PasINTRODUCTION
Construction industry has evolved tremendously over the past years. The accidents and injuries in the construction industry have not yet completely eradicated, but they certainly have decreased significantly. The construction industry is now adopting new and advanced technologies, updated design tools and software. The accuracy and workmanship in industry has been better than ever. But, the construction projects could not be completed within time and within planned budget. The budget mostly overruns in the construction projects. With large projects and huge implications to deal with, the construction cost tends to fluctuate varying the cost estimate of the project. Cost is one of the important factors in public construction projects, especially in the developing countries because of scarce financial resources.
CASE DETAILS
My assignment is based on the ‘International Journal of Social Sciences and Entrepreneurship’ and the topic is ‘Factors affecting adherence to cost estimates: A survey of construction projects of Kenya national highways authority’ (Choge & Muturi, 2014). Kenya is a developing country, and construction sector is contributing to the socio-economic growth of the nation. The construction industry is the major contributor for the GDP and employment rate of the nation. The construction industry provides a basis for other physical facilities to provide and distribute goods and services. The construction industry has a significant effect on the nation’s economy as a whole. The projects are claimed to be successful if they are completed within budget, on time and with specified quality standards. Even though the government of Kenya has set aside a huge sum of money for construction projects, the construction industry is facing a lot of challenges related to the budgeting and cost estimating of the project. These problems are severe in road infrastructure projects in Kenya. These problems have given rise to other alternatives such as involving foreign contractors for completion of projects, set aside more money for construction projects, burdening the taxpayers, etc. Involving the specialized expertise has led to technical and project managerial conflicts between the project parties. The budget and cost problems in the construction industry has also affected the contractor as it decreases the contractor’s margin of profit, which leaves the project in huge loss and it eventually leads to the trouble of the project.
ADHERENCE TO COST ESTIMATES
Adherence, or observing, to the cost estimates is considered the most important factor for successful projects. Relying on the foreign contractors for finishing the project ends up spending more money on the project, and it also takes the funds out of the country which slows down the economic growth of the nation. Adherence to cost estimates would give another chance to all the parties to construct other related projects. It would help in increasing the profit margin for the contractors and it would develop construction sector in Kenya. Adherence to cost estimates is looked at as a challenge because it decreases the profit margin of the contractor leading to huge losses and being a burden on taxpayers. Whereas, non-adherence to cost estimates is nearly noticed in every construction project but it does not get enough attention which leads to huge cost escalations. KeNHA (Kenya National Highway Authorization) and its partners should have driving forces behind adherence to cost estimates. KeNHA needs a lean and flawless project cost management practices and projects that are not only efficient but also effective and accurate. Overlooking the cost escalations would subject to huge loss to government of Kenya, as well as the sponsor of the project. It would also waste time and create mistrust between project parties, which would compromise the overall efficiency, earned value potential, and the objectives of goals of project. In spite of the improvements in the construction industry over the years, the problem of cost escalation is critical. And if these factors are not considered, soon it would jeopardize the success factors of the project. It was, therefore, important to study the hypothesized variables and to treat the weak points from all sides, thus giving priorities in order to avoid non-adherence to cost estimates in construction projects in Kenya.
OBJECTIVES AND METHODOLOGIES USED
The general objective was to study the factors that affect the adherence to cost estimates in the implementation of construction projects by KeNHA. It included the experience of the contractor, contractor’s approach towards cost estimation, availability of construction materials, etc. This report would consist of three theories that are relevant to this study; ‘Theory of Constraints’, ‘Complexity Theory’, ‘Knowledge-based Theory’. This report would explain the design variations in the project, contractor’s experience and what it brings to the table, research methodology, and research findings. Principal component factor analysis, mean score method, Karl Pearson correlation analysis were the methodologies used to solve the cost problems.
The research employed both primary and secondary data. The primary data collection was through a self-administered survey questionnaire. Descriptive research design was adopted because the organization under the study followed the similar practices on a daily basis. This gives an opportunity to fuse the quantitative data and qualitative data together to construct ‘what-if’ of the objective. The secondary data comprised of information in the form of contract documents, monthly, annual and project completion reports, claims documents, expenditure. The data was collected on regular basis for a period of time for monitoring and control.
Then, principal component factor analysis was used to summarize the components. Mean score method was adopted to establish relative impact of the hypothesized variables. Likert’s scale of five ordinal measures of agreement were used for computation, which were:
• E.S. – Extremely significant
• V.S. – Very significant
• M.S. – Moderately significant
• S.S. – Slightly significant
• N.S. – Not significant
Statistical package for social science was used to calculate mean score for each factor in ranking. Karl Pearson correlation analysis (Chi-square method) was used to describe the relationship between dependent and independent variables. Cross tabulation and Chi-square test were carried out at 0.05 level of significance.
