Faculty of Built Environment Universiti Teknologi Malaysia

Transcription

1 THE FRAMEWORK FOR MINIMIZING CONSTRUCTION TIME AND COST OVERRUNS IN PADANG AND PEKANBARU, INDONESIA HARISAWENI A thesis submitted in fulfilment of the requirements for the award of the degree of Master of Science (Quantity Surveying) Faculty of Built Environment Universiti Teknologi Malaysia JANUARI 2007

2 PSZ 19:16 (Pind. 1/97) UNIVERSITI TEKNOLOGI MALAYSIA BORANG PENGESAHAN STATUS TESIS JUDUL: THE FRAMEWORK FOR MINIMIZING CONSTRUCTION TIME AND COST OVERRUNS IN PADANG AND PEKANBARU, INDONESIA SESI PENGAJIAN : 2006 / 2007 Saya HARISAWENI (HURUF BESAR) mengaku membenarkan tesis (PSM/Sarjana/Doktor Falsafah)* ini disimpan di Perpustakaan Universiti Teknologi Malaysia dengan syarat-syarat kegunaan seperti berikut : 1. Tesis adalah hakmilik Universiti Teknologi Malaysia. 2. Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan pengajian sahaja. 3. Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara institusi pengajian tinggi. 4. **Sila tandakan ( ) SULIT (Mengandungi maklumat yang berdarjah keselamatan atau kepentingan Malaysia seperti yang termaktub di dalam AKTA RAHSIA RASMI 1972) TERHAD (Mengandungi maklumat TERHAD yang telah ditentukan oleh Organisasi/badan di mana penyelidikan dijalankan) TIDAK TERHAD Disahkan oleh (TANDATANGAN PENULIS) (TANDATANGAN PENYELIA) Alamat Tetap: Jl. Rd. Saleh gg. Cimpago No. 12 Padang Sumatera Barat Indonesia PM. Dr. Rosli Abdul Rashid Nama Penyelia Tarikh : Januari 2007 Tarikh : Januari 2007 CATATAN : * Potong yang tidak berkenaan. ** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak berkuasa/organisasi berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu dikelaskan sebagai SULIT atau TERHAD. Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara penyelidikan, atau disertasi bagi pengajian secara kerja kursus dan penyelidikan, atau Laporan Projek Sarjana Muda (PSM).

3 We hereby declare that we have read this thesis and in our opinion this thesis is sufficient in terms of scope and quality for the award of the degree of Master of Science (Quantity Surveying) Signature : Name of supervisor I : PM. Dr. Rosli Abdul Rashid Date : Signature : Name of supervisor II : PM. Dr. Razali Adul Hamid Date : Signature : Name of supervisor II : PM. Dr. Kherun Nita Bt. Ali Date :

4 I declare that this thesis entitled, The Framework for Minimizing Construction Time and Cost Overruns in Padang and Pekanbaru, Indonesia is the result of my own research except as cited in references. The thesis has not been accepted for any degree and is not concurrently submitted in candidature of any other degree. Signature :.. Name : Harisaweni Date : Januari 2007

5 Specially Dedicated to My Lovely: Husband (Ardiyansyah B. Syahrom, S.T), Daughter (Naaila Salwa Ardiyansyah). My Beloved Parent: Papa (H. M Nasir), and Mama (Dra. Hj. Hernita Rais), Parent-in-law: Papa (Syahrom), and Mamak (Rosni). Also My Sweet Sister and Brother: (Hersi Oliva, S.Si), (M. Fadli Arif), (Chrisnawati) and family.

6 ACKNOWLEDGEMENT Vision, values and courage are the main gift of this thesis. I am grateful for the inspiration and wisdom of many thoughts that have been instrumental in its formulation. First of all, I have readily acknowledged and thank to Allah SWT, the Omnipotent and Omniscient who created everything and in giving me the ability to begin and complete this project. I also wish to express my sincere appreciation to my supervisors PM. Dr. Rosli Abdul Rashid, PM Dr. Razali B. Adul Hamid and PM Dr. Kherun Nita Bt. Ali, for the guidance, advices, motivations, critics and friendship. Without their help, this thesis would not have been the same as presented here. I am also indebted to Universiti Teknologi Malaysia (UTM) for support in providing the fellowship scholarship for two semesters. My sincere appreciation is also extended to Bapak Prof. Ir. Dr. Zainai B. Mohamed and his wife Ibu Rosnah for help and kindness, so that I can pursue my study here. Many thanks to my friends in UTM K Isal and Sarah, I can not forget about our familiarity and friendship. Last but certainly not least, I want to thank my husband, papa, mama, my sweet sister and brother, and all of my big family, for their affection, prayer and support throughout my study. I love you all.

