The Impact of Cost Control Techniques on Construction Projects Delivery in Hong Kong

Document Type:Research Paper

Subject Area:Engineering

Document 1

This study analyses the impact of cost control techniques on the construction firms of Hong Kong. Therefore, the questionnaire was designed to address the goals of the research. The questionnaire used closed questions since respondents prefer them to open-ended questions that require the respondents to write their own words and provide more information to justify their answers. However, the questions in the questionnaires have a provision where the respondents can add more information if need be. The questionnaire will contain three parts. Part one will compromise questions to identify the background of the respondent. Part two will consist of questions related to the cost control techniques or cost management in the construction industries of Hong Kong. Part three will consist of questions that show the factors that led to increased costs in the construction industry. Part 1 Show the respondent’s characteristics and the background information. Question 1- the first question will ask about the career of the respondent so to determine his or her profession which will be helpful to the study in knowing the reliability of the data. Question 2- this question will require the respondent to disclose his information regarding number of years he has worked in the industry. People who have worked for many years will provide information that will be more reliable than information provided by people who have less experience. Question 3- the respondent will have to disclose information in the type of worked or projects he was involved in the recent past. Question 4-this question will ask about the total cost of the project the respondent was involved in.

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Part 2 Cost management technique. This part will examine the impact of cost control techniques to the firms in the construction industry in Hong Kong. Question 5- this question will provide arrange of cost control techniques for the respondents to choose the ones that they are familiar with. This will help to show the extent to which cost control techniques are applied in Hong Kong. Question 6. – This question is meant to find information on the inputs for applying cost control management systems, Question 7-this question will give the respondent an opportunity to give his or her views regarding to the use of cost control techniques that are being used currently. Slightly significant 3. Moderately significant 4. Very significant 5. Extreme significant The ratings provided by the respondents will help to determine the most important factors that need to be emphasized on.

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Questionnaire This questionnaire is aimed at collecting information for academic purpose only. Cost control technique (Kindly tick the one you are familiar with) Comparative cost plan Tender budgeting Ongoing job budgeting Cash flow forecasting Financial report Cost code system Value management Others 6. What kind of control costing technique are you using currently? Comparative cost plan Tender budgeting Ongoing job budgeting Cash flow forecasting Financial report Cost code system Value management Others 7. How many people are employed in your firm to carry out cot control management? Less than 5 More than 5 8. Does the current cost control technique meet the requirements of the project? Satisfactory Average Unsatisfactory Part 2 Cost management techniques 9. How do you find the projects undertaken for the past few years about relation to the budget? Within the budget Exceeds the budget 10.

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Unavailability of historical data 8. lack of control on the costs 9. Uncontrolled expenditure 10. Poor planning and budgeting 11. Lack of enough resources to carry out the project 12. This will help in determining the extent to which different cost control techniques impact on construction project delivery in Hong Kong. Different cost management techniques will also be analyzed and the cost overrun will b ranked in accordance with their impact. The data will also be analyzed to evaluate the relationship of the contractors with their background on the factors causing The result determined from the data analysis will be verified by interviewing a few practitioners from the construction industry. The practitioners who will be contacted will be from private small building projects, small public building project, and large-scale building projects. Cost control techniques used by Hong Kong construction contractors The contractors in Hong Kong have applied different cost control techniques, which are; • Budgeting • Cost planning and controlling • Estimates • Forecasting the cash flow • Financial reporting and use of cost reporting • Judgement • Value management • Cost code systems Cost planning and control Factors of adopting effective cost control techniques When choosing a viable control technique, some factors must be considered to increase the chance of the technique succeeding.

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Statutory- concerns matters related to the government. • Changing of rules and regulations • Poor relationship with the authorities (Woo,1997) • Environmental restrictions • Increased safety requirements, which are costly. Project – these are all the factors that are related to the project being executed. Cost management – these factors involve the cost that is incurred in carrying out the option of the project. It was found out that the following activities affect the cost management process. • Disputes with the client that still remain unsolved (Woo1997) 5. External factors- these are factors, which are beyond the control of the contractor and the client. Usually, they are controlled by macroeconomic aspects or political environmental. • Inflation, which increases the price of raw materials. • The government decides to increase the labour cost. It was found out that lack of understanding the requirements of project to be executed resulted to losses which caused overruns.

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Therefore, it is recommendable that all clients understand the requirement of all the elements before the tendering process. Another problem that was noted was lack of teamwork and lack of determination in site engineers. It is worth noting that, teamwork increases the level of participation and eases work. However, in Hong Kong, there was poor communication between project teams which resulted to unsolved conflicts. Furthermore, the transportation cost can be a problem and the availability of material will be too costly since the site is not easily accessible (Akintoye 1998). According to Woo (1997), construction sites in Hong Kong are fully packed, which makes use of heavy machinery difficult. This calls for reliance on manpower to do the work of transporting material ( Al-Tabtabai 2013). This is too expensive and time consuming but also subject people to injuries and deaths that the contractor has to incur extra costs to sort out.

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It was also noted that in some projects, contractors lacked relevant experience. Some laws have changed to give clients more right for protection of property which makes the contractor incur extra expanses. Statutory factors This includes the imposition of new laws or rules that cause the cost of a project to go up. It was noted that some time the law makers imposed laws that required the contractors to pay extra cost for taxation or disposal fee. Sometimes the relationship with the authorities is important when carrying out large projects. When there is good relationship and the project follows the required rules and regulations, it is approved in time. This includes all the issues related to payments made to the contractor by the client. From the study is was found out that when the client delays to make payment for the project, it leads to losses.

