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RISK MANAGEMENT IN COST PLANNING IN NEW ZEALAND CONSTRUCTION INDUSTRY 1

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RISK MANAGEMENT IN COST PLANNING IN NEW

ZEALAND CONSTRUCTION INDUSTRY

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Abstract

For cost of project, Construction cost management is most important task for success of

any project, and the performance of the construction project is usually expressed in the context of

budget and cost of deviation. However, it has not been used effectively due to the presence of

large amounts of data with many complex relationships.

Cost planning is the important part in the construction process, and its importance is

mainly for previous modern construction activities in both developed and undeveloped countries.

However, there is a limitation to adopt effective cost-planning practice in developing countries.

Because of poor cost planning process, cost of construction projects are often abandoned, and

this cost planning practices leading to cost overruns that are not sustainable. This study aims to

identify different risk attributes to the cost planning in New Zealand Construction Industry and

examine the cost planning techniques/strategies used to mitigate those risks.

The overall aim is to explore and develop different cost planning methods and solutions

for managing risks in cost planning perspective in New Zealand Construction Industry. This

study outlines the cost planning practices of New Zealand construction professionals and their

scope. The research is based on a questionnaire survey and Interview of consultants and

entrepreneurs. In addition, this study adopted a mixed method approach and the data generated

from this survey was subject to an average score analysis. This study will helpful to find out the

significant awareness about cost planning practices among New Zealand construction

professionals and estimating procedure to be used in the construction sector in New Zealand, and

management of budget forecast for construction projects. However, as a method, descriptive

statistics and multi-specialty techniques were used in data analysis.

We need to consider the main factors in Risk management during the budget forecasting

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phase is cost estimation, information regarding to the quality of design, a brief uncertainty,

design prevalence, and contractual terms.

Result showed that some risk factors which is isolated into broad categories in reducing

levels of significance as follows: Pricing, External and client-related risks estimating, first cost

plan, detailed cost plan etc. And also aware about some priority of risks and reduce the

unidentified effective risks and this can supportive for the contractor and guide to the project

team for making the proper budget and gives the respond to risks, so by this way we can become

more confident about satisfactory project outcomes.However, some professionals implement

concepts such as unity, elementary and comparative cost analysis in planning their cost activities.

In this study, cost-planning practices of construction practitioners and decision makers have been

adopted innovative approaches to managing costs in planning and execution of construction

projects.

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Table of Contents

Chapter 1: General introduction......................................................................................................6

1. 1 Background to the problem...................................................................................................6

1.2 Problem statement..................................................................................................................7

1.3 Research objectives................................................................................................................8

1.4 Research objectives in short format.......................................................................................8

Chapter 2: Literature review..........................................................................................................12

2.1 Tendering in construction....................................................................................................13

2.2 Defining ‘Risk’....................................................................................................................13

2.3 Benefit of risk analysis.........................................................................................................14

2.4 Risk response measures.......................................................................................................16

2.5 Popular Contractual Risk Factors........................................................................................19

2.6 Pricing risk in construction tenders......................................................................................20

2.7 Existing knowledge gap.......................................................................................................20

Chapter 3: Methodology................................................................................................................21

3.1 Research Approach..............................................................................................................21

3.2 Research design....................................................................................................................21

3.3 Data Collection process, data types and analysis.................................................................22

3.4 Scope and Limitation...........................................................................................................22

3.5 Data sources.........................................................................................................................23

3.6 Ethical Consideration...........................................................................................................23

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Chapter 4: Data Analysis...............................................................................................................23

4.1. Regression Analysis............................................................................................................23

4.2 Interview..............................................................................................................................41

Chapter 5: Recommendations and conclusion...............................................................................43

5.1 Recommendations................................................................................................................43

5.2 Conclusion...........................................................................................................................46

Reference List................................................................................................................................47

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Chapter 1: General introduction

1. 1 Background to the problem

Property Development procedure is required for developing extensive features during the

development of new land alongside refurbishment of building. The following treatment is

practiced for creating effective ideas in order to accomplish the project successfully. However, it

can be asserted from the practices that characteristics and problems of each project distinguish it

due to size, shape along with complexity. In this regard, proper knowledge regarding

environment is mandatory from this aspect of the project.

Cost overrun is a major threat for the construction projects in New Zealand due to which

estimated value of the project often not maintained. Various examples on construction project

can be considered as evidence that is based on cost overrun problem. As for an example, one

construction project in south Auckland exceeded the estimated cost of $824 million and an extra

amount of $70 million added with it. Due to this reason, few owners observed this cost overrun

as an excessive waste of amount.

Due to havoc raise in the cost overrun, massive changes are observed in construction

projects in New Zealand whereby complex building projects are developed. Nonetheless, the

project authority can observe the cost overrun issue in different countries New Zealand

construction issues are not only issues, Britain is also undergoing similar challenges. Moreover,

due to the cost overrun issue almost every project ends up with huge allocations that are not

considered during estimation.

Using a proper risk management framework an organization can develop its project

within a safe environment whereby project can be accomplished sustainably. Risk indicators can

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alert the project authority through which additional resource can be arranged before the project

accomplishment. Effective budget estimation can offer enhanced performance to the project

whereby deadline of the project can be met successfully. Hence, in order to grab the

opportunities of project it is obvious to incorporate successful evaluation of project cost along

with effective planning.

