Impact of Cost Control Techniques on Construction Project Delivery in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The main aim of the study is to examine various cost control techniques used in construction projects and the impact they have on project delivery. Specific objectives of the study are:
- To identify cost control technique frequently used by contractors in construction projects.
- To examine problems encountered by contractors in managing construction project cost.
- To determine the impact of costcontrol techniques on the duration of construction projects.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter gives an insight into various studies conducted by outstanding researchers, as well as explained terminologies with regards to the impact of cost control techniques on construction project delivery.
The chapter also gives a resume of the history and present status of the problem delineated by a concise review of previous studies into closely related problems.
COST MANAGEMENT AND COST CONTROL TECHNIQUES USED IN THE CONSTRUCTION INDUSTRY
Cost management is an approach used to realize decisions made for planning, controlling and developing competitive strategies, and it is noteworthy to say that making a balance between this factor and other dimensions of competition such as quality and time is required. It is the control of costs through the formal process of budget development, monitoring, and adjustment to achieve the maximum amount of work at a specified level of quality where unknowns and uncertainty may cause costs to increase beyond acceptable levels (Frimpong, 2006). The Project Management Institute considers cost management as primarily concerned with the cost of resources needed to complete project activities and would be achieved through a process involving estimating, budgeting, and cost control. However, cost management is much more than simply maintaining records of expenditure and issuing cost reports – it means understanding how and why costs occur and promptly taking the necessary response in light of all the relevant information. Thus the key question to stay competitive in construction enterprise is cost management and control.
Over the years, contractors developed several cost management strategies to assist them to record all financial transactions that occur as well as giving managers an indication of the progress and problems associated with a project (Davies, 2013). Some of the strategies, tools and techniques used by contractors to manage cost are discussed below.
Cost Value Reconciliation
Cost Value Reconciliation (CVR) is the practice of determining and reporting profitability of a construction project on a regular basis. By comparing the costs with revenue at a certain date, it is possible to see the difference between the cumulative profit or the loss on the project. The application of cost value reconciliation (CVR) in the subcontracting construction industry is considered an important part of cost management for the financial control of construction projects. However despite its’ uses it is often not widely used by subcontracting organisations. This is generally due to the perceived resource requirements, the cost and technical skills necessary to incorporate the technique into small and medium size subcontractors.
The Project Budget
For cost control on a project, the construction plan and the associated cash flow estimates can provide the baseline reference for subsequent project monitoring and control. For schedules, progress on individual activities and the achievement of milestone completions can be compared with the project schedule to monitor the progress of activities. Contract and job specifications provide the criteria by which to assess and assure the required quality of construction. The final or detailed cost estimate provides a baseline for the assessment of financial performance during the project. To the extent that costs are within the detailed cost estimate, then the project is thought to be under financial control. Overruns in particular cost categories signal the possibility of problems and give an indication of exactly what problems are being encountered. Expense oriented construction planning and control focuses upon the categories included in the final cost estimation. This focus is particular relevant for projects with few activities and considerable repetition such as grading and paving roadways.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter covers the description and discussion on the various techniques and procedures used in the study to collect and analyse the data as it is deemed appropriate.
It is organized under the following sub-headings:
- Research Design
- Area of the Study
- Population of the study
- Sample and sampling procedure
- Instrument of Data Collection
- Validation of the Instrument
- Reliability of the Instrument
- Method of Data Collection
- Method of Data Analysis
RESEARCH DESIGN
According to Asika (2009), research designs are often referred to as the structuring of investigation aimed at identifying variables and their relationships to one another. In this study, questionnaire serves as useful guide to the effort of generating data for this study. The questionnaire is a survey method and it is an exploratory research.
AREA OF THE STUDY
The study area for this research is Imo state in eastern Nigeria.
The choice of Imo state as the study area is because since the creation of the state in 1967 and in spite of the movement of Abia state in the state creation exercise of 1991, it naturally enjoys the benefits of being the fulcrum of the eastern part of the country. Imo state is built with many roads, estates , government establishments, all kinds of private developments, schools, hospitals, theaters, shopping malls, hotels to mention a few. All these infrastructures are the handiwork of construction. As such there cannot be a better place to obtain data for this study.
POPULATION OF THE STUDY
The population of study consists of public and private contractors involving civil engineers and quantity surveyors in Imo State. According to the Imo state ministry of Works, Corporate afairs Commision data, total registered contractors” amount to 352.
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
PRESENTATION OF TABLES
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
SUMMARY OF FINDINGS
The study observed that in the majority of cases, contractors’ efforts to manage projects costs are centred on management of project resources. This resource-centric strategy premised on materials, plant and labour resources management is founded on the principle that resources consumption stimulates building project costs. Statistical analysis performed through chi-square test at 95% shows that: cost reports, cost estimating and budgeting, variance analysis, cost value reconciliation and resources management are the significant factors employed by contractors to manage costs on construction projects in Nigeria. However, despite the existence of these strategies, most contractors admit that their projects would, in most cases, end with a cost overrun.
This may be inferentially explained by a host of challenges affecting cost management practice.
Whereas several challenges were observed with respect to cost management, it is labour related challenges, materials related challenges and organisational problems that impact significantly on
cost management practice. The study also observed that the cost management process in Nigeria, like in other developing countries in Africa and elsewhere is still dominated by the traditional paper based system or ‘prematurely’ developed automated systems of managing project cost information. In a nutshell, the problem in Nigeria is not about having the strategies to manage costs but relates to ‘flawed’ implementation. The findings of this research suggest that the strategies instituted to manage project cost and, the challenges to such practice are not significantly different from the ones in other developing countries.
CONCLUSION
The construction industry is a key industry to economic growth of any nation providing shelter for economic and social activities including on-site and off-site infrastructure to facilitate the smooth functioning of these activities. The industry does not only touch on the lives of virtually everyone on a daily basis; it occupies a fundamental national position in many national economies – hence the importance of this research. The study aimed at examining the impact of cost control techniques on construction projects and the challenges contractors face when implementing these cost control techniques.
RECOMMENDATIONS
To improve on the effectiveness of contractors’ cost management strategies in Nigeria, the research recommends that contractors pay particular attention to problem areas that significantly affect cost management (labour, material and organisational related challenges), engagement of experienced cost management personnel or upgrading of staff’s professional ingenuity through conventional training, refresher courses or participation in seminars; and regular review of cost management systems and strategies. The industry can also take advantage of advancement in ICTS to automate their cost information management systems. This study has provided baseline information on the strategies used to manage project cost and related challenges; however, further research is needed to assess the effectiveness of these strategies to manage project cost.
BIBLOGRAPHY
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- Pheng Low Sui and Chuan Quek Tai, (2006), Environmental factors and work performance of project managers in the construction industry, International Journal of Project Management, Vol. 24, PP. 24.37
- Okuwoga Adeyinka A., (1998), Cost . time performance of public sector housing projects in Nigeria, Habital Intl., Vol. 22, No. 4, PP. 389 . 395
- Dissanayaka Sunnil M. and Kumaraswamy Mohan M., (1999), Comparing contributors to time and cost performance in building projects, Building and Environment, Vol. 34, PP. 31- 42
- Reichelt Kimberly and Lyneis James, (1999), The dynamic of project performance: Benchmarking the drivers of cost and schedule overrun, European management journal, Vol. 17, No.2, PP. 135-150
