Managing material cost overruns in industrial building projects using a system dynamics approach
Lukas Beladi Sihombing, Davied Insja, Sim Nee TingPurpose
Material cost overruns remain a persistent challenge in industrial construction projects, driven by interconnected risks such as price volatility, supply chain disruptions and changes in material specifications. This study aims to enhance cost risk management by analysing the dynamic relationships among these key contributing factors.
Design/methodology/approach
A system dynamics modelling framework was developed to investigate feedback mechanisms and temporal dynamics among nine critical material-related risk factors. These factors were identified through an extensive literature review and expert input, and structured into interconnected sub-models representing core risk domains, including material price volatility, distribution inefficiencies and impacts of specification changes.
Findings
Nine interconnected material risks collectively drive cost deviations through reinforcing and balancing feedback mechanisms. Baseline simulations showed a 135% cumulative deviation, reduced to 122% through preventive measures, a 10.66% improvement. Procurement optimisation achieved the largest reduction, while improved material planning and warehouse management also strengthened cost control.
Originality/value
This study proposes an empirically grounded system dynamics framework to examine the interdependent and temporal effects of material-related risks on cost overruns in industrial building projects. Integrating validated risk factors with dynamic simulation, the framework moves beyond conventional static risk assessment by capturing evolving risk interactions and enabling systematic evaluation of alternative mitigation strategies for cost control.