Factors Affecting Construction Cost in the Pakistani Construction Industry

Transcription

1 Third International Conference on Construction in Developing Countries (ICCIDC III) Advancing Civil, Architectural and Construction Engineering & Management July 4-6, 2012, Bangkok, Thailand Factors Affecting Construction Cost in the Pakistani Construction Industry Rizwan U. Farooqui (NED University of Engineering and Technology, Karachi, Pakistan, Etikaf Hussain (NED University of Engineering and Technology, Karachi, Pakistan, Muhammad Umer (NED University of Engineering and Technology, Karachi, Pakistan, Sarosh H. Lodi (NED University of Engineering and Technology, Karachi, Pakistan Abstract Construction industry plays an important role in economy of a country. Construction retains its position in the economy of any country with the continuance of the growth process, especially in developing countries like Pakistan. Project cost is one of the most important criteria of success of project and is of high concern. The aim of this paper is to find and prioritize those factors (related to design, location and management) which can affect the construction cost during construction at project sites of Pakistani construction industry. For this purpose a total of 82 factors are grouped under the category of location, design and management. A questionnaire was developed in which respondents were asked to rate the factors in the light of the already defined criteria. After collecting data, it was analyzed by using; relative importance indices. Results showed that management factors are contributing more towards affecting the construction cost followed by design factors and lastly location factors. The three most critical factors are poor project management, delay in involvement of contractor during design and third one is poor performance of work. Out of 82 factors, the following management related factors were found to be most critical. The factors in the decreasing order of criticality are 1. Poor Project Management 2. Delay in Involvement of Contractor During Design 3. Poor Performance of Work. Keywords Construction industry of Pakistan, management factors, location factors, design factors, factors affecting construction cost 1. Introduction Out of all factors which are crucial for a successful project; cost is the major to consider. Largely, Construction cost can be defined as expense incurred by a contractor for labor, material, equipment, 161

2 financing, services, utilities, etc., plus overheads and contractor's profit. Costs such as that of land, architectural design, consultant and engineer's fee are not construction costs. Cost is one of the most critical factors behind the project success therefore it is of chief importance to study those factors which can affect it so that by controlling those factors as per the level of their affect can lead to have more successful projects. It is reviewed that there are several factors affecting construction costs. It is to say in the light of the literature review that the larger the construction project is; the long will be the list of factors that can affect construction cost. As the list of factors that can affect construction cost is long, therefore it is divided into different groups in order to have clear understanding that to which area, this factor belongs to as well as who is the one; who can control it. Name of groups concluded after studying the related work are; location, design, management, human resource, non-human resource, financial, political and HSE. Each of these groups is comprised of many factors and therefore it is not possible to study all of them in the designed limitations. Therefore only three groups are considered in this paper. 2. Literature Review In Pakistan, construction sector is an important sector although not working to its fullest potential but still of prime significance to the country. Growth in this sector is critical for growth in national income as it is among the largest sectors that generates employment within the country as well as a key driver for economic development of Pakistan (Azhar et al., 2008). Project cost is one of the most important criteria of success of project and is of high concern to those who are involved in the construction industry. However, studies show that rarely projects are complete within stipulated budget (Memon et al., 2010). The basic goal of practitioner involved in any industry is to achieve the completion of project within time and stipulated budget. But due to nature of construction industry i.e. one of the most complex, fragmented, schedule and resource driven industry, it is always facing serious problems like low productivity, low quality, delay, cost overrun etc. However, cost overrun is observed as one of the most frequently occurring issues in construction projects worldwide and need to be studied more to alleviate this issue in the future (Memon et al., 2011). Studies have been conducted on the issue of construction cost overrun in order to identify the causative factors. Some argue that construction cost overrun is one of the effects of project delay. The responsibility for project delay is reflected in whether the contractor is liable for costs and additional time to complete the project. Factors that could influence construction costs are numerous. The cost of a construction project is affected by a large number of factors because of the fact that construction is a multidisciplinary industry and its work involve many parties such as the project owner and various professionals, contractors and suppliers. Thus, a construction project cost not only depends on a single factor but a cluster of variables that are related to the characteristics of the project and to the construction team as well as the market conditions (Chan and Park, 2005). Azhar et al. (2008) conducted a study to identify the issues involved in cost overruns in construction projects in Pakistan. In this regard certain factors were identified through the study and their importance and impacts on the project cost have been discussed. The study comprised of a total 42 factors, which 162

