Investigation of Significant Factors Influencing Time and Cost Overruns in Indian Construction Projects

Transcription

1 Investigation of Significant Factors Influencing Time and Cost Overruns in Indian Construction Projects S. Shanmugapriya 1, Dr. K. Subramanian 2 1 Assistant Professor, 2 Professor and Head, Department of Civil Engineering, Coimbatore Institute of Technology, Coimbatore. Abstract Time overruns and Cost overruns has been a major issue in many Indian construction projects. The successful execution of construction projects and keeping them within prescribed schedule and cost is very important for effective time performance and cost performance. This research work is carried out on studying significant factors causing Time overruns and Cost overruns in Indian construction projects. A valid questionnaire for the survey was developed based on factors for time overruns and factors for cost overruns identified from literature review. These factors are grouped into 12 categories for time overruns and 8 categories for cost overruns and distributed to Contractors, Consultants, and Owners of Indian construction Industry. The data from the questionnaire was analyzed statistically. Relative important index method was used to found out the most significant factors affecting Time and Cost overruns. The result accomplished from the survey revealed that the major cause for time overruns are material market rate, contract modification, and high level of quality requirement and the major cause for cost overruns are high transportation cost, change in material specification, and escalation of materials price. The study findings highlight the significant factors and some recommendations are given to control time and cost overruns in Indian construction Industry. Keywords - Construction Industry, Cost overruns, India, Relative Important Index, Time overruns. I. INTRODUCTION Large scale development activities are taking place in Indian construction industry and it has assumed the proportion and responsibilities of a big business and is closely associated with nation s economy. A large number of building projects and new infrastructures are being built on a great scale which contributes to the economic growth of country. Apart from the economy aspect, the speed with which construction is carried out is also an important factor. Like other countries, India is also facing a serious issue of time and cost overruns in construction projects. The unfortunate part is that very few projects get delivered in time and on cost. Time and cost overruns have become the hallmark of construction projects in India. However, the magnitude and causes behind these time and cost overruns remain understudied. Therefore, the types of strategy intermediations required to rectify the problem also remain unidentified. Time and cost overruns have significant implications from an economic as well as political point of view. In general, time overruns and cost overruns reduce the productivity of available economic resources, edge the development potential and diminish the effectiveness of the economy. Government data suggest that a majority of projects close to 60 per cent are overwhelmed by time and cost overruns. If present trends continue over the Eleventh and Twelfth Plan periods (2008 to 2017), McKinsey estimates suggest that India could suffer a GDP loss of US$ 200 billion around 10 per cent of its GDP in financial year 2017(Gupta et al., 2009). Despite the importance and the significance of the construction sector in India, it is noted that the owners, consultants, and contractors don t give its importance to evaluate the time and cost overruns at the end of project. It is therefore essential to identify actual causes of time overruns to minimize and avoid delays and increasing cost in any construction project. Also research and studies in this field in India are few compared to worthy expected results. The objectives of this research are To identify the factors influencing time and cost overruns in construction projects and to evaluate their relative importance. To determine the owners, consultants and contractors perception towards the relative importance of key Time performance and Cost performance indicators in construction projects in order to evaluate their performance. To formulate recommendations for improving time and cost performance. II. LITERATURE REVIEW A. Time overruns and causes: Time overruns is defined as the extension of time beyond planned completion dates traceable to the contractors (Kaming et al 1997). Choudhry (2004) and Chan (2001), defined time overruns as the difference between the actual completion time and the estimated completion time. 734

