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Product Category: Projects
Product Code: 00002663
No of Pages: 70
No of Chapters: 5
File Format: Microsoft Word
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Cost
management has been a very important part of all projects, because it provides
the information required to evaluate the profits and losses, before, during,
and after the projects. Many projects experience extensive delays and thereby
exceed initial time and cost estimate. This study therefore set out to examine
the various cost management techniques for construction of project in Lagos
State. The objectives of the study are to identify and evaluate cost reduction
and control techniques available in the construction industry and to evaluate
factors that lead to cost overrun or cost increase in construction
project. In view of the objectives of
this study, a total of 118 questionnaires semi-structured questionnaires were
administered to various construction professionals in Lagos, Nigeria. Seventy
five (75) questionnaires were retrieved, and were carefully coded and the data
entered into the statistical package for social science (SPSS V.21). The result
indicated that incompetent project team (designers and contractors) (3.61),
fluctuation of currency/exchange rate (3.56), frequent design changes (3.52),
and lack of proper training and experience on PM (3.43) are the common factors
affecting construction cost performance in the industry. It was also discovered
that financial reporting and cost reporting (3.16) and project cost-value
reconciliation (3.76) are the major cost reduction techniques and cost control
techniques commonly used on construction projects respectively. The study
therefore recommends that it necessary to separate the cost control of projects
at site level from the financial control systems operated at head offices in
order to be able to detect cost and schedule overruns in good enough time to
correct them while the affected projects are still in progress.
TABLE
OF CONTENTS
DECLARATION ………………………………………………………………………………......................................ii
CERTIFICATION.......................................................................................................................... iii
DEDICATION................................................................................................................................ iv
ACKNOWLEDGEMENT............................................................................................................... v
ABSTRACT.................................................................................................................................... vi
List
of Tables................................................................................................................................... x
List
of Figures................................................................................................................................. xi
CHAPTER
ONE.............................................................................................................................. 1
INTRODUCTION........................................................................................................................... 1
1.1 Background to the
Study...................................................................................................... 1
1.2
Statement of the Research Problem.......................................................................................... 3
1.3
Research Questions................................................................................................................... 4
1.4
Aim and Objectives of the Study............................................................................................... 5
1.4.1
Aim.......................................................................................................................................... 5
1.4.2
Objectives............................................................................................................................... 5
1.5
Significance of the Study........................................................................................................... 5
1.6
Scope of the Study..................................................................................................................... 6
1.7
Definition of Terms.................................................................................................................... 7
1.8
Chapter Summary..................................................................................................................... 7
CHAPTER TWO............................................................................................................................. 9
REVIEW OF CURRENT AND RELEVANT LITERATURE...................................................... 9
2.0. Introduction.............................................................................................................................. 9
2.1. Concept of Cost Management.................................................................................................. 9
2.2. Cost Management Techniques................................................................................................ 11
2.2.1. Cost Planning and Control.................................................................................................. 11
2.2.2. Estimating............................................................................................................................ 13
2.2.3 Budgeting.............................................................................................................................. 13
2.2.4 Cash Flow Forecasting......................................................................................................... 14
2.2.5. Financial Reporting and Cost Reporting............................................................................ 15
2.2.6. Cost Code Systems............................................................................................................... 15
2.2.7. Value Management.............................................................................................................. 15
2.2.8. Judgement............................................................................................................................ 16
2.3. Measuring and Controlling Cost Progress............................................................................ 16
2.3.1. Cost Ratio............................................................................................................................ 17
2.3.2. Earned Value....................................................................................................................... 17
2.3.3. Cost Variance (CV)............................................................................................................. 18
2.4. Potential Cost Overrun Factors............................................................................................. 19
2.4.1. Project-Related Factors...................................................................................................... 19
2.4.2. Contract-Related Factors.................................................................................................... 21
2.4.3. Client-Related Factors......................................................................................................... 21
2.4.4. Contractor-Related Factors................................................................................................ 22
2.4.5. Consultant-Related Factors................................................................................................. 23
2.4.6. Labour-Related Factors...................................................................................................... 24
2.4.7. Design and Documentation Factor (DDF):......................................................................... 24
