projects. The studies also deal with the issue of cost escalation and way it is currently being handled in building construction. Cost escalation has impact on the quality, project schedule and cause hindrance in project completion. Cost escalation is major provision in the cost estimation process which yield values for increase in the cost of equipment, material, labor, etc...Due to continuous price changes over the time. Most significant cost escalation factors are raw material input price, demand and supply, power tax, transportation cost, inflation, taxes, exchange rates and government policy. The acceleration in price of materials has a direct effect on the delay in project completion, quality and disputes.
Keywords: cost escalation, construction
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This industry consumes 40 to 50% of the national five year plan outlay and contributes 20% of gross domestic product. Medium to large scale industry take over a year for completion and the cost of material and labor often increase, which leads to major problem in administration of contract. Over the past few years the construction industry has facing several problems due to rapid increase in price of construction material, labor, interest charges and equipment cost. Rate escalation is defined as changes in the cost or price of specific goods or service in given economy period. This similar concept of inflation and deflation except that escalation specific to an item or class of item it is often not primarily driven by change in the money supply, and it tend to be le sustained.
While overrun include general inflation related to the money supply, it is also driven by change in technology, practice and particular supply and require imbalance that are
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Study has demonstrated the development, historical testing and forecasting applications of plant cost index for the process industries. The emphasis is placed on a disaggregated analysis of material, equipment and labor cost in order to account for differing inflation profiles of each over time. The plant cost index which results is a weighted compilation of disaggregated information. This approach to forecasting cost escalation in capital projects is also being applied currently to mining projects, factories, houses, office buildings, warehouses, hospitals and other non-residential structures. k.vamsidhar et all suggested that construction cost indices have been used to measure the cost trends in construction industry. Estimating the increase in price over the long term is almost impossible because of the many uncertainties beyond the control of all parties. The same is true of long term construction projects with multiyear schedules and start dates in the future. Despite this difficulty, the owner of large long term projects need to come up with estimated cost of these
When we see an economic downturn many of the different industries are affected in different ways depending upon their demand. The industry which always seems to be affected first and the last to recover is the construction industry. The construction industry is one of the largest sectors of the UK’s economy. It contributes around £90billion which is 6.7% of the total and 2.9 million people are employed within the construction sector. (HM Government, 2013) (Barawas and Fleetwood et al., 2013) This contribution is measured by the Gross Value Added (GVA), here below is a table to represent the contribution the construction industries GVA (for 2012 prices) and its % of economy.
The construction industry plays an important role in competitiveness and prosperity of the economy in terms of its significantly contributing to shelter, infrastructure and employment (Anaman and Osei-Amponsah, 2007). A number of researchers have investigated on the vital role of the construction sector to the overall economic growth. In Rhodes’ paper who stated the construction industry in the UK contributed £83.0 billion in economic output in 2012, which accounts for 6% of the total. Also, workforce jobs in the construction industry in UK were 2.03 million in 2012 and 2.12 million in 2013, account 6.4% and 6.5% in total respectively (C. Rhodes, 2013). Oladinrin indicated the significance of construction linkage with the aggregate economy in Nigeria by studying on construction output and Gross Domestic Project (Oladinrin and etc., 2012). A recent report of U.S. Bureau of Economic Analysis showed that the GDP value added of construction industry was $652,723 million in 2014, 3.7% of total GDP (http://www.bea.gov/industry/gdpbyind_data.htm). Besides, a report of U.S. Bureau of Labor Statistics stated the employment by construction industry sector take 4.7%, 3.9% and 4.5% in the year of 2002, 2012 and 2022 respectively (http://www.bls.gov/emp/ep_table_201.htm). The construction industry has been playing an influential role on domestic GDP in China (Zhou and Liu, 2007). A report of National Bureau of Statistics of China
Kim, B. &. (2011). Combination of project cost forecasts in earned value management. Journal Of Construction Engineering & Management, 958-966.
It is observed that finding out the technique that can be utilized to manage the cost lifecycle of the project. There is a high probability that cost management are conducted better result can be obtained.