7 ABSTRACT It has been said that Indonesian constructions often suffer serious cost and time overrun. Kaming et.al., (1997a) and Trigunarsyah (2004) have studied the causes of these problems. However, their studies focused only on the high rise buildings in Jakarta and Yogyakarta. Since Indonesia is a large country with more than 3000 islands, it pertinent to ask whether their findings are also applicable to low-rise constructions in other major cities in the country. It appeared that the low-rise constructions in Padang and Pekanbaru, the two major cities in Sumatera, are also facing the problems of time and cost overrun. The issues bring about some related questions what are the causes of these problems? Are they similar to the findings made by Kaming and Trigunarsyah? How do contractors and managers in Padang and Pekanbaru manage construction cost and time? Are they adhering to the good practice of project cost and time management? What is considered as the best time and cost management practice? What is good time and cost management framework or model like? Generally, the aim of this study is to answer all these questions. But more specifically, the main objectives are threefold; firstly, to identify the major causes of project time and cost overrun in low - rise projects in Padang and Pekanbaru; secondly, to develop and establish the theoretical framework of a good construction time and cost management practice, and thirdly, to compare the time and cost management as currently practiced by contractors and consultants in Padang and Pekanbaru against the theoretical framework of the good time and cost management. The study focused on low-rise projects in Padang and Pekanbaru, Sumatera which are managed by contractors and consultants in class B and M respectively. The study looked at both from contractors and consultants perspectives. Data and information for the study are collected using a combination of documentary analysis and structured interview techniques. The data were systematically compiled and analysed using descriptive statistic techniques. The study shows that the major causes of project time and cost overrun in Padang and Pekanbaru ranges from lack of labour, lack of equipment to material delivery problems and frequent design changes. The study also highlighted that there are several approaches to efficient and effective project time and cost management. They can be summarized in the form of a framework or model that form the basis for the study. It is found that, generally contractors and consultants in Padang and Pekanbaru have adhered to the good time and cost management framework. However, the main area of concern is their lack of emphasis on the control aspects of the management. They are found to be lacking in monitoring the difference between planned and actual time and cost performance and identifying or establishing the deviation or problems associated with it. The study also pointed out that contractors and consultants in Padang and Pekanbaru need a clear and systematic project time and cost management framework that they can use as guidelines or reference for more efficient management.

8 vi ABSTRAK Kaming et.al., (1997a) dan B. Trigunarsyah (2004) masing-masing telah melakukan kajian berkenaan kepada permasalahaan kelebihan masa dan kos pada projek pembinaan di Indonesia. Kajian mereka hanya terfokus kepada bangunan bertingkattingkat banyak di kota-kota besar di Jawa seperti Jakarta dan Yogyakarta. Tetapi, persoalan sekarang adalah apakah temuan kajian mereka dapat digunakan untuk bangunan bertingkat rendah di kota-kota lain di Indonesia, khususnya Padang dan Pekanbaru di Sumatera. Berkaitan dengan isu tersebut, objektif kajian ini adalah untuk mengenal pasti penyebab-penyebab penting dari kelebihan masa dan kos pada projek binaan bertingkat rendah di Padang dan Pekanbaru, untuk menubuhkan prosedur kerja berdasarkan teori untuk sebuah pengurusan masa dan kos konstruksi yang baik, dan untuk membandingkan pengurusan masa dan kos yang diamalkan oleh perusahaan konstruksi di Padang dan Pekanbaru terhadap prosedur kerja secara teori dalam pengurusan masa dan kos. Kajian ini terfokus kepada projek bangunan bertingkat rendah dan terbatas hanya untuk mengkaji amalan yang digunakan oleh kontraktor dan konsultan golongan B dan M di dua kota besar di Sumatera Padang dan Pekanbaru. Kajian dilakukan berdasarkan survey temu muka langsung dengan menggunakan set questionnaire yang telah dipersiapkan. Data dikumpulkan dan dianalisa menggunakan metoda penghitungan purata. Kajian menemukan bahwa projek pembinaan di Padang dan Pekanbaru memerlukan sebuah metoda atau amalan untuk mengurus projek selama proses pembinaan sampai dengan sasaran akhir projek dicapai untuk mengurangi kelebihan masa dan kos. Itu dikarenakan permasalahan kelebihan masa dan kos terjadi selama proses tersebut yang disebabkan oleh aktivitas lingkungan sekitar projek, aktivitas peralatan dan pengurusan, aktivitas-aktivitas perubahan, aktivitas material atau bahan dan aktivitas tenaga kerja atau buruh. Setelah penyebab dari kelebihan masa dan kos dikenal pasti, sebagai sebuah metoda untuk membantu dalam pengurusan masa dan waktu di sebuah projek binaan, peneliti telah mencadangkan dan mengembangkan sebuah prosedur kerja. Prosedur kerja ini akan membantu dalam mengurus masa dan kos untuk mengurangi permasalahan kelebihan masa dan kos di lokasi projek binaan karena prosedur kerja tersebut akan memperlihatkan kepada team kerja projek tahapan prosedur kerja yang mereka harus beri perhatian lebih.

9 vii TABLE OF CONTENT CHAPTER TITLE PAGE DECLARATION DEDICATION ACKNOWLEDGEMENT ABSTRACT ABSTRAK TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES GLOSSARY LIST OF APPENDICES ii iii iv v vi vii xi xiv xv xvi 1 INTRODUCTION 1.1 Background of the Study 1.2 Statement of Issues 1.3 Previous Research 1.4 Objectives of Research 1.5 Research Scope 1.6 Thesis Organization

10 2 INDONESIAN CONSTRUCTION INDUSTRY 2.1 Introduction 2.2 The Indonesian Demography and Economy The Indonesian Construction Industry Construction Industry Performance in Padang and Pekanbaru The Structure of Indonesian Construction Industry Performance of construction projects in Indonesian viii PROJECT TIME AND COST MANAGEMENT 3.1 Introduction 3.2 Project Time and Cost Management Project Time Project Cost Problems Associated with Project Time and Cost The Definition of Project Time and Cost Management Project Management Objectives 3.3 Implication of Time and Cost Overrun 3.4 Causes of Project Time and Cost Overrun PROJECT TIME AND COST MANAGEMENT FRAMEWORK 4.1 Introduction 4.2 Definition of Framework 4.3 The purpose of Framework

