factors affecting construction cost performance (ijcebe).pdf
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International Journal of Civil Engineering and Built Environment Vol.1, No.1, 2014; ISSN 2289-6317 Published by YSI Publisher
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Factors affecting construction cost performance in project management projects: Case of MARA
large projects
Aftab Hameed Memon1, Ismail Abdul Rahman1, Mohd Razaki Abdullah2,Ade Asmi Abdu Azis3 1Faculty of Civil and Environmental Engineering, University Tun Hussein Onn Malaysia, Malaysia
2Majlis Amanah Rakyat (MARA) 3Universiti Tun Hussein Onn Malaysia, 86400 Parit Raja - Batu Pahat
Corresponding Author:[email protected]
Abstract
Aim of Study This study has focused on investigating procurement strategies
adopted in MARA large construction projects. It also identified various factor affecting construction cost performance of MARA large construction projects.
Need of Study Very rarely MARA projects are finished within estimated project
cost. For improving cost performance, it is very important to identify the reasons affecting cost performance of MARA projects. Hence, there is a need of study in understanding the reasons and factors affecting project cost performance of construction projects.
Research Approach
The project was carried out through interviews and survey using the questionnaire among the personnel involved in handling MARA large projects. Gathered data was analyzed statistically using SPSS software package.
Research Findings This study revealed that fluctuation in price of the material, cash
flow and financial difficulties faced by contractors, shortage of site workers, lack of communication between parties, incorrect planning and scheduling by contractors are most severe factors while frequent design changes and owner interference are least affecting factors on construction cost performance in MARA large projects.
Limitations This study was limited to large construction projects
administrated by Majlis Amanah Rakyat (MARA) Malaysia.
Importance and Contribution This study has highlighted various issues causing poor project
performance in MARA large projects. Ranking of the factors will enable the MARA engineers for taking appropriate actions in improving the performance of cost in construction projects.
Keywords: Construction Industry, Construction Cost, MARA Projects, Cost performance, Cost Overrun
I. INTRODUCTION In recent years, Malaysian construction industry has
recorded an average growth rate of 0.7% [1] compared to GDP growth of 5.46%. However, the industry is facing a lot of challenges in achieving satisfactory cost performance [2-4]. Government formed MARA (Majlis Amanah Rakyat) to
strengthen the Bumiputera (Malays and other indigenous Malaysians) in the areas of business and industry. MARA currently placed under the Rural and Regional Development Ministry after briefly controlled by the Entrepreneur and Cooperation Development Ministry plays an important role in implementing the government policy. MARA has spent about RM 12 billion in its development since 1st Malaysian plan [5]. A portion of this allocation was spent on construction. The major issue in MARA large construction project is the delay in completing its projects. An interview with Tech Art Executive Director revealed that more that 90% of large MARA construction project experienced delay since 1984. Most frequent effects of delay in MARA projects are time overrun and cost overrun. Studies revealed that time and cost overrun has a linear relationship with each other [6].
Keeping construction projects within estimated costs and schedules requires sound strategies, good practices, and careful judgment. To the dislike of owners, contractors and consultants, however, many projects experience extensive delays and thereby exceed initial time and cost estimates. This problem is more obvious in the traditional or adversarial type of contracts in which the contract is awarded to the lowest bidder, which is the strategy in the majority of public projects in developing countries [7]. In order to manage and control construction projects, there are various procurements strategies being adopted. Most popular strategies include traditional, management, integrated services and in-house teams [8]. These strategies contain various methods of managing projects as shown in Table 1.