3 focused on the macroeconomics factors, management factors and business & regulatory environment. The major conclusions of the study were, 1. Macroeconomics affects the cost of the construction project most severely. 2. Among all factors leading to cost overruns, management related factors are those which can be controlled and prevented most easily as they are the in-house factors. 3. Business and regulatory environment is dysfunctional and need drastic changes, more scientifically proven methods, tools and techniques may be adopted instead of the orthodox practices. In this study the scope of work has been extended to 82 factors. The emphasis in this study is on management, design and location factors as compared to macroeconomic, business and regulatory environment related factors, which was the focus in the study conducted by Azhar et. al (2008). Management related factors were also part of the study by Azhar et. al (2008); however, in the current study, new factors have been added to the list, which make this study more extensive. Furthermore, this work also updates the study carried by Azhar et. al (2008), as that study was carried in 2008 and shows if there is any change in results. 3. Scope This research paper will accommodate only those factors which are related to location, design and management. Excluded are the factors which are related to human resource, non-human resource, financial, political and HSE. Participants are the personnel who have experience of serving the construction firms (contractors). Sample size is 30. This paper is intended to portray the situation of construction industry of Karachi as data is collected from the persons/firms; serving construction industry of Karachi. 4. Objectives The objective of the research is to study those factors (related to design, location and management) which can affect the cost during construction at project sites of Pakistani construction industry, and to prioritize the factors in terms of their potential of affecting construction cost during construction at project sites of Pakistani Construction Industry. 5. Methodology The methodology of the study is described below: 1. A thorough literature review was done. 2. A questionnaire was developed with the help of information extracted from literature review. 3. Distribution and collection of questionnaire. 4. Analyze the collected data with relative importance index (RII). 5. Relevant conclusions and recommendations were drawn. The methodology is explained as follows. In the first step, a thorough literature review was performed to identify the key elements that can cause the alteration in the cost of the project. Using those factors then a questionnaire was developed. In this step a structured questionnaire consisting of two parts was designed. Part A and B. Part A consisted of requesting respondent s personal information & company information. Part B consisted of requesting ranking the different variables which take part in fluctuating cost. 163

4 To get data for this study the questionnaire was distributed among the contractors, and the collected back. In fourth step analysis was done on the data gathered. Based on the survey result and analysis, relevant conclusions and recommendations were drawn. The statistical techniques used are RII and rank correlation. In which, Relative Importance Index (RII) = (5 x N5+4 x N4+3 x N3+2 x N2+N1) (N5+N4+N3+N2+N1+N0) x 5 Where N5= Number of respondents who rate the particular factor 5 and so on. 6. Survey Design A structured questionnaire consisting of two parts was designed part A & B. As identified in section 5, part A consisted of requesting respondent s personal information and company information. Part B consisted of three sections. The first section was titled location factors. This section contained the factors of a project which depends on location. There were total 28 factors in this section. The second section was titled as designed factors. This section contained the factors of a project which depends on design of particular project. There were total 25 factors in this section. The third section contained the factors of a project which changes with the management i.e. management factors. There were total 29 factors in this section. There were total 82 factors which were studied. The participants were asked to rank the different variables according to their importance on a five-point scale (0 = No effect, 1 = very low effect, 2 = low effect, 3 = considerable effect, 4 = high effect, 5 = very high effect). 7. Survey Response 7.1 Response rate The response rate of this survey is considerably good for a construction industry survey. There were total 42 questionnaire distributed in which 12 were incomplete and while 30 was the total number of potential responses, so the response rate for is this survey is 71.43%. 7.2 Respondents Characteristics The respondents firms only included the contracting firms (100%). The average number of experience is 2 to 5 years (53.33%). The percentage of respondents involved in housing is 47%; whereas percentage of respondents involved in construction of public utility, industrial and commercial is 40%, 54% and 74% respectively. These survey participants are the contractors from Karachi only. 8. Analysis and Discussion The analysis of the survey is organized in three key areas as follows: 1. Locations factors 2. Design factors 3. Management factors. Generally the most frequent problems associated with the industry are low productivity, low quality, delay, cost overrun etc. The list of the factors that can affect the construction cost is very long. In this 164

