JPMA-01643; No of Pages 10

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International Journal of Project Management xx (2014) xxx – xxx
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Cost overrun in the Malaysian construction industry projects:

A deeper insight
Zayyana Shehu a,⁎, Intan Rohani Endut c , Akintola Akintoye b , Gary D. Holt b,d
a
3 Lines Technologies UK LTD, 165-168 Regent Street, London W1B 5TD, United Kingdom
b
Professor of Construction Management and Economics, Grenfell-Baines School of Architecture, Construction and Environment, University of Central Lancashire,
Preston, PR1 2HE, United Kingdom
c
Faculty of Civil Engineering, University Teknologi MARA, 40450 Shah Alam, Selangor, Malaysia
d
Professor of Innovation in Machinery Management, Birmingham City Business School,Birmingham, B42 2SU, United Kingdom

Received 20 April 2013; received in revised form 2 April 2014; accepted 8 April 2014

Abstract

The construction industry drives economic growth and development in Malaysia, but unfortunately, its projects often suffer from cost overruns
(that is, negative cost variance such that final project cost exceeds contract sum). This can lead to conflict and litigation, or in the extreme, projects
may even be abandoned. To better understand this phenomenon, a questionnaire survey of Malaysian quantity-surveying consultants was
undertaken to obtain project characteristics and cost performance data, in relation to a sample of 359 recently completed construction projects. Data
were analysed in terms of project financial outturn based on: contract values; project sector; type of project; procurement route; nature of projects;
and tendering method used. The findings offer stakeholders descriptive statistical cost performance information in relation to these characteristics.
These statistics will support first-order project management decision-making within Malaysia particularly; and internationally more generally, with
a view to helping minimise project cost variance in the future.
© 2014 Elsevier Ltd. APM and IPMA. All rights reserved.

Keywords: Malaysia; Construction industry; Project management; Cost variance; Project cost data

1. Introduction time, quality and value-for-money (Holt, 2010). Nonetheless,

Cost overruns frequent the construction industries of many
(both developed and developing) countries (Enshassi et al., 2009;
Sweis et al., 2013) and the significance of this, has attracted much
research over recent decades (Arditi et al., 1985; Creedy, 2004;
Dawood, 1998; Dlakwa and Culpin, 1990; Doloi, 2013;
Frimpong et al., 2003; Kaming et al., 1997; Koushki et al.,
2005; Mansfield et al., 1994). This is because cost is arguably one
of the most fundamental criteria for measuring the success of any
project (Becker et al., 2014; Hajarat and Smith, 1993; Memon
et al., 2013; San Cristóbal, 2009). Although, cost still retains
intrinsic relationships with other performance criteria such as
⁎ Corresponding author. Tel.: + 447729355179.
E-mail address: zayyana.shehu@gmail.com (Z. Shehu).
despite its academic attention, negative construction project cost
variance (the difference between contract sum and a greater final
project cost) remains. This is especially a problem for Malaysia's
construction industry and, its broader developing economy
(Ramanathan et al., 2012).
Project costs are commonly categorised as either direct or
indirect for contracting, accounting, taxation and other purposes
(Becker et al., 2014). However, according to Holland and Hobson
(1999) there is no universally-accepted categorization framework
for the construction industry, to partition construction costs into
direct and indirect groupings. Therefore, this research considers
the both of these cost classifications, to study Malaysian
construction project cost overruns.
The difference between agreed contract sum and final project
cost can be expressed as a ratio (Kaka and Price, 1991) whereby a

http://dx.doi.org/10.1016/j.ijproman.2014.04.004
0263-7863/00/© 2014 Elsevier Ltd. APM and IPMA. All rights reserved.

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
2 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx

