Financial and Contract Management Practices , Project Environment, Organizational Capacity and Construction Cost Overruns in Real Estate Projects; Nairobi and Kisumu Counties, Kenya

Abstract

Cost overruns have provided a significant challenge in the construction industries of both developed and developing countries. Financial and Contract management practices incorporate designs and approaches which take a keen interest in issues associated with the contracting process, subcontractor oversight, negotiation strategies and cost reimbursement, which informed the basis of investigation of the concept of Construction Cost Overruns in Real Estate Projects in this study. The real estate market faces challenges of uncertainty, illiquidity, and non-competitiveness, compounded by cost overruns in construction projects. In Kenya, rising housing demand and limited research on factors influencing cost overruns in real estate projects highlight the need for better financial and contract management, organizational capacity, and project environment assessment. Thus, the study aimed to investigate the effect of Financial and Contract Management practices on Construction Cost Overruns of real estate projects in Nairobi and Kisumu counties. Four objectives guided the study: to establish the extent to which financial and contract management practices affect construction cost overruns in real estate projects, to determine the moderating effect of project environment on the relationship between financial and contract management practices and construction cost overruns in real estate projects, to establish the mediating impact of organization capacity on the relationship between financial and contract management practices and construction cost overruns in real estate projects and to examine how joint impacts of financial and contract management practices, project environment and organizational capacity on effects of construction cost overruns in real estate projects. The study was based on a pragmatic paradigm that provides for using both qualitative and quantitative research methodologies. The research adopted descriptive survey and correlational research designs. The study targeted a population of 4000 project professionals, seven from active real estate in Nairobi and Kisumu counties and ten key informants from the real estate industry. Using the Krejcie and Morgan table of sampling method, the sample size for this study was 351. Qualitative data was analyzed using narrative statements based on themes and open-ended responses from crucial informants. Interviews were recorded and coded appropriately for further analysis of themes through content analysis to supplement quantitative data. Tests of statistical assumptions were carried out before data analysis to avoid invalidation of statistical analysis. Simple and multiple linear regression and pearson correlation coefficient models were used to determine the relationship between independent and dependent variables. Four hypotheses confirmed financial and contract management practices, project environment, and organizational capacity significantly influence construction cost overruns in real estate, with joint interactions also showing a significant relationship. The findings revealed that most construction projects experience cost overruns of up to 10%, with a few exceeding 50%. Therefore, the study concluded that there is a significant effect of financial and contract management practices, the moderating effect of the project environment, and the mediating effect of organizational capacity on construction cost overruns in real estate projects. The study results are expected to help project professionals and other construction agencies by providing information on how financial and contract management practices, project environment, and organizational capacity can be planned for construction cost overruns in real estate projects. The study recommends that project professionals and other real estate stakeholders encourage the effective use of financial and contract management practices and ensure consideration of project environment and organizational capacity in construction planning to effectively manage cost overruns in real estate projects. The study suggests that a similar study can be replicated in other countries to explore the possibilities of different financial and contract management, project environment and organization capacity factors influencing construction cost overruns of real estate projects.