An assessment of risk factors impacting budget variability in New Zealand commercial construction projects

Abstract

A review of several authors shows that various risk factors abound which potentially impact on the outturn tender sums (OTS) of construction projects from the design stage elemental cost plans (ECPs)/budget estimates. Proper risk analysis could at least partially solve this problem, by lowering the variation between the design-stage ECPs and their OTS. The concern of the current study is the variability between design-stage ECP and OTS, whereas the conjecture is that risk could be responsible for the observed variability. Empirical data was obtained from 208 practising New Zealand (NZ) construction consultants through an online survey. A quantitative analysis was performed to determine the most critical risk factors that impact ECPs. Findings revealed variation between ECPs and OTS (inflated risks) within the region of +1% and 23.86%. These verify discrepancies in the budgeted costs of commercial projects at preconstruction phase, and the risk factors responsible should be the initial focus of construction project consultants. The research provides invaluable insights from practice that could propose and strengthen the development of an effective mitigation strategy by using risk management approach which promotes risk/cost management integration in project delivery for the construction industry. This study therefore attempts to influence government policy to develop support mechanisms to encourage effective risk management practice in the construction industry in NZ.