Besides this, different risk can be seen in the construction projects that are related to

financial issues. Nevertheless, it is mandatory to consider that the theories cannot deal with every

issue. Therefore, insights into the budget estimation are essential for the successful

accomplishment of the project whereby efficiency of the project members can be enhanced

through knowledge excellence. Apart from this, budget forecast can enable the project member

to prevent risk whereby quality as well as market information can be gathered thoroughly.

Furthermore, effective prediction of the project initiatives can elevate the acceptability of project,

which can mitigate the foreseen issues before occurrence.

1.2 Problem statement

In order to manage the project cost within estimated value following project has been

conducted with pre-specified boundaries. Henceforth, as absolute evaluation of the project cost

estimation can support the purpose of project (Elfaki, Alatawi & Abushandi, 2014). Traditional

methods for risk evaluation and cost management can create a meaningful insight whereby

limitations of the project can be restricted. Meanwhile, project success can be created through

implementation of quality project materials. Thus, construction project can deliver risk

management methods and effective response can be gathered.

On the contrary, an opposite picture of the risk management can be portrayed as follows:

Consumers are the key stakeholders of project thus budget of the building need to be

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planned effectively whereby professionalism can be maintained.

1.3 Research objectives

Following project has incorporate major objectives as follows:

1. The existing cost recognition system of New Zealand needs to be evaluated first for cost

management.

2. Characteristic and techniques for risk mitigation need to be obtained by professionals

whereby risk can be reduced.

3. The cost infrastructure needs to be developed whereby traditional cost issues can be

managed in New Zealand construction project. Along with this, construction cost for the

budget need to be prepared whereby effective assumptions can prevent the risk

occurrences. Thereby, customer requirements can be met properly and planning can be

accelerated.

4. Identification of the benefits is mandatory for the project propagation whereby

opportunities can be grabbed.

5. In order to manage the change, that are essential for project, it is obvious to create a

flexible project environment whereby functional orientations can be conducted and cost

overrun can be prevented.

1.4 Research objectives in short format

1) Present Practice

2) Characteristics of the Risk

3) Different Techniques

4) Findings

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5) Conclusion and Recommendation

1) Present Practice

Conventional services for the quality of surveyor:

Modern Quantity Surveyor Services:

Recently, the modern practice provided by the Quantity Surveying firm across the world

is as follows:

Pre- Construction Phase:

The QS examines the “designers” and “engineers” plans, distinguishes the expenses

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involved, and then sets a general assessed budget plan for each task in the project.

1) Transition in computer system from the manual system in the design management:

In order to manage the quality of the QS profession, it can be observed that CAD has

employed several theories inside the system (Adafin, Rotimi & Wilkinson, 2015). On the other

hand, prime feature of the QS profession is generation of Bill of Quantity (BOQ). Due to this

reason, using the software an extensive knowledge regarding innovation management can be

developed within the industry. Hence, advanced technology can be applied to the industry and

parameters of the risk management can be addressed (Adam, Josephson & Lindahl, 2017).

Moreover, implementation of IT along with CAD can provide the feature whereby accuracy of

the service can be improved with quality management strategies.

2) BOQ transparency enhancement process:

Inclusion of the QS system offers an in-depth knowledge regarding quantity requirement

of the resource. However, using the BOQ as an effective tool for the management this purpose is

served by the software. Hence, using the software, transparent business atmosphere can be

initiated whereby construction project can be improved further (Agyekum-Mensah & Knight,

2017). Nevertheless, using the appropriateness of BOQ, procurement strategies can be designed

by the authority and thereby project goals can be met easily. Likewise, client management

framework can be incorporated inside the construction project with an effective QS

implementation strategy (Alashwal & Chew, 2017). Other than this, using the BOQ framework

of the QS it is possible for the project authority to plan an advanced contract. This contract needs

to furnish with advantages and design management whereby attractive packages for the

consumers can be created in construction project. Hence, it can enlighten the knowledge of

project workers whereby staffs and members can meet the project goals.

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3) Approaches for innovation development inside project:

Every project requires involving an effective monitoring strategy whereby project

development can be progressed further. Incorporation of QS, inside the project, can deliver

appropriate strategies whereby innovative data can be gathered (Allen et al. 2015). Thus,

collection of proper data can help the evaluation technique and construction project can attain its

desired goal within specified timeframe. Nonetheless, project workers need to be aware about

change requirements of the project.

This project aims to conduct a research on risk management in cost planning in New

Zealand construction industry. In order to conduct a thorough research on the above topic, it is

required to recognize the present practices of cost planning of consultant firms across New

Zealand. Thus, at first, the objective of the research would be to recognize present practice. The

need for present objective is thus justified.

Once, the practices have been identified, the next job is to find out the risks of

construction project, in New Zealand. Risk management is an essential part of any project

management and therefore this has to be addressed in cost planning process. In order to perform

risk management in an effective manner, risks need to be identified first. According to the nature

of the risk, different techniques of risk management have to be identified and this concludes the

justification of second objective.

Upon discussion of the relevant theories corresponding to the topic, traditional processes

of cost planning need to be evaluated. A positive feedback is required to conclude judgment of

the cost planning process. Hence, capable of getting positive responses is required in the risk

management process. Additional risk condition makes excessive construction cost. The

assumption of risk in conventional cost planning process needs to change expectations of client.

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If the risk management is, properly done, additional benefit will emerge. This objective is stated

at point four.

A change in cost management process is required. A constant risk management process in

context of cost planning of construction will become eventually backdated. Thus, a change in

accordance to the condition is required. Different construction project requires different sort of

risk management process and therefore these process have to be discussed thoroughly, to figure

out whether or not modification is required.

