Cost Overrun and Cause in Korean Social Overhead Capital Projects: Roads, Rails, Airports, and Ports

Abstract

Changes during the life cycle of a project promote cost overrun due to cost increases, time schedule delays, and benefit shortfalls. Specifically, cost overruns are usually due to inefficient budget usage by the national government for social overhead capital (SOC) investments. This paper aims to establish the cost overrun relating to transport policy in an institutional context, discuss the general causes and identify possibilities for their reduction in Korean SOC project preparation and decision making. The establishment of cost overrun probability distributions for a number of reference classes requires access to credible data for a sufficient number of projects within the same reference classes for statistically meaningful conclusions to be drawn. Cost data were available for a total of 161 completed projects. The results indicated that 95 and 100% of road and rail projects, respectively, had a maximum cost overrun of 50%. The causes of cost overruns can be grouped into several major categories: Changes in the scope, delays during construction, unreasonable estimation and adjustment of project costs, and no practical use of the earned value management system.