Assessment of Factors Mitigating Preparation of Realistic Construction Budget
CHAPTER ONE
Objectives of The Study
General Objective
The prime objective of this research is assessing factors mitigating preparation of realistic construction budget and analyzing their effect on project management in water works design and supervision enterprise.
Specific Objective
The Specific objectives of the research are
- Identifying major factors that influence the preparation of realistic construction budget which can be unique to the nature of water works design and Supervision
- Showing the implication of errors in cost estimation on the effectiveness of management of consultancy service projects running by the Enterprise
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORETICAL LITERATURE
Here in this part the researcher will try to see what is cost estimation, cost estimation techniques and the factors that can affect the preparation of realistic construction budget explained in different books.
Introduction
Cost estimating is the process of calculating the costs of the identified resources needed to complete the project work. The person or group doing the estimating must consider the possible fluctuations, conditions, and other causes of variances that could affect the total cost of the estimate. There is a distinct difference between cost estimating and pricing. A cost estimate is the cost of the resources required to complete the project work. Pricing, however, includes a profit margin. In other words, a company performing projects for other organizations may do a cost estimate to see how much the project is going to cost to complete. (Philips, 2004)
Project management is the supervision and control of the work required to complete the project vision. The project team carries out the work needed to complete the project, while the project manager schedules, monitors, and controls the various project tasks. Projects, being the temporary and unique things that they are, require the project manager to be actively involved with the project implementation. (ibid)
Project Cost Management
Cost management is the process used to minimize the cost of the project while maintaining acceptable levels of quality as well as the scope of the deliverables for the duration of the project. The objectives of the cost management process are to track progress, compare actual values to planned values, analyze the impact of variances, and make adjustments in light of these variances (Rad 2002). As the business need undergoes analysis, progressive elaboration and estimates are completed based on varying levels of detail, and eventually the cost of project will emerge. Often, however, the predicted costs and the actual costs vary (Philips, 2004).
On the other hand (Rad 2002) argued that the mission of a cost management system is not to control the costs at the original estimate level, which may or may not have been accurate. Instead, the cost management process should be designed to manage the inevitable changes to the project with the least combined impact on the triple constraints of cost, schedule, and scope.
CHAPTER THREE
RESEARCH METHODOLOGY
This part deals with the research design and methodology of the study. It includes research design, source of data, data collection instrument, sampling techniques and methods of data analysis.
RESEARCH DESIGN AND SOURCE OF DATA
This research is done to examine the possible significant factors that can affect the cost estimation of the projects and to analyze and show their effect on the effectiveness of project management and recommend possible solutions, the type of research Design employed in this research is descriptive research design. The research is also observational in reviewing financial performance of projects from the annual budget utilization report of large scale projects in order to assess to what level of accuracy the cost estimation can predict the actual cost of the project. The enterprise’s procedural manual indicate that projects with annual income above birr 3,000,000.00 treated as large scale projects, projects with annual income between birr 1,000,000 and 3,000,000.00 treated as medium scale projects and projects with annual income below birr 1,000,000.00 treated as small scale projects. The data on the research questioner will be gathered from sample of employees who are expected to be involved in the preparation of technical proposal and project cost estimation since relevant information can be provided by those professionals.
DATA COLLECTION METHOD AND SAMPLINGTECHNIQUES
The study covers the cases of study, design and construction supervision of water resource development projects. In the research process, non probability sampling specifically purposive sampling technique is used for data collection from professionals to identify major factors affecting the project cost estimations related to the nature of the enterprise. In WWDSE employees from different disciplines are participated in providing valuable inputs to the technical proposal preparation committee. Topographic surveyors, Soil Survey technicians, geological & geotechnical experts, hydrologists & hydro geologists, agronomists, sociologists, environmentalists and laboratory technicians are those who are involved.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
INTRODUCTION
In this chapter Findings obtained through the instrument used in the study are discussed. It presents the primary data, analyze them and interpret the findings. The findings are presented according to the method used to analyze the data.
Here, document analysis of 50 different large scale projects was made. Accordingly, financial and physical performance of 13 construction supervision projects, 16 study projects and 31 design projects with annual income of more than 3,000,000.00 over the last six years are presented. These documents were used as a fair representation of the enterprise’s portfolio of work. The documents were obtained through permission from the chief executive officer of the enterprise. Using these data, the study shows how the estimated costs of the projects are varied from the actual cost and intends to answer the question:
- What influential factors are the causes for preparation of unrealistic construction budget in the enterprise?
- What are the effects of these project cost estimation errors on the effectiveness of project management?
A questionnaire survey was used to find out answer regarding factors mitigating preparation of realistic construction budget in water works design and supervision enterprise (WWDSE). A five page questionnaire including a cover letter was sent to the employees who directly participate in project cost estimation. The design of the questionnaire was based on an extensive review of literature dealing with cost estimating. The questionnaire also asked the respondents experience on cost estimating factors and factors that enforce for projects completion dalliance that are specific for the enterprise.
The questionnaire was distributed to 60 purposely selected employees of WWDSE. A total of 54 respondents were able to return completed questionnaires in a usable format, representing a 90% response rate.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
SUMMARY OF FINDINGS
This study covers the case of higher scale projects of water works design and supervision enterprise in assessing the factors affecting the accuracy of projects cost estimation. Professionals who directly participate on the preparation of technical proposal and project cost estimation are selected as a sample to assess cost estimation factors related to consultant, design parameters and information, factors related to projects and client characteristics, external factors and market condition. Based on the literature review, the questioner consisted of all factors mentioned above were prepared and measured on 5 point likert scale. The respondents were also granted a space provided to mention other factors related with the nature of the projects run by the enterprise.
