Modelling of Cost Overruns in Building Projects in Abuja.
ABSTRACT
Construction of building projects is an endeavour that involves capital expenditure, which is either borrowed or self-financed by clients. The expected outcome of such expenditure is value for money, which is usually dictated by project objectives of cost, time and quality.
Project cost, as a project objective, is a crucial determinant of project success in the prevailing economic challenges being experienced globally. Construction cost overrun has become a reoccurring phenomenon in the delivery of building projects.
The major thrust of this study was to identify, analyse and model the factors that contribute to building construction cost overruns in Abuja.
The study adopted a Monte-Carlo technique in simulating cost overrun using DiscoverSim® version 1.1 (SigmaXL, 2013) simulation and RiskAmp Microsoft Excel add-in software to analyse data obtained from literature review, review of project documents with contract sum of over Five Million Naira executed within Abuja city in addition to interview sessions with construction professionals.
The study revealed that significant cost overruns are mainly due to re-measurement and variation.
The simulation result elucidated that less than 10% of building projects are completed below the initial contract sum in Abuja which could be due to the fact that projects tend to be initiated and executed without adequate project information such as client brief, design details and specifications.
The study recommends the need for minimizing occurrence of re-measurement in building projects through provision of full design information prior to contract award, development of simulation model for specific project categories and establishment of a project cost overrun band that will enable a scientific measurement of project’s value for money benchmarked against initial cost estimate.
TABLE OF CONTENTS
CERTIFICATION ………………………. III
DEDICATION …………………… IV
ACKNOWLEDGEMENTS …………. V
ABSTRACT ……………………… VI
TABLE OF CONTENTS ………… VII
1.0 INTRODUCTION …………… 1
1.1 BACKGROUND OF THE STUDY …………………….. 1
1.2 STATEMENT OF RESEARCH PROBLEM …………………….. 3
1.3 NEED FOR STUDY ……….. 3
1.4 AIM AND OBJECTIVES ……………. 4
1.4.1 AIM … ….4
1.4.2 OBJECTIVES ………. 5
1.5 SCOPE AND LIMITATIONS …………. 5
1.5.1 SCOPE ……………………. 5
1.5.2 LIMITATIONS ………………. 6
2.0 LITERATURE REVIEW ………………….. 8
2.1 CONSTRUCTION INDUSTRY …………………………………… 8
2.1.1 CONSTRUCTION INDUSTRY IN NIGERIA ……………….. 9
2.1.2 CHALLENGES OF BUILDING PROJECTS …………………….. 11
2.2 COST OVERRUN ………………. 13
2.2.1 CAUSES OF COST OVERRUN ……………… 14
2.2.2 EFFECTS OF COST OVERRUN ………….. 18
3.0 RESEARCH METHODOLOGY ……………………… 20
3.1 RESEARCH STRATEGY …………………… 20
3.2 RESEARCH TECHNIQUES ………… 21
3.2.1 RESEARCH SAMPLE ………………….. 21
3.2.2 DATA COLLECTION …………………… 22
3.2.3 DATA ANALYSIS AND PRESENTATION ………………………… 22
4.0 DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS ……… 28
4.1 DATA PRESENTATION AND ANALYSIS ………………………………….. 28
4.1.1 GENERAL INFORMATION ABOUT RESPONDENTS ………………………………….. 29
4.1.2 ANALYSIS OF PROJECT COST OVERRUN ………………………………………………… 29
4.1.3 FACTORS INFLUENCING BUILDING COST OVERRUNS ………………………….. 33
4.2 DISCUSSION OF RESULTS ……………………………………………………………………………….. 45
5.0 SUMMARY CONCLUSION AND RECOMMENDATIONS …………………………… 49
5.1 SUMMARY ……………… 49
5.2 CONCLUSION ………………………. 49
5.3 RECOMMENDATIONS ………….. 51
5.4 CONTRIBUTION TO KNOWLEDGE……… 52
APPENDICES ……………… 62
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Globally, the construction sector is inundated with cost overruns in the delivery of building projects. This experience has brought about loss of clients’ confidence in consultants, added investment risks, lack of ability to deliver value to clients, and disinvestment in the construction industry (Mbachu and Nkado, 2004).
It is of essence that the objectives of a building contract are met to the contentment of the parties involved. Cost, time and quality are significant, interrelated and interdependent targets for achieving the objectives/goals expected of building contracts (Ashworth, 1999, Gould, 2002).
Thus, it is crucial to keep up a proper balance between the three so that project outputs are realised on time, within the financial plan and with the requisite quality (Akinsola and Potts, 1998).
However, it is an admitted fact that in Nigeria, the majority of contracts suffer undue time extensions and /or additional cost to the client and /or inadequate quality of work (Oluwole, 2008b).
Project cost overruns can be either avoidable or unavoidable. Overruns due to design plan or project management problems are avoidable because they could have reasonably been foreseen and prevented (Shanmugam et al., 2006).
REFERENCES
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Akinci, B. & Fischer, M. (1998). Factors Affecting Contractors’ Risk of Cost Overburden. Journal of Management in Engineering, 14,(1)
Akinsola, A. & Potts, K.F. (1998). A methodology for evaluation of the variation clause in the standard forms of contract, Proceeding of COBRA 98, RICS
Al-Najjar, J. (2008). Factors influencing time and cost overruns on construction projects in the Gaza Strip. Master Thesis, Islamic University, Gaza
Ali, A.S & Kamaruzzaman, S.N. (2010). Cost Performance For Building Construction Projects In Klang Valley. Journal of Building Performance, 1(1)