Study Of Factors Affecting Construction Cost Performance In Nigerian Construction Sites

Project and Seminar Material for Building Technology BT

Study Of Factors Affecting Construction Cost Performance In Nigerian Construction Sites


Abstract


Maintaining steady cost projection on construction projects had been until recently an issue of serious concern, both to the client and project contractors. Cost deviation from initial Cost plan, had been prevalent on Construction sites. However, little or no efforts has made to curtail the phenomenon, it is against this background that this research work attempt to study the factors that are responsible, so as to identify them and proffer possible ways of tackling the menace. The study attempt this through chosen construction practitioners as population and samples were drawn to this effect at random from the category of professionals, using probability sampling methods.

The Data were collected from primary source consisting of structured questionnaire designed in Likert Scale in rating Scale of 1 to 5, while the Secondary Data were collected through review of Journal articles and relevant Text books. The Data were analysed using Severity Index, Ranking and Simple Percentages. It was discovered from the analysis that factors such as Contractors inexperience, inadequate planning, Inflation, incessant variation order, and change in project design were critical to causing cost overrun, while project complexity, shortening of project period and fraudulent practices are also responsible. The study concluded with recommending, adequate planning using conventional techniques, Studying and applying project history, material bulk purchase, proper project design and establishing proactive fraud prevention system on sites, as panacea for effective cost performance on sites.


Chapter One


Introduction

1.1 Background to the Study

Construction industry in Nigeria had been a major source of employment for 70% of labour force in the country, thus it controls the capital flow, as well as labour resources, which has cost implications. Adequate management of these resources is considered an important aspect of project works; it determines to a large extent the overall success of project works. So also if the resources are adequately harnessed, issues that pertains to cost overrun would not arise which could result to variations and claims. Some firms rely on claim as a result of variation incurred during the course of the project execution and afterward evaluate their profit after incurring necessary and unnecessary cost on a project. This however has tendency of positioning such in a disadvantageous profit position. An effective cost management strategy is therefore necessary, this could be achieved through putting in place a proactive cost management strategy. (Love et al, 2005; Ogunsemi and Jagboro, 2005; Ferry et al, 1998).
They described cost management system as a process that should be carried out throughout the life cycle of a project, from the inception to final completion and final payment to the contractor. In the light of this, the timeliness and cost effectiveness of various operation and decision carried out will determine to an extent the magnitude of cost that could be saved on the project. ( Kerzner, 2005; Ogunsemi and Jagboro, 2005).
However Dissanayaka and Kumaraswamy, (1999) opined that Time, Cost, Quality target as well as project satisfaction tend to be most important key to measure the overall performance of a project work. Furthermore, various research works have also indicated that most project records cost or time overrun during their tenure of execution.( Odusami and Olusanya, 2000). (Mbachu and Olaoye, 1989; Madewsley, et al, 2004); opined that 51 percent of average delay were experienced yearly which culminates in cost overrun, certain factors are responsible for this, to this end however this study attempts at investigating such factors and proffer solution to the pandemic. The Nigerian Construction Industry is fast growing and it continues to occupy an important position in the Nation’s economy, even though it contributes less than the manufacturing or other service industries. It’s also yet to realize its full potentials despite Nigeria’s deficit in infrastructures. The study on Construction Project delays in Nigeria has received increased attention over the past years with the main focus given to the effect of abandoned projects. Most studies on construction project delay based mainly in identifying the causes and effect, without developing a mitigation plan for project delays which often leads to project failures or abandonment in Nigeria.it has been researched and confirmed by numerous researchers that construction failure is on the increase in Nigeria based on delay. These delays represent an area of leakages in the construction project. In Nigeria, the problem of delay is severe especially when one considers the present economic condition of the country. According to Kasimu (2012), Construction delay is a universal evident reality not only in Nigeria but all countries across the globe. Delay in projects varies from one project to another.

Delay has an adverse effect on the project success in terms of timed, cost and quality. Many projects experience extensive delays and thereby exceed initial cost estimate. Ina addition to impacting the economic feasibility of projects capital baseline, extensive delays could cause a ground for disputes or lawsuits between owners and contractors, increased costs, loss of productivity and revenue, and contract termination. However, with the rapid increase in construction failures and delays in Nigeria, this research becomes necessary so as to have a basis for weighing the causes and factors influencing delays and cost overruns on construction projects in Nigeria and more importantly propose a mitigation strategy.

The scope of this research work shall be limited to building construction sites within the selected area in Nigeria, Ogun state. This is attributable to unique project environment they possess.