11 ix 4.4 Project Time and i. Cost Management ii. Framework Cost Overrun Time and Cost Management in Context of Project Proposed Management Framework Design in The Questionnair Framework Summary of for the Time Data and Analysis Cost Management Discussions Proposed of Framework Development for Management Process Summary RESEARCH METHODOLOGY 79 CHAPTER 6 CONCLUTIONS 5.1 Introduction AND RECOMMENDATIONS Conclusions Research Process Recommendations Data Collection REFERENCES 6 THE MAJOR CAUSES OF TIME AND COST BIBLIOGRAPHY OVERRUN 147 APPENDICES 6.1 Introduction The Major Causes of Project Time and Cost Overrun 100 in Padang and Pekanbaru Contractors Perspectives Consultants Perspectives Combination of the Two Perspectives Conclusions TIME AND COST MANAGEMENT: A COMPARISON BETWEEN THE CURRENT 110 PRACTICE AND Consultant s THE Perspectives THEORETICAL 110 FRAMEWORK i. Time Overrun Introduction ii. Cost Overrun The Comparison between Time and Cost Management 110 as Currently Practiced against the Theoretical Framework

12 x 7.3 The Detailed Study Time Management Cost Management Discussions of Framework Development Conclusion CONCLUTIONS AND RECOMMENDATIONS Conclusions Findings and Conclusions Recommendations Future Study 141 REFERENCES 142 BIBLIOGRAPHY 157 APPENDIX A 160 APPENDIX B 168 APPENDIX C 175 APPENDIX D 189

13 xi LIST OF TABLES No. Title Page 2.1 Indonesian GDP by Industrial Origin (billion rupiahs) and the Percentage of the Growth to the GDP (%), Value of Construction Works in Indonesia According to the Type of Construction (billion rupiahs) from 2000 to Value of Construction Completed by Province (billion rupiahs), in Indonesian Construction Industry since 2000 to Total Number of Companies Register under LPJK, GAPEKSINDO and INKINDO by Province. 2.5 Total Numbers of Big, Medium and Small Companies based on The Organization Registered and the Qualification 2.6 Response rate of project completed on time and within budget 2.7 Response rate of project completed 2.8 Some Example of projects with time and cost overrun problems in Indonesian Construction Projects (Padang) 2.9 Variables of delays and their importance, frequency, and severity in construction in Indonesia (scale of indices for importance, frequency and severity ranges from 0 to 1) 2.10 Variables of cost overruns, their importance, frequency, and severity in Indonesian construction projects (scale of indices for importance, frequency and severity ranges from 0 to 1). 3.1 Comparative ranking of problems that cause time and cost overruns in different countries (Olomolaiye, et, al., 1998) 3.2 Case studies of the common causes of time and cost overrun 3.3 Derive from the synthesis of the previous researches (extracted Table 3.2)

14 xii 4.1 The various practices to reduce project time and cost overrun problems 4.2 The perspectives about several frameworks from several researchers. 5.1 Total Numbers of Big, Medium and Small Companies based on The Organization Registered and the Qualification. 5.2 Number of questionnaires distributed 5.3 Sample of pilot study questions 5.4 Results of the pilot study on causes of time and cost overrun 5.5 Results of pilot study The common causes of time and cost overrun problems (extracted from table 5.2) 5.5 Number of questionnaires distributed 6.1 Mean value of the major factors that cause of time and cost overrun problems contractor s perspectives 6.2 Time and cost overrun major causes and it activity categories based on the importance scale contractor s perspectives 6.3 The rank of the causes of time and cost overrun based on the mean values contractor s perspectives 6.4 Mean value of the major factors that cause of time and cost overrun problems consultant s perspectives 6.5 Time and cost overrun major causes and it activity categories based on the importance scale consultant s perspectives 6.6 The rank of the causes of time and cost overrun based on the mean values consultant s perspectives 6.7 The major factors that causes of time and cost overrun problems as perceived by contractors and consultants 6.8 The rank of the causes of time and cost overrun based on the mean values as perceived by contractors and consultants 7.1 The current practices of time management by the contractors in consultant s perspective 7.2 The current practice of time management by the contractors based on the frequency occurrence scale consultant s perspective

15 xiii 7.3 The current practices of time management by the contractors Contractor s own perspectives The current practice of time management by the contractors based on the frequency occurrence scale Contractor s own perspectives Mean values and the average for the current practices in time management by the contractors as perceived by contractors and consultants The rank of the current practices in time management by the contractors based on mean values average as perceived by the contractors and consultants The current practices of time management by the contractors based on the frequency occurrence scale as perceived by the contractors and consultants The current practices of cost management by the contractors in consultant s perspective The current practice of cost management by the contractors based on the frequency occurrence scale consultant s perspective The current practices of cost management by the contractors Contractor s own perspectives he current practice of cost management by the contractors based on the frequency occurrence scale Contractor s own perspectives Mean values and the average for the current practices in time management by the contractors as perceived by contractors and consultants The rank of the current practices in time management by the contractors based on mean values average as perceived by the contractors and consultants The current practices of cost management by the contractors based on the frequency occurrence scale as perceived by the contractors and consultants 129

16 xiv LIST OF FIGURES No Title Page The percentage of the growth of the Indonesian construction sectors (%) based on the GDP value 2.2 Several landmark construction projects in Pekanbaru 2.3 Several landmark construction projects in Padang 4.1 Basic construction project management philosophy (Ritz, 1994) 4.2 Time management cycle in construction industry (Clough, et. al., 2000) 4.3 Control process to control construction project (Ritz, 1994) 4.4 The essence of the contractor s control function (Ndekugri & McCaffer, 1988) 4.5 The trade-off analysis process in project management (Sunny & Kim, 1992) 4.6 The proposed framework for survey which developed based on the theory and the practices 5.1 The research stages 7.1 The proposed framework for survey (it was included in the questionnaire) which developed based on the theory and the practices 7.2 The survey results about the proposed framework 7.3 The developed framework for construction project in Padang and Pekanbaru based on the responds of the respondents to the proposed framework which was included in the questionnaire 7.4 The Detail of the developed framework for Construction Project in Padang and Pekanbaru