ratio N 1.0 represents cost overrun. According to Cleveland economic infrastructure and public facilities (Memon et al.,
(1995), an accurate project cost estimate can provide a good basis 2013). According to Mansor (2010), cited by Memon et al.
for project control during construction; while inaccurate cost (2013), the 10th Malaysia Plan allows RM230 billion
estimation is detrimental to both contractors and clients. This (≈ 72.4 billion USD at 2014 conversion) for ‘development’,
because an overestimated cost will likely be unacceptable to the and RM20 billion (≈ 6.3 billion USD) facilitation funds to create
client at project feasibility stage, whereas an underestimated cost impetus in driving demand for the sector.
will typically lead to an increased outturn cost (ratio N 1.0). The Of the RM230 billion development expenditure, 60%, or
latter situation typically translates to financial losses for the RM138 billion (≈43.4USD), was expended on physical develop-
contractor and/or client (depending on who assumes the burden ment to be undertaken directly by the construction sector. With
according to contract terms) (Akintoye, 2000; DeMarco, 2005). such high levels of capital investment and considering said role
Given this, the aim of this study was to investigate certain project construction plays in Malaysian economics, the industry faces two
characteristics influencing Malaysian construction project over- recurrent (and inter-related) problems. These are: i) slippage of
runs, through an industry-wide survey and subsequent analysis, project-schedules (‘time overrun’); and ii) negative cost variance
of real project outturn data. (‘project cost overrun’) (Endut et al., 2006; Ramanathan et al.,
2012; Sambasivan and Soon, 2007). A result of these (and other
2. Cost overruns and their imperative in Malaysian problems linked to them) is that many clients are left with a feeling
construction projects of dissatisfaction, relating to their construction project experience
(Egan, 1998; Nzekwe-Excel, 2012).
Construction cost overrun has attracted attention at both This research adopts the axiom for evaluating the project cost
national and global levels. Using the factor analysis technique, ratio (CR) proffered by Endut (2008) viz: Cost Ratio (CR) =
Le-Hoai et al. (2009) compared causes of construction time and (Final Cost ∕ Contract Cost). As explained in the Introduction, the
cost overruns in Asia and Africa, to categorize them into seven ideal CR is 1.0; so any value above this can be considered as cost
principal factors: slowness and lack of constraint; incompetence; overrun. Table 1 shows the cost ratios of public, private, new
design; market and estimate; financial capability; government; build and refurbishment projects derived from the sample data
and workers. Nawaz et al.'s (2013) work on cost performance in used in this study. It can be seen that the CR values for all
Pakistan listed factors that are responsible for cost overruns, to categories of Malaysian projects exceeded 1.0.
include corruption and bribery, political interests, poor site The problem of construction projects exceeding contract sum
management, delay in site mobilization, rigid attitude by exists among both developed and developing countries
consultants, extra work without approvals, and frequent changes (Anastasopoulos et al., 2010; Sambasivan and Soon, 2007). As
during execution. Rosenfeld (2014) meanwhile undertook a can be seen from the cost ratio analyses in Table 1, the overall
root-cause analysis of construction-cost overruns and identified CR = 1.04. But, it has been claimed that the extent of overrun,
15 universal root causes, among which, premature tender may be greater among developing economies (Memon et al.,
documents; too many changes in owners’ requirements or 2011). For instance, Kaming et al. (1997) indicated that more
definitions; and unrealistic tender-prices were featured. than 92% of Indonesian building projects experienced cost
Different strategies are continually being developed to address overruns, whilst Kolltveit and Gronhaug (2004) revealed
construction cost overrun. For example, the UK Government overruns from between 6 and 160% among Norwegian projects.
Construction Strategy report by the Procurement/Lean Client Meanwhile, Ganuza-Fernandez (1996) (cited by Perez-Castrillo
Task Group (UK Government, 2012) proposed an Integrated and Riedinger, 2004), suggested that as much as 77% of Spanish
Project Insurance; to cover excessive cost overrun as a means of construction projects suffered in this way and one-third of these
providing cost effective financial security to any funder and cover extended approximately 20% beyond contract sum. It is clear
all for all supply chain members. The rationale underpinning this therefore, that this is a global phenomenon (see additionally, for
is to remove the potential for a ‘blame culture’ and the instance, Ali and Kamaruzzaman, 2010; Doloi et al., 2012;
‘passing-on’ of liability within the construction team. The US Enshassi et al., 2009; and Memon et al., 2013). Approximately
Construction Industry Institute (CII) have conducted extensive half of all Malaysian construction projects experience between
research into indirect construction costs (IDCC) based on expert 0.03 and 72.88% cost overruns and so is little different to other
opinions, data collection interviews and analysis of 47 case study countries in this respect (Memon et al., 2013).
project surveys. CII published a comprehensive guide on process Scholars including Morris and Hough (1987), Ellis (1985) and
improvement opportunities to reduce IDCC (CII, 2014a). They Flyvbjerg et al. (2004) suggest that larger projects experience
also offer a performance assessment system, through which
online users can submit project data to assess (inter-alia) cost Table 1
performance, against best practice statistics (CII, 2014b). Project type cost ratios.
The construction industry in Malaysia plays a vital role in the Category Cost ratio Mean Min Max Median SD
country's development (Azhar et al., 2008; Endut, 2008; Memon Overall 1.04 1.02 0.20 1.89 1.01 0.16
et al., 2013). It contributes significantly to national economic Public project 1.04 1.01 0.20 1.89 1.00 0.16
growth (Sambasivan and Soon, 2007); creates employment both Private project 1.05 1.06 0.91 1.73 1.03 0.14
directly and indirectly (Ramanathan et al., 2012); and improves New build 1.05 1.01 0.20 1.89 1.00 0.16
Refurbishment 1.01 1.03 0.59 1.48 1.01 0.16
citizens' quality of life through provision of essential socio-