5 paper total 82 factors are studied. From total; 28, 25 and 29 factors belong to the head of location, design and Management respectively. 8.1 Location factors Location is of vital importance in the construction industry. It s the factor which is unique identity of the construction project even all other items remain constant. Under the heads of location a total of 28 factors are discussed and with little or no surprise, Political unrest in the area managed to be the first among all. Table 1 shows the top 10 factors out of 28; prioritize by the relative importance index (RII). Table 1: Top ten location factors ranked in terms of their RII 1 of the affect Rank Factors RII 1 Rank Factors RII 1 1 Political unrest in the area Lack of accurate soil data Remote location Theft problems Unforeseen ground conditions Additional work is requirement 0.52 before commencement of construction activities 4 Inadequate site investigation Location Prone to natural 0.51 disasters 5 Lack of accurate historical Poor soil stratum 0.49 information N.B. 1 Relative importance index As the major respondents were from Karachi, due to fluctuating political environment; respondents consider that it s the main location factor which affects the construction cost. Following the political unrest, other four from top 5 are remote location, unforeseen ground condition, inadequate site investigation and lack of accurate historical information. Only one factor from total of 28 is among the top ten factors affecting construction cost from the considered factors in this paper. 8.2 Design factors From table 2, it can be concluded that the factor which seriously affects the construction cost is the delay in the involvement of the contractor during design. It is highly recommended to involve all stakeholders during the design stage so there will be more chances to hit the target neatly i.e. finishing project within the defined constraints. Often the construction contractors are not invited to participate in design activities, before design reaches to end. This reduces their ability to influence the project specification finally (Russell and Gugel, 1992). The integration of experienced construction personnel into the earliest stages of project planning as fullfledged members of the project team will greatly improve the chances of achieving a better quality project, completed in a safe manner, on schedule, for the least cost (Ardery, 1991). Design and construction of a structure are intimately related and the achievement of good workmanship depends, to a large degree, on the simplicity of detailing of the members and of their connections and supports. A design is only effective if it can be constructed and maintained (Bertero, 1982). Buildability or constructability is the second factor to affect the construction cost as per this research. Any earlier improvements on constructability issue will cause more advantages of its implementation. 165

6 Table 2: Top ten design factors ranked in terms of their RII 1 of the affect Rank Factors RII 1 Rank Factors RII 1 1 Delay in the involvement of the Lack of considerable data about 0.64 contractor during design stage labor productivity 2 Buildability (design of building Absence of required clauses in 0.63 facilities with focus on ease in construction) the contract between the client and owner 3 Incomplete drawings Poor concern towards available 0.61 construction skills in the market 4 Inadequate contract policies Lack of effective communication Inadequate planning and scheduling N.B. 1 Relative importance index between the stake holders Poor assessment of the competency of the contractor Incomplete drawings and change orders are the factors; majority of people related to the construction management are found complaining about. In design offices, the improper work load among the workers results in arising of these factors. Revisions drawings are not only the waste of time but also reflect poor /superficial planning of the project and results in affecting the construction cost. Table 2 is representing the top ten design factors ranked in terms of their potential to affect the construction cost. From the study Azhar et al. (2008) the inadequate planning was ranked sixth out of 42 factors, while in this study it is coming out to be fifth critical factor in design factors. 8.3 Management factors The top five factors that can affect construction cost from total of 29 are poor project management, poor work performance, poor cost control, delays in decision making and lack of professional behavior. Table 3 is representing the factors as per their rank value. Table 3: Top ten management factors ranked in terms of their RII 1 of the affect Rank Factors RII 1 Rank Factors RII 1 1 Poor project management Work suspension owing to 0.67 conflicts 2 Poor work performance Delays in inspections Poor cost control Absence of construction cost data Delays in decision making Poor contract management Lack of professional behavior Instruction time 0.58 N.B. 1 Relative importance index 0.61 The role of the project manager or project management team is probably the most important element in controlling and/or managing the costs of a construction project. It is often true that a good project, if combined with poor project management, will usually face serious difficulties (Nega, 2008). Poor work performance wastes the time; as commonly results in rework or additional work. Poor cost control is also an important factor to consider. Delays in decision making and lack of professional behavior are the factors which need more attention than the factors below them; if project manager intends to have a successful project. The lack of professional behavior is a one big problem. 166