Cost escalations in relation to a number of construction projects including DPS and WAPS were identified in September 2013 (Smith, 2013)
German construction industry had an extremely succesful period form 1988-1995 increasing elevator sales from 8000 units per year to 15500 units. This growth has to come to stagnancy and even decline as the elevator market is projected to contract by about 15% in 2000. The market can be broadly divided into 2 segments: new equipment and service with new equipment provider garnering upto 80% of the service contracts. Competion was intense in new equipment with intense price wars leading to negative margins. Profitability came from the servicing business. Servicing also saw steady demand.
Risk management is a major success key of project management in business world. With major budget overruns in parallel with significant delays, Sydney Opera House is a real example of poor risk management. Risk management requires effective planning, budgeting, and scheduling. First of all, the highest risks should be identified and evaluated in order to find methods to reduce their impact and exposure. Then, factors that cause risk should be addressed while factors that only correlate with the negative impact but do not affect it may be omitted. At this stage, interrelation between various risks should be accounted for to spot the core factors that should be treated in order to ensure effectively and stability of the project's functioning.
The Construction industry in the US has faced some interesting changes throughout its progression. From economic instability during the housing market crash to amazing technological advances to reduce the need for construction workers and therefore the cost associated with newly built properties in the real estate market. Beginning with the first tools ancient man used to carve their niche in the soon to be global expansion of arguably one of the oldest trades in history, construction has a rich history of trial and error, analysis and engineering that covers a very necessary skill that directly affects everyone who seeks and finds shelter, a place to work or any aspect of public works and many
Organisations have to incur costs to carry out their business and cost management is a part of business which helps the management to steer the company on the smooth road.In the article, an attempt has been made to explore the philosophy of cost and the ways to control it to stay competitive. Both quantitative and qualitative aspect of costs are important ,too much adherence to quantitative aspects might erode the benefits of qualitative aspect of the cost. Effective managers have the wisdom to recognize the qualitative aspect of the cost and it is a sine qua non of their strategies.
After coordination of the feasibility report, the project manager will be busy in the preparation of the project budgeting, which will be approved by the client. During this stage, project manager will work on the construction cost based on report from quantity survey of drawings and specifications. He will further keep updating the estimation and refine it for the approval as the construction proceed. Should the project budget fails to meet the real case, project manager has the obligation to advise the client and the archi...
The main important role of the Project Management in the construction industry is to make everyone work towards the same goal that must be aligned with the strategic objectives of the company. One of the most relevant differences between any Project Management and the ones working on the Construction industry is the knowledge and skill in certain areas related to the field, it is essential to have a good understanding of construction methods, materials, scheduling and blueprint reading as well as knowledge in communication and leadership skills. In construction technology plays an important aspect to considered, for a Project Management it is important to be updated in any new technology used by construction companies. (Dykstra, 2011)
Cost Analysis is an aspect of estimation that applies both formally and informally to the aspect of costing. Cost analysis is a formal discipline used to help appraise, or assess, the case for a project or proposal, and is an informal approach to making decisions of any kind. It is ultimately an economic tool to aid in logical decision making. In the case of construction cost estimates, the next step would be the cost analysis process. The sole purpose is to determine if the completed estimates are reasonable. Usually comparisons are made with similar projects done in the past to see if the number are within the same vicinity of each other. Though the estimates may differ from case to case, if the cost estimate is significantly higher or lower than the normal ra...
Brooke (1997), explains Estimation as the technical procedure of anticipating the value of the project. Building construction estimation is the process of acquiring the construction value for the whole project before the project starts. Thus, construction attaining process depends hugely on financial management to sustain workability and smooth operations. The delay in construction is a global issue which is due to improper preparation of estimates and lack of drawings (Ajanlekoko, 1987). In accordance to Gkritza (2008), the source of delay in a project are identified to be in the initial stages, like bad quantification, errors in design and ground conditions. Thus, the purpose of a proper estimate is to foretell the cost needed to finish the
Time-phased project work is the basis for project cost control. Work package duration is used to develop the project network. Further, the time-phased budgets for work packages are timetabled to establish fiscal measures for each phase throughout the project. The time-phased budgets are to emulate the real cash needs of the budget, which will be used for project cost control. This information is useful to estimate cash outflows. The project manager's attention is on when the costs are to occur, when the budgeted cost is earned, and when the actual cost materializes. This information is made up to measure project schedule and cost variances (Gray & Larson, 2005). The following are typical types of costs found in a project:
price level of goods and services. For example, if the inflation rate is 2% annually, then