Assessment of risk management in cost estimation in the building construction industry in Uganda: a case of Kampala city

Abstract

The cost performance of construction projects is a key success factor. However, risks in construction projects make exact budgetary requirements difficult to forecast accurately resulting in underestimation and overestimation. Inaccurate cost estimates have further resulted in unnecessary financial loss to the project stakeholders and loss of reputation and trustworthiness of construction professionals. In Uganda, risk factors are either ignored or subjectively taken care of by simply allowing a contingency figure ranging from 0% to 10% of the project cost. This method is sometimes unreliable and difficult to justify to the project owners. Therefore, there is need for a risk-based cost estimation method that is reliable and justifiable. The purpose of this study was to improve risk management in cost estimation in the building construction industry in Uganda. The risk factors in cost estimation were identified through detailed literature review and then their effect in cost estimation was assessed using severity index. The study revealed that the risk factors with the most severe effects in cost estimation were: inflation, proficiency in estimating, cost of materials, incomplete design and specification, fraudulent practices and kickbacks. The importance index of all the risk factors was computed based on their severity index and frequency index so as to rank them. The study further revealed that the five most important risk factors were: cost of materials, inflation, fraudulent practices and kickbacks, incomplete scope definition, incomplete design and specification. The study proposes a model for risk-based cost estimation that was developed using the Analytic Hierarchy Process (AHP). The total cost of risk estimated by the model for the fifteen most important risk factors in cost estimation in the building construction industry in Uganda represents 59.4% of the total project cost while the average cost of risk represents 4.0% of the total project cost. Sensitivity analysis was used to validate the robustness and consistency of the developed model in calculating the cost of risk. The developed model was verified to be consistent and reliable in calculating the cost of risk. Keywords: Risks, Risk management, Cost estimation, Risk based cost estimation, Analytic Hierarchy Process (AHP).