2.4.8. Financial Management (FIN):............................................................................................. 25
2.4.9. Material and Machinery Factors (MMF):.......................................................................... 25
2.4.10. External-Related Factors.................................................................................................. 26
2.5. Mitigation Measures to Control Cost Overrun..................................................................... 27
2.6 Gaps Identified From Literature............................................................................................. 28
2.7 Chapter Summary................................................................................................................... 29
CHAPTER THREE....................................................................................................................... 30
RESEARCH METHODOLOGY.................................................................................................. 30
3.0 Introduction............................................................................................................................. 30
3.1 Research Strategy................................................................................................................... 30
3.2. Research Design..................................................................................................................... 31
3.3. Research Population............................................................................................................... 31
3.4. Sample Frame......................................................................................................................... 31
3.5. Sample Size............................................................................................................................. 31
3.6. Sampling Technique................................................................................................................ 32
3.7. Data Collection Instrument.................................................................................................... 32
3.8 Approach / Procedure for Data Collection............................................................................. 34
3.9 Method of Data Analysis......................................................................................................... 34
CHAPTER FOUR......................................................................................................................... 35
DATA ANALYSIS, INTERPRETATION AND DISCUSSION................................................... 35
4.0 Introduction............................................................................................................................. 35
4.1 Social-Economic Characteristics of the Respondents............................................................. 36
4.1.1 Age of Respondent................................................................................................................ 36
4.1.2 Type of Organizations.......................................................................................................... 37
4.1.3 Years of Experience of the Firm/Organization................................................................... 37
4.1.4 Designation of Respondent................................................................................................... 38
4.1.5 Academic Qualification........................................................................................................ 39
4.1.5 Professional Qualification.................................................................................................... 39
4.1.7: Type of Project Handle....................................................................................................... 40
4.1.8 Employee Strength................................................................................................................ 41
4.1.9: Primary Player to the Cost Overrun.................................................................................. 42
4.2 Cost Reduction Techniques..................................................................................................... 43
4.3 Cost Control Techniques......................................................................................................... 44
4.4 Factors Affecting Construction Cost Performance................................................................ 46
4.4 Perspectives of Various Professionals on Cost Management
Techniques.............................. 48
4.5 Analysis of Variance (ANOVA) of the Factors Affecting
Cost Performance........................ 49
4.6 Discussion of findings............................................................................................................... 54
4.6.1 Cost Reduction Techniques.................................................................................................. 54
4.6.2 Cost Control Techniques...................................................................................................... 54
4.6.3 Factors Affecting Construction Cost Performance............................................................. 54
CHAPTER FIVE........................................................................................................................... 56
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS................................................... 56
5.0 Introduction............................................................................................................................. 56
5.1 Summary of Findings............................................................................................................... 56
5.2 Conclusion................................................................................................................................ 57
5.3 Recommendations.................................................................................................................... 58
5.4 Further research...................................................................................................................... 58
References...................................................................................................................................... 59
Table
4.1: Cost Reduction Techniques…………………………………..……………..…..42
Table
4.2: Cost Control Techniques……………………………………………………..…44
Table
4.3: FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE………45
Table
4.4: Perspectives of Various Professionals on Cost Management Techniques………48
Table
4.5: ANOVA of the Factors Affecting Cost Performance……………………..……..50
Figure
1: Age of Respondent……………………………………..………………………..36
Figure
2: Type of Organizations…………………………………………………..………..37
Figure
3: Years of Experience of the Firm/Organization……………………………….…..37
Figure
4: Designation of Respondent…………………………………………………….…38
Figure
5: Academic Qualification……………………………………………………….….39
Figure
6: Professional Qualification Level……………………………………………..…..39
Figure
7: Type of Project Handle……………………………………………………….…..40
Figure
8: Employee Strength…………………………………………………………….…..41
Figure
9: Primary Player to the Cost Overrun………………………………………………41
Construction
industry plays an important role in the development of a country
Vasista, (2017) agreed with (Young & Ibbs,
2002 and Olaoluwa, 2013) that cost means
expenses incurred by contractor for labor, material, services, utilities etc.,
plus overheads and contractor’s profits. Cost control is a process where the
construction cost of the project is managed through the best methods and
techniques so that the contractor does not suffer losses when carrying out the
activities of the project (Otim, Nakacwa, &
Kyakula, N.D). Olawale & Sun, (2010)
noted that Kerzner, (2003) believes cost management is a complex task
undertaken by project managers in practice, which involves constantly measuring progress; evaluating plans; and taking
corrective actions when required.
