Difficulties of Cost Control in Construction Industry

Difficulties of constitute go in Construction IndustryCHAPTER 1 INTRODUCTION 1.1 Problem StatementIn every(prenominal) industry, greet discipline is a must(prenominal) in order to micturate sure that a learn or production female genitalia mold maximum profit or to make sure that the budget of a abide does non burst. Loc bothy, the actual bells of development of a regorge forget normally being higher than necessary. In order to pass on an effective salute control in winding industry, it is necessary for us to de terminationine the difficulties of comp come control and to identify the factors contri thate to the represent control difficulties in a project in order to overcome the difficulties or to avoid those factors that whitethorn start difficulties to exist control of a braid project during mental synthesis stage, thus to have an effective price control for the saying project and complete the project within the budget or low budget.1.2 Aim and Objective The aim of this paper is to get the difficulties of embody control in eddy industry during the construction stage. In order to achieve the study of aim, some nonsubjectives have been established as belowTo ascertain the importance of applying equal control in local construction industry.To highlight the court control difficulties in local construction steadfast during the construction stage.To investigate the factors contributing to cost control difficulties in local construction firm during construction stage.1.3 ground damage control is a process that should be continued through break the project life cycle of a project. In construction industry, cost control should be continued from the inception of the project until the completion of the project to ensure that the cost of the construction project is kept within the agreed cost limits. For cost control of construction industry, it butt joint be divided into two major(ip) stages the control of cost during inclination sta ges and the control of cost by construction firm right after the commencement of the construction work of the construction project.According to Ashworth (2004), cost and schedule control is one of the intimately important functions of circumspection in one case a project is identified. Cost control is paramount during the feasibility and chassis phases because a projects feasibility is normally tied to the cost of a project. in addition that, cost control during the construction phase can be paramount for large projects due to their potentially high construction cost and profiles.As mentioned by Nunnally (1998), the amount and stack away the cost record of a project and the work progress ar include in the cost control of a project. Besides that, the simile of actual progress with the planning is as well involved. The main purpose of cost control of a project is to gain maximum profit within the designated stay and satisfactory quality of work.According to Pilcher (1994), h e defined cost control as the order, by executive action, of the cost of carrying out the various activities which go to make up a project or a contract. The regulation (for cost control) designed for a specific industry will engage a major modification if it is employ in other industry because of the contrasting nature or the business. He also said that for all construction projects, costs must be controlled and monitored from all the parties involved including client, consultants and contractor.This study will generally focus on the difficulties of applying cost control during construction stage. That is because of in my opinion, what is needed in a cost control methodology is to proactively seeks out potential difficulties and factors contributed to those difficulties and provides project contestrs with as much warning as possible before their occurrence. This study provides a milestone for construction firm in the factors that likely to causes the difficulty in cost contr ol.1.4 S sell of StudyCost conceal is commonly used in every industry and almost in every project, the study will only focused on cost control difficulties of construction industry or a construction project during the construction stage. This study will ascertain the importance and the use of applying cost control in local construction industry. Besides that, the difficulties in applying cost control during construction stage also falls within the scope of this study. After highlighting the difficulties theoretically, an interview will be conducted with undergo twitch Executive or Contact Manager or drift Manager to determine the difficulties of cost control during construction stage practically. Finally, after understanding the difficulties of cost control during construction stage, the factors contributing to cost control difficulties during construction stage will also be highlighted.1.5 Research MethodologyThe study is conducting in cardinal stages. First stage is literatur e refresh. The literature review will started with the introduction to cost control. In the introduction to cost control, the explanation of cost control will be reviewed and the literature will also review the importance of cost control in construction industry. Moreover, the literature also will review the difficulties of applying cost control during construction stage. Further more, articles and nones about the cost control difficulties will be searched. All literature will be review deeply by referring the preceding(prenominal) question paper, article, journal and etc. These sources can all be found in Google, Emerald, Yahoo and from the library of College Tunku Abdul Rahman.At second stage, an interview will be conducted with experienced ignore Executive or Contracts Manager or Project Manager governing body-to-face to obtain the information about their current practices in cost control system of their company, the practical difficulties and factors contributing to the d ifficulties in cost control will be identified by the Contract Executive or Contract Manager or Project Manager. The chosen Contract Executive or Contract Manager or Project Manager must be experienced enough in cost management of construction industry and willing to provide valuable information regarding the inquiry topic.Last stage is writing up the content of