Chapter 2: Literature review

Projects associated with civil construction are inevitably exposed to changes in

accordance with the changing market behavior. These changes are affecting construction projects

with respect to time, cost and quality and such consequence is invariably true for the civil

construction industry of New Zealand. It is therefore a normal expectation from construction

project managers that they would be capable enough for managing those impacts that are truly

inherited from changing behavior of construction industry in New Zealand. This study is

responsive for exploring definite impacts of these changes on a civil construction project of New

Zealand. This article is again purposive for investigating the ways being accounted by civil

engineering consultants of New Zealand to go through the change management techniques so

that impact adversities can be minimized potentially.

Risk may intrigue in civil construction projects in the form of inappropriateness at the

time of cost planning. It is thus reasonable that engineering consultants have to have a prior

knowledge how to mitigate cost-planning risk. Fresh approach is definitely desirable from the

side of project managers with effective skills and competency so that project change

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management can be dealt proactively.

2.1 Tendering in construction

Civil construction industry in New Zealand is typified with high risks along with lower

range of profit. On this ground, it can be argued that compared to other areas of economy of this

country, construction industry is experiencing an extreme competition. In this context, work

security is a definite issue in this competitive industry and tendering approach can be taken as a

suitable tool to handle this situation. Price that is being put forward through tendering is

acknowledged as an efficient measure for earning more revenue.

Competitive tender processing is generally accepted with lowest pricing and government

contracts are definitely concerning in this context. Under such circumstances, prospective

contractor within a civil construction contract has to show utmost responsibility for delivering a

tender bid as low as possible. Such tender bidding is observed to be suitable in New Zealand for

treating risks affirmatively attached with civil contracts. Pricing in this tendering process is of

course supporting the behavior or pattern of the contracts and tender bidding is also reshaping

this pricing policy being adhered to construction tender.

2.2 Defining ‘Risk’

New Zealand-based civil contracts are exposed to several risks amongst which less

reliable cost planning is foremost. Deficit in terms of proper cost planning is obvious for

bringing in unwanted risks that may disrupt objectives of such complex projects. Risks in

construction projects cannot be eliminated or controlled exactly. However, expected adversity of

the impacts can be reduced to a considerable level so that a satisfactory project outcome can be

experienced. Risk in construction projects has enough potential to bring in negative

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consequences. Under this scenario, it can be argued that for defining risks in complex civil

construction projects AS/NZS 31000 standard can be positively taken into account. According to

this standard, risk in the due course of construction project management can be defined as an

effect of the uncertainties on defined objectives of that project.

As evident from the previously defined risk, it can be propounded that both risk and

uncertainty can be categorized under a common category and hence, are synonymous with

respect to overall impact on the project outcomes. Both uncertainties in due course of going

through a complex construction project as well as risks being emerged in this course can be

recognized as efficient tools for reflecting opportunities that are being equipped in defined

uncertainty of that project.

2.3 Benefit of risk analysis

Risk analysis is nothing but a strategic objective that can provide sufficient knowledge to

civil contractors about the occurrence probability of risks. Indeed, risk analysis matrix would be

a suitable tool by means of which engineering consultants being engaged in construction projects

would be able to gather a holistic overview of the impact of defined risks. A construction project

has to abide by all planning being entitled prior to commencement of the project. Nevertheless,

risk analysis is suitable for predicting what may happen with a designated construction project in

near future if the project guidelines are not obeyed accordingly. In this relation, risk analysis can

be taken as a preferable approach by virtue of which organizations would be able to have a

reflection about the upcoming risks and uncertainties that may further influence external

landscape of that project.

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Figure 1: Cost-overrunning reasons

(Source: Durdyev et al. 2017)

Definitely, inappropriateness in cost planning may impede the desirable growth of a

construction project. On this ground, it has been argued with a fact that properly undertaken risk

analysis would increase successful accomplishment of construction projects in New Zealand

with controlled time, cost and performance deliverables. Measurement of cost uncertainty as well

as uncertainty with respect to time estimates is approachable. Apart from that, both quantitative

and qualitative cost constraints are also expected in this notion.

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2.4 Risk response measures

Different formal models are existing for estimating risks assigned to a particular project

and these models has to be implemented on or before the tendering stage. In this context, it may

be forwarded with a viewpoint that formalized stochastic processes would be beneficial in the

due course of tender bidding. As evident, construction contract practitioner in New Zealand has

to have peer knowledge the probable risks during tendering phase. Both experience and intuition

of contractors and developers are of supreme importance in this relation implementation of

which are practicable as well as can be utilized more simply by the contractors. It is arguable in

this vein that for remaining competitive under this circumstances, contractors have to price bids

below a specific risk level.

Figure 2: Desired phases of construction projects

(Source: Bell, Bryman & Harley, 2018)

Nonetheless, benefit of risk analysis can be optimized when the quality control surveyor

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take part actively in construction projects by assisting developer with provisioning a concrete

cost and procurement planning from the designated outset. The developer may also approach

consulting service through which cost certainty can be accessed. Nevertheless, advice on

contractual terms, guidance on realistic procurement strategies and provisioning cash flow

realism is expected in this notion. A viewpoint van be provided in this regard according to which

successful completion of a construction project under the competitive era of globalized

construction industry can be undertaken proactively by appropriate budgeting, cost planning

along with selection of route for procurement of that cost planning.

