Factors responsible for cost overruns in projects within the manufacturing industry

Abstract

The purpose of the study was to identify and analyse the main factors that influence project-cost overruns within the manufacturing industry. The implementation of projects within the stipulated budget is vital for both the investor and the contractor, yet manufacturing projects, even those perfectly planned and organised, run the risk of cost overruns. Despite many tools supporting construction and project management, cost overruns continue to occur in manufacturing projects. The objectives of the study were to identify, through a critical review and analysis of the literature and previous studies, the most dominant factors responsible for cost overruns and suggest an alternative strategy to mitigate their influence on cost overruns. To gather data for the study, a quantitative research method using a survey was employed. Data was collected from a sample of project managers, financial managers, procurement managers, original equipment manufacturers, and project executives or sponsors. A total of 76 questionnaires were received. Of these, 400 surveys were sent out; 69 responses were duly fully completed, while 7 were incomplete, resulting in a response rate of 17%. These seven incomplete questionnaires were excluded from the data analysis. The results revealed that, during the execution phase, cost overruns are frequently encountered throughout the implementation phase of a project. The key findings regarding the contributors to cost overruns in the manufacturing industry were found to be construction-related factors, estimation, design- and contract-related factors. Other factors, like planning- and scheduling-related factors, experience of the PM, labour, communication, materials and machinery, financial and, to a lesser degree, external-related factors, were also identified and align with the existing corpus of knowledge concerning cost overruns across diverse sectors, including manufacturing and the public sector. This research also presents recommendations like enhanced design and contract management, improved estimation accuracy, strengthening risk-management practices, enhancing stakeholder engagement and communication, and leveraging new technologies in mitigating cost overruns within the manufacturing industry. The study contributes to the body of knowledge about the causes of cost overruns in South Africa.