Construction Budget Over Runs and Late Project Completion

Construction cypher Over Runs and Late intent CompletionConstruction expulsions argon graded genuinely prosperous if the work is end indoors cypher and to the deadlines agreed in the specification. However, the sad truth is that not all juttings be guilty of being winning. many a(prenominal) projects experience failure collect to the uncertainties associated with device projects which include weather, materials, equipment, money and profitability, disagreements between clients, asserters and sub- contractile organs, statutory regulations, economic and political issues and functionality and purpose. To counter these failures from constantly occurring, the types of failures need to be addressed so emerging edifice projects do not fall into the same category of washed-up Civil Engineering construction projects. It is clear that any(prenominal) of these failures occur regardless of c atomic number 18ful think due to uncontrollable material bodys such as climate cha nge, recession, delayed deliveries etc. on that pointfore addressing the controllable issues, contractors chamberpot incorporate these problems into their specification. By takeing the issues from previous self-defeating construction projects and correlating the failures, it entrust be easy to identify the common errors and try to eliminate them from future projects. The research will be based on unsuccessful construction projects by using data from case studies, books, the internet and journals. The constraints and limitation of this paper will depend highly on the data received and analysed by previous characters and their opinion. The paper will also focus on two main work outs, budget over runs and late completion.Examples of calculate Over-runs and Late Completion Projects in that location be many construction projects which have Budget Overruns and Late Completion. A few examples of budget over-run and late completion projects beWembley StadiumSydney Opera supportT fls Jubilee LineWembley StadiumThe Wembley Stadium was a renovation construction project which required the old sports stadium to be demolished and rebuilt. The main purpose of the modernistic stadium was to increase the capacity of the stadium, be the new home of English football and also host other sports and national events. The original estimated cost of the stadium was 757m. This value at completion soared to nigh 798m. Multiplex (main contractor) reported about 45m losses in the construction of the New Wembley Stadium. These losses arose due to factors which include surviveSub-contractor walkouts (Cleveland Bridge steel company walkout)Sub-contractor disagreements (trade union of workers walkouts) andChanges in design due to failures. due to the above factors the completion date of the project was pushed back by about three months. 1, 2Sydney Opera HouseThe Sydney Opera House was built as a performing arts centre and was designed by Jrn Utzon. The original estimated cost to build the Opera House was AUS $7m in 1957 and expected to be completed in five years. The project was started in 1959 and the value escalated to a massive AUS $102m and was completed in 1973. Not only did the budget over-run to 15 eons the original estimate, but it also took 14 years to complete, which is a very late completion. The main factor which affected this project was scrimpy planning during the design stageThis led to a series of errors during construction, which effectively bring forthd a eye mask effect. Hence, increasing the cost and pushing back the completion date 3, 4.Tfls Jubilee LineThe London Under foundation Jubilee Line extension was to link Stratford and the Docklands to Westminster. This project was planned in 1989 and estimated to cost 1.2billion. The construction started 1993 and expected to take four years. This however was not the case due to a series of setbacks. There are four major causes for these delaysThe project was present on hold for 18 mont hs to find fundingThe movement of the block signalling system caused delaysThe location of the O2 Centre (Millennium Dome) had not been established andDue to the collapse of Heathrow Express Tunnel, work was vomit up on hold again.This caused many changes to the original design because causing the project to be completed in early 1999, which was a twenty months late completion. The cost also increased to 3.5billion, an astonishing 70% budget over-run 5.What Are Budget Over-runs?Budget Overrun can be simply defined as when the final cost of the project exceeds the original estimates 6. In ground of construction, this means the actual cost of the project at completion minus the original entreated cost during the tendering stage. This therefore creates either a positive value or a negative value. If the value is positive, the project is within budget and has created a profit, if the value is negative, the project has created a loss and is referred to as a Budget Over-run.Why Do Bud get Over-runs Occur and What Are The Causes?Budget Over-runs occur constantly in construction projects well-nigh the world. The main aim of any business (Construction Company) is to make money, however, it is very common in construction to go out companies reporting losses due to budget over-runs. If the project is completed within the budget specified, it can be graded a success. Therefore this is an ideal factor to use, to rate the success of a project. Budget over-runs occur due to many factors, which are sometimes split into two groups, controllable and extent of damages. The types of budget over-runs are caused byThe cost variations between clients and contractors and sometimes a third party e.g. project manager, advisor etc 7. pathetic adherence during tendering processDisagreements with Trade Union of Workers modality changeLate completionChanges in design etc.This shows that the slightest mistake or changes made could increase the cost of the project dramatically. Research carried out around the world on construction projects has shown that 89 out of 10 projects over-runBetween 50 and 100% over runs were commonThere was a