€¦ · Web viewRISK MANAGEMENT IN COST PLANNING IN NEW ZEALAND CONSTRUCTION INDUSTRY. Abstract....
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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
30
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
31
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
32
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
33
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
34
as the value is well above 0.30. Therefore, the research is reliable and the choices of variables are
accurate.
35
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
36
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
37
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
38
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
39
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
40
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
41
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
42
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
43
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
44
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.
45
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.
46
47