17 xv GLOSSARY BAPEKIN DPU GAPEKSINDO INKINDO Keppres LPJK LPJKN PP PPMK REI BPS : Badan Pengawas Konstruksi dan Investasi Nasional : Dinas Pekerjaan Umum : Gabungan Pengusaha Konstruksi Indonesia : Ikatan Konsultan Indonesia : Keputusan Presiden : Lembaga Pengembangan Jasa Konstruksi : Lembaga Pengembangan Jasa Konstruksi Nasional : Peraturan Pemerintah : Pusat Penilaian Mutu Konstruksi : Real Estate Indonesia : Biro Pusat Statistik

18 xvi LIST OF APPENDICES APPENDIX TITLE PAGE A LIST OF RESPONDENT 160 B PILOT STUDY 168 C QUESTIONNAIRES 175 D RIW CALCULATION 189

19 CHAPTER 1 INTRODUCTION 1.1 Background of the Study Indonesia is a nation of 13,500 islands scattered between Asia and Australia. It has total land area of 1,904,569 km 2, with total population in 2004 was around millions and become the fourth most populous nation in the world after China, India and the United States (BPS, 2004). The growth rate of Indonesian economic showed a better performance. It can show from the increasing of the annual gross domestic product (GDP) of the Indonesian for year to year. The annual gross domestic product (GDP) growth of the Indonesian in 2001 was around 3.83% and it increased sharply became 5.13% in the year 2004, (BPS, 2004). The rapid economic development and a steady growth of population have led to a significant increase in demand for housing, commercial and office buildings, and infrastructure such as roads and highways, airports, seaports, etc in the country. Indonesian construction industry experiences rapid changes and development since the 1950s. It grew rapidly until the economic crisis in 1997 and since that year until 2004, the construction sector has not shown positive signal to get out of the crisis. Since 1997, performance decreasing for each quarter of steeper than its increasing, and also has sharp fluctuation among quarters. It can be prove based on the annual gross domestic product (GDP) growth based on the industrial origin data.

20 2 The construction sector growth rate had decreased sharply since 1997, from 6.94% per-annum during the period of 1997 to 2000 to 5.52% per-annum during 2000 to 2004, (BPS, 2000). The country s rapid economic growth can also be seen in two major cities in the island of Sumatera, namely Padang and Pekanbaru. Padang and Pekanbaru as the central of West Sumatera and Riau province for the last ten years become the main choice of the investor to invest especially for construction projects for the Sumatera areas (Luthfi, 2006). It causes of their location benefit to have a cooperation link with neighbouring countries Malaysia and Singapore. Apart from their strategic location, the rapid growth of Padang and Pekanbaru was also induced by the government s policy of spreading the country s economic and physical growth to other parts of the country. The government realized in the last 25 years the economic development has been concentrated in Java (particularly in Jakarta) because most of the Indonesia s population is concentrated in Java (BPS, 2004). The economic growth of Pekanbaru and Padang itself, from 1998 to 2002 increased to 3.86 % and 2.94% where it was better than other cities in Sumatera where the average of their economic growth was only 0, 57 %. For the GDP value, Pekanbaru city had increased around 46.35% from 1999 to 2000, (www. Pekanbaru. go. id, 2005) and Padang also had increased 35.63% from 1999 to 2002, (www. Padang. go. id, 2005). Both cities enjoyed many favourable and physical. This can be seen by the development of many new buildings and infrastructure projects to support the increasing commercial and manufacturing activities. In fact, these two cities have been ranked on number 1 until 4 among other cities in Sumatera in term of total value of new construction completed and the number of construction companies. It also has a tendency to increase for year to year (BPS, 2004). The increase in construction activities in both Padang and Pekanbaru has contributed towards the growth of the two cities but it has also brought to light some

21 3 of inherent problems that have been mentioned by Kaming et, al., (1997a) and Trigunarsyah (2004). They pointed out that many construction projects in Indonesia suffer the problem of time and cost overrun. Time and cost are the two major elements in project management, apart from quality and scope. One of the biggest challenges in the management of construction project or to one of the project manager is to ensure that the project is completed on time and within estimated cost. Time and cost are the two elements, which are become the major concern to most clients/ owners and subject of continuous discussion and research. As pointed out by many, one of the interesting aspects of construction that makes it more challenging and sometimes full of surprises is that it is a very fragmented industry. It involves myriads of interrelated activities that are carried out by many separate individuals and organisations with different sizes and expertise that may come from different parts of the country. Due to the fragmented and complex nature of construction, many problems could arises everyday during the process of construction cause by factors such as weather, material delivery delay, labour dispute, equipment breakdowns, job accidents, change orders, and numerous other conditions. Many things could go wrong during the whole process of construction. All these problems will have serious impact on the performance of the projects, particularly on time and cost. To the clients, may they be the government or property developer, any delay, cost overrun or both will significantly affect their profit and the viability of the projects. Therefore it is important to properly manage a project time and cost. 1.2 Statement of Issues Like other developing countries, the Indonesian construction industry is also faced with serious time and cost overruns problems and it is become a matter of great concern to the government, private clients and the Indonesian construction community themselves.