constant coefficient of correlation of over-run projects for 70 years in each of the 20 nations and 5 continents surveyed.Average construction project costs are about 33%9Another source of research carried out by Jahren, et al 10 predicted that the factors which increased the chances of a budget over-run areProject sizeMethod of deliveryAmount of competition tonicity of contract documents andInterpersonal relationsThere have been predictions published in the User Guide (2005), which outlines the common factors which cause budget overruns. These arePoor Project ManagementThe project manager/management group is employed to control the entire development to run smoothly and efficiently from start to finish for the project. They whitethorn or may not cover the costing depending on the clients preference. If the project management is poor, it will create an effect on the entire project and in the User Guide (2005) it is listed asLack of planning and co-ordinationPoor communication between members of the project team and the project sponsorFailure to identify problems and nominate necessary and timely design and programming changesLack of control over time and cost inputsLack of end user involvement.Unexpected Ground ConditionsThe ground conditions on any construction site are key, if the ground is not tested prior to tendering, the costs could escalate out of control, in order to put it right. This effectively will be the contractors responsibility. Although trial pits and bore holes are used to get an idea of the ground conditions, the true site condition will not be exposed until full excavation. From the time the trial pits and bore holes are carried out to the time of excavation, the ground conditions may have changed. Changes in ground condition may cause a redesign and also cause problems for any machines and materials ordered to site. This therefore should be taken into account as these could increase costs. deficit of Construction worldlysWhen construction is at its peak development stage in a certain areas, locally ordered materials could be in great demand. close to materials maybe required but cannot keep up with the demand, hence causing delays to the project. These materials might be ordered from other areas of the world, but may cost advantageously much as it will need to be shipped in and pushing back the completion date due to delays in material deliveries. Therefore to prevent any shortages occurring this will need to be anticipated and added to the cost to prevent budget overruns.Change in Foreign Exchange RatesIf specific materials are unavailable in the local market, it will then need to be imported from overseas. This can cause a problem to the budget if there are dramatic changes in exchange rates. This unexpected exchange rate should be taken into account during costing as it will cause an increase in the budget.Inappropriate and/or Inexperienced ContractorsSelection of the right contractor is another key finality. The contractor must be suitable for the project as some projects use a wide range of tenders who price the job. Although, the cheapest tender may be very inviting, it does not guarantee quality. The decision should be made on contractors experience, the contractors successful history of completing jobs on time and within budget and also the most competitive price. Research carried out by Yates et al (2003), the contractors tender which is 15% less than the Engineer, it is very likely there will be a budget over-run. The tenders reputation should also be consider. This could be key as some companies may fall into hardship and bankruptcy. This will delay the project considerably and also increase costs as most contractors tend not to takeover other contractors jobs in case of any problems which could arise during later constructi on.Natural Disasters/EventsThese are disasters or events which cause inevitable delays and therefore budget issues to the project. The types of disasters/events which may cause delays and cost implications are wars, riots, earthquakes, landslide, fire, political and economic issues, types of projectile, contamination and many other disasters/events.UnderestimationsDeliberate cost underestimating occurs in order to gain the job. This will conduce in the project not being completed and the client having to either increase the budget or retender, hence, causing budget over-runs. Research carried out by Fllyvbjjerg showed that big construction projects were common culprits to underreckoning and therefore led to the statement, whatever the cause, almost all large public projects contain initial cost estimating errors that provide in the need for increased funding to complete the projects8. The underestimation has been split into four major topics by FllyvbjjergTechnical These are kno wn as prophecy errors which are errors requiring changes because of imperfect techniques, honest mistakes, inadequate data, inherited problems in predicting the future and lack of experience on the part of forecasters. In this case, the errors occur between the budgeted estimation and the actual cost of construction. 11Economical The economical issues are split into two groups, public pursuit and economic self interest. Public interest is where there are promoters and forecasters who underestimate the cost of the project on purpose to give public officials an incentive to cut costs to save public money. Economical self interest is used to create jobs for Engineers and construction companies and shareholders also get mingled to make more money. The fact that shareholders get involved tends to influence the forecasting process and therefore makes an spirit on the result. 8Psychological This is known as appraisal optimism. Promoters and forecasters are held to be overly optimistic about project outcomes in the appraisal phase, when projects are planned and decided. 