In this research six years data concerning the physical performance of the projects and percentage of actual cost utilized with budgeted (estimated) costs of projects were analyzed. Comparison of budgeted cost of work performed with actual cost of work performed for study, design and construction projects was made. As a result
- Among 43 constructions supervision projects during the 6 years period 69.77%were overestimated and 13.95% were underestimated. Only 16.28% of the higher scale projects were under acceptable range of variance
CONCLUSION
The results of actual project data, the conclusion can be drawn that most of the estimated cost of the projects is either under-utilized or over utilized which shows there is undeniable inaccuracies in the project’s cost estimation. The major findings of this study compiled from the data collected through the questioner shows the following are the most influential factors that affect the accuracy of project cost estimation.
- Completeness of technical and socio economic information
- Technical proposal preparation team and cost estimators work load during estimation
- Availability of adequate time for estimation and technical proposal preparation
- Insufficient number of estimating staff
RECOMMENDATION
After detail analysis of the study, the researcher recommended the management of Water Works Design and Supervision Enterprise that, they have to give more attention to the most influential factors that affect the accuracy of projects cost estimation that are identified in this research in order to achieve more reliable and realistic estimates.
The management of the enterprise should pay more attention to the cost estimating process by improving the completeness of technical inputs and socio economic information by engaging all relevant professionals or specialist required for a particular project type with sufficient number and adequate time. The amount of time and resources used to make the estimates should be appropriate to the size and complexity of the project. (Trost and Oberlender, 2003) argued the importance of time by stating as, Adequate scope definition, an experienced project team, and good cost information do not fully explain the estimate accuracy picture, but must be combined with an adequate allotment of time. All these factors will enable cost estimators come up with most accurate cost estimates of the project and has greatest in importance to the realization of a feasible estimate.
The top management of the enterprise should enhance the responsibility given to project managers in cost estimation and their roll in controlling projects schedule and costs. As part of the planning process, (Philips, 2004) insist that the project manager must determine what resources like people, equipment, and materials that will be utilized to complete the project. To carry out this task, project managers must use work break down structure (WBS) and other valuable information. (Rad 2002) suggested that, the most accurate and most reliable estimate for a project can be developed when all the elements of the work breakdown structure (WBS) have been identified with a reasonable degree of reliability and when the resource breakdown structure (RBS) has been defined with the desired degree of certainty. Therefore, the involvement of project manager on cost estimation will help to increase the level of accuracy. Such actions will also increase the roll of project managers in ensuring that all work is completed on time, within budget and scope, and at the correct performance level.
REFERENCE
- Abdal-Hadi, M. A. (2010), Factors affecting accuracy of pre-tender cost estimate in Gaza Strip. Unpublished master thesis in construction management, The Islamic University of Gaza-Palestine.
- Akintoye, A. (2000), Analysis of factors influencing project cost estimating practice.
- Construction Management & Economics, UK
- Annual Reports of Financial and Project Performnace of Water Works Design and Supervision Enterprise (from 2009 to 2023)
- Ashworth, A. (2004), Cost Studies of Buildings 4 ed. Harlow, England; New York Pearson/Prentice Hall.
- CIOB(1997), Code of Estimating Practice, 6th Edition. The Chartered Institute of Building, London.
- Council of Ministers regulation No.42/1998. Nefagit Gazeta
- Council of Ministers (Amendment) regulation No.110/2004. Negarit Gazeta
- Elhag, T.M.S., Boussabaine, A.H. and Ballal, T.M.A. (2005), Critical determinants of construction tendering costs: Quantity surveyors standpoint. International Journal of Project Management, pp. 538–545.
- Enshassi, A., Mohamed, S. and Madi, I. (2007), Cost estimation practice in the Gaza Strip: A case study. The Islamic University Journal, pp. 153–176.
- Flyvbjerg, B., Holm, M.S. and Buhl, S. (2002), Underestimating costs in public works projects: Error or lie? Journal of the American Planning Association, Guide to the project management body of knowledge (PMBOK Guide), fourth edition, project management institute, Inc., USA
- Gunner, J. and Skitmore, M. (1999), Comparative analysis of pre-bid forecasting of building prices based on Singapore data. Construction Management and Economics, pp. 635–646.
- Holm, L., Schaufelberger, J.E., Griffin, D. and Cole, T. (2005), Construction Cost Estimating: Process and Practice. Upper Saddle River, NJ: Pearson Prentice Hall, pp.3-12
- Jah, J.H.M., Thorpe, A.and McCaffer, R.(1994), A survey of indirect cost estimating in practice. Construction management and economics, pp.31-36
- James P. Lewis(2007), Fundametals of project management,third edition,American management Assosiation, USA pp.174
- Joseph Phillips(2004), PMP Project Management Professional Study Guide. McGraw-Hil
- Larry Richman(2002), Project Management step by step,American management Assosiation, USA
- Liu, L., & Zhu, K. (2007), Improving Cost Estimates of Construction Projects Using Phased Cost Factors. Journal of Construction Engineering & Management,
- Marjuki, M. (2006), Computerized building cost estimating system. MSc diss. University Teknologi Malaysia.