2 Delays in project are those that cause the project completion date to be delayed (Al- Gahtani and Mohan 2007). Many factors related to time overruns vary along with types of project, location, size and scope of project. Time and cost increase is common phenomenon in projects worldwide. However, these are especially severe in developing countries. Kaming et al., (1997) identified 11 variables of time overruns and 7 variables of cost overruns through questionnaire survey in Indonesian high rise construction projects. Design changes, poor labor productivity, lack of adequate planning, shortage of materials and inaccuracy of material estimates are the five causes of time overruns. Chan and Kumaraswamy (1997) reported five principle causes of time overruns perceived among contractors, clients and consultants in Hong Kong construction projects. Data was collected through questionnaire survey comprising 83 delay factors across eight categories and distributed to 400 local firms involved in construction activities. Based on 37% response, the five most significant factors of delay revealed were poor site management and supervision, unforeseen ground conditions, delay in decision making, client initiated variations and design changes. Frimpong et al. (2003) carried out a questionnaire survey in Ghana groundwater construction projects and ranked 26 factors responsible for project delays and cost overruns. The Kendall s coefficient of concordance was used to test the degree of agreement between owner s, contractors and consultants and concluded that there was insignificant degree of disagreement. Aibinu and jagboro (2002) examined the effects of delay on the delivery of construction projects in Nigeria. Acceleration of site activities coupled with improved owner s project management procedures and inclusion of an appropriate contingency allowance in the pre contract estimate were recommended as a means of minimizing the adverse effects of construction delays in Nigeria. Odeh and Battaineh (2002) studied the causes of construction delay at traditional contracts in Jordan. The study illustrated that labour productivity was the most important delay factor according to contractors, inadequate contractor s experience, however was the most important delay factor to consultants. Koushki et al., (2005) identified estimates of time and cost overruns and their causes. The three main causes of time overruns are changing orders, owner s financial constraints and owner s lack of experience. Alghbari et al., (2007) examined the factors that cause delay in Malaysian construction projects. The results show that from a total of 31 variables examined separated in to four categories by responsibility. The major factors causing delay are factors due to contractors, factors due to consultants, factors due to owners and finally external factors. It is identified that the financial factor is the most influencing factor in causing delay in Malaysian construction projects. Doloi et al., (2012) identified the key factors impacting delay in Indian construction industry and then established the relationship between the critical attributes for developing prediction models for assessing the impacts of these factors on delay. Regression modeling and Factor analysis were used to examine the significance of the delay factors. The most critical factors of construction delay were identified as lack of commitment, inefficient site management; poor coordination in site, improper planning, lack of clarity in scope of project, lack of communication from factor analysis. Regression model indicates slow decision from owner, poor labour productivity, architects reluctance for change and rework due to mistakes in construction are the reasons that affect the overall delay of the project. B. Cost overruns and causes: Cost overrun is defined as excess of actual cost over budget. Cost overrun is also called cost escalation, cost increase, or budget overrun. Choudhry (2004) defined the cost overruns as the difference between the original cost estimate of project and actual construction cost on completion of work of a commercial sector construction projects. In a study of infrastructure projects in Nigeria by Omoregie and Radford (2006), it was found that the major factors of cost overruns were fluctuations in prices, financing and payments made for completed works, inefficient contract management, delays in schedule, changes in site condition, inaccurate estimate, shortages of materials, delay in imported materials, additional works, changes in design, subcontractors and nominated suppliers, adverse conditions like weather, non-adherence to contract conditions, mistakes and disagreements in contract condition and fraudulent practices Similarly, in Vietnam Long et al. (2008) found that top 5 significant factors causing cost overruns in large construction projects are Inadequate site management and supervision, lack of project management support, owner s financial difficulties, contractors financial difficulties and changes in design. Enshassi et al. (2009) conducted a study in Gaza and identified 10 major factors causing cost overruns. 735

3 The factors include increment of materials prices due to continuous border closures, delay in construction, raw materials supply and equipment by contractors, instabilities in the cost of building materials, problems of the local currency in relation to dollar value, project materials control by some suppliers, constraints in resources, funds and associated auxiliaries not complete, lack of cost planning/monitoring during pre-and post-contract stages, improvements to standard drawing during construction stages, design changes and inaccurate quantity take-off. A study on UK s construction industry, Olawale and Sun (2010) identified 21 major factors causing cost overruns are changes in design, risk and uncertainty associated with projects, inaccurate evaluation of projects time and cost, non-performance of subcontractors, complexity of works, conflict between project parties, disagreements in contract documentation, contract and specification interpretation disagreement, inflation of prices, financing and payment, lack of proper training and experience of project manager, low skilled manpower, unpredictable weather condition, dependency on imported materials, lack of appropriate software, unstable interest rate, fluctuation of currency/exchange rate, weak regulation and control, projects fraud and corruption and unstable government policies. Ameh et al. (2010) conducted a study of telecommunication projects and indicated that top seven factors were lack of experiences of contractors, cost of materials, fluctuation in the price of materials, frequent changes in design, economic insecurity, Interest rates charged by banks on loans is very high, means of financing as well as fraudulent practices. III. RESEARCH METHODOLOGY The research methodology for present study has adopted questionnaire survey to identify significant factors influencing time overruns and cost overruns in Indian construction projects. To identify time overruns and cost overruns factors, literature reviews, books, conference proceedings and discussion with practitioners of all parties involved in construction industry were carried out. Questionnaire for the survey was developed based on 76 factors of time overruns and 54 factors of cost overruns and grouped in to 12 and 8 major groups. For each factor the respondents were requested to rate using five point scale of 1 to 5 is adopted. It is categorized as follows 5=very high; 4=high; 3=medium; 2=low; and 1=very low. Prior to formulating questionnaire, a field study was carried out to get feedback from experts in construction industry on the factors identified from literature reviews. A. Respondent s profile: The questionnaires were distributed to owners, consultants and contractors of Indian construction industry. The respondents involved in the survey had several years of experience in handling various types of projects. The characteristics of the respondents participated in survey are summarized in Table1. Table I indicates that majority of the respondents (36% respondents) are working with contractors organizations followed by consultants and owners. All the respondents had experienced in handling large projects with 64% of respondents executed building projects. A significant number of respondent s i.e. 23% of respondents have executed more than 100 projects. TABLE I RESPONDENTS DEMOGRAPHICS Parameter Frequency Percentage (%) Type of Organization Owner Contractor Consultant Type of Project Building Roads and Bridges 5 6 Industrial Projects Other Number of projects executed < > B. Reliability analysis: Reliability test is conducted to check the stability and consistency of a data by using cronbach alpha method that is widely adopted. TABLE II RELIABILITY TEST FOR TIME OVERRUNS FACTORS Factors Cronbach alpha Project related Contractor s Responsibility Subcontractor s Responsibility Consultant s Responsibility Owner s Responsibility Management Condition Design and Documentation Economic condition Materials Environmental condition Labour and Equipment Government relations Overall Cronbach alpha value