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx 3

greater (value) overruns, but disparity is apparent among the Table 2

literature regarding this in relation to, for instance, geographical Project characteristics.
location or project typology. On the former for example, Odeck Characteristic Number a Percent b
(2004) suggested a range of between 59 and 183% among Type
Norwegian public road works; Pickrell (1990) observed ± 10% New build 301 83.8
among US Department of Transportation projects; and Fourancre Refurbishment 58 16.2
et al. (1990) suggested up to 500% negative cost variance among Nature of works
UK Transport and Road Research Laboratory data. Flyvbjerg Infrastructure 139 38.7
et al. (2003), in studying 258 Danish transport infrastructure Educational 111 30.9
projects, found a range of between − 80 and 280% overrun — Residential 52 14.5
Office 29 8.1
and the likelihood of actual costs being larger than contract sum Commercial 13 3.6
at 0.86 and likelihood of them being lower at 0.14. Regarding Health 11 3.1
project types, Jahren and Ashe (1990) suggested a range of − 10 Recreational 3 0.8
to 20% for naval facility construction projects; Kolltveit and Industrial 1 0.3
Gronhaug (2004) found large-scale projects overran between 6 Location
and 160%; and Skamris and Flyvbjerg (1997) suggested between Selangor 118 32.9
50 to 100% among construction projects generally. Perak 56 15.6
Linking project size to the geographic focus of this study, it Wilayah Persekutuan 30 8.4
Kelantan 24 6.7
is noteworthy that in Malaysia, projects costing less than
Johor 23 6.4
RM10 million (≈ 3.2 million USD) are normally constructed Kedah 22 6.1
by small contractors (CIDB, 2005a). These, according to Takim Pulau Pinang 22 6.1
(2005) perform worse than large contractors and especially in Pahang 13 3.6
terms of planning and coordination; which often leads to cost Terengganu 13 3.6
Negeri Sembilan 12 3.3
overrun in this cost range (Endut, 2008). However, the Malaysian
Melaka 10 2.8
experience is not project size-constrained; and as suggested by Perlis 9 2.5
Ibrahim et al. (2010) remains therefore, a ‘common’ problem Sabah 6 1.7
lacking investigation especially at the industry ‘cause and effect’ Sarawak 1 0.3
level. It has been confirmed that some of the effects of Malaysian Terengganu 13 3.6
Negeri Sembilan 12 3.3
cost overrun include but are not confined to, arbitration,
Melaka 10 2.8
abandonment, delays (time overrun), disputes and litigation Perlis 9 2.5
(Ibironke et al., 2013; Sambasivan and Soon, 2007). Sabah 6 1.7
Sarawak 1 0.3
3. Methodology Sector
Public 308 85.8
Based predominantly on review of extant literature in the Private 51 14.2
field, a questionnaire was designed to investigate Malaysian
Procurement
construction project overrun through an industry-wide survey. Traditional 291 81.1
Information sought in the first part of the questionnaire is Design and build 57 15.9
related to the respondent and their project, mainly for the Project management 9 2.5
purposes of analysing data in relation to these aspects later. Man. contracting 1 0.3
Turnkey 1 0.3
This included: general information about the respondent
company; name of project; start and completion dates; location; Tender
number of storeys; gross floor area (in the case of building Open 176 49.0
projects); contract and actual duration periods; pre-contract Selected 118 32.9
Negotiated 65 18.1
budget; contract sum and final account cost.
The second part collected data regarding specific features of Totals for all characteristics:
a
Ʃ = 359.
the projects that were identified from the literature as having b
Ʃ = 100%.
potential bearing on cost variance. For instance, see Pearl et al.
(2003), Kaka and Price (1991), Chan et al. (2010), and Park and
Papadopoulou (2012). These features included: the project sector et al., 2004) and following minor adjustments resulting from this
(public or private); type of project (new build or refurbishment); exercise, was used for the main survey.
nature of project (residential, infrastructure, commercial, office, The survey targeted the entire population of quantity-
educational or health); procurement method (traditional, design surveying consultants (150 companies) in Malaysia; who were
and build or project management); and tendering method (open, invited to offer the information described above and resultantly,
selective or negotiated). The first draft questionnaire was piloted data were provided in relation to a total of 359 projects. Table 2
(Altman et al., 2006) among a sample of 20 academics and summarises the main characteristics of these projects, which can
construction consultants combined (Denscombe, 2010; Lancaster be summarised as: 301 new build, 58 refurbishment; 51 private

