Risk Management in Cost Planning in New Zealand Construction Industry
RISK MANAGEMENT IN COST PLANNING IN NEW ZEALAND CONSTRUCTION INDUSTRY
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 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.
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 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 planned effectively whereby professionalism can be maintained.
1.3 Research objectives
Following project has incorporate major objectives as follows:
- The existing cost recognition system of New Zealand needs to be evaluated first for cost management.
- Characteristic and techniques for risk mitigation need to be obtained by professionals whereby risk can be reduced.
- 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.
- Identification of the benefits is mandatory for the project propagation whereby opportunities can be grabbed.
- 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
- Present Practice
- Characteristics of the Risk
- Different Techniques
- Conclusion and Recommendation
- 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 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.
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.
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 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 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.
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.
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 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.
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 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 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 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.
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 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.
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. The difference between two mean is 0.11. This value is less than individual variables thereby indicating a strong relationship.
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 variables.
|Model||R||R Square||Adjusted R Square||Std. Error of the Estimate||Change Statistics||Durbin-Watson|
|R Square Change||F Change||df1||df2||Sig. F Change|
|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.
|Model||Sum of Squares||df||Mean Square||F||Sig.|
|a. Dependent Variable: Delay_in_Decision_Making|
|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.
|Model||Unstandardized Coefficients||Standardized Coefficients||t||Sig.||95.0% Confidence Interval for B||Collinearity Statistics|
|B||Std. Error||Beta||Lower Bound||Upper Bound||Tolerance||VIF|
|a. Dependent Variable: Delay_in_Decision_Making|
Delay in Decision Making= 1.111+ 1.25(Communication between Stakeholders)
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.
|Cronbach'sAlpha||Cronbach'sAlpha Based on Standardized Items||N of Items|
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|
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 as the value is well above 0.30. Therefore, the research is reliable and the choices of variables are accurate.
|Scale Mean if Item Deleted||Scale Variance if Item Deleted||Corrected Item-Total Correlation||Squared Multiple Correlation||Cronbach'sAlpha if Item Deleted|
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.
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 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
- Better appraisal and formulation of project
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 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 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.
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.