12 By making the cost seem lower than it should be, will effectively cause the budget to over-run.Political Political explanations interpret cost underestimation in terms of interests and power. The political issue arises on the fact that whether forecasters are intentionally biased to serve the interests of project promoters in getting projects started. This is key in order to start a project quickly, however, there is a legal and moral deception attached this form of underestimation 13.Change and Variation OrdersThese are changes to the project and are not part of the outlined work during the agreement of the project. In construction, changes tend to be inevitable and will cause a prison-breaking to the project deadline and also budget. These decisions are therefore discussed prior to any changes being made as it may not suit the client or contractor. pomposityThe general definition of preten sion in economics is the increase in prices and fall in the purchasing the value of money 14. This means that if there is an inflation increase, the value of all parts of the project will increase e.g. material costs, machinery hire, wages etc, which in turn increases the budget. To avoid these extra costs, predictions of the market should be check over during the tendering process, by both client and contractors.AccelerationThis is where there is a delay but the client demands the project to be completed by the contractor on time, before the completion date or before the agreed extension completion date.Delays Of Completion Time and PaymentsDelays of completion tend to equal delays of payments, this will cause interest rate repayments to escalate causing the alleged interest trap for both client and contractor.What Are The Overall Effects From Budget Over-runs?It is clear that budget over-runs occur continuously in construction projects around the world. There are many causes for these extra costs which have not been considered during the tendering process. This has caused a bad impression not only on clients but also contractors and end users. The effects on each party is as followsThe client loses faith in the construction industry but in-particular their consultants who are unable to deliver the project on time. This also leads to higher investment being required from the client.The consultants reputation is ruined as they have an inability to control the project budget therefore leaving question marks for winning new projects.Contractors do not make the internet anticipated and failure to complete the jobs leaves their reputation in tatters.The end user will effectively be the one paying the highest price in terms of buying/renting/leasing in order for the shareholders to cover their costs.Overall, its the construction industry that suffers as it causes major headlines in the media for the wrong reasons. Clients will be more buttoned-down before invest ing in large scale projects which will cause a drop in the construction industry projects due to its feeble reputation. Many construction projects which are accepted by the client will come with a greater risk to the contractor.How To Prevent Future Projects From Budget Over-runs?To prevent future projects from being unsuccessful in terms of budget, the management of costs need to be broken down to show exactly where costs will be greatest and smallest. The estimating, scheduling, accumulating and analyzing costs, and implementing measures to correct construction costing must be adhered to strictly. This will prevent any failures in terms of budget. There is a three feeling process which can be employed during the planning stage through to the construction stageIdentify the scale of the project (in terms of quality, completion time and budget),Ensure scope is adhered to strictly (in terms of time and budget)Monitor and control the above 2 steps constantly till the completion of the project.A successful project is based on the project manager and contractor working hand in hand to get the greatest efficiency from a project and tend to be based on time, performance and cost. There are many types of key principles and actions which should be followed for a project to be labelled successful and a few are listed below 15Good project definition and sound business case,Appropriate choice of project strategy,Strong support for the project and its manager from higher management,Availability of sufficient funds and other resources,Firm control of changes to the authorized project,Technical competence,A sound quality culture throughout the organization,A suitable organization structure,Appropriate regard for the health and safety of everyone connected with the project,Good project communications,Well-motivated staff,Quick and fair resolution of conflict.Risks and uncertainties increase the budget of any project. Therefore, a 10% of the estimated cost incident plan is u sually inputted into many projects to prevent the project from delays and going over budget. Although 10% sounds fairly small, by adding other control systems to the project performance, this value could increase dramatically. However, a good project management costing is more desirable and efficient than a adventure plan.What are Late Completions?In construction projects a late completion is usually referred to as the time between the actual deadline agreed, to the time the project is completed. This is commonly called a delay in construction and tends to have a major effect on the client, end user, contractor and shareholders. If delays occur in construction projects, the contractor will be subjected toAdditional/Extension time of completion,Immediate termination of contract,Reduced profit orA mixture of the above.This is not always the case, as some delays are not the contractors fault. The other parties involved in the construction stage are, clients, consultants and external influences e.g. suppliers, machinery, mother nature etc. Any delay will create problems between all/some of the parties involved.Why Do Late Completions Occur and What Are The Causes?Delays can be split into three categories, these are pardonable Delays These are delays which are not caused directly or indirectly by the contractor and in turn the contractor is allowed an extension of time. The excusable delay can also be split into two parts,Excusable With Compensation This is where the contractor is delayed due