and quality have their proven importance as the prime
factors for project success. A project may not be regarded as a
successful endeavor until it satisfies the cost, time, and quality
limitations applied to it. However, it is not uncommon to see a
construction project failing to achieve its goal within the
specified cost, time, and quality (Nega, 2008). However, the
construction industry is full of projects that were completed
with significant cost overrun (Amhel et al., 2010). This
problem is not unique to developed countries but is also
experienced in most of the developing economies too (Kaliba
et al., 2009).
Saudi Arabia has experienced a construction boom during the
past three decades, attracting construction professionals from
all over the world. According to the Saudi Ministry of
Planning, the construction industry contributed between 30%
to 40% of the non-oil productive sectors at the end of each
National Development Plan from 1980 to 2000 (Cordsman,
2000). However, cost and time performance is considered to
be one of the most serious and frequent problems in the Saudi
Arabian construction industry (Faridi and Al-Sayegh, 2006).
Assaf and Al-Hejji (2006) found that only 30% of
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35
construction projects in Saudi Arabia were completed within
the specified cost and schedule. Therefore, it is very necessary
to identify the main contributors to cost overrun in
construction projects in Saudi Arabia in order to overcome
this critical problem. This paper presents the findings of a
survey aims at identifying the risk matrix for cost overrun
causes in construction projects in Saudi Arabia from the
contractors‘ perspective. It is hoped that these findings will
guide efforts to enhance the performance of the construction
industry in Saudi Arabia and other developing countries.
Previous studies
Many studies were conducted to examine the cost overrun
causes in construction projects. Flyvbjerg et al. (2003)
conducted a study of 258 transportation infrastructure projects.
The distribution of the 258 projects on the three types of
project was as follows: rail: 58, fixed link (bridges and
tunnels): 33, and road: 167 projects. The projects were located
in 20 nations on 5 continents, including both developed and
developing nations. The geographical distribution of projects
was: Europe: 181, North America: 61, and other: 16 projects.
The main findings from the study are: (1) 9 out of 10 transport
infrastructure projects fall victim to cost escalation, (2) For all
project types average cost escalation is 28%, (3) Cost
escalation exists across 20 nations and 5 continents; it appears
to be a global phenomenon, (4) Cost escalation appears to be
more pronounced in developing nations than in North America
and Europe, (5) Cost escalation has not decreased over the
past 70 years. Al-Zarooni et al. (2000) conducted a survey to
investigate variations in UAE public projects' estimates. They
found that the variations (positive or negative) between
feasibility and contract cost, ranging between -28.5% and
+36%. They stated that these variations could be explained
knowing that feasibility estimates in the government agencies
are usually budgeted using a Single Unit Estimating (cost per
square foot) basis, regardless of the nature of projects and
their associated risks or the construction complexity of each
building type. Odeck (2004) investigated the statistical
relationship between actual and estimated costs of road
construction using data from Norwegian road construction
over the years 1992-1995. The findings reveal a discrepancy
between estimated and actual costs, with a mean cost overrun
of 7.9% ranging from -59% to +183%. In absolute terms, cost
overruns amounted to a formidable 519 million Norwegian
kroner. He concluded that one particular new finding that has
not been shown before in previous studies is that cost overruns
appear to be more predominant among smaller projects as
compared to larger ones. He also concluded that the size of
cost overruns can be influenced by completion time of the
projects and the regions where projects are situated.
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 International Journal of Engineering & Technology IJET-IJENS Vol:15 No:04 36
evaluate the content of the questionnaire. Modifications and
Al-Momani (1996) conducted a study of construction cost changes have been done. The questionnaire is divided into two
prediction for public school buildings in Jordan. The study main parts. Part I is related to general information for the
conduct a data of 125 school projects carried out in Jordan for company. The surveyed contractors were requested to answer
the period 1984 - 1994. The results indicate that the actual cost questions pertaining to their experience in construction
(i.e. at the time of project completion) exceeds the original industry. Part II includes the list of the identified cost overrun
contract price by 30% while change orders result in an 8.3% causes in construction projects.
cost overrun. Enshassi et al. (2005) identified the essential
factors and their relative importance that affect accuracy of Data collection and analysis
cost estimation of building contracts in the Gaza strip. The 43 contractors working on construction projects were
results of analyzing 51 factors considered in a questionnaire successfully questioned. The questionnaire gave each
survey concluded that the main factors are: location of the respondent an opportunity to identify variables that they
project, segmentation of the Gaza strip and limitation of perceived as likely to contribute to cost overruns by
movements between areas, political situation, and financial responding on a scale from 5 (very important) to 1 (very low
status of the owner. Shehu et al. (2014) conducted a study in important). Participants then rated the frequency of occurrence
Malaysia to explore the construction cost performance of for each variable on project that they have experiences on an
projects in terms of public and private sectors based on ordinal scale: very high (5), high (4), medium (3), low (2), or
procurement methods, tendering methods, nature of project very low (1). For each variable, the mean value of the
and project size. A questionnaire survey of Malaysian respondents‘ importance rating was named the severity index.
quantity-surveying consultants was performed. They found Secondly, the mean value from respondents‘ frequency rating
that 55% of Malaysian construction projects experienced cost was named the frequency index. Accordingly the severity and
overruns and that public sector projects performed better than frequency levels are identified using Table 1. Finally, the zone
private sector projects. Based on procurement and tendering of each variable in the risk matrix was identified using Figure
methods, they found that design and build delivery method 1.
was associated with reduced cost overrun, followed by
traditional then project management. Table I
Level of cause‘s severity and frequency
Koleola et al. (2008) concluded six important factors affecting Index value (Scale) Severity Frequency
the accuracy of a pre-tender cost estimate in Nigerian
≤ 20% very low (VL) very low (VL)
construction projects. These six factors are: expertise of
consultants, quality of information and flow requirements, the 20% - 40% low (L) low (L)
project team's experience of the construction type, the tender
period and market condition, extent of completion of pre- 40% - 60% moderate (M) moderate (M)
contract design, and the complexity of design and 60% - 80% high (H) high (H)
construction. Frimpong et al. (2003) concluded that the main
causes of cost overrun and cost overruns in construction of 80% - 100% very high (VH) very high (VH)
groundwater projects in Ghana are: monthly payment
difficulties from agencies; poor contractor management;
material procurement; poor technical performances; and
escalation of material prices. Iyer et al. (2005) presented the
findings of a questionnaire survey conducted on the factors
affecting cost performance of Indian construction projects. 55
factors were identified. They concluded that the most factors
adversely affecting the cost performances of construction
projects in India are: conflict among project participants,
ignorance and lack of knowledge, presence of poor project
specific attributes and non existence of cooperation, hostile
socio economic and climatic conditions, reluctance in timely
decision, aggressive competition at tender stage; and short bid
preparation time.