PART B: RELEVANCE, APPLICABILITY AND CRITICAL EVALUATION
RELEVANCE
This report focuses on the cost problems of the road infrastructure projects in Kenya under KeNHA. This report discusses the problems like insufficient funds for the road projects, under estimating the tender prices, burden on taxpayers due to more requirement of funds in the construction sector, conflicts between project managerial and other expertise. As construction is one of the major contributors to the GDP and nations economic development, these problems should be discussed and analyzed and should be solved using appropriate measures.
OBJECTIVE
1. The specific objectives of this report are to establish how the contractor’s experience affects the adherence to cost estimates, how design variation give rise to adherence to cost estimates.
2. Also, how the availability of materials for construction affects the cost of the construction project.
LITERATURE FRAMEWORK
THEORY FRAMEWORK
This section provides the summary of three theories that are relevant to this case study. Which are:
1. Theory of Constraints
2. Complexity Theory
3. Knowledge-based Theory of Project Management
THEORY OF CONSTRAINTS
Eliyahu first developed the Theory of Constraints in the early 1980s to help the organizations understand, identify and bring the change in the industry. This theory particularly suggests that the organizations facing challenges in cost management, poor performance and chronic conflicts is due to poor management practices and lack of necessary intervention. Theory of Constraints suggests to identify the main problems that are affecting the cost estimating of the project. After that, the managers should come up with ways to tackle these constraints within given budget. Whole project could increase in performance by focusing on the main problems of the project (Eliyahu, 2004). Additionally, Baloi and Price observed that most organizations fail to examine their project plan and goals while developing the cost estimate to the plan (Baloi & Price, 2003). He also suggested to establish long term goals and act accordingly instead of setting up short term goals and focusing on them which would compromise the long-term goal. According to this theory, all systems could operate in environment of cause and effect. Adherence to cost estimates is a constraint or it has a potential to become a constraint. Hence, according to this theory, seizing the importance of cause and effect within the system and identifying the factors that constrain the project performance and adherence to cost estimates should be executed.
COMPLEXITY THEORY
A prominent author in the field of complexity shares the views and opinions of scholars and also extends it by additional dimension of cost estimate. In addition to vis-à-vis the number of factors and the interdependency of these factors, he introduced a third factor, which is, uncertainty. Sometimes projects require extra funds for early execution of the project, or to reduce the time to market thus affecting the cost of the project. This approach in complexity deeply rooted the social environment. They unfolded the unpredictable and unfamiliar ways evolving especially from cost related issues such as design variations.
KNOWLEDGE-BASED THEORY OF PROJECT MANAGEMENT
This is not an explicit theory but it is a general practice to underpin the discipline and it is generally found in theories of management, planning, control and projects. Knowledge-based project management is a systematic approach over a period of time to achieve specific goals and objectives with certain constraints such as project cost management, project risk management, and project integration management.
APPLICABILITY
DESIGN VARIATIONS
Design variation are very common in construction projects. But it comes at a price, it costs the project more money and more complications to the project. The design tends to vary in the planning and design stage, and it could be taken care of at that stage at minimum expense. But, once the execution starts and the design needs to be updated or modified, it could lead to cost variations. Variations could lead to budget overrun if it is not collectively considered by all project participants. It is also one of the frequent cause of conflicts and disputes between the parties. Changes in the design during construction phase is practical and there could be a need to alter the design for betterment of the project. Needs of the owner might change, the budget might change, technological challenges might arise, few additions or omissions could occur changing the scope of the project. Accidents or injuries, unforeseen conditions, calamities could change the design of the project. All these factors ultimately lead to re-estimating the cost of the project. Researches in construction projects, especially in developing countries, found out that a completed project has a variation of around 8.3% cost overrun. Change orders generally average between 2% to 5% of construction cost.
The agreement might recognize the changes in work, method of work, craftmanship of work, sequence of work items, etc. which would have a direct impact on schedule. This impact would extend the time of the project, resulting in cost overrun of the project. In developing countries like Kenya, adopting with the fast pacing construction industry, care should be taken of design related problems.
Design factors which mainly constitutes of:
• Mistake in design
• Design changes
• Additional work
Mistake in design is a result of low competence of designer, poor inspection and inappropriate selection of drawing process, especially with government funded projects. Unrealistic designs have led to variations in design. Designers have tried to coat the designs but quantity is not superior than quality of the project. These variations decrease the profit of the project. Comprehensive planning, risk assessment, project monitoring, scheduling are important aspects of the project (Le-Hoai, Dai Lee, & Lee, 2008). Design offices should establish system of control to limit the variations in the project design. Skilled designers should be identified and hired at the initial stages of the project to avoid variation and avoid design related headache.