4 TABLE III RELIABILITY TEST FOR COST OVERRUNS FACTORS Factors Cronbach alpha Financial groups Construction parties Construction items Environmental group Political group Materials Labour and equipment Owner s responsibility Overall Cronbach alpha value Reliability of the data is considered at low level when cronbach alpha is less than 0.3 which means the data is not reliable and cannot be adopted. Reliability is at high level when cronbach alpha is more than 0.7 (Wong and Cheung (2005). In this study, cronbach alpha was calculated using statistical software SPSS Version 21 as shown in Table II and Table III. Factors of time overruns TABLE IV RANKING OF CAUSES OF TIME OVERRUNS Overall rank Owner Contractor Consultant RII Rank RII Rank RII Rank RII Rank Group Material market rate Economic condition Contract modification Owner s responsibility High level of quality requirement Project condition Project location Project condition Depend on the fresher s to bear the whole responsibility Contractor s responsibility Rework of bad quality performance Management condition Often changing sub contractor s company Contractor s responsibility Lack of technical skill Consultant s responsibility Lack of experience in similar projects Project condition Shortage of experienced staff and labour Contractor s responsibility High quality of work required Owner s responsibility Labour strike Environmental condition Lack of sub-contractors skill Sub-Contractor s responsibility Unclear specification Design and documentation Owners delay in freeing the contractor financial payment Owner s responsibility Incomplete drawing Design and documentation Equipment shortage Project condition Poor productivity of material and labour Contractor s responsibility Poor scheduling of labour and material for work Labour and equipment Poor documentation and no detailed written procedure Design and documentation 737

5 C. Relative Important Index (RII): The questionnaires are collected and analysed using statistical software package SPSS v 21. The ranking of factors was calculated based on Relative Importance Index Where: (%) n RII a N RII = Relative Important Index a = constant expression weight n = frequency of response N = total number of response TABLE V RANKING OF CAUSES OF COST OVERRUNS D. Ranking of causes of Time overruns and Cost Overruns: Hierarchal assessment of factors was carried out to determine ranking of the factors based on level of significance. It was assessed based on Relative important index (RII) value and calculated for each group of respondent s i.e. contractor, consultant and owners and also the overall respondents as presented in Table IV. It shows that top 5 most significant factors of time overruns ranked by overall respondents are material market rate, contract modification, high level of quality requirement, project location, depends on the fresher s to bear the whole responsibility. Material market rate was ranked first (RII = 58) as agreed by the entire respondent. Factors of Cost overruns Overall rank Owner Contractor Consultant Group RII Rank RII Rank RII Rank RII Rank High transportation cost Labour and equipment Change in material specification Material Escalation of material price Material Frequent breakdown of the construction plant and equipment Labour and equipment Rework Construction items Lack of coordination at design stage Construction items Fluctuation in money exchange rate Financial Material fluctuation Environmental Additional work at owners request Owner s responsibility High maintenance cost of machinery Labour and equipment Shortage of materials Material Lack of coordination between designers Construction parties Lack of information flow between parties Construction parties Lack of financial management and planning Financial Incomplete design Construction items High quality of work required Owner s responsibility Difficulties on importing equipment s and materials Political High cost of machinery Labour and equipment Mistakes during construction Construction items Wastage on site Construction items 738