22 4 Ir. Trisno Ario Sutanto, (2002) said that many construction projects in Indonesia suffer delays because many contractors are lacking in managerial knowledge and skills to manage the projects activities. The Indonesian Country Procurement Assessment Report (2001) on the other hand pointed out that, the main problems facing the Indonesian construction projects is time and cost overrun. It suggested that many firms and companies particular small and medium, lacks managerial competencies and skilled workers and resources. Then, according to Ir. Panggardjito (2001), there has not been enough market pressure to make them improve their capability, capacity and efficiency. These are some of the reasons why many construction projects in Indonesia cannot achieve an efficient time and cost in projects performance or have time and cost overrun problems. According to Kaming et.al., (1997a) delays and cost overrun are common problem on projects in large project in Indonesia. He identified that % of project managers completed more than 90% of their projects that they handled on time, 15. 2% of completed only between 70 90% of their projects and 30. 3% completed less than 70%. It also identifies only % project managers claimed that 90% of their projects that they handled were completed within budget, 51. 7% completed between 70 90% of their project and 27. 6% completed less than 70%. Trigunarsyah (2004) identified that only 30% of the projects were completed within the budget, 34% were less than the budget, and the remaining 36% exceeded the budget. The study also shows that only 47% of the projects were completed within the schedule, 15% ahead of schedule, and 38% were behind schedule. Both of the previous study above shows that, time and cost overrun problems in construction projects in Indonesia need to be overcome. However, their studies were limited to project in Java Island only. A construction project had the time and cost overrun if it was completed exceeding the time and cost estimated as written in the approval contract (Ali, 1992 and Saldjana, 1998). In the two of previous research above, time and cost overrun were defined as the extension of time beyond planned completion dates traceable to the contractors and it means it have use the same concept with Ali, (1992) and Saldjana, (1998) about when the time and cost overrun occurs.

23 5 As said above Padang and Pekanbaru as the central of West Sumatera and Riau province for the last ten years become the main choice of the investor to invest for the Sumatera areas specifically for construction projects (Luthfi, 2006). Based on statement above about the time and cost overrun problems that faced of by Indonesian construction industry, it means include in it were Padang and Pekanbaru cities. No previous research has been found about the time and cost overrun problem in Padang and Pekanbaru cities because the two of previous research above concentrated in Java; Kaming et.al., (1997a) concentrated their research in big cities Jakarta and Yogyakarta and B. Trigunarsyah (2004) concentrated the research in all big cities in Java. Several methods in managing project time and cost have been suggested or developed by experts; practitioners, and researchers. These methods can be considered to be the framework for the management of construction time and cost. Many construction companies, project management firms as well as individual project managers have adopted these methods in managing their projects. However, despite having these methods, the Indonesian construction is still faced with the problems of time and cost overrun, (Ir. Panggardjito, 2001), The Indonesian Country Procurement Assessment Report and Ir. Trisno Ario Sutanto (2002). The description of the issues and the previous research on the subject of time and cost overrun in Indonesian construction projects highlight some of major issues which can be summarized as: 1. Many books, journals and dissertation also pointed out the common causes of projects delays and cost overruns. What about in Indonesia? It becomes imperative to know what are the major causes that cause the time and cost overrun occurrence in Indonesia particularly in construction projects in Padang and Pekanbaru? 2. What is considered as the method for construction time and cost management as describe by many time and cost management framework? 3. How do the project managers in Padang and Pekanbaru manage the project time and cost? Do they have or follow or adopt any of the methods

24 6 management in framework model? If so, to what extent do they adhere to such a framework model in managing projects? A number of contractors and project managers claimed that some elements in the management framework were not carried out or given much attention. 1.3 Previous Research Based on several previous researches, it is known that time and cost overruns create a bad image for the construction industry in many countries including Indonesia. In several previous researches in several developing countries, we can identify the causes of construction project overrun in terms of time and cost. The studies relating to project problems that concerns the causes of time delays/ or cost overruns have been conducted worldwide from developed countries such USA and UK (Xiao and Proverbs, 2002a and 2002b) to developing countries such as Kuwait (Kartam et al., 2000), Nigeria (Okpala and Aniekwu, 1988; Mansfield et al., 1994; Dlakwa and Culpin, 1990; Okpala, 1986), Saudi Arabia (Assaf et al., 1995), Thailand (Ogunlana, 1996), Hongkong (Chan and Kumaraswamy, 1997), Malaysia (Wang, 1992) and Jordan (Al-Momani, 2000). Based on the research results in Thailand construction projects, Ogunlana (1996) said that, construction industry problems in developing countries could be nested in three layers: problems of shortages or inadequacies in industry infrastructure, problems caused by clients and consultants, and problems caused by contractor s incompetence/ inadequacies. Adequate planning at early stages of project execution is an important factor in reducing delays (time) and cost overrun in developing countries (Chalabi and Camp 1984). The need for a clear intention and understanding of the technical specifications could also reduce bottlenecks in the execution of projects (Jackson, 1990). Contractors on the other hand, do not honour contract deadlines and use shortages of materials as an excuse, and these problems can be averted if

25 7 professionals are more prudent in their design and more knowledgeable about the availability and usage of materials (Okpala and Aniekwu, 1988). The most important delay (time) and cost overrun factors according to contractors were preparation and approval of shop drawings, delays and cost overrun in contractors progress, payment by owners and design changes by owner (Assaf, et. al., 1995). Poor site management and supervision, unforeseen ground conditions, low speed of decision making involving all project teams, client initiated variations and necessary variations of works indicated by Chan and Kumaraswamy (1997) as cause factors for time and cost overruns in Hongkong. Mansfield et al. (1994) investigated the important factors responsible for delays and cost overruns in highway construction projects in Nigeria such as poor contract management, material shortages, inaccurate estimating and overall price fluctuations. On the other hand as said above, there was also previous research about time and cost overrun conducted in Indonesia by Kaming et. al., (1997a). This research identifies the variables that influences construction time and cost overrun group these variables into factors and analyse the relationship of these factors and to further enhance understanding of construction delays and cost overruns. Results of Kaming et. al. (1997a) research reflected the construction management problems on time and cost overrun factors which are limited to highrise projects in Indonesian big cities: Jakarta and Yogyakarta only that are also common in developing countries. On the other hand this research reflected the construction management problems on time and cost overrun in Sumatera particularly in Padang and Pekanbaru. This research studies the problem that were faced by B (big) and M (medium) companies classification where most of these companies concentrate on low-rise projects such as housing, road and others simple buildings because Padang and Pekanbaru still in developing the city areas concept. Kaming et. al. (1997b) also investigated five productivity problems that cause time and cost overruns among seven regions in Indonesia, namely Jakarta,