the dissertation and the information obtained during the interview will be analyse and comp atomic number 18 with the theoretical information. Conclusion of this study should be the result of the comparison amongst the practical and theoretical difficulties during cost control of construction stage faced by the contractor.1.6 Benefits of StudyBy conducting this study, it allows me to have a rough idea on the Cost train system. Completing this study also gives me a better understanding regarding the purposes and importance of Cost Control. Besides that, it also provides me with better perception regarding the difficulties during the exercise of Cost Control during construction stage. Furthermore, the interview conducted with the experienced Personnel will definitely allow me to review the current practices of Cost Control in the construction industry.1.7 Dissertation OrganisationChapter 1 IntroductionChapter 2 Cost ControlChapter 3 Research Design and MethodologyChapter 4 Analysis of the Result and discussionChapter 5 ConclusionCHAPTER 2 COST CONTROL2.1 Introduction to Cost Control2.1.1 DefinitionThe term Cost is defined by Dictionary.com (an application of iPod Touch) as the price paid to acquire, produce, accomplish, or maintain anything. Whereas the term Control in Dictionary.com, it defines Control as the act or power of controlling regulation mastery or command. For construction industry, the term Cost should be referred to the amount paid by a party either a person or a corporation, to another party normally a contractor, either to construct a complete building or a particular persona of a b uilding. And for the term Control in construction industry, it should be referred to an official mean of regulation or restraint in the management of the project.According to Marchesan and Formoso (n. d.), the combination of the term Cost and Control should be defined as the application of procedures that result in early illumination of potential changes in resource requirements and in the timely charge of the usage of notes to permit action that will keep cost within a predetermined range.While for the other definition of Cost Control, we can refer to Ashworth (2004), he defined Cost Control as a process of planning, checking and casting project use based on established standards and fetching the necessary corrective action to ensure that the total project expenditure is approximately to the estimated budget.While according to Ritz (1994), he utter that Cost Control gives a different meaning to a different people. Some people engage it with engineering costs some states that it is a cost report, value engineering, cost management etc. Cost Control involves all the activities above in different time by different parties and all the parties involved in a project will have their own responsibilities and roles in cost minimization and Cost Control.Other than that, Royal Institute of Chartered Surveyor Committee defined Cost Control as the total proves which ensures that the contract sum is within the clients approved budget or cost limit. Further definition can refer to Mueller (1986), he stated that the cost control is the ability to influence the final cost of project positively with modifying negative transactance trends. In addition, Kwayke (1997) defined Cost Control as a process where construction cost of a project is manage with the best method and systematic approach in order that the contractor would not suffer losses during the execution of the activities of the project and the cost of construction of a project would not be over-estimated by the developer.By concluding all the definition mentioned above, Cost Control in construction industry should be the application of procedures or regulation during the construction project life cycle to plan, check and verify the construction project expenditure based on the established procedures or regulations to ensure that the construction project expenditure is within the project budget, within condition timeframe with quality specified and also to ensure that resources ar used to best advantages or maximation of the profit for the construction project.2.1.2 Statement of Facts in Cost ControlAs stated by Roger (2000), he said that Cost Control is a broad set of cost accounting methods and management techniques with the common mark of improving business cost-efficiency by reducing costs, or at least restricting their rate of growth. Cost Control is used in business to monitor, measure and the most important to increase the efficiency of specific beas within their operations.As f or Nunnally (1998), he stated that cost control of a project involves measuring and collecting cost record and work progress of a project. Besides that, comparison of actual progress with the planning is also involved. He also mentioned that the main objective of Cost Control of a project is to maximize profit within the given timeframe and to achieve satisfactory quality of work. If the application of cost control is by a systematic procedure, it will result in ease of collection of important cost data in estimating and controlling of the cost of the coming projects in future.Kwakye (1997) states the main purpose in cost controlling for a construction project should be active controlling of final costs for owner, and not honorable to record and registering the payment.Cost Control Reports must be prepared for efficient Cost Control. The Cost Control Report is based on the cost data collected, it is important to project the costs in to future and to estimate or re-estimate the cos t of the work yet to be completed. Amount of distributor point and the time interval between Cost Control Reports must be considered and the time interval is varied depends on the level of management for which they prepared the Reports for. For example, Cost Report should be received by send manager on weekly basis. Since the commencement of the contract, any new information must be taken into account and makes a suitable reporting system is important for a cost control system.According to Koh (2005), if an adequate reporting system is used, the estimator would become more unwilling in the future to use cost data that have been fed back from the site and granting the estimator some time to determine sufficient detail about the data