Accurate budgeting would be prioritized by both contractors and developer assigned to a

specific construction project. The specific stages can be assigned accordingly that should contain

measures such as assembling of project team, preparation of detailed budget, cost planning and

forecasting cash flow. Hiring reputable project manager can definitely drive budgeting process of

a construction project. Preparation of a constructive and detailed budget is obvious and most

critical part of this control measure of deficit cost planning. This would involve a suitable

communication mode emerging in between financial team and quantity surveyor so that project

requirement can be visualized efficiently. At this specific phase of budget preparation, total cost

of that project has to be planned. This has to include land cost, professional feesand licenses,

along with different operational cost directly attached with different construction phases.

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Figure 3: Relation between the construction cost and the lifecycle cost

(Source: Baloi & Price, 2003)

The construction project being accounted has to be designed so that it would be

compatible with proposed design of that project. Original budget monitoring is expected from

both quantity surveyor and construction developer. This process has to include cost plan

formation that would be best fitted within the specified scheme of the developer. Quantity

surveyor being employed by the developer may also advice on desired changes on basis of which

budget can be reshaped. Such redesigning can have significant impact on the overall proposed

budget. In this relevance, it can be commented in this vein that all changes that are being upheld

has to be monitored strictly, so that construction project development can be accomplished at

desired level. Indeed, forecasting on cash flow is desirable after cost planning is being

completed. This pragmatic approach would create a satisfactory endurance in terms of project

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deliverables such as displaying finance requirement at exact phases.

Figure 4: project cost control measures

(Source: Alvesson & Sköldberg, 2017)

After completion of these definite stages, quantity surveyor would be responsive for

advising developer on specific procurement strategies that would be essential for project

deliverables such as suitable tendering options. Such normative approach being entailed in a

construction project would be extremely purposive for visualizing the input requirements from

professionals being engaged in a particular construction project.

2.5 Popular Contractual Risk Factors

Estimation and budget preparation need to analyze previously market survey. Therefore,

all the deliverables in a construction project being initiated in competitive civil construction

industry of New Zealand such as project designing, risk management or cost controlling has to

go through measurement of risk in due course of cost planning. However, at the initiation phase

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of a construction project, both risk management, risk assessment has to be adopted, and that can

be performed by acquiring knowledge of risk indicators. Thus, identification and measurement of

risks based on the specified risk indicators would be essential in building a complex construction

project. Definite risk factors in this course can be identified as risk originated from work nature,

risk originated from present workload, risk due to work requirement, risk due to reliability and

unreliability of pricing approach and risk originated from perceived competitiveness of tender

bids.

2.6 Pricing risk in construction tenders

Adherence to risk pricing models is beneficial for going through a constructive tender

bidding. As evident, after risk level is being identified, contingency margin has to be applied.

However, systematic pricing of designated risks is stochastic in construction projects. For staying

competitive in this industry, systematic undercutting of risks is required. Market realities have to

be rationalized in this course so that pricing risk models can be utilized at optimized level. Such

approach would be preferable for outbidding competitors as well. It may be rationalized that the

developers with such pragmatism may also access profitable future contracts.

2.7 Existing knowledge gap

As evident, not much research is being performed on risks of contractual tendering in

New Zealand. Apart from that, lagging with respect to definite risk response is also not

beneficial in this context. Thus, this literature is lagging in providing adequate rationale about

controlled understanding of risk factors that may be deployed by the developers. However, this

study is primarily aimed at identification of contractual risks within the construction industry of

New Zealand that can be deployed through risk profiling followed by strategizing response

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deployment.

Chapter 3: Methodology

3.1 Research Approach

Deductive approach of research has been followed in this research. A deductive approach

supports development of hypotheses. Deductive reasoning indicates that research needs to be

conducted from particular case to general case. If a causal relationship is implied by a particular

theory, a deductive approach applies generally.

Deductive approach can be well explained by hypotheses that have been undertaken

under dissertation. Major advantages of deductive approach cover causal relationship between

variables fixed in the research. Deductive approach provides a possibility to measure concept

quantitatively. Deductive research provides a generalize research findings to a certain extent.

This approach is suitable in this manner is taken in one example, and the procedure of applying

risk management process will be applicable to construction industry of New Zealand in general.

3.2 Research design

A descriptive research design is suitable for this research. The descriptive research design

would be conducted through opinion survey. In order to perform this, primary data collection

method has been used. The survey has been conducted among stakeholders, which includes

contractors, project managers and surveyors. In addition to that, a qualitative scoping study was

first conducted among samples and then that has been gathered. In the survey questionnaire

respondents are then taken for sampling, which can identify risk factors associated with the cost

management consequently the mitigation measurement to counteract every issue.

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3.3 Data Collection process, data types and analysis

After data is collected by survey, it requires analysis. The analysis is done by SPSS

software. In analysis, regression method has been followed. Regression analysis is refereed as a

quantitative research method, which is utilized at the time when research topic involves

numerous variables. The analysis requires extensive analysis and for this research, SPSS is

significant. The relationship is associated with dependent variable and many more independent

variables, rather than a single one. In simple words, regression analysis is referred as quantitative

method used to test relationship nature that defines relation between dependent variable and

more independent variable.

3.4 Scope and Limitation

As stated above the survey is conducted among main contractors, subcontractors and

consultants. These key players of industry come from different sectors of industry, including

civil engineers, residential workers, commercial constructors as well as interior designers.

However, the boundary of survey remains in New Zealand.