26 8 Yogyakarta, West Java, Central Java, East Java, Western and Eastern Indonesia. Five specific productivity problems are identified, i. e, lack of materials, rework, absenteeism, lack of equipment and tools and gang interference. Trigunarsyah (2004) survey results point to the fact that contractor involvement in pre-construction phases could reduce time and cost problems during site operation. The studies in other countries also highlighted the appropriate practices or suggested solution to reduce the overrun problems such as in Japan, USA, UK and Malaysia construction projects. There are also studies about the process and procedures, which is provide a framework about time and cost management stages that can be adopted to reduce overrun problems. It is good to refer to other practices because it will help in finding a better way to achieve the best results. It also could say that by adapting these other countries practices, processes or the procedures could help or assist Indonesian construction projects avoid being ambushed by unexpected overrun problems especially on time and cost during the construction process. However, through literature study that has been reviewed by researcher, there is no published previous research on this topic in Padang and Pekanbaru even in whole Indonesian construction projects. 1.4 Objectives of Research Based upon the global notion of Indonesian construction projects condition in the issue statements above, in order to reduce time and cost overrun problems in Indonesian construction projects particularly in Padang and Pekanbaru cities, this research is undertaken to provide a means: 1. To identify the major causes of project time and cost overrun in low - rise projects in Padang and Pekanbaru 2. To establish theoretical framework for a good construction time and cost management

27 9 3. To compare the time and cost management as currently practiced by construction companies in Padang and Pekanbaru against the theoretical time and cost management framework 1.5 Scope of the Research This research reviewed available literature to give a clear and precise understanding of the importance of time and cost management in construction projects performance. It also reviewed factors that cause time and cost overrun and the practices or suggested solution in order to reduce the time and cost overrun problems from the previous researches in other countries. Through literature study that has been reviewed by researcher, there is no published previous research on this topic in Padang and Pekanbaru construction industry. These findings will be used as references to support the research survey and the finding results. The survey was done in Indonesian construction projects with study areas Padang and Pekanbaru with the reason as stated in the research issues and the previous research parts above. Although specific in this two cities area, the results could reflect and assist to other cities in Indonesia which has the same problems in the construction projects especially for time and cost overrun problems. The objectives of study are to identify the major causes of time and cost overrun, to establish the theoretical framework for a good construction time and cost management that have been synthesized from several previous research and to compare time and cost management as currently practiced by construction companies in Padang and Pekanbaru against it. Then, the outcome of this survey that supported by the reviewed findings will become the basis to reduce the occurrence of the time and cost overrun problems which describe in framework for Indonesian construction projects, particularly Padang and Pekanbaru. Ali, (1992) and Saldjana, (1998) had defined about time and cost overrun and also Kaming, et. al., (1997a) and Trigunarsyah, (2004). They have same definition

28 10 about when the time and cost overrun occurs. This study also uses that definition as one of delimitation of this study. The sources of data are the class B (big) and M (medium) contractors and consultants in these two cities (Padang and Pekanbaru) because they have more experience and active in project activities per-year. The companies that are included in this classification are companies with vast experiences in managing projects. However, for Padang and Pekanbaru cities, kind of projects that are executed are many but most of them include in low-rise buildings such as housing, offices and others simple projects. Other limitation for this research is the companies selected for this research must be registered with INKINDO for consultants, GAPEKSINDO for contractors and LPJK for all companies that are not registered under any of them. Further limitation about the research sample will discusses in the methodology of the research. 1.6 Thesis Organization Chapter 2 reviews Indonesian construction industry, which discusses about the Indonesian demography and economic, its construction industry as general and particularly in Padang and Pekanbaru, the structure and the performance of the construction industry; company qualifications, company organizations, project procurement system, and the problems and the current practices of project management in Indonesian construction projects. Chapter 3 reviews project time and cost management which discusses about the definition of project time and cost, the definition of project time and cost management, project management objectives, problems associated with project time and cost, and the issues in project time and cost management and its implication to the project performance.

29 11 Chapter 4 reviews project time and cost management framework which discusses about what is the framework itself, the purpose of framework, the framework for project time and cost management, and the proposed framework for each the project management stages. Chapter 5 describes the methodology that adopted to conduct this research. Chapter 6 presents data analysis results on the major causes of project time and cost overrun based on the survey, discussions and the literature review findings as an achievement of the first objective of this research. Chapter 7 presents data analysis results on comparison of the time and cost management as currently practiced by Indonesian construction projects particularly in Padang and Pekanbaru as areas of study against the theoretical framework for a good construction time and cost management which were described in literature review findings results. From these discussions a proposed framework would be developed that can be used to reduce time and cost overrun problems for construction projects in Padang and Pekanbaru. This chapter shows the achievement of the second and third objective of this research. Chapter 8 presents the conclusions of this research and the recommendations for future research.