and conditions they acquired. In addition, Koh (2005) also suggested two areas to check whether the Cost Control reporting system is efficient or not. First is to check on the profitability of the work and second would be check on efficiency carried o ut against the standard of the output rates that were used by the estimator in compiling the estimate.2.1.3 The Purposes and Importance of Cost ControlOne of the principal objectives of Cost Control for most project or organisation is the achievement of minimum cost for a particular project. Achievement of minimum cost is to maximize the profit and profit in simple terms is what is left after all the income accruing to the initiative has been received and all of the costs or outgoings have been paid. For all construction projects, cost must be monitored and controlled, whether from the point of view of owner, designer or a contractor. It helps to distinguish the problems arise and understanding of the problems which occur in each phase of industry enables better co-ordination of the activities of the many participants in a single project (Pilcher, 1994).Besides that, according to Pilcher (1994), the importance of Cost Control is due largely to the embodyingTo provide the relevant feedback, carefully qualified in detail by all the conditions under which the work has been carried out, to the estimator who is responsible for establishing the standards both historical and futureTo provide the client with a value-for-money project. Example To give the building client a building which is soundly constructed, of satisfactory appearance and well suited to perform the functions for which it is required, combined with economical construction layout.To provide data to assist in the evaluation of those variations that will arise during the course of the workTo provide immediate warning of uneconomic operations, both in the long and the short termTo limit the clients expenditure to within the amount agreed. In simple terms this means that the tender sum and final account should approximately equate with the budget estimate.To achieve fit design expenditure between the various elements of the buildings. Thus, the sums allocated to cladding, insulation, finishing, servic es and other elements of the building will be properly related to the class of building and to each other.To tot progress.To promote cost consciousnessThe contractor whitethorn ascertain the maximum income that they may receive according to the contract sum, then ascertain the initial cost expenditure, or provide detailed brief to his own construction team who will then determine the actual cost that may involved. But most schemes are a combination of these two extremes.There has in recent years been a great need for an understanding of construction economics and Cost Control, particularly during the construction stage of projects. As stated by Ashworth (2004), Cost Control also should serve the following purposesThe clients requirements today are more complex, a more effective system of control is therefore desirable during the construction stage up to the completion of final account and thereafter during costs-in-use.There has been a trend towards modern designs and new technique s, materials and methods of construction. The designer is able to choose from a far wider range of products and this has produced variety in construction. The traditional methods of estimating are unable to cope in these circumstances to achieve value for money and more balanced designs resulting that in the end the contractor may need to bear for extra cost due to the faulty design.Contractors profit margins have in real terms been reduced considerably during the past decade. This has resulted in their greater cost-consciousness in an attempt to recompense possible losses.There is a general trend towards greater cost-effectiveness, and thus a need to examine construction costs not solely in the context of initial costs but in terms of whole-life costs, or total-cost appraisal.World recession has generally produced a shortage of funds for capital purposes and construction in general. This has been coupled with high inflation and interest charges, resulting in the costs of construct ion soaring to high levels. Although the relative costs compared with other commodities may be similar, the apparent high costs have resulted in greater caution, particularly on the part of contractor.2.2 Difficulties of Applying Cost Control ProceduresAt present, serious problems exist in the cost control and management of construction project. For example, for some construction project, the design is earlier than the study of feasibility, which makes the later(prenominal) turn into useless. In bidding, some construction companies perform illegally, which makes the bidding fail to control project cost well. The popularization of assigned subcontracts and various subcontracts serve as potential threats for project quality. The delay for project payment, peculiarly for workers wages, is serious. Some projects can not manage the changes of designs, construction companies fail to follow the designs completely, which may lead to larger costs for construction. Some construction compani es emphasize on the control of quality and period but fail to control the cost. All these activities make the cost of construction project out of control in our country, which is denigratory for the sustainable and healthy development of construction industry. Gao (2009) has stated that the following is the difficulties in Cost Control of construction stage.2.2.1 Fail to Estimate the Project ExactlyThe project regard is performed at the very beginning, namely in the study of feasibility. Present compilation of study of feasibility is lack of details. No effective items to control the do of project. The estimation has a lower preciseness. Besides, the study of feasibility has no necessary investigation. Some potential geological disasters can not be identified effectively, which leads to the rise of costs. Although some companies make details for implement, the effect is poor. In order to establish the project, some companies may reduce the number of project and decrease costs.2. 