Cost Management Process in Construction Industry: Hardeep Kumbhani
Cost Management Process in Construction Industry: Hardeep Kumbhani
Cost Management Process in Construction Industry: Hardeep Kumbhani
M.Tech Director
Kumbhanihardeep@gmail.com shakil250715@yahoo.com
Abstract - Construction projects faces a series of problems during the construction process. Out of the
different problems construction industry faces, one such important problem is cost overrun. Cost overrun is
referred as cost increase or budget overrun which is incurred in excess of budgeted amount. This research
paper focuses on analyzing all the important factors that lead to cost overrun and determine the critical factors
among them in Construction management process. In this research paper more concentration has been made to
identify the problems through extensive review of various literature available at International and National
level.
Keywords:-Project Cost Management, Critical success factors, Cost Management Process, Cost Overrun,
Construction industry
I. INTRODUCTION
Construction industry is one of the most booming industries in the whole world. this industry is concerned
with preparation as well as construction of real estate properties. They carry out the construction of the public
and private project.
The various factors that contribute to the failures can be classified as (i) external and (ii) internal. The external
items, such as political impact, natural calamity etc, are beyond our control. Hence the internal factors are
only considered for this study, such as human – related factors, project related factors, project procedures and
project management actions to find out the variable influencing the cost overrun in the construction on project
(Albert P.C. Chan et al, 2004).
The Director (CEO), Britannia Academy of IT and Planning Ltd., London Cosmo College,Hanow, UK (2006),
has revealed that normally the cost overruns occur if the project manager is unable to control the construction
activity efficiently. Further he added that the savings in cost management are possible if Project Management
team implements the construction with diligence and care by droping the components of infrastructure that are
otherwise valuable as social amenities.
Mohammed Fadhil Dulaimi and David Langford (1999) concluded that “the psychological aspects and
behaviour of the Construction Project Managers influence very much on the Cost Management”.
Michael Bommer, Rence DeLaPorte and James Higgins (2002) say that “the skunk works project management
teams was able to deliver the projects on time and particularly within budget by (i) adhering to clear focus on
their mission (ii) including extensive up front planning efforts (iii) critically analyzing customer needs (iv)
leveraging project overlaps (v) involving suppliers early (vi) empowering the team and (vii) breaking rules”.
Navon (1996) observed that “a well developed cash flow management system will manage the cash flow of
the company as a whole, and it is flexible and accepting projects with varying degrees of detailing levels, it
requires no human involvement in cash flow generation, it is accurate, and it is a typical management tool”.
According to John G. Everett and Peter B. Frank (1996) construction is not a safe industry. One of the areas in
which the cost can be reduced and productivity increased is the area of safety. The Business Roundtable (BR)
1979 determined the true costs of accidents and injuries in construction industry. The cost of workers
compensation insurance have skyrocketed and there has been a rash of third-party lawsuits as a result of
accidents on construction sites.
In the study made by Mikhail chester and chris Hendrickson (2005), they have concluded that “construction
cost goes up in a project with the seven different mismanagement scenarios, such as (i) delay (ii) Cost cutting
(iii) resequencing of work (iv) acceleration (v) change of scope (rework) (vi) defective work (vii) strike”.
According to Jeffrey S. Russel, Edward J. Jaselskis and Samuel P. Lawrence (1997), “the Project managers
for owners, designers and contractors need real time information to assist them in managing projects, by
continuous or time – dependent variables such as owner expenditures, Construction effort hours expended
etc., to predict project outcomes from start to detailed design through construction completion”.
Leen S. Kang (1998) pointed out that “the construction information classification system (CICS) is useful for
controlling a project with consistency in information management during construction. The CICS with four
facets enables Project Managers to control a project with common information both for cost estimating and for
schedule planning. CICS with such a common information system is helpful for connecting project cost for a
project organizer with the Construction schedule for a site manager, and the connection between cost and
schedule will make better information management for a construction Project”.
According to Thomas and San vido (1989), “the productivity loss at a construction site is due to inefficient
Material management. So the integrated material management programme such as disruptions, work content,
constructibility issues, construction methods, environmental conditions, management aspects etc., are to be
considered and applied to construction site”.
As per Iyer and Jha (2006), “over 40% of Indian Construction projects are facing time overrun ranging from 1
to 252 months. The analysis of responses of questionnaire will lead us to find the success factors by Factor
Analysis method”.