The Limitation of survey is its range. If the survey were conducted throughout the world,

the research would have been critical. Not all the stakeholders are accessible at all and

accessibility to all of team reduce research domain. Among those the survey has been conducted,

not all are responsive, and therefore, poor responses are always a matter. This always remains an

issue in the construction industry and stands out as limitation.

3.5 Data sources

In this research, data has been gathered through the web searching method whereby

intense knowledge regarding the research is gathered. Since the research is based on risk

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management during the cost planning of New Zealand construction industry, thus, questionnaire

is prepared based on the topic. Different attributes are assessed through the survey whereby

organizational nature, job nature, position of nation and many other factors are observed.

Moreover, primary quantitative research along with qualitative scooping is followed in this

current research.

3.6 Ethical Consideration

Every project needs to be done on the line of ethical consideration. Thus, in a

construction industry, membership of directories of New Zealand Institute of Quantity Surveyors

(NZIQS) is required (for quantitative survey). New Zealand institute of building (NZIOB) is

required for consulting purpose. However, owing to the difficulties in obtaining inherent

membership is difficult due to privacy concerns. The surveys were conveyed through emails by

secretariat of various trades as well as professional organisation.

Chapter 4: Data Analysis

4.1. Regression Analysis

The regression analysis is done by IBM SPSS. According to the survey responses, the

regression analysis has been done.

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Descriptive Statistics

Mean Std.

Deviation

N

Delay_in_Decision_Ma

king3.89 1.269 9

Communication_betwe

en_Stakeholders4.00 1.000 9

Table 1: Descriptive Statistics

(Source: Created by author)

Descriptive statistics are extensively used for description of the basic features of data that

has been undertaken by the researcher. Descriptive statistics summarizes about the sample.

Along with simple graphic analysis, it forms the virtual analysis quantitative analysis.

Descriptive statistics are generally separated from inferential statistics. The above table

shows that number of items is nine. Each of the nine people conveys separate opinions of

communication between stakeholders. In the analysis, two variables have been chosen.

“Communication between Stakeholders” has been chosen as independent variable whereas

“Delay in Decision Making” is chosen as dependent variable. The mean of the independent

variable is 4.00 (mean of “Communication between Stakeholders”) and mean of dependent

variable of 3.89 (“Delay in Decision Making”).

In a similar fashion, the standard deviation of “Communication between Stakeholders” is

1.000 whereas standard deviation of dependent variable “Delay in Decision Making” is 1.269.

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The difference between two mean is 0.11. This value is less than individual variables thereby

indicating a strong relationship.

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Correlations

Correlations

Delay_in_De

cision_Makin

g

Communicati

on_between_

Stakeholders

Pearson

Correlation

Delay_in_Decision_Ma

king1.000 .985

Communication_betwe

en_Stakeholders.985 1.000

Sig. (1-tailed)

Delay_in_Decision_Ma

king. .000

Communication_betwe

en_Stakeholders.000 .

N

Delay_in_Decision_Ma

king9 9

Communication_betwe

en_Stakeholders9 9

Table 2: Correlation

(Source: Created by author)

It is clear from the above table that, the Pearson correlation equals to 1.000. It is to be

noted that the intersection of independent and dependent variable is 0.985. The value is closely

equal to 1.000. The value of sig. (1 tailed) is ideal indicating the strong interrelation between

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variables.

Model Summary

Model Summaryb

Model R R

Square

Adjusted

R Square

Std.

Error of

the

Estimate

Change Statistics Durbin-

WatsonR

Square

Change

F

Change

df1 df2 Sig. F

Change

1 .985a .970 .966 .236 .970 225.000 1 7 .000 1.768

a. Predictors: (Constant), Communication_between_Stakeholders

b. Dependent Variable: Delay_in_Decision_Making

Table 3: Model Summary

(Source: Created by author)

The “R” value from above table is exactly same as correlation value. This signifies

complete alignment of “Model Summary” with “Correlation” table. The “R” square value is

equal to 0.966, which implies strong analytical relationship.

Anova

ANOVAa

Model Sum of

Squares

df Mean Square F Sig.

1

Regression 12.500 1 12.500 225.000 .000b

Residual .389 7 .056

Total 12.889 8

a. Dependent Variable: Delay_in_Decision_Making

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b. Predictors: (Constant), Communication_between_Stakeholders

Table 4: ANOVA

(Source: Created by author)

The above ANOVA table is created to perform regression analysis. It is to be noted that

“Regression” value is 12.500 whereas “Residual” is 0.389. It signifies that regression analysis is

completely performed.

Coefficients

Coefficientsa

Model Unstandardi

zed

Coefficients

Standardi

zed

Coefficie

nts

t Si

g.

95.0%

Confidenc

e Interval

for B

Collinearity

Statistics

B Std.

Error

Beta Low

er

Bou

nd

Upp

er

Bou

nd

Tolera

nce

VIF

1

(Constant)

-

1.11

1

.342

-

3.24

4

.01

4

-

1.92

1

-.30

1

Communication_between_Sta

keholders

1.25

0.083 .985

15.0

00

.00

0

1.05

3

1.44

71.000

1.00

0

a. Dependent Variable: Delay_in_Decision_Making

Delay in Decision Making= 1.111+ 1.25(Communication between Stakeholders)

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Table 5: Coefficients

(Source: Created by author)

The “B” value is significantly low equals to 1.111, which signifies dependency of

depdent variable is moderate. “t” value is equal to 3.244, which signifies that the estimated

intends tp ideal value.