Cost
Management is the process by which costs (expenses) incurred on a project are
formally identified, approved and paid. Cost control is the deliberations, actions
and reactions to project cost fluctuations during a project to maintain the
project cost within the project budget. Cost management is the process of
controlling the expenditure on a construction project at all stages from initiation
to completion, within the approved budget (Vasista,
2017). The project cost estimate is mainly concerned with the cost of
resources required to complete the planned project activities, and it is the
most important aspects of construction management process which is used to
forecast the cost of undertaking a construction work (Yismalet & Patel, 2018).
During
the execution of a project, procedures for project control and record keeping
become indispensable tools to managers and other participants in the
construction process
Construction
can be considered as a dynamic industry which is constantly facing
uncertainties. These uncertainties and the many stakeholders in these kinds of
projects, make the management of costs difficult which consequently causes cost
overruns. Studies on cost management in construction industry has been the
focus of many studies (for example, Li, (2009),
Olawale & Sun, (2010); Anyanwu, (2013);
Azis, Memon, Rahman, & Karim, (2013), and many others). Some of the
earlier studies returned positive relationship between cost management/control
techniques and cost overrun/increase while others showed negative relationship.
For instance, Azis, Memon, Rahman, & Karim,
(2013), established a robust relationship between cost control and
productivity in order to support future policy development.
The
result of the finding revealed that poor cost performance in construction
project is a common problem worldwide resulting in significant amount of cost
overrun. Their study focused the major contributors of cost overrun and propose
mitigation measures to control cost overrun factors. They were able to evaluate
eight (8) categories of cost overrun factors and identified that “contractor's
site management” as most severe contributor of cost overrun and followed by
“information and communication” category while the least severe category is
financial management.
Anyanwu, (2013) in his study on project cost control in the
Nigerian construction industry argued that many construction projects
development have failed owing to the various technical and financial pressures
of cost limit, quality and value optimization. He however ascertain that the
rising cost of building materials nowadays and the ultimate astronomical
increase in the cost of construction projects calls for adequate application of
cost management principles so as to reduce or eliminate the cost of projects.
When management techniques are appropriately utilized during the construction
of any price of work right away from the planning stage to the completion
period exhausting all other principles of cost management, the cost of such a
scheme must be within the target cost
Olawale & Sun, (2010) writes on cost and time control of
construction projects argued that despite the availability of various control
techniques and project control software many construction projects still do not
achieve their cost and time objectives. They were able to identify common factors
that inhibit both time and cost control during construction projects which
include design changes, risks/uncertainties, inaccurate evaluation of
project time/duration, complexities and non-performance of subcontractors. This
study will also evolve the use of questionairre
relevant literature related to factors contributing to cost overun or
increase in construction of project.
However,
it is on the premise of these claims that the questions “How do we Identify and
evaluate cost reduction techniques used by contractors? What are the factors
that lead to cost overrun or cost increase in the construction project? How do
we examine the various cost control techniques available in the construction
industry?” An attempt to answer these questions led to the examination of the
various cost management techniques for construction of project in Lagos State
with a view to identify the most effective techniques in the construction
industry.
