AN ASSESSMENT ON THE APPROXIMATE ESTIMATE PERFORMANCE IN FORECASTING THE ACTUAL COST OF CONSTRUCTION PROJECTS IN NIGERIA

AN ASSESSMENT ON THE APPROXIMATE ESTIMATE PERFORMANCE IN FORECASTING THE ACTUAL COST OF CONSTRUCTION PROJECTS IN NIGERIA.

ABSTRACT

The study is undertaken to check the variances between the estimated cost and the actual cost of building construction project with the view of achieving an objective to identify the method of approximate estimate, to ass concepts of estimating with approaches to approximate among others. Sixty (60) numbers of questionnaires was distributed for collection of primary and secondary data from contracting and consultancy firm. The tools used for analysis were percentile method, factor analysis method and simple arithmetic mean method. The study therefore found that the most frequently used method in contracting and consultancy firm are elemental cost analysis and unit quantity method of preliminary and detailed cost estimate respectively. It is therefore recommended that quantity surveying regulatory board should set up a committee to provide a regional costing and pool of cost data bank for all practicing firm to subscribe, and Quantity Surveyors should concentrate on significant factors responsible for the variability between estimated cost and actual cost of construction to reduce the variances between the estimated cost and the actual cost.

CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND TO THE STUDY
Quantity surveying as stated by Abdi, (2007) is a profession concerned with the provision of advice on construction cost, the preparation of tender documents and the financial administration of contracts. The Quantity Surveyor is responsible for the study of economics and financial implication of a construction project and provision of professional advice on to the client and architect on matter relating to the economy and cost of a proposed project.

In project management triangle (cost, time and quality), (Leng, 2005) opined that cost is among the major contributor to the successful completion of a project and a major consideration throughout the project management life. It can also be regarded as one of the most important parameters of a project and the driving force of project completion success.While an estimate is a prediction of the expected final cost of a proposed project (for a given scope of work), the cost estimate therefore accounts for all items that will generally be included in the general contractor’s bid. The cost estimate is prepared by breaking down the items of work using a standard format and determining the cost of each item from experience and a database of current construction cost information (Hemphill, 1968).

Performance has been described as “the degree of achievement of certain effort or undertaking”, it relates to the prescribed goals or objectives which form the project parameters (Choon and Ali, 2008). From project management perspective, it is all about meeting or exceeding stakeholder’s needs and expectations from a project. It invariably involves placing consideration on the three major project elements i.e. time, cost and quality (Ashworth, 1994). It has been pointed out that, in today’s highly competitive and uncertain business environment, the client who is the major stakeholder, want quick delivery of their project with early start of construction work and certainty of performance in term of cost, quality and time, value for money for their investment, minimal exposure to risk and early confirmation of design and price or cost which results in a good performance of cost (Madi, 2003).

Cost estimates performance of construction projects can therefore be described as a key success criterion for project sponsor. Cost estimates performance is an effective technique in construction management and is widely accepted in the construction industry for measuring the variability of cost estimates (Lasisi, 2008). It is typically measured by comparing actual or final construction cost against estimated or initial cost plan (Chimwaso, 2000). Cost estimates performance of a construction project can also be described as the effectiveness of the estimates prepared for particular project.

A cost estimates at a given stage of project development represents a prediction provided by Quantity Surveyor on the basis of available data, According to American Association of Cost Engineers. Cost estimation of construction projects with high accuracy from inception to completion stage of a project is crucial for planning and feasibility studies, it is an essential component of infrastructure projects and also one of the most important construction management functions (Skitmore, 2002). The success or failure of a project is dependent on the accuracy of estimates which is typically used to establish a project budget, but may also be used for other purposes such as: determining the economic feasibility of a project; evaluating between project alternatives; and providing a basis for project cost and schedule control. Therefore accurate cost estimates optimize good contracting (Ahuja, et al; 1994). A cost estimate can be an important management tool to library planners during the design phases of a project providing information about the facility and the project budget.

There has been an increasing degree of unreliability predicted cost which is due to inevitable socio-economic and technological variability. The fact that client remembers mostly the first estimate given to him by his consultant and that this has the influence on the client’s decision to engage in a construction project, should place the onus on the cost consultants to give reliable cost forecast as much as possible(Ahuja, et al; 1994). Ashworth (1988) opined that a preliminary estimate at wide variance with the final cost renders the estimators liable for negligence, as it amounts to not providing a reasonable professional cost advice.

Furthermore, to curtail the disparity between estimated cost and actual construction cost, cost need to be controlled to keep the construction cost within the estimated cost. According to Oyediran, 2002, clients have and will become more demanding on the value of money to spend that is obtaining a project that is functionally satisfying within the desire time frame.

1.2 PROBLEM STATEMENT

Chimwaso (2000) noted that, improving the cost performance of construction projects remains one of the challenges facing construction industry in developing countries. Onabule (1991) also pointed out that the high variance between estimated cost and actual cost of construction projects is one of the major problems affecting the cost performance of construction projects. Also, Kumaraswamy and Chan (1995) stated that construction cost mostly deviate from the estimated cost, client budgetary limit is exceeded to a degree that project is abandoned. This problem is quite serious and has led to poor performance of the industry. This poses a challenge to the professionals, a challenge to improve on the accuracy of cost estimates thereby improving the cost performance of construction project to the satisfaction of the client.