TABLE I. TYPES OF PROCUREMENT METHODS &THEIR VARIATIONS
Procurement Strategy Methods/Techniques
Procurement Strategy
Traditional Lump Sum System/Traditional System/ Design- Bid- Build/Open Tender Contracts Negotiated Contracts Best Value Procurement Incentives Contracts
Management Construction Project Management/Contract Management Construction Management at Risk/Management Contracting
Integrated Design and Build Turnkey System
-
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2) traditand c
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RELATED W
udget Planningrocurement mtruction procesare used to manct advantageurement approagement, integr
Traditional Ped to ordinaryent employs anengineering wconstruction seuce drawings ated after a clfication. Norminted on fee baher members aet the best posse any suitabations such as e procurement, while variattiated contractstiated contractsK. Sometimes,ultant (PMC) nistering the onship and se
Figure 2. Management
tional procuremcomplexity, m
I
Self-PerfoIn-House Job-OrderSeparate C
traditional lumystem and act Manageme
gies [1, 9]. Thiss procurement tifying factors ARA projects.
firstly this pathough, it isin a study of Vn were conside
of budget Re construction s with projectirdly, targeted sonnel of contr
WORKS
g and Control method is a strss. There are a anage the proces and disaoaches are wrated services a
Procurement: B projects of mn architect (fororks or other separately. A and specificatilient is satisfmally, an arcasis as a leade
and have directssible result, itble variationsdesign-bid-bui, incentives ctions such as s in UK. In Mas are extensive, a client incorinto this procu
project [9]equence of ope
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ractor firms and
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Basically, this moderate size an
r a building) ostructures) and designer is hion while contfied with the chitect or enger to coordinatt access to the t is normal fo
s that suits tild, negotiated ontracts are wopen tender
alaysia, both oely adopted andrporates Projecurement to assi. The typicaeration is show
nt: Basically s focusing on ocurement is p
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define largects with a tota
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nage the entireoven strategiesch has its ownInitially, foured; traditionalams [9].
procurement isnd complexity
or engineer (forcontractors forired earlier totractors will be
drawings andgineer will bete the activitiesclient. In order
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Compared tomoderate size
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III. DAData
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ATA COLLECTcollection was
cused on field sprocurement strcommon causewas conducted
construction nts and contracA five point likeee of agreeme
disagree, 2 and 5 stronglted in interviel Package for nalyze the datag the factors. Rected measuredered low and uReliability is c
n 0.7 [18].
ibution of respo11. Figure 11
ut of 36 (58.33%construction ince between 6-1years experiencce less than 2 y
Figure 7. R
ronment V
projects in Kuded frequent s lack of expelated contractoere major contgn changes, conditions; ande frequently ocIn Ghana, co
y payments difprojects that leafaces overrun ighted that t critical factorter projects opoor contractomaterial proculation of mater
TION AND ANAs carried out instudy and interrategies adoptees of cost overrd for identifycost performa
ctors for assesert-scale of 1 to
ent of each caudisagree, 3
ly agree. A ews and questSocial Science
a. Data was chReliability desd using Cronbaunacceptable ifconsidered sati
ondents in term indicates that
%) were experindustry, 7 ou10 years, whilece and only 4 (years.
Respondents worki
Vol. 1 No. 1, 20
Kuwait. The mchange orders
perience in coor, material antributors to cos
inadequate d fluctuations ccurring factorsntractors and cfficulties is a mad to delay in in cost. Wh
the poor rs in causing coof Ghana, major managemenurement, poorial prices [17].
ALYSIS n two phases rviews. It aimeed in MARA prun. In the sec
fying significaance among cssing significao 5 was adopteuse where 1 r
3 moderately total of 36 r
tionnaire survee (SPSS) versi
hecked for reliacribes the stabach coefficief Cronbach visfactory if Cro
ms of experienct majority of renced more tha
ut of 36 (19.e 4 respondent(11.11%) respo
ing experience
014
major time s, financial onstruction. nd owners st increase.
planning, in the cost s leading to consultants major issue works and
hile, client contractor
ost overrun. jor factors
nt, monthly r technical
where first ed to assess projects and cond phase, ant factors contractors, ance of the ed to assess represented
agree, 4 respondents ey process. ion 17 was ability prior bility of the ent value. It value is less onbach is
ce is shown respondents an 10 years .44%) had s (11.11%)
ondents had
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IV. A. C
Mlarge traditadoptprojealso classideliveprojenormnorman aconstcontaworthThis speciMARprojesuper
B. MSt
procuMARwholemanagrantshowmanashow
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RESULTS AN
Classification ofMARA construc
projects. Motional procuremting managemcts which are adopting ma
ification of theery methods act worth less t
mally consideremally MARA is architect is aptruction at the act with MARh more than R
large project al knowledge a
RA is adoptingct and as a mrvise and admin
MARA Constructudies revealeurement; tradiRA is organizine the project.
