Essay Sample on Project Cost Overruns

Introduction

Project cost overruns are one of the leading causes of project failure. Project costs overruns refer to the project's cost increased or project budget overruns whereby the initial project quotation or cost estimate is much lower than the actual project cost. Project cost overruns have always been associated with poor project management and leadership. While the Elbphilharmonie concert hall project cost estimates may have been accurately done, the poor project management leads to cost overruns because the project manager failed in steering and motivate the staff to achieve the project's milestone and deliverables. The project manager may also fail in motivating the project team to week according to schedules which leads to delays in projects and extra payment. By examining the costs overrun during the construction of the Hamburg's glittering Elbphilharmonie concert hall, the researcher argues that the hall was completed six years late and had gone overbudget by over EUR700 million due to poor projects management skills.

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Causes of Elbphilharmonie Concert Hall Project Cost Overrun

1. Inaccurate Project Estimates

According to McCarthy (2019), the Elbphilharmonie concert hall project cost overruns should be partially attributed to the inaccurate project estimate. In most cases, the project manager underestimates the project's cost without inculcating the unexpected eventualities that would lead to delays. The competitive nature of the bidding process forces the contractors to quote a lower bid to win a contract only to realize that the quoted amount is not adequate for completing the project. The project manager should, therefore, participate in the request for proposal process to accurately estimate the project cost and timelines.

2. Serious Project Design Errors

The Elbphilharmonie concert hall project design errors is also another major cause of project cost overruns. In this case, the project managers did not consider the impact of the external events on the project budget and schedule estimates (Plebankiewicz, 2018). It is in the preconstruction state that the project manager can address deficiencies such as poor designs, inaccurate cost estimation, and complete and incomplete plans. Companies nowadays use construction software to reduce the risk of errors to identify incomplete designs

3. Not Planning for Change Orders

Whenever design errors occur, it is also important to note that project scope may change when the project is underway. A good project manager should make provision for scope change or plan for the change orders. There may be changes in the Elbphilharmonie concert hall specifications, fixes and additional requirements that were introduced in the project lifespan that derailed the project schedule and costs. The project managers did not address the scope changes in the projects contract phase forcing the company to incur an additional cost that was not budgeted for

4. Administration Errors and Poor Site Management

Administration errors usually occur because of poor communication between the project team. If the project team fails to communicate desired changes at the predesign phase, the costs will increase. Additionally, small errors between the administration teams can lead to higher project cost overruns. In the case of the Elbphilharmonie concert hall, the errors were not addressed in time. the project administrators should, therefore, ensure that each person's job description is clear and be contracted. This wait, the contract can be terminated for mistakes. The team should also be equipped with the right tools. Suite management can also lead to project cost overruns. The case of the Elbphilharmonie concert hall was a case of poor designing integrity, and poor-quality controls (Shehu, Endut, Akintoye & Holt, 2014). All aspects of the project should be kept on track during the project's lifecycle. Personalities clash, trust gaps send conflicts of interest can be addressed through seamless communication among the stakeholders and transparency.

5. The Provision for Variation

Sometimes the provision for variation is exceeded if the project schedule was not done accurately and the project takes longer especially in the context where the causal laborers are paid daily (Al Zadjali, Bashir & Maqrashi, 2014). The project may take additional weeks or months or even years l incurring additional costs that were not budgeted for. Unless the service level agreement indicated how cost and schedule overruns will be managed, the project client may rescind the whole [project or take the contractor to court for breaching the project.

6. Project Management

Formal project management could have helped to avoid g the project cost overruns. By employing the formal project management techniques, the project manager could have improved the customer's relations, shortened the project completion times, reduced the project costs, and maximized his reliability (Siemiatycki, 2018). Most successful project managers tend to achieve higher profit margins by employing project management techniques. Additionally, internal control can be improved by planning and scheduling the projects properly to meet the project time, cost and performance requirements. Based on the PMBOK, there are 49 processes in every project. However, in this case, the project cost overruns could be directly attributed to four factors and indirectly attributed to the remaining 45 processes.