CONTRACTOR’S EXPERIENCE
Contractor’s experience is one of the major factors affecting the adherence to cost estimates. The was rated as one of the highest benefactors that is experienced across the world. Contractors are generally awarded the tender based on their tender price, experience, their reputation and track record in accomplishing high quality work within time and budget. In most cases, the contractors submit a quote way below the average cost of the project which would cause variations in the project. Lowest cost value from contractors does not always mean they would carry out the work in desired quality and in time and specified cost. In contracts where the Engineer’s estimate is at least 15% greater than contractor’s bid amount there is strong chance of cost escalation (Kog & Loh, 2011). These projects should be tracked and monitored accurately. There are cases where the contractors and sub-contractors go bankrupt during the project which causes troubles to the project.
In conclusion, contractor’s experience plays a major role in cost escalation. Contractor’s experience is a concerning area in event of planning and implementing the projects.
CRITICAL EVALUATION
DESIGN VARIATION
Sometimes, difficult site conditions are overlooked in the initial review or the conditions could change due to adverse weather conditions or sub-soil changes. Unexpected sub-soil changes could result in redesigning the project at great expense. Changes in sub-soil surface makes it difficult to move the machinery and supplies on site. Communication within the people on project is the most effective tool in identifying, analyzing and evaluating the risks. The study found out that 79% of the respondents alluded that meetings are normally conducted for design variation issues. 78% of them responded that such meetings should be held weekly to discuss the project’s progress.
Cross-tabulation was done to establish a relationship between variation and adherence to cost estimates. The critical value of at alpha=0.05 was 3.841. The calculated Chi-Squared value was 24.496 which translated to a p-value of 0.00000074. That is, the relationship between design variations and adherence to cost estimates is highly significant because the p-value of 0.00000074 was less than 0.05 level of significance. Additionally, correlation analysis at 0.05 confidence level established that there is a strong relationship between design variations and adherence to cost estimates with a correlation value of 0.429 and level of significance of 0.019.
CONTRACTOR’S EXPERIENCE
The study found that 80% of the respondents that good experience is a major factor for adherence to cost estimates. It established that experience plays a great role in managing the site, responsibilities, manage the project cost, and complete the project in time.
Cross tabulation and the Chi-Squared test was carried out to determine the relationship between the contractor’s experience and adherence to the cost estimates. The Chi-Squared critical value at α = 0.05 was 3.841 whereas the calculated value was 10.2011 which translates to a p-value of 0.00609339. As a result, the study established that the relationship between contractor’s experience and adherence to cost estimates was very significant at 0.05 level of significance. The Pearson coefficient of correlation at 0.05 confidence level was found to be 0.397 and a p-value of 0.041, which also showed that the relationship was significant at 0.05 confidence level. This is in agreement to Yates observation which attested that in contracts where the contractors’ experience is questionable, there is a strong likelihood of cost escalations.
ADHERENCE TO COST ESTIMATES
The respondents were asked to indicate whether the organization had previously done adherence to cost estimates. To which 80% of them revealed that their organization never did so. Also, Karl Pearson correlation analysis was carried out and the results revealed that relationship between contractor’s experience and adherence to cost estimate was very significant at 0.05 level of significance. The Chi- Squared critical value at α = 0.05 was 3.841 whereas the calculated value was 10.2011 with a p-value of 0.00609339. As a result, the study revealed that the relationship between contractor’s experience and adherence to cost estimates was very significant at 0.05 level of significance. On the other hand, the relationship between design variations and adherence to cost estimates was highly significant because the p-value of 0.00000074 was less than 0.05 level of significance. Hence, the study concludes that the factors that greatly affect adherence to cost estimates in construction projects are contractors’ experience and design variations respectively because their p-values are less than 0.05 level of significance.
CORRELATION ANALYSIS
Karl Pearson correlation analysis was carried out at 0.05% significance using statistical package for social sciences to further establish the relationship between dependent and independent variables. According to the study, there is a significant positive correlation between design variations and adherence to cost estimates with correlation coefficient of 0.529 and p value of 0.01. There is positive correlation between contractor’s experience and adherence to cost estimates with correlation coefficient of 0.497 and a p value of 0.021.
ADHERENCE TO COST ESTIMATES
Design variations Pearson Correlation
Sig. (2-tailed)
N 0.529*
0.01
46
Contractor’s experience Pearson Correlation
Sig. (2-tailed)
N 0.497*
0.021
46
Conclusion
This assignment helps us understand the relationship between variations in work, contractor’s experience and adherence to cost estimates. In future, Kenya would take on mega projects, especially infrastructure road projects through bilateral and multilateral financial agencies.
This paper could help the cost problems related to projects, especially in infrastructure projects, and understand the ways to overcome them. The methodologies mentioned in this paper could be used for other cases as well to keep the cost estimating in control. Also, more knowledge about the project and more information would help us understand the adherence to cost estimates of this project more clearly.
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