Abstract: The construction industry has a major role in the development of the Indian economy. The construction industry is the second largest industry of the country after agriculture. It makes a significant contribution to the national economy and contributes more than 5 percent to India’s GDP. The Indian construction industry employs over 30 million people and creates assets worth over 200 billion.
Construction projects have been inundated by cost and schedule overruns. In too many cases, the final project cost has been higher than the cost estimates prepared and released during initial planning, final design and estimation or even at the start of construction. Over the time span between project initiation, concept development and the completion of construction many factors may influence the final project costs. Organizations face a major challenge in controlling project budgets over the time span between project initiation and the completion of construction.
In theory cost may overrun or under run in construction projects. But the frequency of overrun is much higher when compared to under run. Cost escalation can be defined as changes in the cost or price of specific goods or services in a given economy over a period of time. Cost increase usually occur as a result of market forces and reflect increases in the cost of material/ labour and higher levels of construction activity. In this paper we studied what are the causes of cost escalation, various formula which are used to calculate cost escalation as well as how COVID-19 has affected construction industry.

Keywords: construction projects, GDP, cost overrun, schedule overrun, project cost, project budget, cost escalation, COVID-19.

| DOI: 10.17148/IARJSET.2022.9429