2.2 The Compilation of Project Budget Has Poor ReliabilityAt the stage of design, the investigation is far from sufficient. Some fundamental materials for design are inexact. As a result, the design may be irrational and will be changed significantly in construction, which causes the poor reliability of budget.2.2.3 Working Drawing Budget is UnpracticalAt the working drawing design stage, compile the project budget according to the design. The working drawing budget is to calculate the cost of design. The rationality of working drawing budget is about how to work up the construction and how to reach the design requirements by what kinds of methods, plus how to arrange the construction period, and how to manage workers and machines under different seasons, according to scientific designs. All these tasks are alleged(a) to be arranged by construction companies. For design companies, to compile the budget is unpractical.2.2.4 Do not Follow Basic Construction Procedures and Can not Co ntrol CostsFor some projects, time is urgent. Therefore, the design is maybe imperfect. And the construction does not follow the staple fiber procedures strictly. Sometimes, the study of feasibility turns into useless papers. As a result, the estimation and the budget can not control the project cost effectively.2.2.5 Contract is not Managed WellSome developers neglect to manage contracts. They do not follow the terms written in contracts strictly. Besides, some developers can not calculate the cost of project quantities correctly. They are incapable of managing external workers effectively.2.2.6 Irregular Management and legion(predicate) Changes for ProjectDevelopers can not design properly and have to change the management methods. Or, the execution is weak. They can change the design as will. Then, the scale of project is increasing and the cost is rising.2.2.7 Rise of Cost Due to Un rationalnessable Financing StructureAt present, the funds for construction project in Malaysia are mainly from domestic loans, foreign funds, self-collected by construction companies, and other sources. Although pay ways are few and some are immature, limits are more. Sometimes, funds can not arrive in time. In order to insure the process of project, the construction companies have to apply loans from banks. Therefore, a large proportion of construction funds are from banks as loans. And the credit period is long and can not match with investment return. The characteristics of construction industry determine the lagged-behind investment return. One financing channel increases risks and costs, which leads to the accumulation of loan balance in banks, increasing construction costs and pressures for later in operation.2.2.8 System is imperfectOne of the factors that cause overspending is the management. briny items that cause overspending include management fees, compensation fees for removing, and supervision. Main reasons include Lack of a perfect cost control system and can not manage and control the cost systematically, which makes it hard to identify the out-of-control of cost in time. Lack the idea of cost control and the constraint mechanism. Project managers are always charge on quality and construction period, but not cost control. The absence of system makes the expenditure more irregular. No integrated standards for management fee are effective. Workers are more than necessary in construction companies.2.3 Factors Contributing to the Difficulties of Cost Control2.3.1 Control of labour costThe control of labour cost a great deal causing much troubles to Cost Control because of the productivity of labour is variable and causing the difficulty to the estimating stage. Although experienced estimators have their own database of historic cost data, but these data can only ever be regarded as an average for a given trade and does not make allowance for particular circumstances. A prediction of how labour will perform in the future on a particular pr oject must be incorporated into an estimate of cost. localise management is greatly affecting the labour efficiency and their productivity. It is important that all labour resources, either self-employed or employed as labour and materials sub-contractors, are fully supervised and co-ordinated, to ensure that the labour resources are efficiently organized and making best used of them. If the labour resources are not well organized, it may reduce the productivity of the labour and making cost of labour to be higher hence causing difficulties to Cost Control because the labour cost is different with the estimated cost.2.3.2 Site ConditionAfter the design of engineer, quantity surveyor will normally estimate the amount of the designed work, but due to the site condition is unpredictable, it cause the cost estimation is rather difficult. In many of the construction project, there are majority of unforeseen and differing site condition are found in subsurface work such as tunneling and f oundation work, such situation can also arise in rehabilitation and restoration work, retrofitting to meet rewrite seismic codes and projects that improve energy efficiency.Where ground water level is close to the surface of the site, closely pumping operation may be needed throughout the pedestal work. This unforeseen situation will increase the construction cost. A wet site may also involve raising temporary sheds and offices on brick bases and more costly temporary work. The cost of excavation in rock is much more expensive than working in normal ground. This type of strata will need to be examined and to determine what type of support is needed to the sides of excavation. All this will contribute to the difficulty in cost control when the construction method is carried out wrongly.2.3.3 Location of siteThe cost of building on a site in a city could be much expensive than construct a similar building on a provincial site. This is due to higher wages, materials and other costs. For instance, a project on a remote location site may involve long lengths of temporary access road and of temporary power cable for electricity suppliers and increased costs of transporting operatives and materials to the site. A site in a congested central area of a city will give rise to major problem in delivery and storage of materials and equipment, trade protection of adjoining building, construction method to carry out sub structure work, restriction on the use of