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Similarly, when the client failed to make the patent at all it leads to a severe loss because the project may be left there to lie idle due to lack of funds (Assaf at al. It was observed that the payments made by the clients was very essential in helping the contractors to survive while they worked on the project. When contractors are not given interim payments they may be compelled to increase the cost of running the projects. From the research it was observed that inflation rates play a critical role in determining the prices of materials needed in construction. When there is inflation, many contractors will suffer huge losses since the inflation will increase the prices of the materials. In Hong Kong, all the materials for construction are supplied from other countries, thus, they are susceptible to inflation and fluctuations in exchange rates.

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Demand and supply forces determine the labour cost in any industry. When Hong Kong is experience economic boom, the labour cost increases due to the increased labour rates. The quantity surveyor should take enough time to analyze all the details needed for the project so as to address them adequately. Giving an anticipation for the project can help to solve the small issue that may arise along the project before the project becomes big. Therefore the contractors and surveyors should use the past project information along with the current project details to come up with the best policies and strategies of cost management. Ensuring teamwork and keeping communication- success of projects depend on teamwork and communication. Effective communication builds good relationships between the stakeholders which help in completing the project. In order to complete the project within the budget, the management team of the project will apply cost control method that will maintain the costs as low as possible while ensuring that there is superior quality in the project.

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If the quantity surveyors, project managers and site engineers take into consideration all these issues in consideration, the factors related to statutory, client relationship, project complexity and external projects will be solved. Mitigating these risk related to the project will help the contractor to save a lot and be sure that the project will be completed within the budget. Survey statistics The survey was included construction contractors in Hong Kong. The contractors were selected randomly regardless of the size of the contracting firm. Some parts of the questionnaires were torn out. Respondent background statistics. People of various professions were contacted for the survey. The people who were contacted were quantity surveyors, project directors, project managers or contract managers, site engineers and accountants for the projects. The figure below shows that most of the respondents hold senior positions in the construction industry thus increasing the validity of the data obtained.

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The workers who worked in civil projects compromised 20 % of the total. of the workers in the construction industry comprises of speciality workers who had exceptional jobs in the construction industry (Fong 2007) The a data is summarized in the table below Project type Percentage Public building 37% Private building 35% Civil building 20% Others 8% Total 100% Analysing the cost management techniques based on the data obtained. Applying cost management techniques From the study, it was observed that most contactors in construction industry of Gong Kong used budgeting as the main technique to control the costs (Shen at al. Tender budgeting was used to determine the initial amount of the projects. Other firms largely used financial reporting and cost reporting as well as cash forecasts where the hired financial experts such as accountants. Taking a long period than the anticipated period of completion thus increasing costs of operation.

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Provision of estimates which are not accurate thus misleading the contractor and the project mange. Fixing such instances will cost the contractor more funds. Developing a plan that is not realistic and a tendering process that does not follow the correct procedures. Uncontrolled expenditure whereby funds are spent on the issues that were not budgeted for. This study also found out that most of the projects that were carried out in Hong Kong exceeded the budget. The increased cost can be attributed to the project complexity, client’s relationship, statutory obligations, external factors, cost management techniques used and other factors identified in the study. It was also found out that subcontractors were largely involved in the cost overrun of the project. Large scale projects were in a better position to control the cost of this projects since they had the capacity to employ a reliable management system.

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Evaluations and recommendations Form this study it’s evident that the objectives have been achieved. The major problems that the surveyors and contractors face are • Poor or less experience on the project type where the contractors do not have relevant experience to carry out the project. • Giving inaccurate estimates which bring problems in the long run when the contractors incur extra costs that was not budgeted for. Poor management in the site which leads to wastes thus increasing the costs. • Delaying of works where projects take longer period of time than they were expected to • Frequency of construction variation and fixed programs It is recommendable that all contractors in the construction industry of Hong Kong to take note of issues that hinder their performance and increase the costs of control in applying the appropriate cost control technique.

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The firms also need to appreciate the role that technology plays in the industry and incorporate its activities with technology to achieve efficiency in the construction field. Do not divert from the initial methods since it will increase the cost. References Al-Tabtabai, H. and Diekmann, J. E. Judgmental Forecasting in Construction Projects, Construction Management and Economics, Vol. Bubshait, A. A. Atiyah, S. and Al-Shahri. M. Shen, Geoffrey Q. P. Chiu, Edmund W. I. and Ho, Christabel M. General Contractors’ Relationships with Subcontractors: a Strategic Asset, Construction Management and Economics Vol. Kaming, P. F. Olomolaiye, P. O. S. An Analysis of the Distribution of Cost Variance for Building Project, Journal of Construction Research, Vol. Owen Jason, Matthew Krynovich and DJ Mance, Scott Burke, Project Cost control tools and Techiniques, 2007 Royal Institution of Chartered Surveyors RICS New Rules of Measurement: Order of Cost Estimating and Cost Planning for Capital Building Works.

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RICS, London, 2013 Sandra Lee, William Trench, Andrew Willis: Willis’s Elements of Quantity Surveying, 12th Edition. Wiley Blackwell, Oxford, UK, 2014 Scott. com/business-news/article/%E5%B8%82%E5%A0%B4%E7%92%B0%E5%A2%83/%E9%A6%99%E6%B8%AF%E7%B6%93%E8%B2%BF%E6%A6%82%E6%B3%81/etihk/tc/1/1X000000/1X09OVUL. htm.

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