Research Method
34 cost overrun causes in construction projects were defined
through a detailed literature review. The causes were tabulated
into a questionnaire form. Then the draft questionnaire was
discussed with three experts in construction industry to

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 International Journal of Engineering & Technology IJET-IJENS Vol:15 No:04 37

VH

Frequency M

VL

VL L M H VH

Severity
Fig. 1. The risk matrix

The risk matrix includes three zones: red, yellow, and green; RESULTS AND DISCUSSION
such that: Participants
The target populations in this study are the total number of
construction contractors in the Northern Province of Saudi
1) Green zone: risks in this zone are low level, and can Arabia. Simple random sampling was used to select the
be ignored. participants from the available list.

2) Yellow zone: risks in this zone are of moderate
importance, and should be controlled.
3) Red zone: risks in this zone are of critical
importance. These are the top priorities, and close
attention should be paid to them.
The questionnaire was sent out to a total of 60 contractors
asking their perception in ranking the identified 34 causes in
terms of severity and frequency using an ordinal scale. A total
of 43 contractors filled the questionnaire. The response rate by
contractors is 72%. On average, the respondents have
experience of more than 7 years.

Causes’ risk matrix

Statistical analysis
The statistical analyses for cost overrun causes as assessed by
contractors are performed. The tests include the computation
of the weighted mean, standard deviation, and coefficient of
variation. These tests are used to check the compactness and
consistency of the responses.
Table II shows the results of risk matrix for contributors to
cost overrun in construction projects in Saudi Arabia from
contractors‘ perspective. It shows that 5 causes are located in
the red zone (critical causes), 28 causes are located in the
yellow zone (moderate importance), and one cause is located
in the green zone (low level).