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
4 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx

sector and 308 public sector; and a predominance of infrastruc-
ture projects (39% of all sample projects) that were procured via
traditional means (81%). Within Malaysia, new build infrastruc-
ture projects and particularly roads and utilities, predominate
(Adnan and Morledge, 2003). As in any developing country,
there is a tendency towards public sector funded projects in
infrastructure, along with other social amenities such as schools,
drainage systems and hospitals (Ofori, 1994).
4. Data analysis and discussion
Before analysing the sample data in terms of cost variance
(using descriptive analyses and regression analysis), it is useful to
first consider the projects they represent in a little more detail.
Following the clear predilection for traditional procurement; 16%
of the projects employed design and build and all remaining
procurement variants accounted for only 3%. Whilst each project
may lend itself to particular procurement requirements, the
optimal choice can reduce project costs by an average of 5%
(Alhazmi and McCaffer, 2000). The sample comprised mainly
infrastructure, educational and residential work (together
representing 93% of responses) and approximately half of these
work types, were secured via open tenders. Only one fifth of
projects were negotiated. The projects were spread throughout
many geographical locations in Malaysia, with the biggest
concentration (approximately one-third of the sample) being in
Selangor. This reflects that Selangor is one of the most developed
states in Malaysia with more project developments than any
other, and, because its government department was very willing
to provide project data for this study.
4.1. Project cost overrun
Several scholars (Doloi et al., 2012; Enshassi et al., 2009;
Memon et al., 2013) have identified with the need for greater
insight into cost estimation (contract sum) and overrun in
construction projects. Logically one may assume, first because
the cost estimate plays a major role in project decision-making
processes (Magnussen and Olsson, 2006) and second, because
its negative variance during the construction phase, leads to
Table 3
Contract sum vis-à-vis final cost.
Category Class range a Contract sum Final cost
Freq. Percent Sum a Freq. Percent Sum a
perceptions of poor project outcome (Latham, 1994; Memon
et al., 2013). Table 3 presents an analysis by class range of
contract sum vis-à-vis final cost for those data analysed.
Most contract sums were in the class ≤ RM5 (≤ 1.5USD)
million (n = 209), and the lowest frequency (n = 22) was in the
range RM30.1 (9.75USD) million to RM50.1 (15.7USD) million.
This supports Langdon and Seah (1997) who established that the
Malaysian construction industry executed many more small
projects than larger ones; but contradicts that literature which
suggests that larger projects have the higher cost overruns
(Flyvbjerg et al., 2004; Morris and Hough, 1987). Indeed,
comparison of the contract sum and final cost columns in Table 3,
suggests very little difference in terms of trends. The differences
that do exist may be due to an advance transition of activities
within the industry, in terms of the phase of national development.
The relationship between contract costs and final costs was further
evaluated using regression analysis — Fig. 1 shows the graphical
result for all sample projects. The high R2 value (0.98) suggests
minimal discrepancy between these two sub-sets of data with the
implication being, that cost overrun when considered among all
projects combined was minimal. The figure also shows that the
distribution of cost variance (both negative and positive) is much
greater among lower contract values.
4.2. Actual cost overrun in Malaysian construction projects
Cost overruns are distributed across seven class ranges, from
b 0% to N 30.1%, as shown in Table 4. Projects that were
completed below contract sum are reflected in the negative
minimum overall result (− 80%). There are several reasons why
this could be, including a reduction of work at client request,
design changes or increased efficiency from (for instance) raw
material selection. Overall, the sample experienced a mean
percentage overrun of 2% and among positive overrun projects
this was 11.7%.
Approximately 45% of projects were completed at or below
contract sum; the remainder overran — supporting extant
literature stating that negative variance is more common than
positive variance (Flyvbjerg et al., 2003; Morris and Hough,
1987; Skamris and Flyvbjerg, 1997). The mean value (2%)
reflects the balance of negative and positive variance. Aibinu
and Jagboro (2002) suggested an allowance of 17% of total cost
700
2
R = 0.98
600
Contract sum (RM million)

