Cost Underestimation In Construction Projects In Selected Parts Of Fct And South West Zone Of Nigeria

ABSTRACT

Most often than not, project costs as estimated cannot realistically execute and deliver the project – an estimating inaccuracy called cost underestimation. Since cost estimates are the basis for decision making regarding project selection, underestimation lead to selection of project with significant cost risks. Researchers have so far failed to agree on the main cause of cost underestimation, therefore this research study is carried out to examine the problem of cost underestimation, with the aim of determining the main cause of the problem and proposing appropriate remedies. Cost data of 15 projects were obtained and analyzed using percentage cost increase and statistical t – test. It was found that when project costs are understated, projects with good and excellent cost performances are erroneously shown to have poor cost performances. The analysis also revealed that unintentional factors such as; inadequate information, project complexity, inexperience of estimators, mistakes or uncertainty of the future are not the main factors responsible for cost underestimation. But that the best explanation for underestimation is that project promoters intentionally understate project cost because there are strong incentives to do so. It is recommended that to solve the problem of cost underestimation, disincentives for intentionally understating cost should be introduced such as sanctions, fines and even legal prosecution.

Keywords: Project Costs, Cost Underestimation, Construction Projects, Estimating Inaccuracy, Cost Risks