Reliability Statistics

Reliability Statistics

Cronbach'sAl

pha

Cronbach'sAl

pha Based on

Standardized

Items

N of Items

.994 .995 55

Table 6: Reliability Statistics

(Source: Created by author)

Cronbach’sAlpha is very close to 0.994, which suggests that the study is reliable.

Item Total Statistics

Item Total Statistics

Mean Std.

Deviation

N

Inaccurate_Estimation 3.78 1.481 9

Size_and_Complexity_

of_the_project4.00 .500 9

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Quality_of_Design_inf

ormation4.22 .833 9

Design_variaton 3.78 .833 9

Type_and_nature_of_th

e_building_teams3.33 .500 9

Lack_of_Communicati

ons3.89 1.269 9

Delay_in_Decision_Ma

king3.89 1.269 9

Valuation_of_Construct

ion_Project_Costs3.89 .782 9

Accurate_Project_Budg

et3.89 .928 9

Too_many_variation_o

rders_during_building_

design

3.22 .667 9

Information_for_Establ

ishm_nt_of_Budget_for

_the_client

3.67 .500 9

Inconsistency_in_stand

ards_quality3.56 1.014 9

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Knowledge_of_current

_cost_planning_and_pr

actices

3.78 .667 9

Political_uncertainties 2.89 1.167 9

Use_of_Building_Infor

mation_Modeling3.22 1.093 9

Economic_Factors 3.00 .866 9

Quantity_Surveyors'_C

ompetence3.44 1.236 9

Communication_betwe

en_Stakeholders4.00 1.000 9

Misinterpretation_of_O

wner_Requirements3.56 .882 9

Lack_of_Standard_Ope

ration_Cost_Control_Pr

ocedures

3.44 .726 9

Improved_Predictabilit

y3.22 .667 9

Lack_of_Preventive_M

easures_of_potential_ri

sks_in_Cost_planning

3.78 .833 9

Non_updated_Cost_Dat

abase3.78 .833 9

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Effective_and_Sufficie

nt_Construction_Financ

ial_Knowledge

3.67 1.000 9

Lack_of_Practical_Exp

erience_in_Cost_planni

ng_process

3.89 .782 9

Change_in_Governmen

t_Policy2.67 1.225 9

Rigidity_of_Consultant

s3.22 .667 9

project_change_frequen

cy3.22 1.302 9

Price_Escalation_of_m

aterials3.89 1.269 9

Market_Conditions_in_

Construction_Industry3.44 .882 9

Timely_completion_of

_Final_Account3.67 1.118 9

Reluctance_to_use_ne

w_Cost_planning_proc

ess_despite_other_prov

en_benefits

3.56 .726 9

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Unrealistic_Low_Contr

act_price3.89 .601 9

Market_Barriers_by_E

xisting_Players_in_the_

Construction_Market

3.56 .726 9

Accuracy 4.11 .782 9

Risk_Management_in_

Cost_Planning4.22 .667 9

Engaging_key_parties 3.78 1.302 9

Effective_communicati

on_between_key_partie

s

4.11 .928 9

Implementation_of_Qu

ality_Assurance_Syste

m

3.67 .500 9

Cost_Planning_Strategi

es3.22 .833 9

Cost_Data_provision_f

or_competitive_costing3.67 .866 9

Transparency_in_Cost_

Planning_Process4.11 .928 9

Incentive_to_pioneers 2.89 1.054 9

Education_and_Trainin

g3.56 .882 9

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Industry_Academic_col

laboration_on_Training3.22 1.302 9

Company_Strategies_a

ccording_to_Governme

nt_Political_Agenda

3.00 1.118 9

Suitable_techniques_fo

r_site_works3.89 1.054 9

Strategic_leadership_on

_site4.00 .866 9

Ensuring_finance_and_

insurance3.22 .972 9

Decision_based_on_for

ecast3.89 .782 9

Encouraging_the_proje

ct_team4.33 .707 9

cash_flow_adjustment 4.11 .782 9

Review_contingency_a

nd_risk_allowances4.11 .928 9

Change_management_p

rocess4.33 .500 9

Cost_reports 3.44 .726 9

Table 7: Item Total Statistics

(Source: Created by author)

From the above table it can be stated that, there exists a strong correlation between items

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as the value is well above 0.30. Therefore, the research is reliable and the choices of variables are

accurate.