Small 0.0–5.0 209 58.2 432.0 201 56.0 422.2 500

Medium 5.1–10.0 44 12.3 832.9 49 13.6 884.8
400
10.1–20.0 38 10.6 38 10.6
Large 20.1–30.0 14 3.9 1214.5 12 3.3 1236.0 300
30.1–40.0 11 3.1 18 5.0
40.1–50.0 11 3.1 7 1.9 200
Very large N 50.1 32 8.9 4147.6 34 9.5 4340.6
Totals 359 100 6627.0 359 100 6883.6 100
Mean a 18.46 19.17
0
Minimum a 0.10 0.10 0 100 200 300 400 500 600
Maximum a 563.30 567.30 Final cost (RM million)
Std. Deviation a 46.70 49.04
a
RM million. Fig. 1. Contract sum vis-à-vis final cost all sample.

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx 5

Table 4 Table 6
Overrun frequency analysis. Analysis by project type.
Class range (%) Freq. % Class range (%) New build Refurbishment
b0 151 42.1 Freq. % Freq. %
0 9 2.5
b0 127 43.2 24 41.4
0.1–5 72 20.1
0 7 2.3 2 3.4
5.1–10 45 12.5
0.1–5 64 20.6 9 15.5
10.1–20 53 14.8
5.1–10 38 12.3 6 10.4
20.1–30 13 3.6
10.1–20 43 14.3 10 17.2
N30.1 16 4.4
20.1–30 9 3.0 4 6.9
Totals 359 100.0
N30.0 13 4.3 3 5.2
Overall Totals 301 100 58 100
Mean (%) 2.084
Overall
Minimum (%) − 80.38
Mean (%) 1.86 3.20
Maximum (%) 88.76
Minimum (%) − 80.38 − 43.69
Std. Deviation 16.44
Maximum (%) 88.76 48.37
Positive overrun Std. Deviation 16.43 16.59
Mean (%) 11.69
Positive overrun
Std. Deviation 13.48
Mean (%) 11.35 13.40
Std. Deviation 13.76 11.99
estimate (based on Nigerian data) and the United States
Department of Energy recommended a 15–20 per cent
allowance for budget estimates for new buildings. Compared 4.4. Cost overrun based on type of project
with the literature, the cost overruns from − 80.38% to 88.76%
for Malaysian construction projects could be seen as typical Table 6 analyses cost variance by type of projects. The highest
(42% below contact sum, 3% on budget and 55% costing more frequency of cost overrun for new build projects was 20.6% (in
than contract sum). the 0.1 to 5 per cent class range); and for refurbishment projects
17.2% (in the 10.1 to 20 per cent class range). For new build, 45%
of projects were completed at or below contract sum with a
4.3. Cost overrun based on project sector similar statistic among refurbishment projects being 45%.
Overall, the trend between both project types was similar
The final cost of public works is often considerably higher than suggesting that new build vis-à-vis refurbishment was not a
the price at which the contract is awarded in the tendering process strong discriminator of cost variance; although the overall mean
(Bucciol et al., 2013). Usually, private projects perform better value for positive overrun is consistent with Reyers and
than public projects (Flyvbjerg et al., 2002; Sweis et al., 2013) but Mansfield's (2001) contention, that refurbishment contingencies
the current research produced different results (Table 5). Based on were higher compared with new build projects of the same value.
mean overall frequency, public sector projects (1.37%) performed The overrun mean values for new build and refurbishment
better than private sector ones (6.43%). projects were 1.86% and 3.20% respectively, reiterating an earlier
observation that refurbishment projects are more prone to
negative cost variance. This sympathises with the findings of
other scholars such as Ashworth and Skitmore (1983), Quah
(1992) and Reyes and Mansfield (2001). Such tendency has been
Table 5
Analysis by project sector.
attributed to increased complexity of refurbishment projects
when compared to new build (Baccarini, 1996; Murray, 2000).
Class range (%) Public Private
Freq. % Freq. % 4.5. Cost overrun based on procurement methods
b0 137 44.5 14 27.5
0 4 1.3 5 9.8 The most common procurement method used within con-
0.1–5 62 20.1 10 19.6 struction is traditional (e.g. Idoro, 2012) although other, more
5.1–10 31 10.1 14 27.5
10.1–20 50 16.2 3 5.9
‘mutually beneficial’ routes such as partnering, design and build,
20.1–30 11 3.6 2 3.9 management contracting, and project management have all
N30.0 13 4.2 3 5.9 witnessed increased usage over recent years (Holt, 2010). In
Totals 308 100 51 100 this analysis, three procurement methods were considered:
Overall traditional, design and build, and project management. This was
Mean (%) 1.37 6.427 because management contracting and construction management
Minimum (%) − 80.38 − 9.230 were only used in only five of the sample projects, and such a
Maximum (%) 88.76 72.880 small number made their inclusion in comparative data analysis
Std. Deviation 16.66 14.494
unjustifiable (and unreliable). Table 7 presents the frequencies of

