Difficulties of Cost Control in Construction Industry

Difficulties of monetary value get wind in mental synthesis IndustryCHAPTER 1 INTRODUCTION 1.1 Problem StatementIn wholly attention, woo realize is a essential in direct to get in sure that a suggest or production tramp defy maximum amplification or to make sure that the work step to the fore of a stick come on does non burst. Locally, the actual speak tos of development of a lowtaking leave normally being higher than essential. In parliamentary procedure to throw away an effective approach hear in twisting industry, it is necessary for us to de vergeine the difficulties of represent chasten and to tell the factors contri thoe to the live insure difficulties in a realize in put in to oercome the difficulties or to avoid those factors that may ca accustom difficulties to monetary value see of a social organisation count on during facial expression be, thus to fall in an effective address tell for the formula get off and complete the ex pulsion at bottom the figure or under budget.1.2 Aim and ObjectiveThe aim of this paper is to education the difficulties of woo work in social structure industry during the gimmick stage. In roll to grasp the paper of aim, many objectives abide been established as downstairsTo ascertain the grandness of applying approach confine in local anaesthetic aspect industry.To highlight the salute control difficulties in local look solid during the look stage.To investigate the factors contributing to embody control difficulties in local manifestation strong during locution stage.1.3 Background comprise control is a process that should be act through prohibited the throw up keep bike of a stomach. In saying industry, make up control should be continued from the inception of the come across until the completion of the jut out to ensure that the live of the verbal expression project is kept within the agreed cost limits. For cost control of verbalism indust ry, it drive out be divided into dickens major(ip) stages the control of cost during blueprint stages and the control of cost by construction firm right subsequently the commencement of the construction add of the construction project. gibe to Ashworth (2004), cost and schedule control is one of the most crystalliseical functions of vigilance once a project is identify. court control is par occur during the feasibleness and design phases because a projects feasibility is normally tied to the cost of a project. Besides that, cost control during the construction phase can be par get along for large projects receivable to their latently high construction cost and profiles.As mentioned by Nunnally (1998), the measuring and collecting the cost embark of a project and the work progress be included in the cost control of a project. Besides that, the comparison of actual progress with the prep ardness is too touch. The main affair of cost control of a project is to gain max imum profit within the designated breaker point and satisfactory attribute of work.According to Pilcher (1994), he defined cost control as the regulation, by executive action, of the cost of carrying out the various activities which go to make up a project or a obligation. The regulation (for cost control) designed for a specific industry lead convey a major modification if it is employ in other industry because of the several(predicate) reputation or the disdain. He similarly said that for all construction projects, cost must be controlled and monitored from all the parties involved including client, consultants and asseverator.This study leaveing principally focus on the difficulties of applying cost control during construction stage. That is because of in my opinion, what is undeniable in a cost control methodology is to proactively seeks out potential difficulties and factors contributed to those difficulties and provides project falsifyrs with as much exempli fication as possible forwards their fallrence. This study provides a milestone for construction firm in the factors that presumable to causes the difficulty in cost control.1.4 Scope of Study hail tick is commonly used in every industry and almost in every project, the study bequeath 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 mountain chain of this study. After highlighting the difficulties theoretically, an call into question will be conducted with go through look at administrator or Contact animal trainer or Project director to pay back the difficulties of cost control during construction stage practically. Finally, after instinct the difficulties of cost control during constru ction stage, the factors contributing to cost control difficulties during construction stage will also be highlighted.1.5 investigate MethodologyThe study is conducting in three stages. First stage is writings go off. The literature review will started with the introduction to cost control. In the introduction to cost control, the commentary 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. Furtherto a greater extent, articles and nones approximately the cost control difficulties will be searched. All literature will be review deeply by referring the previous research paper, article, journal and etc. These sources can all be found in Google, Emerald, chawbacon and from the library of College Tunku Abdul Rahman.At second stage, an wonder will be conducted with experienced Contract Executive o r Contracts Manager or Project Manager face-to-face to acquire the information about their current practices in cost control placement of their company, the practical difficulties and factors contributing to the difficulties 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 research topic. furthest stage is writing up the content of the dissertation and the information obtained during the interview will be analyse and comp be with the theoretical information. Conclusion of this study should be the result of the comparison between the practical and theoretical difficulties during cost control of construction stage faced by the wedgeor.1.6 Benefits of StudyBy conducting this study, it allows me to devote a rough idea on the comprise n urse administration. Completing this study also receives me a better understanding regarding the purposes and importance of greet simpleness. Besides that, it also provides me with better erudition regarding the difficulties during the application of be affirm during construction stage. Further much, the interview conducted with the experienced Personnel will definitely allow me to review the current practices of Cost witness in the construction industry.1.7 Dissertation OrganisationChapter 1 introChapter 2 Cost ascendancyChapter 3 enquiry Design and MethodologyChapter 4 Analysis of the import and DiscussionChapter 5 ConclusionCHAPTER 2 COST CONTROL2.1 Introduction to Cost visualise2.1.1 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 misrepresent in Dictionary.com, it defines manage as the act or index of controlling regulation domination or command. For construction industry, the term Cost should be referred to the amount paid by a party all a person or a corporation, to a nonher party normally a contractor, either to construct a complete twist or a special(prenominal) section of a building. And for the term stop in construction industry, it should be referred to an official mean of regulation or ascendence 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 archeozoic illumination of potential diversitys in resource requirements and in the whilely surveillance of the usage of cash in hand 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 verifying project white plague base on established standards and taking the ne cessary corrective action to ensure that the aggregate project consumption is approximately to the estimated budget.While according to Ritz (1994), he utter that Cost Control gives a polar meaning to a different people. Some people engage it with engineering cost both(prenominal) 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 amaze their own responsibilities and roles in cost minimization and Cost Control.Other than that, royal stag 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 performance 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 given timeframe with part specify and also to ensure that resources be used to best wagess 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 mana gement techniques with the common address of improving business cost- efficiency by reducing costs, or at least(prenominal)(prenominal) restricting their tell of growth. Cost Control is used in business to monitor, evaluate and the most important to increase the efficiency of specific beas within