Factors Affecting the Cost of Construction Project in Akure (A Case of Building and Construction Projects) i Table of Contents Table of Contents............................................................................................................................................................i List of Figure ............................................................................................................................................................... iii List of Tables ................................................................................................................................................................iv Dedication.................................................................................................................... Error! Bookmark not defined. Acknowledgements ..................................................................................................... Error! Bookmark not defined. Abstract..........................................................................................................................................................................v 1.0 INTRODUCTION .......................................................................................... Error! Bookmark not defined. 1.1. Background of the Study ............................................................................ Error! Bookmark not defined. 1.2 Statement of the Problem ........................................................................... Error! Bookmark not defined. 1.3 Research Questions .................................................................................... Error! Bookmark not defined. 1.4 Objectives of the study ............................................................................... Error! Bookmark not defined. 1.5 Research Hypotheses.................................................................................. Error! Bookmark not defined. 1.6 Justification of the study ............................................................................ Error! Bookmark not defined. 1.7 Scope of the research ................................................................................. Error! Bookmark not defined. 1.8 Limitation of the Research ......................................................................... Error! Bookmark not defined. 1.9 Definition of Terms ......................................................................................................................................1 2 LITERATURE REVIEW.................................................................................... Error! Bookmark not defined. 2.1 The Nigerian Construction Industry ........................................................... Error! Bookmark not defined. 2.2 The Roles of Construction Actors in Construction Cost ............................ Error! Bookmark not defined. 2.2.1 The Client .......................................................................................... Error! Bookmark not defined. 2.2.2 The Consultant .................................................................................. Error! Bookmark not defined. 2.2.3 The Contractor ................................................................................... Error! Bookmark not defined. 2.3 Cost in Construction Project ...................................................................... Error! Bookmark not defined. 2.3.1 Cost Performance .............................................................................. Error! Bookmark not defined. 2.3.2 Earned Value Analysis (EVA) .......................................................... Error! Bookmark not defined. 2.3.3 Description of Earned Value Management terms .............................. Error! Bookmark not defined. 2.3.4 Cost Overrun ..................................................................................... Error! Bookmark not defined. 2.3.5 Construction Cost Factors.................................................................. Error! Bookmark not defined. 2.4 The Effects of Factors on Construction Projects ........................................ Error! Bookmark not defined. CHAPTER THREE ..................................................................................................... Error! Bookmark not defined. 3.0 RESEARCH METHODOLOGY ................................................................... Error! Bookmark not defined. 3.1 Research Design ......................................................................................... Error! Bookmark not defined. 3.2 Study Area.................................................................................................. Error! Bookmark not defined. 3.3 Characteristics of the study population ...................................................... Error! Bookmark not defined. ii 3.4 Sampling design and procedures ................................................................ Error! Bookmark not defined. 3.5 Data collection instrument .......................................................................... Error! Bookmark not defined. 3.6 Administration of the data collection instrument ....................................... Error! Bookmark not defined. 3.7 Statistical tools for data analysis ................................................................ Error! Bookmark not defined. 3.7.1 Relative importance index ................................................................. Error! Bookmark not defined. 3.7.2 Spearman rank order correlation ....................................................... Error! Bookmark not defined. CHAPTER FOUR ....................................................................................................... Error! Bookmark not defined. 4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION ............ Error! Bookmark not defined. 4.1 Introduction ................................................................................................ Error! Bookmark not defined. 4.2 Analysis and Presentation of Descriptive Data .......................................... Error! Bookmark not defined. 4.2.1 Survey Responses .............................................................................. Error! Bookmark not defined. 4.2.2 Respondents’ Role in Construction ................................................... Error! Bookmark not defined. 4.2.3 defined. Respondents’ Professional Background (Consultants and Contractors)Error! Bookmark not 4.3 Data Presentation, Analysis and Discussion of Findings in Respect of Stated Objectives ................ Error! Bookmark not defined. 4.3.1 defined. Identification of the Main Factors Affecting Cost of Construction ProjectsError! Bookmark not 4.3.2 Perceptions among Clients, Consultants and Contractors on Importance of Factors Affecting Cost of Construction Projects...................................................................................... Error! Bookmark not defined. 4.3.3 Hypotheses Testing ........................................................................... Error! Bookmark not defined. 4.3.4 Effects of Factors on Cost of Construction Projects .......................... Error! Bookmark not defined. 4.3.5 Minimizing Cost of Construction Projects ........................................ Error! Bookmark not defined. 4.4 DISCUSSIONS AND FINDINGS ............................................................. Error! Bookmark not defined. CHAPTER FIVE ......................................................................................................... Error! Bookmark not defined. 5.0 CONCLUSION AND RECOMMENDATIONS ........................................... Error! Bookmark not defined. 