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
6 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx

Table 7 4.6. Cost overrun based on nature of projects

Analysis by procurement method.
Class range (%) Traditional D & Build Project Man. The nature of the project can influence cost variance (Pearl
Freq. % Freq. % Freq. % et al., 2003). Table 8 presents cost variance analysis for the
b0 124 42.6 26 44.8 1 11.1 different types of project among the sample data; which
0 6 2.1 3 5.2 0 0.0 comprised mainly infrastructure (n = 139) and educational
0.1–5 51 17.5 18 31.0 4 44.4 (n = 111) with health projects representing the smallest group
5.1–10 37 12.7 3 5.2 3 33.3 (n = 11). For four of the six project types, the highest overrun
10.1–20 51 17.5 2 3.4 0 0.0
frequency was in the range of 0.1 to 5 per cent cost overrun class.
20.1–30 10 3.4 2 3.4 1 11.1
N30.1 12 4.1 4 6.9 0 0.0 Infrastructure projects had a mean value of 3.2 per cent
Totals 291 100 58 100 9 100 overrun with a range of between − 80.38 and 88.76%. Thirty-six
per cent of these projects experienced positive cost variance;
Overall
Mean (%) 1.770 2.90 6.49
1.4% were to contract sum and 62.6% experienced negative
Minimum (%) − 80.38 − 43.69 − 3.36 variance (overrun). These findings support those of Odeck (2004)
Maximum (%) 72.88 88.76 29.36 who studied 620 Norwegian road projects (see also Flyvbjerg
Std. Deviation 15.84 20.10 9.19 et al., 2002; Skamris and Flyvbjerg, 1997). Residential projects
Positive overrun experienced cost variance between − 7.76 and 48.37% with a
Mean (%) 11.65 13.24 7.72 mean value of − 2.53%. Okuwoga's (1998) Nigerian housing
Std. Deviation 11.52 22.35 8.99 projects study found that 25% of the sample completed with less
than a 15 per cent cost overrun — indicating that residential
cost variance in relation to the seven class ranges among projects in Malaysia perform better than their Nigerian develop-
procurement types. ing country counterparts. Educational projects experienced cost
Traditional procurement was most popular (291 projects); variance from − 44.20 to 53.14% with a mean of − 0.83. Overall,
followed by design and build (58 projects), then project best-cost performance was exhibited by the residential project
management (9 projects). Project management experienced the group (− 2.5%); the worst being the office projects with a mean of
highest frequency of overruns in the 0.1 to 5 per cent class range 11.8%.
(44.4%), as did design and build (31.0%). Traditional procure- Fig. 2 shows a graphical analysis of cost variance among the
ment however, experienced the highest frequency of overruns in sample based on contract sum. This identified that the smaller
the smaller (percentage overrun) class ranges and these tailed off the project value, the greater was the propensity of cost
markedly for overruns above 20.1%. These observations con- variance and this interestingly, demonstrated an approximately
tradict Akintoye (1994), whose study suggested that design and similar negative/positive distribution. A very similar set of
build could account for up to one-fifth reduction in project cost circumstances was observed when conducting the same graph-
compared with traditional. The mean percentage cost overrun ical analysis among final project costs. This confirmed that
values show that among this sample, traditional procurement tendency for cost variance decreased with project value; as did
yielded better cost performance (traditional 1.7, design and build the degree of variance between contract sum and final cost.
2.9, and project management 6.5%). However, in considering these observations it is noted that the

Table 8
Analysis by nature of project.
Class range Residential Infrastructure Commercial Office Educational Health
(% overrun)
Freq. % Freq. % Freq. % Freq. % Freq. % Freq. %
b0 29 55.8 50 36.0 2 23.1 6 20.7 57 51.4 6 54.5
0 2 3.8 2 1.4 1 7.7 1 3.4 1 0.9 1 9.1
0.1–5 10 19.2 30 21.6 1 7.7 5 17.2 24 21.6 2 18.2
5.1–10 7 13.5 15 10.8 3 23.1 7 24.1 11 9.9 1 9.1
10.1–20 2 3.8 28 20.1 3 23.1 5 17.2 14 12.6 0 0.0
20.1–30 1 1.9 7 5.0 0 0.0 1 3.4 2 1.8 1 9.1
N30.1 1 1.9 7 5.0 2 15.4 4 13.8 2 1.8 0 0.0
Totals 52 100 139 100 13 100 29 100 111 100 11 100