Albert P.C. Chan, Daniel W.M. Chan Y.H. Chiang B.S. Tang Edwin H.W. Chan and Kathy S.K. Ho (2004)
observed that “partnering is one of the most innovative developments in delivering a project efficiently and
reducing construction disputes. In particular, the establishment and communication of a conflict resolution
strategy, a willingness to share resources among project participants, a clear definition of responsibilities, a
commitment to a win – win attitude, and regular monitoring of partnering process were believed to be the
significant underlying factors for partnering success. Such an identification of success factors could well
formulate effective strategies for minimizing construction conflicts and improving project performance”.
The study done by Joon H. Pack and Jong H. Ock (1996) revealed that “a modified up/down method that
depends on more conventional construction techniques, but that can still result in significant construction time
savings. Applying the method provides and easy and useful way for the contractor to shorten construction
duration and, in the long run, reduce costs”.
According to Shamil G. Naoum (1994), “ten factors identified to measure project performance are (i)
Preconstruction time (ii) Construction time (iii) total time (iv) Speed of Construction (v) unit cost of building
(vi)time overrun (vii) Cost overrun (viii) time (ix) Cost and (x) quality”.
According to Shampa Bhattacharya and Virendra Kr. Paul (2006),“Indian Construction Industry, generally
maintains no specific records for the defects and deviations. There is a lack of consciousness towards the costs
of defects and deviation which leads to non-availability of records and data.Even when repair and rework
possibilities could be identified, difficulty was experienced in obtaining data. No firm data was availassble
regarding thegeneral impact of modification in design on quality- related cost. But these surely will lead to
some costs, arising out of wastage of time and deliberation over the changes between the parties, even if no
rework or repair activities are necessitated”.
Virendra KR. Paul and Dr. V. Thiruvenkadam (2006) say that “Cost Related Processes after Practical
completion should be done by the process owner ie. The Project Manger such as (i) Defect rectification and
completion formalities, (ii) preparation of final account of time, (iii) updating lost cost report, (iv) preparing
complete final account and issue relevant final certificate, (v) feed back on Cost performance assessment”.
In their study made by Lauri Koskela and Glenn Ballard (2003) revealed that “it is not enough to adopt
generic requirements for the production system in construction, but rather it is required that the peculiarities of
construction, such as one-of-a kind production, site production and temporary organization are suitably
accommodated. It is required that all parts and aspects of the production system are synergistically coupled :
the total optimum is sought, rather than a sum of location optima”.
According to William C. Ibbs, Clarence K. Wrong and young Hoon Kwak (2001), “changes in projects are
common, but it affects the cost, the scheduling and the duration of projects, both directly and indirectly. A
comprehensive project change management system that is founded on five principle, (i) Promote a balanced
change management system that is founded, (ii) recognize change, (iii) evaluate change, (iv) implement
change, (v) continuously improve from lessons learned. By applying this project change management system,
project participants can minimize deleterious change and promote beneficial change”.
The study made by Robert I. Carr (1993) revealed that “a unified nomenclature and parallel budgets, and
variance structure allow integrating of cost and schedule control for projects that share common work
breakdown structures. Budget, actual and variance values of cost, progress and time are combined in a single
figure provide an integration at the activity/Cost account level”.
Cost/Budget being the critical factor that drives a construction project need to be managed more accurately.
Cost overrun being a major obstacle in construction project needs to be overcome. Appropriate cost
management helps to achieve the desired goal.
The cost management factors are shown in the figure in 89 different factors have been identified and
distributed in 5 different stage as follows:
TABLE 2. COST IDENTIFICATION CRITERIA FOR THE COST MANAGEMENT AS PER THE
LITERATURE REVIEW
1 Director (CEO), Britannia Cost overruns occur if the project manager is unable to
Academy of IT and Planning control the construction activity efficiently
Ltd
2 Mohammed Fadhil Dulaimi The psychological aspects and behavior of the
and David Langford Construction Project Managers influence very much on
the Cost Management
3 Michael Bommer, Rence Extensive up front planning efforts, critically analyzing
DeLaPorte and James Higgins customer needs, leveraging project overlaps, involving
suppliers early
4 Navon Use a well developed cash flow management system as
a typical management tool
5 John G. Everett and Peter B. Cost of workers compensation insurance have
Frank skyrocketed and there has been a rash of third-party
lawsuits as a result of accidents on construction sites.