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Item Statistics

Item-Total Statistics

Scale Mean if

Item Deleted

Scale

Variance if

Item Deleted

Corrected

Item-Total

Correlation

Squared

Multiple

Correlation

Cronbach'sAl

pha if Item

Deleted

Inaccurate_Estimation 197.00 1871.000 .952 . .994

Size_and_Complexity_

of_the_project196.78 1960.444 .779 . .994

Quality_of_Design_info

rmation196.56 1926.778 .926 . .994

Design_variaton 197.00 1930.750 .870 . .994

Type_and_nature_of_th

e_building_teams197.44 1960.778 .772 . .994

Lack_of_Communicatio

ns196.89 1891.361 .926 . .994

Delay_in_Decision_Ma

king196.89 1891.361 .926 . .994

Valuation_of_Construct

ion_Project_Costs196.89 1932.111 .909 . .994

Accurate_Project_Budg

et196.89 1918.861 .928 . .994

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Too_many_variation_or

ders_during_building_d

esign

197.56 1941.028 .915 . .994

Information_for_Establi

shm_nt_of_Budget_for_

the_client

197.11 1958.111 .832 . .994

Inconsistency_in_standa

rds_quality197.22 1911.694 .930 . .994

Knowledge_of_current_

cost_planning_and_prac

tices

197.00 1943.250 .876 . .994

Political_uncertainties 197.89 1897.861 .944 . .994

Use_of_Building_Infor

mation_Modeling197.56 1906.778 .914 . .994

Economic_Factors 197.78 1923.944 .928 . .994

Quantity_Surveyors'_C

ompetence197.33 1893.500 .931 . .994

Communication_betwee

n_Stakeholders196.78 1910.694 .955 . .994

Misinterpretation_of_O

wner_Requirements197.22 1922.194 .934 . .994

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Lack_of_Standard_Ope

ration_Cost_Control_Pr

ocedures

197.33 1937.000 .902 . .994

Improved_Predictability 197.56 1941.028 .915 . .994

Lack_of_Preventive_M

easures_of_potential_ris

ks_in_Cost_planning

197.00 1930.000 .881 . .994

Non_updated_Cost_Dat

abase197.00 1930.000 .881 . .994

Effective_and_Sufficien

t_Construction_Financi

al_Knowledge

197.11 1911.111 .950 . .994

Lack_of_Practical_Exp

erience_in_Cost_planni

ng_process

196.89 1932.111 .909 . .994

Change_in_Government

_Policy198.11 1892.361 .951 . .994

Rigidity_of_Consultants 197.56 1941.028 .915 . .994

project_change_frequen

cy197.56 1885.028 .960 . .994

Price_Escalation_of_ma

terials196.89 1891.361 .926 . .994

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Market_Conditions_in_

Construction_Industry197.33 1922.750 .927 . .994

Timely_completion_of_

Final_Account197.11 1901.861 .944 . .994

Reluctance_to_use_new

_Cost_planning_process

_despite_other_proven_

benefits

197.22 1942.444 .816 . .994

Unrealistic_Low_Contr

act_price196.89 1949.611 .852 . .994

Market_Barriers_by_Ex

isting_Players_in_the_C

onstruction_Market

197.22 1942.444 .816 . .994

Accuracy 196.67 1930.250 .937 . .994

Risk_Management_in_

Cost_Planning196.56 1941.028 .915 . .994

Engaging_key_parties 197.00 1885.000 .960 . .994

Effective_communicati

on_between_key_partie

s

196.67 1920.500 .908 . .994

Implementation_of_Qua

lity_Assurance_System197.11 1958.111 .832 . .994

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Cost_Planning_Strategi

es197.56 1934.528 .818 . .994

Cost_Data_provision_fo

r_competitive_costing197.11 1931.361 .829 . .994

Transparency_in_Cost_

Planning_Process196.67 1920.500 .908 . .994

Incentive_to_pioneers 197.89 1904.361 .975 . .994

Education_and_Trainin

g197.22 1922.194 .934 . .994

Industry_Academic_col

laboration_on_Training197.56 1885.778 .953 . .994

Company_Strategies_ac

cording_to_Government

_Political_Agenda

197.78 1900.944 .954 . .994

Suitable_techniques_for

_site_works196.89 1904.361 .975 . .994

Strategic_leadership_on

_site196.78 1923.944 .928 . .994

Ensuring_finance_and_i

nsurance197.56 1915.528 .925 . .994

Decision_based_on_for

ecast196.89 1932.111 .909 . .994

Encouraging_the_projec

t_team196.44 1937.528 .918 . .994

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cash_flow_adjustment 196.67 1930.250 .937 . .994

Review_contingency_a

nd_risk_allowances196.67 1920.500 .908 . .994

Change_management_p

rocess196.44 1960.778 .772 . .994

Cost_reports 197.33 1990.500 .064 . .995

Table 8: Item Statistics

(Source: Created by author)

It is to be noted from above table that, all the value of “Cronbach’sAlpha” if items are

deleted is equal to 0.994, whereas, the list item results into 0.995. This signifies that this

parameter has weak correlation.

4.2 Interview

Response to the first question

In response to the first question, Jamaica has stated that elemental pricing is the used

method during cost planning process. Ben has stated that m2 rates as well as elemental pricing is

recommended. In addition to that, Design fees because of “build percentages”. Sam,

recommends “Elemental Pricing” and SQM rates. Thus, as a whole, “Elemental Pricing” is the

best method that can be followed.

Response to the second question

In response to the second question, Jamaica has stated that price fluctuation is the main

risk in cost planning in New Zealand. Ben on the other had suggests three issues which are

supply-demand issue, fluctuation and financial risk due to exchange rates. Sam also suggests

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three issues namely price fluctuation, bank interest rates as well as exchange rates. Thus, in

overall the mains issues behind risk in cost planning are price fluctuation and exchange rates.

Response to the third question

On questioning, the reason behind the risk in cost planning, Jamaica points out the

unavoidable circumstances as well as change in interest rate is behind the risk. Ben points seven

reasons behind the risk in cost management whereas Sam points only one issue. Among these,

setting of unrealistic budget by Ben has utmost significance.

Response to the fourth question

When questioned about mitigation strategies Jamaica pointed out that the risk reduction is

possible if risks are properly analyzed, construction designs are newly innovated with early

participation of contractors. Ben again suggests that analysis of risk is critical however, he

recommended using risk matrix, so that analysis can be become more structured. Sam has

suggested that early contractor involvement is necessary. Thus in overall, analysis of the risk and

early involvement of contractor are necessary elements to mitigate the risks.