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Table II
Risk matrix for cost overrun causes from contractors perspective

Cause
Cause S.I Level F.I Level
zone

additional work 43.65 M 50.62 M yellow

bid award for lowest price 63.00 H 52.35 M red

changes in material types and specifications during
construction 55.32 M 51.23 M yellow

contract management 53.26 M 45.6 M yellow

contractual procedure 41.98 M 40.18 L yellow

disputes on site 47.82 M 45.4 M yellow

duration of contract period 57.82 M 52.68 M yellow

economic instability 40.32 M 58.44 M yellow

effects of weather 42.82 M 41.92 M yellow

fluctuation of prices of materials 56.13 M 52.79 M yellow

frequent changes in design 64.74 H 59.31 M red

high interest rates by bankers 39.48 M 41.05 M yellow

improper planning 71.36 H 64.53 H red

inadequate production of raw materials by the country 55.32 M 49.75 M yellow

inflationary pressure 59.56 M 57.57 M yellow

lack of adequate manpower 52.3 M 58.44 M yellow

lack of contractor experience 52.82 M 50.62 M yellow

lack of coordination between design and contractors 54.48 M 56.7 M yellow

late design work 58.65 M 48.01 M yellow

level of competitors 48.65 M 54.09 M yellow

long period between design and time of implementation 63.87 H 60.18 H red

manipulation of suppliers 50.32 M 48.01 M yellow

mistakes in design 52.82 M 59.31 M yellow

number of competitors 46.98 M 50.62 M yellow

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number of projects going at the same time 49.48 M 51.48 M yellow

payments delay 74.22 H 61.92 H red

poor financial control on site 54.48 M 53.22 M yellow

poor labor productivity 55.17 M 49.16 M yellow

poor relationship between managers and labors 53.65 M 57.57 M yellow

poor resource management 45.32 M 48.88 M yellow

project location 38.65 M 51.48 M yellow

rework 56.17 M 56.7 M yellow

social and cultural impacts 32.82 L 31.48 L green

unreasonable project time frame 56.98 M 51.48 M yellow

Top cost overrun causes
Table 3 shows the top contributors to cost overruns in
construction projects in Saudi Arabia from contractors‘
perspective, they are:
1. Frequent changes in design: this could happen due to
the less involvement of the owners in the early
phases of the projects or due to the design mistakes
and scope changes. This situation interrupts the
planned schedule, especially if the changes lead to
additional works or rework. Consequently, the
project cost will increase.
2. Bid award for lowest price: in general, the clients
award bids to the lowest bidder to execute their
projects. However, the lowest bidders might be low
qualified contractors. Consequently, poor cost
performance might occur.
planning will get resources together to achieve the
project objectives within the limited time, cost and
quality.
4. Long period between design and time of
implementation: The owner should try to shorten the
period between the design and time of
implementation, since during this period many
influencing changes could be arise that might lead to
cost overrun.
5. Payments delay: Construction works involve high
daily expenses and most of the contractors cannot
fulfill these expenses when the payments are delayed.
Due to the dely of payments by the owner, work
progress can be delayed because of inadequate cash
flow to support the construction expenses by
contractor, and thus project cost will increase.

3. Improper planning: planning has a vital role in the

success of the construction projects, as proper

Table III
Top cost overrun causes from contractors' perspective
Risk
Cause S.I Scale F.I Scale
zone
bid award for lowest price 63 H 52.35 M red
frequent changes in design 64.74 H 59.31 M red
improper planning 71.36 H 64.53 H red
long period between design and time of
red
implementation 63.87 H 60.18 H
payments delay 74.22 H 61.92 H red