Project costs management due to poor budgeting and provision leads to failure to manage project scope. The team failed to define the project score and exceeded the client's project scope.

Project management did not adequately carry out project risk assessment and management. Finally, project communication management was poor. With proper project communication management, the project team would have discussed the potential project risk and planned how to mitigate the risks.

Reviewing the project charter and understanding the project scope can help in developing a realistic project schedule and determining the project management philosophy and techniques to adopt (Scally, 2019). The contractors can easily decide whether to adopt waterfall systems, agile systems or the Kanban systems depending on the complexity of the project. In this case, the project manager did not understand the project scope, and deliverables to determine whether the adaptive method could be adopted and how the process could be improved. At the end of the project deadline, some task was not completed, the cost was exceeded and the deadline was approaching forcing the team to implement a crash program was not effective in achieving the triple-bottom-line of scope, quality and time.

Conclusion

Whenever poor cost performance arises, the project manager usually must explain to cost overruns to the client and address the cost overruns. The project's cost overrun can be overcome by the key project stakeholders, such as the client, the consultant, and the actual project manager. The three should liaise to solve the project cost overrun. The stakeholder should carry out an in-depth analysis of the riles of each stakeholder on project success. The burden of project success lies with the project manager. Project planning and scheduling deficiencies are the main factors that impact project cost performances more than other factors. Therefore, robust cost control procedures should be employed to manage cost overruns

Recommendations

The project managers should pay attention to all details design project planning and determine whether there will be project scope changes to avoid scope creep.

Secondly, the project manager needs to check each vendor's capabilities to supply the needed items before hiring. Some vendors do not have the capability to supply the needed quantity or quality.

Always stay within the scope and any scope creep should be addressed at the earliest conveniences to avoid cost overruns

Use the best scheduling tools and charts. This way, it will be easy to envisage the requirement and model the project process from start to finish. Any untoward finding should be addressed during the design phase

Ensure that all the stakeholders agree before starting the project. In most cases, stakeholder engagement and management are advisable for all projects irrespective of the project scope. Most project cost overruns and scope creep arise from poor communication with the stakeholders.

Finally, the project manager should track and measure the project's progress to ensure that everything was as planned and address any issue at the earliest convenience to avoid waste from rework.

References

Al Zadjali, Z., Bashir, H., & Maqrashi, A. (2014). Factors Causing Project Cost Overrun in the Telecommunications Industry in Oman. International Journal Of Information Technology Project Management, 5(3), 84-95. doi: 10.4018/ijitpm.2014070105

McCarthy, N. (2019). Major Construction Projects That Went Catastrophically Over-Budget [Infographic]. Retrieved 30 November 2019, from https://www.forbes.com/sites/niallmccarthy/2018/09/28/major-construction-projects-that-went-catastrophically-over-budget-infographic/#7602e4206ab3

Plebankiewicz, E. (2018). Model of Predicting Cost Overrun in Construction Projects. Sustainability, 10(12), 4387. doi: 10.3390/su10124387

Scally, D. (2019). Curtain finally raised at the Hamburg concert hall at 925% over budget. Retrieved 30 November 2019, from https://www.irishtimes.com/news/world/europe/curtain-finally-raised-on-hamburg-concert-hall-at-925-over-budget-1.2856882

Shehu, Z., Endut, I., Akintoye, A., & Holt, G. (2014). Cost overrun in the Malaysian construction industry projects: A deeper insight. International Journal Of Project Management, 32(8), 1471-1480. doi: 10.1016/j.ijproman.2014.04.004

Siemiatycki, M. (2018). The making and impacts of a classic text in megaproject management: The case of cost overrun research. International Journal Of Project Management, 36(2), 362-371. doi: 10.1016/j.ijproman.2016.07.003