ABSTACT
The importance of accurate estimates
during the early stages of cost planning of capital projects
has been widely recognized for many years. Even so, very few quantitative methods
are available that enable estimators and business managers to objectively
evaluate the accuracy of early estimates and planning.
The primary purpose of this study
was to identify and examine the factors affecting accuracy of cost planning of
building projects as it relate to the Nigerian construction industry. To accomplish
this aim, quantitative data were collected from consultant Quantity Surveyors.
Each of the respondents was asked to assign a one-to-ten rating
for each of 10 potential drivers of estimate accuracy for a
given estimate. The data were analyzed using simple statistical
tools which include; mean, standard deviations and percentages were used to
represent the information. The study analysis identified 5 of
the 10 factors that were most significant at the level. In
this finding the five factors, in order of significance were,
Amount of information available, Time allowed to prepare the estimate,
Experience of the consultant team, Complexity of the project, and bidding and
Suitability/stability of the market.
Cost estimating and planning is a fundamental part
of the construction industry. The success or failure of a project is dependent
on the accuracy of several estimates through-out the course of the project.
Construction estimating is the compilation and analysis of many items that
influence and contribute to the cost of a project. Estimating which is done
before the physical performance of the work requires a detailed study and
careful analysis of the bidding documents, in order to achieve the most
accurate estimate possible of the probable cost consistent with the bidding
time available and the accuracy and completeness of the information submitted.
Overestimated or underestimated cost has the potential to cause loss to local
contracting companies.
TABLE OF CONTENTS
Title page………………………………………….……………………………………………i
Declaration…………………………………………….………………………………………ii
Certification………………………………………………….……………………………….iii
Dedication…………………………………………………………………………………….iv
Acknowledgement………………………………………………………………………….….v
Abstract………………………………………………………………………………………vii
Table of content…………………………………………………..…………………………viii
Table of figures……………………………………………………………………………….ix
List of tables……………………………………………………………………….…………..x
CHAPTER
ONE
1.1 INTRODUCTION………………………………………………...………………….….1
1.2 Statement of the
problem…………………………………………..…………………..…3
1.3.0 Aim and
objectives…………………………………………..………………………….4
1.3.1
Aim………………………………………………………….…………………………..4
1.3.2
Objectives………………………………………………………….....…………………4
1.4.0 Scope and
limitation……………………………………………...……………………..4
1.4.1
Scope…………………………………………………………………………...…….…4
1.4.2
Limitation…………………………………………..……………………………..…….5
CHAPTER
TWO
2.0
LITERATURE REVIEW………………………………………..…………….…...…6
2.1.1
Cost planning………………………………………………………………...……...…6
2.1.2 History and Development
of cost planning…………………………….…..……...…6
2.2.0
Cost control………………………………………………………………….……..….7
2.21
Definition………………………………………………………………………….….7
2.2.2
Cost plan………………………………………………………….……………………8
2.3
Approximate estimating………………………………….……………...…………….8
2.4.0 Concept of cost
planning………………………………………………………..…….9
2.4.1
Preliminary cost planning ………………………………………..…………………..10
2.4.2
Cost planning reports…………………………………………..………………….…10
2.5.0
Cost Planning techniques/methods………………………………………………..….12
2.5.1
Various cost planning techniques……………………………………………...……..12
1.5.1.1 Easy cost planning
(ECP)……………………………………………………………12
2.5.1.2 Network
costing………………………………………………………………….….13
2.5.1.3 Detailed costing………………………………………….…………………………..13
2.5.1.4 Unit costing……………………………………………………………….………….14
2.5.2
Elemental cost planning…………………………………………………………...…14
2.5.3
Comparative cost planning……………………………………………………..…….15
2.6
Uses of cost planning………………………………………….…………..…………15
2.7
Factors affecting the accuracy of cost planning………………...……………………16
2.7.1
Location factor……………………………………………………………….………16
2.7.2
Design factor…………………………………………………………….…………...17
2.7.3
Qualitative factor…………………………………………………………..…………19
2.7.4
Construction factor…………………………………………….……………………..19
2.7.5
Time factor……………………………………………..……………………….……19
2.7.5.1
Project complexity……………………………………………………………………20
2.7.5.2
Availability/amount of project information…………………………….……………20
2.7.5.3
Technological factor………………………………………………………….………21
2.7.5.4
Contract requirements/stage of work………………………………...………………21
2.7.5.5
Team’s/contractor’s/consultant’s experience and efficiency……….………………..21
2.7.5.6
Stability of market/market requirement………………………………...……………21
CHAPTER
THREE
3.0 RESEARCH
METHOD………..……………………………………………...………25
3.1 Population
and sample………………………………………………………………....25
3.2 Survey
method……………………………………………………………………….…26
CHAPTER
FOUR
4.0 DATA
PRESENTATION, ANALYSIS AND INTERPRETATION………………..28
4.1 Data
collection…………………………………………………………...……..………28
4.2 Data
presentation and analysis……………………………....………………..………..30
CHAPTER
FIVE
5.0 CONCLUSION
AND RECOMMENDATION………….……………………....…….50
5.1 Conclusion………………………………………………………………………..……..50
5.2 Recommendation………………………………………….…………………….………52
References and Bibliography………………………………………………………………...54
APPENDICES
APPENDIX I………………………………………………………….………………..……59
LIST
OF TABLES
Table 4.1.0: Description of data collection from
questionnaire survey. Error! Bookmark not
defined.28
Table 4.2.0: Summary of results’ table showing how often
the respondents prepare cost plans for building, civil engineering, heavy
engineering, and services works. 32
Table 4.2.1: Percentage ranking of work type showing how often the
respondents prepare cost plans for building, civil engineering, heavy