5.1 Conclusion ................................................................................................. Error! Bookmark not defined. 5.2 Recommendations ...................................................................................... Error! Bookmark not defined. REFERENCES ............................................................................................................ Error! Bookmark not defined. 6.0 APPENDICES ................................................................................................ Error! Bookmark not defined. iii List of Figure Figure 2-1: Building & Construction GDP and contribution to total GDP .................. Error! Bookmark not defined. Figure 2-2: Data needed for earned value description ................................................. Error! Bookmark not defined. Figure 2-3: Earned Value Management Formula and Interpretation ........................... Error! Bookmark not defined. Figure 2-4: Earned Value Management Terms ............................................................ Error! Bookmark not defined. Figure 2-5: Performance Matrix .................................................................................. Error! Bookmark not defined. Figure 4-1: Respondents' professional background ..................................................... Error! Bookmark not defined. Figure 4-2: Respondents' Professional Background .................................................... Error! Bookmark not defined. List of Tables Table 2-1: Construction CostFactor ............................................................................. Error! Bookmark not defined. Table 4-1 Response Rate ............................................................................................. Error! Bookmark not defined. iv Abstract The construction industry continues to be one of the driving forces in the growth of the nation’s socio economic development. One of the major issues in construction industry is the problem of cost escalation: this has effects on the growth of the industry and resultant effects on the economy. The main focus of this research was the factors affecting cost performance of construction projects in Nigeria: Akure as a case study. The objective of the study was to find out the factors affecting construction project cost in Akure in and proffer solutions to how construction project cost can be minimized. The research involves cross–sectional survey of clients, consultants and contractors in construction related establishments in Akure. In Making this findings possible, fifty one questionnaires were administered using convenience and snowball sampling methods among stakeholders of construction industry in Akure and interpreted using both descriptive and inferential statistics. The research shows that all the three parties in construction industry are of the view that the five most important factors affecting cost of construction projects in Nigeria includes: cost of material, economic instability, additional work, poor financial control on site, wrong method of estimation/inaccurate or poor estimation of original cost and poor project management. The three most important effects are project abandonment, liability of companies or firms due to bad debt or bankruptcy, bad reputation and inability to secure project finance. Hopefully, the findings of this study will at least shield some lights to problem of cost escalation faced by Nigeria construction industry and effort can be taken to ameliorate it, thereby improving the industry v 1.2 Definition of Terms Client- It is project sponsor – The individual or institution responsible for initiating a project and who thus enters into the contract with the construction contractor to procure the project. Alternative terms for the client include “sponsor” or simply “owner”. Consultant-Individual hired by the owner or client to give professional advice during project execution. Contract Management-It involve negotiating the term and condition in contract and ensuring compliance with term and condition, as well as documenting and agreeing on changes or amendments that may arise during implementation or execution of projects Contractor-Specifically, any individual or group that enters into a binding agreement to provide specified goods or services; in the context of this work, a contractor is a construction company which undertakes to build a specified project for an agreed price and within an agreed timescale. Cost control-Deliberations, actions, and reactions to project cost fluctuations during a project to maintain the project cost within the project budget. Cost management- the process by which costs (expenses) incurred on a project are formally identified, approved, and paid. Cost Overrun- The situation of a construction project in which budgetary estimate exceeds estimation, budget exceeds budgetary estimate, and settlement exceeds budget. It is an instance in which the provision of contracted construction project are claimed to require more financial resources than was originally agreed between a project sponsor and a contractor. Cost Performance-A measure of efficiency of expenses spent on project. Measured by cost performance index (CPI) which is a measure of the cost efficiency with which the project is being performed. CPI is a function of cumulative earned value and cumulative actual cost Cost: Expenses incurred by contractor for labour, material, services, utilities, etc, plus overheads and contractor’s profits. Earned Value Analysis (EVA)-Earned value analysis is a method of performance measurement. It used by project managers to manage their project performance by comparing planned to actual results. 1 Financing bond- It is a debt security, under which the issuer owner the holders a debt, and depending on the term of the bond is obliged to pay them interest and or to repay the principal at a later date, term maturity. Human resources- Individuals who have inherent an acquired abilities to function to the benefit of an employer. Project management- Is the planning, delegating, monitoring and control of all aspects of the project, and the motivation of those involved, to achieve the project objectives within the expected performance targets for time, cost, quality, scope, benefits and risks. Project manager: The individual responsible for delivering a project within the cost and timescale agreed in the contract. The project manager may be employed either by the project sponsor or by the contractor. Alternatively he may be appointed independently by the institution providing a major part of the funding for the project. Quality: Quality is generally defined as the totality of features and inherent or assigned characteristics of a product, person, process, service and/or system that bear on its ability to show that it meets expectations or satisfies stated needs, requirements or specification. Relative importance: This is the measurement of importance of an entity, factor, or variable in comparism/relative to others. In this research relative importance of factors affecting cost performance of construction projects are explored. Scope: the total aggregation of deliverables to be produced by the project. A deliverable is a quantifiable outcome of a project which results in the partial (or full) achievement of cost budgeting, project objectives. Stakeholders: Individuals who either care about or have a vested interest in the project. They are people who are actively involved with the work of the project or have something to gain or lose as a result of the project. In a construction project, major stakeholders includes: client, contractor and consultant. 2 Appendix 1: Survey Instrument 3 4 5
