Factors influencing the level of accuracy and compromise in overhead estimation for construction projects in India: an exploratory investigation

Abstract

PurposePrevious studies have highlighted that overheads form a critical part of the total project cost. However, despite this knowledge, the precise estimation of overheads is often neglected in construction projects. This paper aims to examine the reasons for the lack of effort in estimation of overheads.Design/methodology/approachThe study is carried out in three stages. In stage one, an introductory survey is carried to understand the importance of overheads in total project cost. In stage two, a detailed survey is carried out to understand the factors that affect the level of accuracy and compromise made in estimation of overheads using partial least squares structural equation modeling (PLS-SEM). In the final stage, two cases are examined in form of interviews to validate the findings. The model is tested for its reliability, validity and goodness of fit.FindingsThe findings of the study suggest that the time and cost spent is a critical issue. Therefore, if the projects feel that the benefit cost ratio for time and cost spend in the process is positive, they estimate the overheads accurately, whereas if they feel that the cost benefit ratio for time and cost spend is negative, they compromise with accurate estimation. Further, there is a lot of subjectivity in defining and processing overheads that leads to a negative impact on the accuracy level in estimation of overheads. The contract type also influences the compromise in estimation.Research limitations/implicationsFirst, there is scant work that has been carried out on understanding the behavior of overheads and reasons for lack of effort in its accurate estimation in construction projects. Therefore, there are no recent citations in the study. Further, the study being exploratory in nature draws conclusions based on opinion expressed by respondents on survey and interview. Finally, the study is geographically limited as the entire respondent's work in India.Practical implicationsProjects should give due attention to accurate estimation of overheads. Accurate estimation of overheads can help in better control of project margins, thereby serving the profit-maximizing goals of organizations. A conscious effort by industry experts, academicians and researchers can bring some discipline in overhead estimation rather than leaving the critical domain only to thumb rules or experiential assumptions. The regulatory bodies and the project management bodies are advised to come up with some kind of ready reference that can quickly help estimators to arrive at accurate overhead costs.Originality/valueTo the best of knowledge, it is a rare study to exclusively focus on project overhead cost in construction industry and focus on its estimation efforts. The study also uses a robust research process, which improves the reliability and validity of its findings.