agement procued first before
w the contractuagement procu
ws their sequenc
gure 8. Contractu
gure 9. Sequence
ure 10. Contractua
I
ND DISCUSSION
f MARA projecction projects aost of the sm
ment while the ment procurem
complex and anagement pre project is basare based on ithan five milli
ed as a small adopting the tr
ppointed as tconstruction
RA. Contrast tRM 5 million is
normally higand expertise t
g management matter of factnister the entire
ction Procuremed that MARtional and m
ng its own tech. However, if
urement,approva PMC is app
ual relationshipurement whilece of operation
ual Relationship of
e of Operation of M
al Relationship of M
International Jo
N
cts are classified inmall projects majority of lar
ment. In someneed special
rocurement. Ted on its contrits size and coion ringgit (RMproject. As mraditional procthe leader to site. The lead
to small projes considered asghly complicatto handle it. Moprocurement ft, MARA enge project.
ment RA is adoptinmanagement. Fhnical teams tof MARA dec
val from LPMointed. Figure p of MARA
e Figure 10 a.
f MARA Tradition
MARA Traditiona
MARA Managem
ournal of Civil
nto 2; small andare adopting
rge projects aree cases, smalknowledge are
Therefore, theract cost but itsomplexity. TheM 5 million) ismention earliercurement where
organize theder has direc
ect, the projecs large projectted and needsost of the timefor this kind ofgages PMC to
ng 2 types ofFor traditional administer the
cides to adopM A must be
8 and Figure 9traditional and
and Figure 11
nal Procurement
al Procurement
ent Procurement
l Engineering a
33
d g e l e e s e s r, e e t t
t. s
e, f o
f l, e t e 9 d 1
Figure 1
C. FactoDurin
affecting identifiedcommon shown inpurpose. reliability0.776 whorder to iperformanpresentedof matericost perdifficultieShortage were 3rdcontracto
Fluctthe fluctuconstructaccordingwhile con
Cash contractodifficultieContractoinfluencesite workbe facedconsultanthis issue
Shortperceivedrespondendominantrespondensubcontraof the wworkers abetween prevails.
Lack communiaffecting contractopoor manbetween t
and Built Envir
11. Sequence of O
ors Affecting Cong interview p
project cost pd. Literature s
factors affecn figure II. The
Data collectey. Cronbach's Ahich means dataidentify the rannce, data was
d in table III. Bals is the most
rformance folles faced by cof site workersmajor factor a
ors were found
uation in pricuation of materiion cost. Howeg to client flucntractor ranked
flow and ors: Contractoes as 2nd factors believe thie other causes kers and ineffecd due to delant and late in may as well se
tage of site wd by Client. nts. Howevert while contrants claim thatactor seems lar
works are contare hired by thcontractor and
of communication between
factor. Clienor ranked as 4tnagement, selethe contractor a
ronment V
peration of MARA
Construction Coprocess, a totalerformance in
showed that thcting cost perse factors were
ed through quAlpha of the gaa collected in anks of factors as analyzed witBased on table
significant faclowed by Cacontractors as s, lack of comm
and incorrect pas 4th ranked fa
ces of materiaial is the most ever, it is very
ctuation in pricd as 1st.
financial ors rankled ctor while clieis issue is versuch as site m
ctive planning aay approval monthly paymettle other issue
workers: ThisIt is 3rd ran
, client rankeactors ranked t the problem rgely contributtracted to sub
hese sub-contrad subcontractor
nication betwn parties is alsnts ranked thth. Lack of co
ection of propeand other partie
Vol. 1 No. 1, 20
A Management Pro
ost Performancl of 15 commMRA large pr
he identified rformance wore investigated f
uestionnaire waathered data waacceptable for aaffecting constrth SPSS 17. RIII, Fluctuatio
ctor affecting coash flow and
second rankemunication am
planning & schactor.
als: Table III dominant facto
y interesting toce was ranked
difficulties cash flow andent ranked samry critical whemanagement, sand schedulingof work com
ment from clienes simultaneou
s factor is signked factor bed this factor
it as 12th rabetween cont
te to this causecontractors, m
actor. If there ar, automatically
ween parties:so ranked as thhis factor as oordination maer material andes.