1.2 Statement of Problem

Nigerian construction industry is faced with problem of cost overrun. Ogun semi and Jagboro (2006) in their work titled “Time-cost modeling for building projects in Nigeria, noted that one of the most serious problems the Nigeria construction industry is faced with, is the project cost overrun, with attendant consequence of completing projects at sums higher than the initial sum. Therefore, working with realistic project estimate is necessary at the outset of a project work, which would eliminate uncertainty and as well provide a plat form for project success (Flanagan et al, 1999). Cost overrun however is not limited to Nigeria context is of international concern, this was illustrated in the research carried out by Chan and Kumaraswamy (2006), in Australia, it was found out that seven-eighths of building contractors surveyed in the late 1960’s were completed after scheduled completing while in Hong Kong 70% of building projects were delayed and completed at cost higher than initial budgeted cost. Al-kahil and Al-chafly (1999) established in a study carried out by them in 1995 in Sandi Arabia on contractors and consultants that 33% of all their project undertaken were subjected to cost and time overrun while consultants were subjected to cost and time overrun while consultants admitted that 84% of project under their supervisor experienced cost overrun.
Ogunsemi and Jagboro (2006) attributed the overrun to wrong cost estimation method adopted at the early stage of the building projects. The study concluded with developing a time-cost model for building projects which is a step ahead of Bromilows models previously in use in determining project duration that would help in avoiding cost overrun. Carelh (1989) in Edem et al (2001) reported the case of cost overrun recorded in the construction of a theater at Manaus, in the Amazon province of Brazil, at the cost of 20,000 Cruzeiro, 12 years later after the contract has been awarded at 500 Cruzeiro. Akpan (1987) also reported the case of the British National West minister bank Headquarters’ building where the cost overrun was said to have been adduced as to the causes of project cost overrun. In the same vein kayoed (1979) firmly believed that project cost overrun is attributable to costing methods that wrong cost estimating method would lead to adoption of wrong cost for a project work.


1.3 Objectives of Study

  1. The research work is to determine the various factors that interplay in impacting project cost performance.
  2. To evaluate the rate and effect of delay and cost overrun in completion of construction projects in Nigeria.
  3. Investigating the order of severity of the factors, and recommending ways of curtailing the effects.

1.4 Research questions

  1. What are the various factors that interplay in impacting project cost performance?
  2. What is the rate and effect of delay and cost overrun in completion of construction projects in Nigeria?
  3. What is the order of severity of the factors, and recommending ways of curtailing the effects.

1.5 Significance of Study

To be of value to the larger academic community, research must ‘‘further current knowledge in the field through both a synthesis of present knowledge and an original contribution extending that knowledge’’ Machi, L. and McEvoy, B. (2009). In Nigeria, Studies carried out by Odeyinka and Yusuf (1997) has shown seven out of ten project suffered delays in their execution. It was also observed that construction projects overrun their duration by 50% (Aibinu & Jagboro, 2002). The newness of this research will look to demonstrate the positive correlation between cost overrun and delay, and the impact of integrating all the project management knowledge area towards mitigating the elimination of delay and cost overrun in construction projects. A lot has been researched on Delay in Construction and its effects on project failures but most of those studies basically focus on the western part of world such as Australia, Canada, Iceland, Israel, Japan, New Zealand, Norway, South Korea, Switzerland, the United States and countries of the European Union, with little attention given to developing countries like Nigeria. Considering the crucial nature of Construction Industry to economic and national development, yet Nigeria frequently witness delays and failure in major public projects. Odeyinka and Yusif (1997) observed that 7 out 10 projects surveyed in Nigeria that suffered delay in their execution, showed poor performance in terms of time. With the fast growing failure and project abandonment in Nigeria, it is significant to continually review each project cycle.

The relevance of this research can be beneficial as it will look to ascertain the current level of delay and failures in projects. According to Kontangora (1993) as cited by Ayodele et al. (2011), there are about 4000 uncompleted or abandoned project belonging to the Federal Government of Nigeria with an estimated cost of above N300 billion which may take up to 30 years to complete at the execution pace and capacity of the present Government. Also this issue of delay has been left without adequate attention for too long which is now having a multiplier effect on the construction industry in particular and the national economy as a whole. For the above reasons and due to personal interests, the author proposes to further study the factors influencing delay and cost overrun in construction project in Nigeria and propose a mitigation plan using project management tool and techniques.


1.6 Scope of Study

The study was carried out on the factors affecting construction cost performance in Nigerian construction sites. The study was limited to Ogun state construction site.


1.7 Organization of Study

The study is divided into five chapters. Chapter one deals with the study’s introduction and gives a background to the study. Chapter two reviews related and relevant literature. The chapter three gives the research methodology while the chapter four gives the study’s analysis and interpretation of data. The study concludes with chapter five which deals on the summary, conclusion and recommendation.


Chapter Five


Conclusion and Recommendation

5.1 Conclusion

The objective of the research work had been achieve visa -a-vis, studying factors affecting cost performance on construction sites. More so, the causes of construction delays and failures in Nigeria has been linked to communication barrier, high level of corruption within the government and construction industry, low level of project management awareness, etc These factors can be brought to the barest minimal through increased knowledge and competency level in project management by contractors, high level of stakeholders’ influence, effective government policies and above all a well develop mitigation strategy.

Earned Value Management as good mitigation strategy is very essential in monitoring work progress as well as the scope, cost and time. If this is adopted and strictly adhered to, it will be a desirable end to the delays and failures experienced in the Nigeria Construction Industry. This is achievable when mitigation strategies are viewed as a positive process and the most creative task of contractors and project managers. This would help generate achievable expectations and increase control on project delays in Nigeria.

The research concluded by identifying these factors as the major ones that result in cost overrun on construction sites.

  1. Inadequate planning
  2. Contactors project inexperience
  3. Inflation
  4. Incessant variation order
  5. Change in project design
  6. Project complexity
  7. Shortening of contract period
  8. Fraudulent practices.

5.2 Recommendation

To this end therefore, in order to prevent occurrence of cost overrun or a practice action towards prevention of such, the following are recommended:

  1. Adequate planning breaking of project planning into short term achievable goals, medium term planning and Long term planning
  2. Studying of project history for possible application on another similar projects
  3. Bulk purchase of material
  4. Proper design of the project during design stage so as to avoid. Undue on-project variation establishing fraudulent detecting system or system of individual accountability to discourage pilfering, stealing and other related vices.

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