Measurement and Dependence Analysis of Cost Overruns in Megatransport Infrastructure Projects: Case Study in Hong Kong

Abstract

This study investigates the characteristics of the cost performance of megatransport infrastructure projects in Hong Kong and performs dependence analysis of cost overruns. It is based on 57 samples of road, rail, bridge, and tunnel projects over the period of 1985–215 and pursues the following two objectives: (1) it measures the characteristics of cost overruns in Hong Kong megatransport infrastructure projects using case data and statistical analysis method; and (2) it examines three independent explanatory variables (i.e., project type, size of the project, and length of the project implementation period) and their statistical relationship with cost overruns to determine whether there exist differences between Hong Kong infrastructure projects and the worldwide findings. The results indicate that, in Hong Kong, projects on average have a cost escalation of 39.18% and the average cost overrun is 34.83% for rail, 32.52% for road projects, and 37.48% for fixed-link (i.e., bridges and tunnels) projects. The year of the decision to build has no effect on cost escalation. The major findings concerning the dependence of cost escalations are as follows. In terms of project type, rail projects are most prone to cost increase, followed by fixed-links, whereas road projects are the least vulnerable to cost escalations. Cost overruns have no significant relationship with project size, but for road projects, smaller scale projects tend to be more prone to larger cost overruns. The cost overruns strongly depend on the length of the implementation phase; cost escalations increase 1.35% with each additional year of preconstruction period. This indicates that the preconstruction phase length can be viewed as a better indicator of cost escalations compared to the construction length. This can be an essential contribution to the existing literature on cost overruns as the stage in which the infrastructures are most prone to cost escalations is considerably narrowed down. The practical implications of this study are that decision makers should focus on this period and pay more attention to delays and longer preconstruction phases if they want to determine the causes and solutions of cost overruns.