Previous research has attempted to discover the reasons for the disparity between estimated and actual cost, although without much success (Ashworth, 1988). This research is of great importance in that it raises the level of awareness and gives the design team a sense of preparedness from the inception of the project. This study will review some research questions such as:

1. What are the methods used for construction cost estimating?
2. What is the level of accuracy of construction cost estimates?
3. What are the factors that influence the level of accuracy?

1.3 AIMS AND OBJECTIVES

This study is aimed at determining the level of accuracy of estimated cost of construction projects with a view to determining cost estimates performance. The specific objectives are to

1. Identify the methods used for approximate estimating.

2. Assess the method of approximate estimating used for building project.

3. Determine the level of accuracy of construction cost estimates, and

4. Examine the factors that influence the level of accuracy.

1.4 SIGNIFICANCE OF THE STUDY

Heffner (2004) said that cost estimates performance is an effective tool in project management technique. It was also stated by them that it is important to study more detail on costs of building and it was agreed upon by Ashworth (1994) because they both found out that “cost studies of buildings consist of the application of the techniques and expertise of economics to construction projects”. Also, it is to ensure that available resources are used efficiently and to increase the rate of growth of construction work in the most efficient manner so as to avoid cost variance which is one of the challenges facing project development and is a regular feature in construction industry. It then becomes necessary that the industry needs to analyze its practice against the different factors that are linked with poor cost performance. The elimination of such factors will lead to an effective performance.

Iyer and Jha (2005) identified many factors as having influence on construction project cost performance, these include: project manager’s competence, top management support, project manager’s coordinating and leadership skills, method of cost estimating adopted, monitoring and feedback by the participants, decision-making, coordination among project participants, owners’ competence, social condition, economic condition, and climatic condition.

Amusan (2007) wrote on the study of factors affecting construction cost performance in Nigerian construction sites. It was discovered from the analysis that factors such as Contractors inexperience, inadequate planning, Inflation, incessant variation order, and change in project design were critical to causing difference in cost estimates, while project complexity, shortening of project period and fraudulent practices are also responsible. The importance of this research is then found in the fact that it raises awareness about current practices in the construction industry in Nigeria, and also measures this against qualitative benchmarks, therefore leading to improved cost performance of Nigerian construction projects.

This study will assist to inform project promoters including the Government and the other members of the building team about the factors that give rise to high differences between estimated cost and actual cost of construction projects. When they are informed about the above and try to implement the recommendations arising therefore, this is bound to have a positive impact on the administration of construction projects in this country and even beyond, while the multiplier effect will be to the economy as a whole.
This research has its importance in construction management and to potential benefits, which are as follows:

Clients: Clients objectives are to meet budget, low maintenance cost, time, functionality or performance. All clients must also have in mind that an arbitrary change in taste which the client look at as a small thing, can bring about a major effect on cost and time for the project. The research enables the client to be careful when making decisions that may lead to variations during the project which may lead to differences in cost estimates.

Consultants: This gives the consultants an insight into the possible problems of cost estimates variances. The consultants may need to provide varying alternatives for choices at the initial stage of things for the client. Also, a provisional sum can be provided for in situations where the cases of variations sets in which if unused go back to the client.

Contractors: It gives the contractor the awareness of cost and time overrun during construction and also brings to their notice the effect of the high differences between estimated cost and actual cost on the completion cost and time.

Researchers: It is hoped that an understanding of problems likely to be faced by an intending client without proper information pertaining to arbitrary choices made, could adversely affect all structures put to see to timely completion of the projects. It allows the researchers to know where to examine in terms of trying to analyze cost. Also, an assessment of this research would enable Clients, Contractors and Consultants give an economic approach to construction work such that they would be able to identify the dominating factors leading to the differences between the estimated cost and actual cost of construction projects.

1.5 SCOPE AND LIMITATION OF THE STUDY

This study was set out to determine the level of accuracy of estimated cost of construction projects. Target respondent for this study are the Consultant and Contractor Quantity Surveyors in Kaduna State. The projects was limited to completed projects like offices, residential, market or shopping complex, institutional, factory, warehouses and religious building that were executed within the past 5years in Kaduna State. The choice of Kaduna as the study area is because since the creation of the state in 1967. It has never ceased to be the centre of construction activities with an articulate development and enduring infrastructure and construction work.

1.6 RESEARCH METHODOLOGY

To achieve the aim and objectives of this study, research will be based on the following

1. Theoretical review of literature in textbooks, journals, lecture and seminar papers.

2. The use and administration of structured questionnaire

CHAPTER TWO
LITERATURE REVIEW

2.1 INTRODUCTION
The cost estimate performance of construction projects is a key success criterion for project sponsors. Project cost estimate performance is typically measured by comparing actual cost against budget or estimated cost (Leng, 2005). Chimwaso (2000) noted that, improving cost estimate performance of construction projects still remains one of the challenges facing the construction industry in developing countries.

Usually at the start of a construction project, a breakdown of cost involved is made and planned for throughout the period of the construction of the building. While following these schedules, situations arise where the budgeted or planned time and cost are exceeded. Despite all the attention placed on the project cost, cost variance is still a major problem in the construction industry. The actual construction time and cost of construction projects may be affected by the client, project and contractual characteristics and in many cases can be very different from the contract time and cost (Skitmore & Ng, 2003).

This study intends to run a comprehensive overview of determining the level of accuracy of estimated cost of construction project with a view to determine cost estimates performance which depends to a large extent on the accuracy of cost estimates of construction projects prepared. It is also aimed at ensuring that resources are used to the best advantage using an accurate estimating method with the alternating high cost and a bid differences between estimated and actual cost of a project.