30 CHAPTER 2 INDONESIAN CONSTRUCTION INDUSTRY 2.1 Introduction Indonesia has experienced rapid economic development for the last 15 years. It has brought about a significant increase in construction activities that has benefited the country as a whole, but it also brought to light the problem that many construction projects suffered time and cost overrun. Before going further into the issues, it is most appropriate to consider Indonesia as a country; its demography, economies and construction industry. 2.2 The Indonesian Demography and Economic The Indonesian people occupy the world's largest archipelago, stretching more than 3,000 miles from mainland Southeast Asia eastward between Australia and the Philippines. Lying astride the sea lanes of communication between the Pacific and Indian oceans, Indonesia consists of over 13,500 islands with total land area of 1,904,569 km 2, (Bresnan, 1997). Total population of Indonesia in 1990 and 2000 was millions and millions, respectively. While total population in 2004 was around millions and it is the fourth most populous nation in the world after China, India and the United States, (BPS, 2004).

31 13 For the year 2004, growth rate of Indonesian economic showed a better performance than The annual gross domestic product (GDP) of the Indonesian in 2003 was 2, trillion rupiahs and it increased in the year of 2004 become 2, trillion rupiahs. Value of GDP on construction sector was 112, billion rupiahs in 2003 and 134, billion rupiahs in 2004, (BPS, 2004). Table 2.1 below will show the annual gross domestic product (GDP) of the Indonesian from based on the industrial origin and also the percentage of the growth The Indonesian Construction Industry Indonesian construction industry has under gone changes and development since the 1950s and grown rapidly until the The construction sector is very much depends on Indonesian economic as a whole. The economic crisis between 1997 to 2000 causes the industry to suffer and it is not yet recovers. Table 2.1 show the GDP of various economic sectors of the Indonesian Economic. The table shows that the growth of the Indonesian construction industry has been slow after the down turn in The growth of Indonesian construction industry had decreased sharply from 7.44% in 1997 to 6.46% in It has also drop considerably from 7.14% in 2000 to 5.30% in The table also show that the Indonesian construction industry is yet to fully recover from the impact of the 1996 financial crisis. It describe clearly in Figure 2.1, after the table.

32 14 Table 2.1 Indonesian GDP by Industrial Origin (billion rupiahs) and the Percentage of the Growth to the GDP (%), Industrial origin Agriculture, livestock, forestry & fishery 101, , , , , , , , Percentage of growth (%) Mining and quarrying 55, , , , , , , ,892.4 Percentage of growth (%) Manufacturing industry 168, , , , , , , , Percentage of growth (%) Electricity, gas and water supply 7, , , , , , , , Percentage of growth (%) construction 46, , , , , , , , Percentage of growth (%) Trade, hotel and restaurant 99, , , , , , , , 340 Percentage of growth (%) Transport and communication 38, , , , , , , , Percentage of growth (%) Financial, ownership and business services 54, , , , , , , , Percentage of growth (%) Services 55, , , , , , , , Percentage of growth (%) , , , 109, , 290, ,684, ,863, ,045, ,303, % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Source: Statistical Yearbook of Indonesia (BPS, 2000 and BPS, 2004) 14

33 15 The percentage of the growth of the Indonesian construction sectors based on the GDP value (%) (%) Year Figure 2.1 The percentage of the growth of the Indonesian construction sectors (%) based on the GDP value The growth of the Indonesian construction industry has greatly influenced the country s economic development. Construction is considered unique in that it can stimulate the growth of other industrial sectors. The construction values become the main component of output structure of construction companies. Total value of construction that has finished during 2003 was decreased if compared with Total of construction value that have finished in 2002 was about 22.2 trillion rupiahs and in 2003 was about 20.2 trillion rupiahs or decreased about 9.0 percent but in 2004 it was increased 20.3 percent become 24.3 trillion rupiahs (BPS, 2004). Data about the total value of construction work completed and its value by type in Indonesian construction industry since 2000 to 2004 can be seeing in Table 2.2 as follows.

34 16 Table 2.2. Value of Construction Works in Indonesia According to the Type of Construction (billion rupiahs) from 2000 to 2004 Description Residential - Non-residential - Electrical installation - Water supply installation - Sanitary installation - Foundation - Sound system, AC, lift, etc - Water supply network - Gas pipe installation - Electricity network - Road & bridge works - Irrigation/ drainage 1,232,932 4,300,840 1,062, ,065 33,542 30,332 30, , , ,868 6,397,989 2,019,787 1,412,543 4,614,605 1,227, ,327 34,623 23,489 46, ,447 46, ,507 6,185,981 1,372,300 1,595,983 5,129,961 1,427, ,843 41,455 26,249 51, , , ,616 7,001,463 1,558,438 1,372,103 4,547,594 1,167, ,374 37,100 22,839 41, ,499 86, ,834 6,547,822 1,427,471 1,695,054 5,503,004 1,443, ,151 45,675 24,855 56, , , ,596 7,827,454 1,536,090 - Electric power supply 30, , , , ,306 - Construction or improvement of airport, harbor, bus station, etc - Other construction works - Total of value 210, ,397 16,944, ,675 3,240,289 19,086, ,799 3,674,823 22,177, ,054 3,450,716 20,154, ,267 4,228,121 24,340,912 Source: Statistical Yearbook of Indonesian 2004, (BPS, 2004) Table 2.2 above shows the value of the construction works from It shows that there is an increase in value but the annual rate of growth is not very favorable. Table 2.3 below will shows the performance of the construction industry of the various provinces in Indonesia. It shows that the value of work of construction in West Sumatera and Riau province where Padang and Pekanbaru is located be increase year to year.

