An evaluation of risk factors impacting project budget performance in New Zealand

Abstract

Purpose There has been a lack of research, particularly within the New Zealand (NZ) context, focusing on the identification and assessment of risk factors for construction projects, leading to a wide variation between design-phase elemental cost plans (ECPs) and the outturn tender sums (OTS). Still to be investigated is how risks interact to produce such variability. This study aims to determine the risk-influencing factors, identified through risk measurement, during design development. Design/methodology/approach This study adopted literature review and online questionnaire survey. The literature review was used to identify the factors affecting project budgetary performance, which was used to design the questionnaire survey culminating in data analysis. The questionnaire was administered to 64 practising project managers (PMs) in NZ. Their responses were analysed using descriptive statistics, mean ranking analysis, degree-of-risk measure and correlational analysis, to find the top-five risk factors impacting the variability observed, through ranking the mean and degree of risk values that produce such variability. Findings Significant risk factors were identified from the questionnaire survey analysis, such as changes in project owner/stakeholder requirements, experience of project team, site condition information, competency of consultants and information flow and quality. These provided some insights in explaining the variability between the design-phase ECPs and OTS based on risk impacts from PMs’ viewpoints. Research limitations/implications Findings revealed a drift of 23.86% in budgeted costs (inflated risks), which seems significant. Prioritising top risk factors may provide handy information for researchers on the variables that could be relied upon for the development of a forecasting model for application in NZ. Practical implications The study findings have implications for PMs seeking to provide information on mitigation strategies by using risk management approach, considering the influence of development risks on building project delivery and, consequently the project owner’s financial position. To guard against wide variation between design-phase ECPs and OTS, the main contribution of this study is to raise consultants’ awareness of the important risk factors for their planning at the outset, thus assisting PMs in pro-actively managing their clients' budgets. Originality/value This study creates value by synthesising literature on construction project budgeting and highlighting areas for further research. By giving adequate attention to key risks associated with budget overruns in commercial projects, variability between ECPs and OTS, a common phenomenon in NZ, can be controlled to achieve cost savings. Based on this, further study suggests the development of a model that could assist the stakeholders in NZ to more reliably predict OTS from the design-phase ECP and pro-actively avoid unfortunate budget/cost overruns, disputes and even project abandonment.

A framework for addressing construction labour turnover in New Zealand

“…The outcome of the initial test was further subjected to a critical cut off point of 4.61 for the factors, which is the mean value of the average score of all measured factors with a level of significance less than 0.05. Previous studies have adopted this approach in selecting critical factors and their impacts (Wang and Yuan, 2011; Adafin et al, 2020). This approach fulfilled the inclusion rationale, eliminated bias and showed the level of influence of the selected factors as perceived by the construction workforce (Table 4).…”

Dealing with uncertainties in the design phase of road projects

“…In both cases, budgetary performance was one of the criteria for choosing consultants and contractors. Adafin et al. (2021)'s research show how workforce competency in the budgetary analysis of projects in the design phase could be a risk factor.…”

“…In both cases, budgetary performance was one of the criteria for choosing consultants and contractors. Adafin et al (2021)'s research show how workforce competency in the budgetary analysis of projects in the design phase could be a risk factor. For example, the competency of consultants, information flow and experience of the project team are risk factors that influence clients' costs.…”

“…Karlsen (2011) emphasised the role and commitment of the senior managers in UM process for being effective. Adafin et al. , (2021) identified the consultants' competency as a budgetary risk factor in projects' performance in the design phase.…”

Insuring Project Risks: Contractor Expectations versus Insurance Company Policies

“…The literature classifies project risks as site-related, natural disaster, human, laborrelated, material, construction operations, project environment, health and safety, political and regulatory-related risks, and financial risks (San Santoso et al, 2003;Shehu et al, 2014;Khodeir et al, 2015;El-Sayegh and Mansour, 2015;Jarkas and Haupt, 2015;Hidayatno et al, 2015;Wu et al, 2017;Dang et al, 2017;Famiyeh et al, 2017;Shrestha et al, 2017;Nguyen et al, 2018;Sundoko et al, 2018;Siraj and Fayek, 2019;West et al, 2019;Issa et al, 2020;Adafin et al, 2020). Such structured risk classification may contribute to the effectiveness and quality of the risk identification process and create a better understanding of the nature of the risk sources (Bu-Qammaz et al, 2009;Banaitiene and Banaitis, 2012;Lekan et al, 2019).…”