to the actions of the client, and is given and extension of time and compensated with money for careworn time. An example is if client cannot access the site after the client has approved for the work to start.Excusable Without Compensation This is where the client and contractor cannot be blamed for the delays caused and the contractor is only given an extension of time. An example would be Mother Nature.Non Excusable Delays These are delays caused by the contractor or sub contractor and the contractor is not given any extensions. But the client may get liquidated damages.Concurrent Delays These are delays which occur at the same time. If, and only if two delays or more occur at the same time, then the contractor is entitled to an extension.Delays are caused by the members directly involved in the project and also members indirectly involved in the project. Research was carried out by Odeh and Battaineh (2002) and their finding showed that 17,Client DelaysThe client caused delays in terms ofFinance and Payments,Constantly Interfering,Indecisive Decisions on Design and Requirements, actually Unrealistic Forced Time Schedule,Minimal Experience of Construction Projects,Minimal Experience of Co-ordination and Communication,Very Poor Employment of Representatives,Inappropriate Feasibility Study.Consultant DelaysThe consultant causes delays in terms ofPoor Management/Management Team in general,Poor Management of the Contract,Lack of Preparation and Po or Drawings leading to Slow benediction of Drawings,Quality Assurance and Control,Improper Site Investigations and Slow Approval of Tests and Inspections,Poor Consultant Team with Minimal Experience.Contractor DelaysThe contractor causes delays in terms ofPoor employment of Sub-contractors,Poor Site Management,Inappropriate Construction Methods,Poor Planning including costs, time, budget etc,Terrible Decision Making during Construction,Inadequate Contractor Experience.Material DelaysMaterial cause delays in construction projects in terms ofOverall Quality,Its quest and Supply,Importing Materials,Inflation Rate of Materials,Late Delivery and Unreliable Suppliers exertion and Equipment DelaysLabour and Equipment cause delays in construction projects in terms ofLabour Availability and Productivity,Skilled Labour Availability,Low motivation and morale,Strike Action and Absent Labourers,Equipment Demand and Supply,Frequent Breakdown and Maintenance of Equipment,Improper and Inadequate Equipment.Contract DelaysContract cause delays in construction projects in terms ofConstant Changing of Design,Mistakes and Discrepancies in Contract Documents,Different Party Relationship Breakdowns e.g. disputes, negotiations, breakdown in communication, improper organisation.External DelaysExternal influences cause delays in construction projects in terms of temper and Weather Changes,Unexpected Ground Condition Changes,Regular Changes e.g. security codes, I.D.s etc,Complaints and Problems from Neighbours,Inflation of All Materials,War, Riots, and Other Conflicts,Slow Clearance of Site.How To Prevent Future Projects From Late Completions?There are many factors which cause late completions of construction projects. The delays can be caused by direct or indirect actions. Direct actions are delays which can be avoided as these tend to be made by the parties involved. Indirect actions are uncontrollable and therefore by minimising the direct actions, the delay can be unbroken to a nominal. Research carried out by Nguyen, et al. (2004) on project success factors in large construction projects in Vietnam, Aibinu and Jagboro (2002) on acceleration of site activities and contingency allowances, Koushki, et al. (2005) on what the minimization of time delays and cost overruns would require, and Odeh and Battaineh (2002) on recommendations for improving the situation of construction projects allowed for a table of thirty five methods to be created. These methods would show how to belittle/eliminate delays from construction projects.ConclusionFrom the research carried out, it appears that Budget Over-runs and Late Completions are a common aspect of the construction industry. However, it is clear that not all Budget Over-runs and Late Completions are controllable and some are fabricated to seem as over-run and completed late due to the process of tendering. In appears that there is a connection between late completion and budget over-runs hence, these are key factors which need addressing. The most influential effects for over-running and late completion are delays, insufficient pay, loss of reputations and controversial decision making from clients, consultants and shareholders.It is therefore compulsory that all the above measures should be followed, but a few major recommendations must be adhered to in order to make sure the project is always successful. The major recommendations for all parties involved are,Client The client should make sure all finances and payments are available and paid on time, the feasibility study is well planned and accurate as possible, the client should be proactive in decision making and understand what is feasible and what isnt, and the client should recommended a deadline but allow for any anticipated delays.Consultant The consultant should have good people skills, understand the projects objectives and the clients obligations, any misunderstood/discrepancies should be ironed out prior to construction and duri ng the construction stages, this will prevent any major changes required during construction. The management team should be more than adequate and have a good history in the field of the construction project, quality control and assurance procedures should be put in place along with potential disagreement solutions which could arise.Contractor The contractor should tender based on the actual job costs and not the minimum tender in order to gain the contract. The contractor should employ reliable sub-contractors which have a good history in terms of completion and quality, the contractor should have a good management history as well as a good reputation in the type of construction project.