ABSTRACT
This study determined the influence of estimating practice on cost performance of building projects. The objectives were to identify the estimating practices used by cost consultants, appraise the critical factors influencing estimating practice used, and to determine the influence of estimating practice on cost performance. The study involved survey design administered to engineers, builders and quantity surveyors in Akwa Ibom state, Nigeria. Data analysis involved descriptive statistics and Spearman Ranked correlation test. The findings of the study revealed the critical factors influencing estimating practice as complexity of design and construction, scale and scope of construction, method of construction and construction technique, tender period and market condition, and site constraints (access and storage limitation. The test of hypothesis indicated non-relatedness of estimating practice with cost deviation. There is therefore no significant correlation between estimating practices and the performance building works estimate for all category of buildings studied. The implication is that, estimating practice (method) adopted in budget estimation cannot influence the cost performance of building projects.
CHAPTER ONE
INTRODUCTION
1.1 Background of study
Construction by its nature involves certain unavoidable risks. There are many variables affecting the outcome of a building project especially its final cost. Contractors are required to accept a certain level of risk due to unforeseen costs that are incurred during construction. Risk is also a concern of clients (Mak and Picken, 2000). To account for the various risks that lead to cost increase, many owners and contractors allocate a estimation amount to each project. Owners allocate estimation amount to the budget for upcoming projects, while contractors attach a estimation amount to all their submitted bids.
Ford (2002) postulates that, project budgets are one of the most important and widely used project management tools. Project complexity and the inherent uncertainty of the financial performance of constructed facilities, development funding, and the control of costs and schedules make exact budget needs impossible to forecast accurately. These same characteristics also cause project to deviate from plans. Therefore, estimation funds are included in development budgets to address uncertainties and deviation that threaten achieving set objectives. Similarly, Hogg (2003) posits that there has been high level of concern with regard to the performance of construction industry in terms of its ability to deliver projects on budget, on time and to satisfactory quality.
It has been reported that “under achievement can also be found in growing dissatisfaction with construction among both private and public sector clients. Projects are widely seen as unpredictable in terms of delivery on time, within budget and to standard of quality expected” (Construction Task Force 1998). In the same publication, reference was also made to the British Property Federation’s 1997 survey, which revealed that: “more than a third of the major clients are dissatisfied with contractors’ performance in keeping to the quoted price and to time and with consultant performance in providing a speedy and reliable service and in providing value for money “. (Construction Task Force 1998).
Therefore, it is only wise and prudent to plan for unexpected events that may affect project cost, and to ensure the success of projects by allowing for appropriate estimation sum in the base estimate. Mak and Picken (2000) defined estimation as an amount of money used to provide for uncertainties associated with a construction project. According to Okafor (2003), estimation is an allowance reserved for unpredictable items of cost not known at the time of preparing the estimate. It provides for possible cost escalations, currency fluctuations, local conditions within the country where the project is to be sited, inaccuracy of estimation practice etc. Seeley (1984), added that estimation sum is included in a contract to cover the cost of work or expenses not contemplated or implied in the contract sum. These monies are to be expended at the discretion of the project manager, and where such circumstances do not arise, this figure constitutes a saving to the employer. This provides an opportunity for the employer to secure the execution of essential additional work within the contract sum.
Estimation sum is determined in various ways, depending on the organization. The most common and simple method is a percentage addition to the top of base estimate. The objective of estimation allocation is to ensure that, the estimated project cost is realistic and sufficient to contain any cost incurred by risk and uncertainties.
Actual costs are defined as real, accounted construction cost determined at the time of project completion. On the other hand estimated costs are defined as budgeted or forecasted construction costs at the time of tendering (Flyvbjerg et al. 2002). Accuracy of estimation refers to the magnitude of the deviation between the estimated cost of a project and its actual cost. This research work evaluates the influence of estimating practice in addressing project cost risk.
1.2 Statement of problem
At different stages of project development, there are different types of risk. To address these risks, estimation fund is often provided, which is usually expressed as a percentage of the base estimate. Because the fund is more often than not inappropriately determined, in many projects the actual cost exceeds the estimated cost; that is the fund is inadequate to meet unforeseen cost, and by extension, leads to cost overrun, (Hogg,2003). On the other hand, estimation fund may be inflated in an attempt to avoid the need to seek additional funds if budgets become over spent. That is it is over estimated, which may lead to misallocation of resources, (Maks and Picken, 2000). Therefore, determining appropriate estimation amount is very important for the smooth delivery of projects. It is against this background that the study to determine the adequacy of estimation provision in building project is significant.
1.3 Objectives of study
i) Identification of the methods used in estimation by surveyors and civil engineers in Akwa Ibom state.
ii) Study of estimation practice management practice in selected construction companies.
iii) Determination of initial and final provision of estimation in some selected building projects.
iv) Evaluation of the influence of estimation practice on cost performance of building projects.
1.4 Statement of Hypotheses
Ho: There is no significant difference between projects with and without estimation with respect to the accuracy of cost estimates. i e µ1 = µ2.
H1: There is significant difference between projects with and without estimation with respect to the accuracy of cost estimates. i e µ1 = µ 2.
Where µ1 = Mean of percentage difference between actual and estimated cost with estimation.
µ2 = Mean of percentage difference between actual and estimated cost without estimation.
1.5 Scope and Limitation Scope
The three types of estimation in building projects are; tolerance in the specification; float in the schedule and money in the budget (CIRIA 1996). It is the latter- money in the budget (project estimation practice) that is the focus of this research work. Estimation practice is defined as “an amount of money used to provide for uncertainties associated with a construction project. (Mak and Picken 2000). Because management practice can vary across project types, the research focused on one project type- institutional building. To reduce the influence caused by the differences between public and private client, only public projects have been considered.
The risk apportionment and cost management relating to traditional procurement differ from that of other procurement methods. For example, with design and build, the risks relating to design belong to the contractor whereas with traditional procurement they remain with the client. In the light of this, only projects based on traditional procurement and executed between 2000 and 2007 have been selected.
This research work was limited to the estimates of construction works in Akwaibom state and its influence on cost performance of those construction projects.
Limitations
Because of the longer time that is needed and the difficulty in obtaining reliable data on project costs, this research work covers a small sample size of projects. Another limitation was that it has not been possible to fully examine adequately the reasons for cost variations in these projects.
Furthermore, there is likelihood of an element of bias being introduced because responding construction companies could have provided data that present their projects in favourable light; that is selected projects that will not disclose information that may reflect badly on their construction companies. These limitations were considered in interpreting the results from statistical analysis of the sample. The sample is not assured to be perfect by any means, but it is large enough for appropriate analyses.
