Assessment of the causes, effects, and mitigation strategies for cost overruns in small-scale residential construction: a case study of Nagarjun municipality, Kathmandu, Nepal

Abstract

In developing countries such as Nepal, small-scale private residential construction accounts for the majority of urban building activity. Most such projects, however, are executed informally, without detailed planning, written contracts or professional supervision, and are therefore prone to significant cost overruns. This study investigates the principal problems that drive cost overruns in small-scale building construction in Nagarjun Municipality, Kathmandu Valley, together with their causes, effects and mitigation measures. A mixed-method approach was adopted, comprising a structured questionnaire survey (n = 156: 70 clients, 63 contractors and 23 consultants) analyzed using the Relative Importance Index (RII) and Spearman’s rank correlation coefficient (ρ), supported by field observation, key informant interviews and a focus group discussion. Fluctuation in construction material prices (RII = 0.87), frequent design changes by owners (RII = 0.85) and inaccurate initial cost estimation (RII = 0.84) emerged as the leading problems. Inflation and rising fuel and transport prices (RII = 0.93) and commencing construction without secured total financing (RII = 0.92) were the strongest underlying causes, and actual cost significantly exceeding the estimated budget (RII = 0.91) was the most severe effect. Spearman’s rank correlation showed strong agreement among clients, contractors and consultants (ρ = 0.815 to 0.955, p < 0.01), confirming a shared understanding of cost drivers despite operational disputes. The highest-ranked mitigation measures were preparing detailed estimates at current market rates with a 10–15% contingency (RII = 0.86), executing written contracts with price escalation and variation clauses (RII = 0.85), and finalizing complete architectural and structural drawings before construction (RII = 0.85). The study recommends that local municipalities provide standardized private construction contract templates and enforce stage-wise engineering inspections during the building permit process.