Response to the fifth question

Jamaica on the response of fifth question has stated that collecting information is required

to decrease risks in cost planning process. Ben again as suggested analysis, whereas Sam has

recommended gathering information and taking context to previous similar projects that has been

done earlier.

Chapter 5: Recommendations and conclusion

5.1 Recommendations

● Better appraisal and formulation of project

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Investment in a construction project in New Zealand has to be performed only after

controlled investigation followed by data collection, data analysis and concept synchronization.

Appraisal system being upheld in this context has to be effective enough for checking gathered

data as well as unrealistic assumptions. Suitability of data bank is incompatible in this context

since databank would be responsive for evaluating completed projects. After investment decision

is being taken followed by allowing sound appraisal, no changes in project concept has to be

permitted.

● Proper implementation planning

Appropriateness in terms of implementation planning is an obvious prerequisite in complex

construction projects. Realistic and resource-based implementation may be fabricated by

utilizing cutting-edge technologies such as PERT/CPM and AUTOCAD. These technical

attributes are proved efficient in estimating resource requirements and activity timings of

construction projects that can be achieved involving interdisciplinary group processes. Data bank

as instanced previously would be of excellent utilization in this context. In this relation, it is

worthy of being noted that effective cost planning is actively linked with manpower planning,

equipment scheduling, cost control, cost monitoring and cost controlling. In this vein, state-of-

the-art computer software programs would be essential for managing these deliverables of cost

planning. On this ground, it can be argued further that cost planning has to include optimization

technique efficiently. This approach will be suitable for minimizing the sunk cost of that project

that would be further beneficial for optimizing profit margin of a complex construction project.

● Preliminary estimation of cost

Preliminary estimation is required in all aspects of cost planning. Rationally speaking, this

first estimate has to be realistic from every aspects of required project outcome. The quantity

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surveyor has to take huge responsibility in this regard of establishment of preliminary

approximate cost estimation. In this relation, it can be recommended that single price method

would be beneficial to serve this purpose of the quantity surveyor engaged in a construction

project. Evidently, preliminary estimate can be elicited from the conceptual phase of a

construction project. Nevertheless, initial designing phase has to be recognized as a sole

determinant of this primary estimation of budgetary cost. Preliminary estimation is also

substantial in the sense that by means of this, the developer along with other responsible persons

would be able to have peer insight about presumption of the project cost. In this manner, cost

overrun, which is a severe issue for various construction projects in New Zealand and attributed

to failure of many construction projects, can be overruled.

● Cost targeting

After commencement of cost planning through preliminary cost estimation, setting of the

designated cost targets has to be achieved by construction project managers. In this relation,

through target costing, cost of a project can be determined before entering into design phase.

Nevertheless, cost elements being involved in a specific construction projects has to be

recognized in this context. As evident, stakeholders are integral to the different phases of a

construction project and in the due course of going through these phases; communication with

stakeholders at an elevated level has to be performed by the project manager. This pragmatic

approach would envisage for efficient target costing. Indeed, this phase namely cost targeting is

suitable for providing a concrete blueprint by means of which estimated cost can be spent

through different elements of project.

● Cost checking

Construction-project design phase is generally evolved with cost targeting. Indeed, checking

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of these cost targets are required to be checked at the elemental level of cost planning. A

paradigm of cost controlling is definitely achievable with such approach since under-or-

overspending cost may be traced effectively in this way. Therefore, cost estimation issues that

are not compatible with details being provided by the architect. This procedure is of fundamental

importance in cost planning. The underlying reason may be described as that checking process of

cost targets is ensuring that the actual design detail with respect to various cost planning

elements are extremely compatible within the defined cost plan.

● Tender reconciliation

Tender reconciliation is recommendable in due course of going through cost planning phase

of construction projects. Indeed, attempt should be taken to reduce tender sum in this course and

the quantity surveyor being engaged by the project developer has to take proper initiative in this

notion. Relevantly, it can be argued that quantity surveyor has to be prudent enough for

simplifying details having not altered the basic design of the projects and tender reconciliation is

definitely going to be beneficial to serve that purpose. Tender reconciliation has to be

approached in such a sense that it can serve the purpose of comparing accepted tender with

finally decided cost plan.

● Post-contract cost control

This stage of cost planning is highly recommended since this step is responsive for serving

the basic objective of a construction project namely cost maintenance. This stage is a proven tool

in cost maintenance in the sense that it can maintain overall cost of a construction project within

designated cost estimate restrictions. It can be carried out actively for reducing deviation of final

cost from initial cost to designated barest minimum.

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5.2 Conclusion

From the above discussion, it can be concluded that cost planning is increasingly a

valuable service within the construction industry of New Zealand. In this context, clients being

engaged with such construction projects have a huge expectation from project managers and

project developer such a receiving value-for-money, controlled expenditure and cost compliance

within agreed project budget. As evident, construction industry in New Zealand is most complex

in terms of huge competition being inherited.

As such, several risk factors are mediating for failure of these projects amongst which

unrealistic cost controlling would be in the front row. Cost overrunning is definitely originated

from this lack of efficiency of project managers to control costs. Inappropriate budget

preparation is also reasonable for most of the failures in New Zealand-based construction

industry. With construction projects are being able to deliver proper medications through

satisfactory manner.Outcome can be achieved for construction projects. In this concern, different

cost planning stages are reliable for having a satisfactory outcome from construction projects. As

such, preliminary estimation, proper cost targeting, cost checking, tender reconciliation and post-

contract cost controlling are some definite metrics by means of which identified issue sin cost

planning can be mitigated affirmatively.

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