7 Lack of professional behavior is the factor which has the capacity to seriously affect the parameters which are well known as the success parameters for any construction project including construction cost. Top ten factors are mentioned in the table 3. There are many sets of factors which possess the same ranking both in individual and also in overall ranking showing the equal amount of attention they need to be improved. Comparing with the study Azhar et al. (2008), in which poor project management has been ranked sixth out of 42 factors under different heads of macroeconomics, management and business & regulatory environment, in this study, poor project management is ranked number one out of 82 factors. This shows an increasing trend of the realization of the industry in terms of how project management, and its lack thereof, affects project cost performance. 8.4 Top 10 factors that affect the construction cost at project site Table 4 represent the top ten factors ranked as per the calculated RII value. From total of 10 factors, 5 belongs to the management area, four factors belong to design area and only one factor from location head is among the top ten, securing the eighth position. Table 4: Top ten factors ranked in terms of their RII 1 of the effect on Construction Cost Rank Factors RII 1 Rank Factors RII 1 1 Poor project management Buildability (design of building 0.78 facilities with focus on ease in construction) 2 Delay in the involvement of the Incomplete drawings 0.76 contractor during design stage 3 Poor performance of work Political unrest in the area Poor cost control Lack of professional behavior Delays in decision making Inadequate contract policies 0.7 N.B. 1 Relative importance index 9. Conclusions The major conclusions drawn from the study are as follows: 1. Poor project management (management factor) is the key factor affecting the construction cost; this depicts that project manager and his /her teams are in real need of improving the performance graph as far as the construction industry of Pakistan is concerned. 2. Delay in the involvement of the contractor in design stage (design factor) is a second most important factor affecting the construction cost; which reveals that how strongly this area needs attention of the authorities. 3. Poor performance of work (management factor) is the third most crucial factor with a high potential of affecting the construction cost. 4. The top three location factors are political unrest in the area, followed by remote location and unforeseen ground conditions. 5. The top three design factors are delay in the involvement of contractor during design stage followed by Buildability /constructability and incomplete drawings. 6. The top three management factors are poor project management followed by poor performance of work and poor cost control. 167

8 7. With reference to the above point, it is evident that high concern is needed towards the management of the construction projects, followed by design and location factors. 8. Findings make the situation evident that professional behavior of the people concerned to the construction industry is highly demanded. 9. It is important to mention that management factors are the most influential factors as they are contributing the highest share when it comes to affect the construction cost. This point is supporting the fact that by effective and efficient management many factors can easily be handled. On the basis of the analysis few recommendations can be made to the local industry for improving its current situation. 1. In order to control the factors affecting construction cost, management has to play the crucial role; for doing so there is need of more competent project managers. This can be done by strengthening the training mechanism involving the course work, conducting seminars, workshops, professional development programs etc. 2. In order to ensure quality work performance, well maintained and latest equipment should be allocated for the work. 3. It is recommended to consider all the factors groups in integration and apply inferential statistical techniques in order to have more insight into the relationship/association of these factors among themselves and with the cost of a project. 4. The present study can also be expanded to a strategic level research project whose findings can be used for the improvement of the performance of construction industry. 5. The concerned departments and authorities must play their role to control fluctuations of political environment in the city by ensuring better law and order situation. 10. References Ardery, E.R., The Construction Management Committee of the ASCE Construction Division, (1991). Constructability and constructability programs: White papers. Journal of Construction Engineering and Management, 117 No.1, pp Azhar, N., Farooqui, R.U., and Ahmed, S.M., (2008), Cost Overrun Factors in Construction Industry of Pakistan, First International Conference on Construction In Developing Countries (ICCIDC I), pp Bertero, V.V. (1982), State of the Art in Seismic Resistant Construction of Structures. Proceedings of the Third International Earthquake Microzonation Conference, University of Washington, Seattle, Washington, Vol. 2, pp Chan, S.L., and Park, M. (2005), Project cost estimation using principal component regression. Construction Management and Economics, 23, pp DeMarco T. and Lister T. (1999), Peopleware: Productive Projects and Teams, 2nd edition. Dorset House Publishing Co. New York Memon, A.H., Rahman, I.A., Abdullah, M.R., and Azis A.A.A. (2010), Factors Affecting Construction Cost in Mara Large Construction Project: Perspective of Project Management Consultant. International Journal of Sustainable Construction Engineering & Technology, Vol 1, No 2, pp Memon, A.H., Rahman, I.A., Abdullah, M.R., and Azis, A.A.A. (2010), Preliminary Study on Causative Factors Leading to Construction Cost Overrun. International Journal of Sustainable Construction Engineering & Technology, Vol 2, Issue 1, pp Nega, F. (2008). Causes and Effects of Cost Overrun on Public Building Construction Projects in Ethopia, a Thesis Submitted to the School of Graduate Studies of Addis Ababa University, Addis Ababa. Russell, M., Gugel, J., and Radtke, M. (1992). Benefits and costs of constructability: Four case studies. Austin. TX: Construction Industry Institute. 168