014
ocurement
ce mon factors roject were factors are rldwide as for ranking as test for as found as analysis. In ruction cost Results are on in prices onstruction
d financial ed factors.
mong parties heduling by
shows that or affecting
o know that as 6th rank
faced by d financial me as 5th. ere it may shortage of g. This may mpleted by nt. Settling
usly.
gnificant as by overall r as most ank. Client tractor and e. As most
most of the are disputes y this issue
Lack of hird highest
3rd while ay result in d problems
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TABLE II. RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE
S.No Causes [10]
[`11
]
[17]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
1 Incorrect planning and scheduling by contractors 2 Fluctuation in prices of materials 3 Frequent design changes 4 Unforeseen ground conditions 5 Inadequate contractor experience 6 Change in the scope of the project 7 Low speed of decisions making 8 Cash flow and financial difficulties faced by
contractors 9 Contractor's poor site management and supervision 10 Practice of assigning contract to lowest bidder 11 Lack of communication among parties 12 Shortage of site workers 13 Delay in Material procurement 14 Underestimate project duration resulting Schedule
Delay 15 Incompetent Project team (designers and
contractors)
TABLE III. RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE
S.No. Factors Overall Client Respondents Contractor Respondents
Mean S.D Rank Mean S.D Rank Mean S.D Rank
1 Fluctuation in prices of materials 3.97 0.97 1 3.62 0.87 6 4.47 0.92 1
2 Cash flow and financial difficulties faced by contractors 3.89 1.21 2 3.90 1.18 5 3.87 1.30 2
3 Shortage of site workers 3.78 1.12 3 3.95 1.02 4 3.53 1.25 7
4 Lack of communication among parties 3.78 1.07 3 4.0 0.78 3 3.78 1.07 4
5 Incorrect planning and scheduling by contractors 3.67 1.12 4 4.29 0.78 1 2.8 0.94 12
6 Contractor's poor site management and supervision 3.67 1.06 4 4.24 0.70 2 2.87 0.99 11
7 Delay in Material procurement 3.53 0.94 5 3.33 0.91 9 3.8 0.94 3
8 Underestimate project duration resulting Schedule Delay 3.47 0.91 6 3.47 0.75 7 3.47 1.13 8
9 Unforeseen ground conditions 3.39 0.96 7 3.14 0.96 10 3.73 0.88 5
10 Low speed of decisions making 3.36 0.90 8 3.38 0.80 8 3.33 1.04 9
11 Inadequate contractor experience 3.36 1.10 8 3.95 0.80 4 2.53 0.92 13
12 Change in the scope of the project 3.33 0.76 9 3.14 0.65 10 3.60 0.83 6
13 Practice of assigning contract to lowest bidder 3.28 1.28 10 3.09 1.19 11 3.53 1.34 7
14 Frequent design changes 3.19 0.95 11 2.90 0.94 12 3.6 0.83 6
15 Owner interference 2.89 0.95 12 2.8 0.81 13 3.0 1.13 10
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V. CONCLUSION Study was carried out to investigate various procurement
strategies adopted in MARA large construction projects. Results showed that MARA projects are classified as small and large project based on cost of project cost. Project worth contract amount above 5 Million Ringgit were regarded as large construction projects. In order to manage projects, traditional and management procurement strategies are adopted. Also, comprehensive study was conducted to identify the factors affecting construction cost performance. Through a questionnaire survey amongst contractor and client personnel, it was perceived that fluctuation of material prices was the most dominant factor affecting construction cost performance followed by cash flow and financial difficulties faced by contractors. Shortage of site workers and lack of communication between parties were found as third major factors affecting construction cost performance.
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