Lam, T Y M and Siwingwa, N (2017) Risk management and contingency sum of construction projects. Journal of Financial Management of Property and Construction, 22(3), pp. 237-251. ISSN 1366-4387
Abstract
Purpose Most organisations do not have established guidelines for the estimation and management of contingency funds. The purpose of this paper is to identify the risk factors at the construction phase causing project cost overruns, and a reliable method for the estimation of contingency sum is established. Design/methodology/approach Combined qualitative–quantitative exploratory methods were used. Qualitative interviews were conducted with five expert practitioners working in a Public Works Department in Zambia to determine how contingency sum is estimated and to explore what risk factors should be considered. Quantitative regression used cost and risk data collected from 30 recently completed building and refurbishment projects. Findings The qualitative study indicated that the project budget overruns constitute a major issue. This finding is in line with the paired-samples t-test results which show that the difference between the total variations and the initial contingency sum tends to be significant. The regression analysis proved that the contingency sum was positively correlated to the estimated contract sum. The qualitative interview results and Pearson correlation analysis also showed that contingency sum and project complexity tend to have a significant correlation. The research also demonstrates that the type of works is not a direct significant factor. Research limitations/implications Because the projects used for the study were relatively short, duration of the project and economic factor of tax rate, exchange rate and inflation rate were not examined in the multiple regression analysis. Further studies should be conducted on longer projects to test out whether these risk factors are significant in influencing the project contingency. Practical implications The results demonstrate that the multiple regression method can be applied as a reliable tool to predict contingency sums. Accurate contingency sums and project budget estimates benefit construction clients and their project managers. Individual project conditions should be carefully examined when assessing the contingency. Originality/value This research establishes a reliable regression method for the assessment of the contingency for the pre-tender estimate which has significant impact on the project feasibility and cost control, using related risk factors involved in construction contingency and client’s contingency.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | risk factors; regression analysis; construction projects; contingency sum estimation |
| Index terms: | project cost, contingency sum estimation, economic factor, refurbishment project, methodology, project manager, project complexity, interview, pre-tender estimate, correlation analysis, inflation, multiple-regression, project feasibility, risk factor, duration, budget overrun, practitioner, risk management, construction client, multiple regression analysis, estimation, construction phase, variation, Zambia, regression analysis, public work, cost control, construction project, estimate, qualitative study, overrun |
| Subjects: | infrastructure engineering, practitioner, project delivery, economics, production management, research methods, financial and cost management, tendering, organizational theory, economic analysis, research design and methodology, contractual condition, value management, data collection methods, project controls, economic concepts, environmental hazards, Geography, risk assessment, statistical analysis, profession |
| Topics: | Sustainability, Geographical Context, Risk Management, Project Management, Roles and Professions, Research Practice, Business Strategy, Time Control, Contract Administration, Procurement, Cost Management, Engineering Principles |
| Descriptive scope: | 5 PCTEA |
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