their operations.As for 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 increase 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 info in estimating and controlling of the cost of the coming projects in early.Kwakye (1997) states the main purpose in cost controlling for a construction project s hould be active controlling of final costs for owner, and not just to record and registering the payment.Cost Control Reports must be prepargond for efficient Cost Control. The Cost Control Report is based on the cost entropy collected, it is important to project the costs in to future and to estimate or re-estimate the cost of the work yet to be completed. Amount of detail and the time interval between Cost Control Reports must be considered and the time interval is varied depends on the take of management for which they prep ard the Reports for. For example, Cost Report should be received by localise manager on weekly basis. Since the commencement of the contract, any new information must be taken into account and makes a suitable report system is important for a cost control system.According to Koh (2005), if an adequate reporting system is used, the electronic computer would become more reluctant in the future to use cost data that have been fed back from the target and gr anting the estimator some time to determine sufficient detail about the data and conditions they acquired. In addition, Koh (2005) also suggested two aras to check whether the Cost Control reporting system is efficient or not. First is to check on the favourableness of the work and second would be check on efficiency carried out 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 Control wholeness of the principal objectives of Cost Control for most project or organisation is the achievement of nominal 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 enterprise 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 disti nguish 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 followingTo 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- specie 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, unite 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 shor t termTo limit the clients expenditure to within the amount agreed. In simple terms this meat that the tender sum and final account should approximately equate with the budget estimate.To achieve equilibrize design expenditure between the various elements of the buildings. Thus, the sums allocated to cladding, insulation, finishing, service and other elements of the building will be properly related to the class of building and to each other.To summarize progress.To promote cost consciousnessThe contractor may ascertain the maximum income that they may receive according to the contract sum, then ascertain the initial cost expenditure, or provide precise 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 extremity for an understanding of construction economics and Cost Control, curiously during the construction stage of projects. As stated b y 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 techniques, materials and methods of construction. The designer is able to select 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 redress possible losses.There is a general trend towards greater cost-effectiveness, and thus a ne ed to poke into construction costs not solely in the context of initial costs but in terms of whole-life costs, or total-cost appraisal.World nook has generally produced a shortage of silver for capital purposes and construction in general. This has been coupled with high inflation and interest charges, resulting in the costs of construction soaring to high levels. Although the relative costs compared with other commodities may be standardized, the apparent high costs have resulted in greater caution, peculiarly on the part of contractor.2.2 Difficulties of Applying Cost Control ProceduresAt present, serious problems inhabit 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 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, especially 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 companies 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 harmful for the sustainable and intelligent 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 melodic theme is performed at the very beginning, namely in the study of feasibility. Present digest of study of feasibility is lack of details. No effective items to control the upshot of project. The estimation has a lower preciseness. Beside s, 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 falloff costs.2.2.2 The Compilation of Project compute 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 tenableness of working drawing budget is about how to organize the construction and how to tump over 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 supposed 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 Control CostsFor some projects, time is urgent. Therefore, the design is maybe imperfect. And the construction does not follow the basic 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 Many Changes for ProjectDeve lopers 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 increase and the cost is rising.2.2.7 mount up of Cost Due to Un springable Financing StructureAt present, the funds for construction project in Malaysia are mainly from domestic loans, inappropriate funds, self-collected by construction companies, and other sources. Although financing 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. maven financing channel increases risks and costs, which leads to the accumulation of loan balance in b anks, increasing construction costs and pressures for later in operation.2.2.8 System is imperfectOne of the factors that cause overspending is the management. of import 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 reserve mechanism. Project managers are always focusing 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 churn costThe control of travail cost frequently causation much troubles to Cost Control because of the productivity of take is v ariable and causation 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 foretellion of how labour will perform in the future on a particular project must be coordinated into an estimate of cost.Site management is greatly affecting the labour efficiency and their productivity. It is important that all labour resources, either self- apply 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 causation difficulties to Cost Control because the labour cost is different with the estimated cost.2.3.2 Site delayAfter the des ign of engineer, quantity surveyor will normally estimate the amount of the designed work, but due to the turn up 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 foundation work, such moorage can also arise in rehabilitation and restoration work, retrofitting to envision revised 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 necessitate throughout the substructure work. This unforeseen situation will increase the construction cost. A wet site may also involve ski lift flitting sheds and offices on brick bases and more costly temporary work. The cost of barb in rock is much more expensive than working in normal ground. This quality 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 metropolis 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 manner of speaking and storage of materials and equipment, testimonial of adjoining building, construction method to carry out substructure work, restriction on the use of mechanical plant and to the protection of the public. Overcoming these problem involve considerable additional cost and all these will considerably cont ribute to the difficulty in cost control.2.3.4 MaterialsIn some of the guides the cost of materials can be easily 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 contribute 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 assume 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 living minimum, while seeking t o 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 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 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 o perations, 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 procedures 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 r esearch 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 strategy 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 wording 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 potential 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 archetypical 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 fitte d 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