6 This factor can be attributed from various reasons such as change in materials price in the market or unavailability of materials in the Market. Contract modification ranked second with the (RII = 54.57) as agreed by the entire respondent. This factor can be attributed because due to the change in modification in the contract will lead the project to delay. Due to the addition of new work and replacement to the project will delay the project. High level of quality requirement ranked third with the (RII = 53.42). This factor is attributed because of high quality. To produce a high quality product certainly it need a time more than the estimated time so it leads to delay. Project location was ranked as the fourth factor which indicates that the site located at inside the city area, it is very difficult to transport the materials and locate the cranes and equipment at the road side, so the works are stopped at very peak time of traffic so it leads to delay in the projects. Depends on fresher s to bear the whole responsibility was ranked fifth with the (RII = 53.42). This factor is attributed because expecting all the work to be done by the fresher s which takes time compared to the experienced persons so it leads to the delay in the projects. Table V shows the top 5 most significant factors of cost overruns ranked by overall respondents are high transportation cost, change in material specification, and escalation of material price, frequent breakdown of construction plants and equipment, rework. High transportation cost ranked first with the (RII = 54.28) as agreed by the entire respondent. This factor can be attributed because of the long distance of the site from the market. Due to high rent of the vehicles the transportation cost of the project is high. Change in material specification ranked second with (RII = 53.14). Due to change in the contract the material specification is changed and new material is ordered with new contract which leads to cost overruns. Escalation of material price and frequent breakdown of construction plants and equipment ranked third and fourth with (RII = 52.85) respectively. Rework factor is ranked fifth with (RII = 50.28) Due to rework of Construction the cost of the projects is increased which lead to cost overruns. IV. CONCLUSIONS Time and cost overruns is a severe problems faced by large construction industries in India. It is resulted from various factors which had been identified in this study. A total of 70 samples were found as valid and analysed statistically using relative importance index method on 76 and 54 factors on time and cost overruns. It was found that five most significant factors causing time and cost overruns in Indian construction are material market rate, contract modification, high level of quality requirement, project location, depends on the fresher s to bear the whole responsibility for time overruns and high transportation cost, change in material specification, escalation of material price, frequent breakdown of construction plants and equipment s, and rework for cost overruns. So this implies that a need of urgent attention is to be put on these factors to avoid time and cost overruns. V. RECOMMENDATIONS a) Contractors: Contractors are recommended to be attentive about construction materials and prices, so they are advised to purchase the construction materials at the commencement of work. Time schedule for material delivery to the site and usage of materials in the site must be prepared in order to avoid shortage or lack of materials. Qualified staff with appropriate experience must be appointed to follow technical and managerial aspects of the project. The staff will be more effective if there are enough numbers of engineers, planning managers, technicians, and foremen, so the responsibilities would be shared between all of them. The quality of activities must be monitored continuously to set the required quality system in the different activities of the project so as to avoid any mistakes that may lead to rework of activities, and finally time and cost overruns. Site planning and management, administrative and technical staff should be assigned as soon as project is awarded to make arrangements to achieve completion within specified time with the required quality and estimated cost. Contractors are recommended to have enough cash before beginning in any project to avoid the financial problems. Also it is advised to monitor financial spending of the project and payments because any problem in financial aspect will lead to time and cost overruns. b) Owners: Owners are recommended to revise the bid documents such as specifications, Quantity take-off, drawings and the design of the project in an organized way. This is because any discrepancy in bid documents will lead to disputes between projects parties and so delay may occur in the projects. Progress payment must be paid to the contractors on time because it impairs the contractor s ability to finance the work. They should be aware of the available materials with contractor and to assess his financial ability to implement the project. Also owner is advised not to depend on the lowest bid contractor to execute the project. 739

7 Owners are advised to directly involve in case of any disputes between contractor and consultant to prevent the effect of such problems on the project accomplishment and the quality used in the project. Owner should determine the required duration of project and impose realistic duration to avoid time and cost overruns. Owners are recommended to have competent Project Manager who is capable to manage the different stages of any project and to follow the performance percentages, and also able to compare the actual performance with the planned one. Owners should minimize change orders as possible as in order to avoid any time and cost overruns. Attempts must be made to improve communication and coordination between the local construction agencies and the international funding agencies to solve the financial issues in global projects. c) Consultants: Consultants are recommended to review and approve design documents, shop drawings, and payments of contractor to avoid any delay or cost overruns at the project. Consultants are advised to hire a qualified and sound technical staff to manage the project, so he would be able to overcome any technical or management problems that happen. It is also advised for consultant to have high qualification and knowledge to give suitable instruction in a suitable time and to be able to answer any question stated by contractor to avoid time and cost overruns. Consultants should be flexible in evaluating contractor works. They should consider compromising between cost and high quality. REFERENCES [1] W.M. Chan Daniel and M. 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