14 Shampa Bhattacharya a nd The Project Manger such as (i) Defect rectification and
Virendra Kr. Paul completion formalities, (ii) preparation of final account
of time, (iii) updating lost cost report, (iv) preparing
complete final account and issue relevant final
certificate, (v) feed back on Cost performance
assessment”.
15 Lauri Koskela and Gle nn it is required that the peculiarities of construction, such
Ballard as one-of-a kind production, site production and
temporary organization are suitably accommodated
16 William C. Ibbs, Clarence K. applying this project change managemment system,
Wrong and young Hoon Kwak project participants can minimize deleterious change
and promote beneficial change
17 Robert I. Carr Budget, actual and variance values of cost, progress and
time are combined in a single figure provide an
integration at the activity/Cost account
level”.
IV. CONCLUSION
Cost Overrun is found out to be a serious issue in almost all construction projects. Though a certain amount of
attention being paid to avoid cost ove rrun ,it occurs due to ineffective management practices. The literature
review helped us to find out the various reasons that leads to cost overrun and also to some of the key reasons
that directly influence the cost overrun.
.
Project life cycle
monitoring client
controlling
acceptance
technical
communicatio n
tasks
trouble client
shooting consultation
management
system schedule support
project
personel mission
success
REFERENCES
Director (CEO), Britania Academy of IT & Planning Ltd., London Cosmo College, Hanow (UK) (2006),
„Cost Management in Construction – Some Lessons from experience in UK‟.
Mohammed Fadhil Dulaimi and David Langford (1999), „Job Behavior of Construction Project managers:
Determinants and Assessment‟, Journal of Construction Engineering Management, ASCE, Vol. 125(4), pp.
256-264.
Michael Bommer, Renee DeLaPorte and James Higgins (2002), „Skunkworks Approach to project
management‟, Journal of Management in Engineering, ASCE, Vol. 18(1), pp. 21-28.
Navon R. (1996), „Company level cash flow management‟, Journal of Construction Engineering and
Management, ASCE, Vol. 122 1), pp. 22.
John G. Everett and Peter B. Frank (1996), „Cost of accidents and injuries to the construction Industry‟,
Journal of Construction Engineering and Management, ASCE, Vol. 122(2), pp. 158-164.
Thomas H.R. and Sanvido V. (1989). „Impact of Material Management on Productivity - A Case Study‟,
Journal of Construction Engineering and Management, ASCE, Vol. 115, No. 2, pp. 370-384.
Leen S. Kang and Boyd C. Paulson, (1998), „Information Management to integrate cost and schedule for Civil
Engineering Projects‟, Journal of Construction Engineering and Management, ASCE, Vol. 124(5), pp. 381-
389.
Iyer K.C. and Jha K.N. (2006), „Critical Factors Affecting Schedule Performance : Evidence from Indian
Construction Projects‟, Journal of Construction Engineering and Management, Vol. 132, issue 8, pp. 871-881.
Albert P.C. Chan, David Scott and Ada Chan P.L. (2004), „Factors affecting the success of a construction
project‟, Journal of Construction Engineering and Management, ASCE, Vol. 130, No. 1, pp.153-155.
Joon H. Paek and Jong H. Ock (1996), „Innovative Building construction Technique : Modified UP/ Down
Method‟, Journal of Construction Engineering and Management, Vol. 122(2), pp. 141-146.
Shamil G. Naoum (1994) „Critical Analysis of time and cost management and Traditional Contracts‟, Journal
of Construction Engineering and Management, ASCE, Vol. 120, No. 4, pp. 687-705.
Lauri Koskela and Glenn Ballard (2003), „What should we require from a Production System in
Construction‟, Construction Research Congress (USA), pp. 42.
William C. Ibbs, Clarence K. Wong and Young Hoon Kwak (2001), „Project Change Management System‟,
Journal of Management in Engineering, ASCE, Vol. 17, No. 3, pp. 159-165
Robert I. Carr (1993), „Cost, Schedule and Time variances and Integration‟, Journal of Construction
Engineering And Management ASCE, Vol. 119, No. 2, pp. 245-265.