This
research is proposed to answer the following questions, which invariably would
assist in achieving its objectives. The questions are:
i.
How do we Identify and evaluate cost
reduction techniques used by contractors?
ii.
What are the factors that lead to cost
overrun or cost increase in the construction project?
iii.
How do we examine the various cost control
techniques available in the construction industry?
The
aim of this study is to examine the various cost management techniques for
construction of projects in Lagos State with a view to identifying the most effective
techniques necessary to reduce or minimize cost overrun in the construction
industry.
The
objectives of this research include:
i.
To identify and evaluate cost reduction techniques
available in the construction industry.
ii.
To identify and evaluate factors that lead
to cost overrun or cost increase in construction project.
iii.
To examine cost control techniques
available in the construction industry.
This
study is of importance to building professionals, policy makers, economy of the
nation and the general public because it clarify and create awareness of the
extent to which inadequacies in cost control techniques can adversely affect
project performance. Through the identification of cost reduction techniques
available in the construction industry, the study is of help to contractors,
clients, consultants and all parties involved in construction projects recognize
the most efficient way(s) of managing cost and about ways of improving their
current method of cost management and control.
The economy of any nation tends to be more
realistic when there is cost, time certainty and quality control. However, the
quality and productivity of any completed project determines that, the economic
benefit is liable to be achievable. The economy can save the money that would
have been otherwise channeled for maintenance work of projects.
The
study is also of great benefit for other student researchers’ who may want to
venture into the same subject matter. Having gotten results-both empirically
and theoretically on the subject matter, the study will serve as an establishment
for future research studies. This study is of importance to building
professionals and the general public because it would not only clarify but also
create awareness of the extent to which inadequacies in cost control techniques
can adversely affect project performance.
The
scope of cost management in construction industry is indeed vast. It includes
the cost control methods practiced by clients and consultants in the
pre-construction, construction and post-construction stage. This study excludes
cost control procedures related to the accounting and financial management of
the company. This study is focused to contractor’s cost control during the
construction stage, and the types of cost control utilized is dependent on the
size of the projects, the size of the construction company and also the types
of contracts. The study covers some
selected building contractors in Lagos State.
Hence,
the extent of this study covers the assessment of the socio-economic
characteristics of the contractors in the construction industry in Lagos State Nigeria,
identifying and evaluating cost reduction techniques available in the
construction industry, identifying and evaluating factors that lead to cost
overrun or cost increase in construction project and examining cost control
techniques available in the construction industry.
·
Construction:
In
the fields of architecture and civil engineering, construction is a process
that consists of the building or assembling of infrastructure. Far from being a
single activity, large scale construction is a feat of human multitasking.
Normally, the job is managed by a project manager, and supervised by a
construction manager, design engineer, construction engineer or project
architect.
·
Cost
Management: It is the process by which costs
(expenses) incurred on a project are formally identified, approved and paid (Vasista, 2017).
·
Cost
Control: Cost control is a process where the construction
cost of the project is managed through the best methods and techniques so that
the contractor does not suffer losses when carrying out the activities of the
project (Otim, Nakacwa, & Kyakula, N.D).
·
Cost: Cost
means expenses incurred by contractor for labor, material, services, utilities
etc., plus overheads and contractor’s profits (Otim, Nakacwa, & Kyakula,
N.D).
·
Cost
overrun: This occurs when the final cost of the project
exceeds the original contract value at the time of completion (Otim, Nakacwa,
& Kyakula, N.D).
·
Time Management: is the
process of planning and exercising conscious control of time spent on specific activities, especially to increase effectiveness,
efficiency, and productivity.
The chapter started with a background of the study which defined, characterized and related cost management techniques mentioning successful recent study on this subject area. It goes on to state the research problems and questions, thereafter the aims and objectives of the study. The significance, the scope of study and thereafter the definition of keywords and terms round up the chapter. This will lead to the next chapter for a review of the literature to further expatiate and establish issues started herein.
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