Development of zero-based budgeting approach for multinational construction contractors

Abstract

PurposeCost overruns remain a persistent problem in the construction industry. Although various cost management strategies have been implemented, innovative approaches are still required. Therefore, the authors attempted to introduce and test a new cost management strategy for the construction industry.Design/methodology/approachZero-based budgeting (ZBB) is one such method whose effectiveness has been proven in different industries over many years. Therefore, the authors initially developed two different frameworks related to the integration of ZBB into a multinational construction contractor and the application process of ZBB for a construction project in this study. Then, the effectiveness and feasibility of the proposed frameworks are tested via an actual field study in a mega construction project.FindingsThe results show savings of 0.81% of the total project budget and 4.74% of the focused cost items by following the ZBB framework compared to the traditionally estimated project budget. The feedback received from the employees in the construction company shows that ZBB could be efficiently implemented during ongoing construction projects.Research limitations/implicationsThe authors believe that implementing new cost management strategies such as ZBB will open doors to deal with the complex cost overrun issues and improve construction cost performances.Originality/valueThis manuscript is the first actual application of the ZBB cost management approach in the construction industry.