35 17 Table 2.3 Value of Construction Completed by Province (billion rupiahs), in Indonesian Construction Industry since 2000 to 2004 Year Sumatera Island - Nanggroe Aceh Darussalam - North Sumatera - West Sumatera - Riau - Jambi - South Sumatera - Bengkulu - Lampung - Kepulauan Bangka Belitung Java Island - DKI Jakarta - West Java , , , , , , , , ,469 3,070,608 1,722, , , , , , , , , ,486 3,303,698 2,007, , , , , , , , , ,913 3,554,482 2,338, , , , , , , , , ,725 2,958,110 1,828, ,865 1,360,81 520, , , , , , ,206 3,824,321 2,724,825 - Central Java 1,305,114 1,469,297 1,654,135 1,563,100 1,665,517 - DI Yogyakarta 142, , , , ,161 - East Java 1,974,964 2,109,459 2,253,113 2,293,341 2,411,107 - Banten 309, , , , ,188 - Bali -Bali Island 401, , , , ,648 - West Nusa Tenggara -Lombok Island - East Nusa Tenggara -Timor island Kalimantan Island - West Kalimantan 635, , , , , , , , , , , ,482 1,054, , ,141 - Central Kalimantan 539, , , , ,104 - South Kalimantan 228, , , , ,946 - East Kalimantan Sulawesi Island 911,673 1,135,488 1,459,066 1,119,456 1,230,348 - North Sulawesi 240, , , , ,628 - Central Sulawesi 176, , , , ,443 - South Sulawesi 853, ,952 1,243,376 1,189,102 1,336,575 - South East Sulawesi 143, , , , ,894 - Gorontalo 21,371 24,254 27,407 31,864 36,404 - Maluku -Maluku s Island 64,688 69,474 72,254 70,263 72,257 - North Maluku -Halmahera Island 45,739 50,389 56,839 55,273 58,998 - Papua -Irian Jaya Island 690, , , , ,085 Total of value 16,944,628 19,086,328 22,177,359 20,154,199 24,340,912 Source: Statistical Yearbook of Indonesian 2004, (BPS, 2004)

36 Construction Industry Performance in Padang and Pekanbaru The country economic performance has also influence the economic and physical growth of many of its major cities. Two of them are Padang and Pekanbaru. There two cities have experience favorable economic and physical growth that saw through the growth of the construction sector. For the proper of this study, it is most appropriate to consider the growth of the economy and the construction of these two cities. a) Pekanbaru Pekanbaru is the capital city of province of Riau and it located in the East of Sumatera (See in Fig. 2.3 below). In 1988 Riau province had a population of and in 1999 it had increased to 3,345,467. In 2004, the approximated total is around 5,000,000 people and half of them settled in Pekanbaru (www. Pekanbaru. go. id, 2005). The economic growth of Pekanbaru itself from 1998 to 2002 increased to 3.86 % with a value 504,384 billion rupiahs. At the same time it was better than other cities in Sumatera where the average of their economic growth was only 0, 57 %. On the other hand, GDP of Pekanbaru cities had increased 46.35% with values 2,194 million rupiahs in 1999 and 3,212 million rupiahs in The major income of Pekanbaru comes from petroleum, palm oil and industrial sectors especially construction industry (www. Pekanbaru. go. id, 2005). Although the Indonesian economy is not stable yet, the property business and the construction activities in Pekanbaru in 2005 are still growing up. According to Kampriwoto (2004) as Head of Indonesian Real Estate Organization (REI) it can be proven by the number of the demand for housing projects, school, shops and the infrastructure buildings. Kampriwoto (2004) stated that, the highest demand in construction projects for Pekanbaru is for housing projects. During 2005, all the developers, contractors and consultants have targeted to build around 4000 housing projects. Start of January

37 19 until May 2005, around 2500 of the housing projects were completed and sold out. Till the end of 2005, around 1500 of the housing projects were planned to be built and have to be completed. Beside the housing projects, other projects that have also high demand are infrastructure projects especially roads because in recent years many new cities around Pekanbaru are developed. Its need many new roads and also the improvement of the old roads to connect Pekanbaru and the new cities. Figure 2.2 below shows several landmark construction projects that have been constructed in the last five years in Pekanbaru. Kelok 9 Fly-over Koto Panjang Dam Renovation of Simpang 3 Airport Figure 2.2 Several landmark construction projects in Pekanbaru

38 20 b) Padang Padang is the capital city of West Sumatera with a total land area of 42, km 2. Today, the population of West Sumatera in 2000 was 4, with density 104/ km 2. The economic growth of Padang city from 1998 until 2002 had increased to 2.94% with value 363,440 billion rupiahs. The GDP value of Padang city is 2,485 million rupiahs in 1999 and 3,590 million rupiahs in The major income of Padang city comes from cement, coalmines and farm (www. Padang. go. id, 2005). Same with Pekanbaru, according to Kampriwoto (2004) housing projects also have high demand in Pekanbaru but not as high as in Pekanbaru. Until end 2005, only 2500 housing project demanded has yet to be completed. Recently, for the last 5 years, landmark construction projects that have been constructed in Padang are Minang International Airport (MIA) and fly-over to the airport ( Ketaping / Dukuh fly-over) because its location is at the border of Padang city. Besides that public roads were built to connect to the entire area around the international airport. The new international airport also highlighted the need to improve many old roads in around Padang; make it wider to make the traffic flow smoothly (www. Padang. go. id, 2005). Figure 2.3 below, shows several landmark projects in Padang that have been constructed for the last 5 years. Minang International Airport (MIA)

39 21 Ketaping s/ Duku s gate and fly over perspectives Siti Nurbaya Bridge Figure 2.3 Several landmark construction projects in Padang The Structure of Indonesian Construction Industry a) Company Qualifications The Indonesian construction industry is made up of mainly the contractors, consultants, government s agencies, material supplier, and professional firms and companies. The government and professional bodies have been the key players in bringing about the change and development of the industry in terms of technology, work procedures and business practices. In 2001 the government set up a Construction Development Board (LPJK) to regulate and oversee the systematic practice of contractors and consultants. These include certification of the contractor and private consulting company s status, proper providing recommendations for them to get government projects. With its establishment all private or public contracting and consulting firms and companies