Overall
Mean (%) − 2.53 3.24 11.04 11.86 − 0.83 − 1.87
Minimum (%) − 27.76 − 80.38 − 6.78 − 9.57 − 44.20 − 16.67
Maximum (%) 48.37 88.76 40.84 72.88 53.14 26.69
Std. Deviation 12.76 19.03 15.14 17.16 13.07 12.22

Positive overrun
Mean (%) 7.91 12.48 17.03 16.38 8.87 9.31
Std. Deviation 10.93 14.58 14.28 17.35 9.84 11.99

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx 7

80

60

Percentage cost variance

40

20

0
0 50 100 150 200 250
-20

-40

-60
Contract cost (RM million)

Fig. 2. Cost variance among the sample.

number of large projects in the sample was small. Here, the
main objective was to explore the distribution of the cost
overrun regardless of project size; but future research might
consider a more equally stratified sample (in this context) to
compare results.
that selective tendering is the method offering best-cost
performance. This is borne out in that 52% of projects were
completed at or below contract sum using selective tendering,
with corresponding statistics being 46 and 39% for negotiated
and open tender methods respectively.

4.7. Cost overrun based on tendering method 4.8. Cost overrun based on contract sum

As highlighted in the Methodology section, within Malaysia CIDB of Malaysia introduced different categories of project
there are three main tendering methods: open, selective, and size for the construction industry excellence award 2005 (CIDB,
negotiated. Open tender is the most common method among both 2005b), with division of projects into small scale — which are
public and private sector construction projects, albeit selective contract values less than RM3 million (≈ 0.93 million USD);
and negotiated methods are becoming increasingly popular for medium scale — which are between RM3 million and
public sector projects. Table 9 presents analysis in respect of cost RM50 million (≈ 15.6 million USD), and major scale — having
overrun for these three tendering types. The highest frequency of a contract value more than RM50 million. For the purpose of data
cost overrun was in the 0.1 to 5 per cent class range for all three analysis, these categories were used to help design four company
tender methods (21, 17 and 23% of projects for open, selective size classifications: small (RM0–5 m), medium (RM5.1–20 m),
and negotiated respectively) — open and selective achieving
slightly better performance based on this specific metric. Based Table 10
on mean cost overrun values, selective (0.67%) performed better Analysis by contract sum.
than negotiated (2.5%) and open tender methods (2.8%) implying Class range Small a Medium b Large c Very large d
(% overrun)
Table 9 Freq. % Freq. % Freq. % Freq. %
Analysis by tendering method. b0 97 48.3 20 24.7 18 48.6 10 29.4
Class range Open tender Select. tender Neg. tender 0 7 3.5 1 1.2 0 0.0 1 2.9
(% overrun) 0.1–5 36 17.9 20 24.7 4 10.8 12 35.3
Freq. % Freq. % Freq. %
5.1–10 24 11.9 8 9.9 4 10.8 9 26.5
b0 67 38.1 58 49.2 26 40.0 10.1–20 29 14.4 16 19.8 7 18.9 1 2.9
0 1 0.6 4 3.4 4 6.2 20.1–30 3 1.5 10 12.3 1 2.7 0 0.0
0.1–5 37 21.0 20 16.9 15 23.1 N30.1 5 2.5 6 7.4 3 8.1 1 2.9
5.1–10 20 11.4 16 13.6 9 13.8 Totals 201 100 87 100 37 100 34 100
10.1–20 32 18.2 14 11.9 7 10.8
20.1–30 8 4.5 3 2.5 2 3.1 Overall
N30.1 11 6.3 3 2.5 2 3.1 Mean (%) − 1.16 8.04 4.70 3.19
Totals 176 100 118 100 65 100 Minimum (%) − 80.38 − 21.23 − 28.45 − 22.87
Maximum (%) 72.88 49.77 73.33 88.76
Overall Std. Deviation 16.21 13.75 19.14 16.73
Mean (%) 2.87 0.67 2.50
Minimum (%) − 80.38 − 44.20 − 43.69 Positive overrun
Maximum (%) 72.88 53.14 88.76 Mean (%) 10.16 13.88 17.09 8.01
Std. Deviation 17.62 13.34 18.21 Std. Deviation 11.43 12.29 18.43 17.90
a
RM0–5 m.
Positive overrun b
RM5.1–20 m.
Mean (%) 12.38 10.43 11.60 c
RM20.1–50 m.
Std. Deviation 12.77 10.79 18.80 d
NRM50 m.

Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
8 Z. Shehu et al. / International Journal of Project Management xx (2014) xxx–xxx
large (RM20.1–50 m) and very large (N RM50 m) — as shown
in Table 10.
The distribution of sample projects was skewed towards the
lower classification size, with decreasing numbers in each
category from 201 small projects to 34 very large projects. All
except the large project category experienced the greatest
percentage of overruns in the 0.1 to 5 per cent overrun class; the
exception being large projects that experienced most (19%) of
projects in the 10.1 to 20 per cent overrun class. Based on the
percentage of projects completing at or below the contract sum,
small projects performed best (52%). The remaining order was
large (49%); very large (32%); and medium (26%).
The mean cost variance percentage for small projects was −
1.16% (best project size performance among the sample) and the
largest was 8.04% for medium projects (worst project size
performance). Hence, the small projects showed better mean cost
overrun value compared with the other size classifications — but
the large variance between negative and positive cost variance
values, suggests that small projects can still be prone to extreme
cost performance fluctuation, resulting from individual project
situations. According to some scholars (Flyvbjerg et al., 2004;
Jahren and Ashe, 1990), project size is an influence on cost
overruns of infrastructure projects because other things being
equal, implementation phases can be longer for larger projects,
which may induce overruns. The mean values of actual overruns
observed in this study suggest that very large projects
(N RM50 m) are prone to the smallest negative cost variance
(8%); and large projects (RM20.1 to 55 m) are prone to the
greatest negative cost variance (17%). The record of accomplish-
ment has also shown that larger projects are poorer than smaller
ones, and those cost overruns are particularly common in large
projects (Ellis, 1985; Merewitz, 1973; Morris and Hough, 1987).
In this study, the means show that very large projects have better
cost overrun compared with small, medium and large projects,
somewhat contradicting Flyvbjerg et al. (2004).
5. Summary and conclusion
This research explored the construction cost performance of
projects in terms of public and private sectors, new build vis-a-vis
refurbishment, based on procurement methods, tendering
methods, nature of project and project size. It has been established
that more than half of Malaysian construction projects (55%)
experienced cost overruns and that public sector projects
performed better than private sector projects. Whereas, analysis
based on procurement and tendering methods suggests that
design and build was associated with reduced cost overrun,
followed by traditional then project management; whereas,
selective tendering experienced 48% cost overrun above 0%,
followed by negotiated method (52%) then open method (60%).
Health projects and commercial projects performed best in
terms of being completed to contract sum, while educational
projects were worst in this respect (2%). In terms of negative
cost variance, health projects also performed best along with
residential and educational classifications — office projects
performed least well. In terms of project size, small and large
projects performed better than medium and very large projects
Please cite this article as: Z. Shehu, et al., 2014. Cost overrun in the Malaysian construction industry projects: A deeper insight, Int. J. Proj. Manag. http://dx.doi.org/
10.1016/j.ijproman.2014.04.004
although almost all very large projects were completed at below
10% cost overrun.
The research findings offer stakeholders significant insight
into cost performance information in relation to certain charac-
teristics of projects — project sector (public or private), nature of
project (new build or refurbishment), procurement methods
(traditional, design and build, and project management), and
nature of project (residential, infrastructure, commercial, office,
educational, and health). In addition, tendering method (open,
selected and negotiated), and project size (small, medium, large
and very large) have also been explored in this context. In
so doing, these statistics will help project managers with
first-order decision-making approximation – in Malaysia espe-
cially, and internationally more generally – with a view to
helping minimise negative project cost variance. The term
first-order is used here, because as highlighted by Chan and
Kumaraswamy (2002), detailed construction programmes using
advance computer packages are essential to more accurate
costing of future construction projects and increasingly so,
given the evermore increasing complexity of construction
processes and materials.
The methodology used in this research can be adopted
to explore time overrun in other international construction
industries, in order to draw comparative results. It is therefore,
unlikely that the findings presented here are applicable to every
construction industry, because regional factors may influence
time performance and/or alter the behaviour and characteristics
of research outcomes, relating to alternative geographical
locations. The findings and conclusions of this study therefore,
should be viewed and interpreted in this context.
Conflict of interest
No conflict of interest.
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