Managing Cost Risks: Toward a Taxonomy of Cost Overrun Factors in Building Construction Projects

Measuring cost variance is indispensable for understanding project status, monitoring the financial risks involved, and improving the project performance. Positive cost variance, denoted as cost overrun, is the key indicator of construction performance. Although the number of studies on cost overrun factors is growing substantially, many consider the causes of cost overrun factors as independent, and a regression model for forecasting is therefore developed. There is no consideration of the behavioral pattern of cost overrun factors. Hence, there is a need for a novel approach to managing cost risks that considers the characteristics of cost overrun factors. Construction cost overrun factors identified from extensive literature review were obtained through use of a questionnaire survey concerning building construction projects in India and analyzed through cluster analysis. A taxonomy was developed statistically with five groups of cost overrun factors: price-related, quality-related, design-related, execution-related, and professional skill-related. This classification illustrates the idiosyncrasy of cost overrun factors, thereby identifying the stakeholders that are best positioned to manage the cost risks. Thus, decision makers can understand cost overrun behavior and can effectively plan mitigation actions in project control practices. A case study is delineated to explain the applicability of the taxonomy of cost overrun factors.