Cost Management Practices of National Contractors Focused On Water Construction Projects

Abstract

Cost management is a main stem of construction project management and the most important tool sought by contractors to maintain profit. This research reviews the theory of construction cost management and investigates cost management in term of its extent of application, human resource input, IT application, its performance and satisfaction of national contractors in Ethiopia. The result shows a not extensive application of cost management techniques/systems and human resource input. However, specific IT application is infancy and most importantly the contractors are not satisfied with the existing cost management techniques/systems. The results moreover indicated that most of the surveyed contractors are unable to obtain the profit they anticipate from their projects. 85% of the contractors have obtained below 75% of the amount they expected from most of the projects they have undertaken so far. Among these, 52% obtained less than 50% of the anticipated amount. The major contributing factors, in the order of their influence are inadequate resource/financial planning, delays of payment caused by owners and/or consultants and inaccuracy of the estimates prepared during the tendering stage and poor of cost controlling system at site management According to the results of the research, factors contributing to the inaccuracy of cost estimates are unfamiliarity with different estimating methods, lack of up to date estimating manuals or standards on resources consumptions and productivity, inadequate search for information on project specific and contextual cost and non-cost items, improper estimation of overhead costs, failures to evaluate and incorporate and/or difficulties in forecasting and quantifying risk allowances and inadequate assessment of factors while determining markup amount or profit margin. None of the contractors adapt recent estimating techniques, such as the range estimating and parametric estimating methods, which consider risks and uncertainties, primarily or in addition to the standard method. Lack of standard estimating manuals by the construction industry, and absence of a system which maintain records of actual on-site costs and productivities with in the contractors are the major causes for errors in estimating direct costs. Regarding overhead costs, even though the average ratio of overhead costs to the total direct costs is as high as 25% majority of the contractors do not identify and estimate them properly. 52% of the contractors add on allowance arbitrarily to account for these costs. Only 38% of the contractors consider risks during tender pricing. Qualitative items like project type, size, complexity, contract period, statuary regulations and so on, which can affect the quality and accuracy of estimates negatively, receive little attention from the contractors, during estimation and pricing. The results revealed that contractors’ cost controlling process focuses mainly on revealing the amount of profit and fails to indicate/identify activities or operations which are being carried out uneconomically together with the underlying reasons.