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Statistical analyses Figure 3 show a good data consistency and agreement
between the respondents on the severity and the frequency of
Table IV presents the statistical analyses for cost overrun the identified causes.
causes as assessed by the surveyed contractors. The table
contains the computation of the weighted mean, standard
deviation, and coefficient of variation. Table 4, Figure 2, and
Table IV
Statistical analyses for cost overrun causes as assessed by contractors
Severity Frequency
Cause
X' Sn C.V (%) X' Sn C.V (%)

additional work 2.18 1.02 41.19 2.53 0.98 46.11

bid award for lowest price 3.15 1.02 39.58 2.62 0.87 27.7

changes in material types and specifications during

construction 2.77 0.97 30.88 2.56 0.51 19.2

contract management 2.66 1.03 30.89 2.28 0.53 14.28

contractual procedure 2.10 0.61 31.95 2.01 0.56 28.47

disputes on site 2.39 0.94 42.9 2.27 1.14 48.46

duration of contract period 2.89 1.14 36.05 2.63 0.91 31.86

economic instability 2.02 1.15 39.59 2.92 0.9 46.08

effects of weather 2.14 0.88 43.64 2.10 0.93 44.83

fluctuation of prices of materials 2.81 1.1 34.84 2.64 0.72 18.51

frequent changes in design 3.24 0.94 31.6 2.97 0.89 27.54

high interest rates by bankers 1.97 0.85 43.55 2.05 0.79 41.73

improper planning 3.57 0.93 28.31 3.23 0.47 11.09

inadequate production of raw materials by the country 2.77 0.98 40.23 2.49 0.8 29.44

inflationary pressure 2.98 1.09 38.09 2.88 0.57 13.97

lack of adequate manpower 2.62 1.08 36.99 2.92 0.98 26.88

lack of contractor experience 2.64 1.06 42.79 2.53 1.02 39.29

lack of coordination between design and contractors 2.72 0.94 33.35 2.84 0.95 35.49

late design work 2.93 0.73 31.3 2.40 0.88 30.47

level of competitors 2.43 0.78 29.24 2.70 1.03 42.98

long period between design and time of implementation 3.19 0.92 30.43 3.01 0.88 27.65

manipulation of suppliers 2.52 1.01 43.25 2.40 1.16 46.79

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mistakes in design 2.64 0.94 31.6 2.97 1.1 42.11

number of competitors 2.35 0.98 39.53 2.53 1.03 44.79

number of projects going at the same time 2.47 0.8 31.49 2.57 0.85 35.32

payments cost overrun 3.71 1.09 34.86 3.10 0.91 24.12

poor financial control on site 2.72 0.98 37.13 2.66 1.25 46.07

poor labor productivity 2.76 0.9 28.15 2.46 0.66 17.33

poor relationship between managers and labors 2.68 1.05 36.72 2.88 1.12 42.29

poor resource management 2.27 0.98 40.88 2.44 0.95 42.96

project location 1.93 1.02 40.41 2.57 0.66 36.32

rework 2.81 1.25 44.29 2.84 0.94 30.47

social and cultural impacts 1.64 0.89 40.88 1.57 1 29.68

unreasonable project time frame 2.85 1.06 39.33 2.57 46.11

1.6
1.4
Standard deviation (Sn)

1.2
1
0.8
0.6
0.4
0.2
0
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
Mean (X')

Fig. 2. The cause‘s mean vs standard deviation for severity responses

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 International Journal of Engineering & Technology IJET-IJENS Vol:15 No:04
1.6
1.4
Standard deviation (Sn)
1.2
1
0.8
0.6
0.4
0.2
0
0.00 0.50
Fig. 2. The cause‘s mean vs standard deviation for frequency responses
CONCLUSION
Cost performance of a project is usually a particularly
important consideration for the construction parties. Often, the
most troublesome construction disputes involve cost overrun
and failure to complete the work in the specified budget.
Many variables have an impact upon cost overrun in
construction project in Saudi Arabia. A questionnaire survey
was undertaken of 43 contractors working on construction
projects in the Northern Province of Saudi Arabia. 34 cost
overrun causes were identified through literature review. The
risk matrix for the considered causes was identified according
to their perceived severity and frequencies of occurrence.
Three zones were considered in the risk matrix: red, yellow,
and green. The results showed that 5 causes are located in the
red zone, 28 causes are located in the yellow zone, and 1 cause
is located in the green zone of the risk matrix.
The study concluded that the top cost overrun causes in
construction projects in Saudi Arabia from contractors‘
perspective are: bid award for lowest price, frequent changes
in design, improper planning, long period between design and
time of implementation, and payments delay. The statistical
analyses showed that the data has good compactness,
indicating a good data consistency and agreement between the
respondents on the severity and frequency of occurrence of the
identified cost overrun causes.
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