mechanical plant and to the protection of the public. Overcoming these problem involve great additional cost and all these will considerably contribute to the difficulty in cost control.2.3.4 MaterialsIn some of the guides the cost of materials can be easy identified, and adjustment to the measured rate is therefore a simple process. Material prices often depend on contractor, location, quantity and discount and hence making the estimation process to be rather difficult. The materials wastage of site will also c ontribute to this because there will be difference between the actual amount used and the estimated amount used.2.3.5 Overheads and profitIn most case, during the estimation process, the amount of overheads and profit will normally just referred back to previous projects. But the amounts included in the published rates vary considerably. In some guides nothing has been allowed, and these expect the user to add an appropriate amount. In other information, up to 25% has been included on margins of 3%. In addition, overhead costs have generally been reduced in order to keep costs to an absolute minimum, while seeking to maintain the required workload. Builders will therefore need to access their own percentage and adjust this according to that quoted. Surveyors, in attempting to predict tender values, will also need to take this into account in their approximate estimate.2.4 Chapter SummaryCost Control in construction industry should be the application of procedures or regulation durin g the construction project life cycle to plan, check and verify the construction project expenditure based on the established procedures or regulations to ensure that the construction project expenditure is within the project budget, within given timeframe with quality specified and also to ensure that resources are used to best advantages or maximization of the profit for the construction project.Cost Control need to serves the purposes like to provide the relevant feedback, to provide the client with a value-for-money project, to provide data to assist in the valuation, to provide immediate warning of uneconomic operations, to limit the clients expenditure, to achieve balanced design expenditure, to summarize progress and to promote cost consciousness.Difficulties of Cost Control during construction stage are failed to estimate the project exactly, the compilation of project budget has poor reliability, working drawing budget is unpractical, do not follow basic construction proced ures and can not control costs, contract is not managed well, irregular management and many changes for project, rise of cost due to unreasonable financing structure and system is imperfect.Factors that contribute to those difficulties are control of labour cost, site Condition, location of site, materials and overheads and profit. It is necessary for management to study the difficulties involved and the factors contributing to these difficulties so that they will design a cost control system that more efficient for a particular project.Chapter 3 Research design and methodology3.1 IntroductionIn this chapter, the research methodology used in this research will be discussed. The method of conducting research to achieve the aim and objectives will be reviewed to ensure that all the information obtained is reliable.Among two research strategies that suggested by Naoum (2007), which is Quantitative Research and Qualitative Research, Qualitative Research will be used as the research stra tegy for this dissertation. The reason to use Qualitative Research is because of it allows the topic being studied to give much valuable answers to questions put to them.Structured interview will be conducted with at least five (5) contractors so that sufficient information can be obtained to proceed with the field work. The interview will be carried out face to face with the interviewee, however, it also may be carried out over the telephone or any other methods like email or webcam. The targeted personnel to be interviewed are contract executive, contract manager or the project manager of the company. Since it is a structured interview, the questions to be asked are presented in the same order and with the same verbalism to all interviewees.The main objectives of this interview section are to clearly understand the ability of the contractor in cost control and the difficulties that they are dealing with during cost control of project they undertake. While the other objectives are to ascertain the importance of cost control during construction stage with the contractor and last but not least to investigate the factors that contribute to difficulties that they are dealing with during cost control. The interviewing session has the advantage of providing experience or opinion based information for the dissertation.Questions prepared are open- ended questions for the interview so that in-depth information can be collected. The questions are set by referring to the aim and objectives, data obtained will be of the opinions and perception as individual interviewee knowledge and experience of research area.3.2 Questionnaire ConstructionThe principles that are followed in constructing the questionnaire for the research are as shown in Figures 3.1 belowResearch objectives+Literature reviewQuestionsLead toLead toIssues, topics and ideasPrinciples on how research objectives are translated into specific questions. (Naoum, 2007)Before constructing the questionnaire, the p otential ideas which can be developed into a questionnaire at a later stage are listed out. In order to have the ideas to develop into questionnaire, the research proposal and the literature review is reviewed and all possible questions which are related to the research is written down to obtained the first thought questions. Those listed out question are all based on the aim and objectives of the research.After the first thought questions have been identified, the final questionnaire is constructed by introducing a number of section or categories for the questionnaire and the first thought questions are fitted into these sections. The research questionnaire was divided into two sections in which the first section is to obtain the back ground and information of the interviewees as well as their organization. This is to ensur