engineering, and services works…………………………………………….33
Table 4.2.2: Respondents' preparation of cost plans for their
organization……………………………………35
Table 4.2.3: percentage of building projects handled in which cost plans
were prepared by
respondents…………………………………………………………………………………………………………………………………...36
Table 4.2.4: Method(s) used for preparation of cost planning………………………………………………………….37
Table 4.2.5: Cost planning method(s) that is/are mostly used in the
respondents' organization………38
Table 4.2.6: Respondents’ reason for choosing a given
cost planning method(s) 40
Table 4.2.7: Urgency of demand for cost plans when
commissioned. 42
Table4.2. 8: Adequacy of time to meet ClientsDemand
for cost plans. 43
Table 4.2.9: Source of Data mostly Used for Cost
Planning. 44
Table 4.2.10: Accuracy and Reliability of Cost Plans
being Used. 45
Table 4.2.11: Factors that affect the accuracy of cost
planning of building projects. 46
Table 4.2.12: Mean score and standard deviation for
factors affecting cost planning of building projects in Nigeria 47
CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
Costing in building
construction is the application of price to schedules of item of labour and
materials in order to obtain an approximation of cost of construction project
(Ibrahim, 2004).
Cost planning of construction project is
concerned with keeping the cost within a predetermined cost estimate during the
pre-contract and post-contract stages of the construction works. The process of
pre-contract cost planning involves the preparation of an approximate estimate
amongst others. The object of the approximate is to provide an estimate of a
probable cost of a project before detail design or post-contract service (Hoer,
1997).
Today’s client needs are becoming more
sophisticated and complicated leading to difficulties in estimating the
probable cost of construction works. The clients themselves are becoming more
sophisticated in the level of in-house technical expertise and techniques available
to them and they in turn expect a high level of efficiency, accuracy and
expertise from their professionals. The introduction of new construction
methods, materials and systems create greater difficulties in assessing and
planning for the capital and maintenance cost of construction.
Adams (1999) reported
that cost planning has become more sophisticated over the last decade and is
increasingly becoming a service that the employer is expecting from the
Quantity Surveyor to ensure that he receives better value for money and the
project cost is kept within the budget.
Cost planning of
construction projects is aimed at ensuring that the resources are used to the
best advantage amidst alternating high cost of construction resources and acute
shortage of funds as clients increasingly insists on project designs to be
executed in a way to give them better value for money when completed.
However, there are
several factors that may affect the efficiency of cost planning at different
stages of the project; from the pre-contract through the post-contract stage.
Although, careful detailed order of work will definitely reduce these effects
that lead to the large discrepancies between the tender figures and final cost
of the construction.
The accuracy of cost planning is
measured by how well the estimated cost can be compared to the actual construction
cost (Oberleder and Trost, 2002).
Hore (1997) stated that the level of accuracy
of a cost plan depends upon the level of information availability at time of
preparation.
Pre-tender cost estimating and planning
of building projects requires extensive knowledge and expertise. Due to
inadequate design information in the early design stages, it is extremely
difficult for Quantity Surveyors to arrive at accurate cost estimates and cost
planning becomes inefficient (Koleola and Henry 2008).
According to Koloela
and Henry (2008), there are seven most important factors, based on the construction
industry experience of the Quantity Surveyors which affect the accuracy of
pre-tender cost planning.
The seven most important factors as
highlighted by Koloela and Henry are; expertise of consultants, Quality of
information and flow requirements, project team’s experience of the type of
construction, tender period and market condition, extend of completion of pre-tender
designs, complexity of design and construction, availability and supply of
labour and materials.
Taking these factors into consideration
at project inception stage could improve the accuracy of the preliminary cost
advice consultant quantity Surveyors give their clients.
1.2
STATEMENT OF THE RESEARCH PROBLEM
It has been discovered that in practice,
contractors device their own methods of cost planning and bidding and the
accuracy of their methods is doubtful (Akintoye, and Fitzgerald 1999 citing
Law, 1994). The importance
of accurate estimates during the early stages of capital projects
has been widely recognized for many years. Early project estimates
represent a key ingredient in business unit decisions and often
become the basis for a project's ultimate funding. However, a
stark contrast arises when comparing the importance of early estimates with the
amount of information typically available during the preparation
of an early estimate. Such limited scope definition often leads
to questionable estimate accuracy. Even so, very few quantitative methods
are available that enable estimators and business managers to objectively
evaluate the accuracy of early estimates. The problem here is how
to establish such a model to assess the factors affecting the accuracy of cost
planning. To accomplish this, quantitative data were collected
from consultant Quantity Surveyors from the construction industry.