ANALYTICAL AND APPROXIMATE VARIANCE OF PUBLIC BUILDING TOTAL PROJECT COST, ESTIMATION BY MEAN COMPONENT COSTS METHOD

ABSTRACT

Building construction project has become an everyday issue, and this involves the spending of hard earned money by the project owner called the client. The expectation of the owner of any building project is justification of good project delivery. This is enabled by the objectives of the project which definitely includes project cost that envelopes the cost and quality of delivery at the expected time. The major issue, is the project cost which dictates its success. Project cost variance has been affecting the speedy and successful delivery of building construction projects. The key fact in this study method was to collect and analyse public building project cost estimates containing building components, which includes preliminaries, substructure, superstructure, mechanical/electrical, external works and contingency in the bill of quantity (BOQ) from projects handled by Education Trust Fund(ETF) in the tertiary institutions located in Kaduna, Kwara, Kogi and Abuja from 2009 to 2010. The study adopted mean component cost method modeled by Skitmore and Ng (2002) to determine the projected cost variance of the Lecture Theatres and Lecture Rooms handled by the organization in various tertiary institutions in Nigeria. The analysis of the data collected was made by using standard method of analysis which employs SPSS for the project costs.Skitmore and Ng (2002) model was employed to test the variability of the project cost data. The result shows that; the building component cost data 4782.50 had closer link to the mean 4773.92(mean) for preliminaries component column in project ID 4 of Lecture Theatreandanother component data 2797.62 is also close to 2312.91(mean) for Ext.Wkscolumn in project ID 7 for the Lecture Theatre building projects butfor the Lecture Classrooms building the preliminaries column had 1531.41 and 1416.33(mean) in project ID 2 and 1611.22 and 1673..58(mean) for M/E column for project ID 5. This project therefore concludes in addition to the results of the cost variances, that the lecture theatre and classrooms projects are underestimated.Interview was also conducted on the professional estimators in building industry. Moreover significant differences exist among the components in those public buildings.The analytical calculation shows that the correct variance for an average lecture theatre project from this research was found to be 34.73%. The sample analyzed had shown that the correct variance of the class room was found to be

38. 50%. Therefore lecture theatre is observed to be a better building project than the class room building. The study recommends the need to minimize the occurrence of the overrun by thoroughly crosschecking the initial estimate and addressing other technical issues before the contract is awarded. It also recommends the employment of the mean component cost method of analysis and setting of a committee to properly scrutinize the estimate.

In the building construction industry, it is a formal procedure to determine the initial cost of a building project before awarding the contract. This is in order to ascertain the financial level of the client whether the project is worth undertaking. The underlying fact is because of the instability of the market prices of material, labour and equipment which are the major tools involved in the construction.

The wave of project production cost variability in the recent time calls for a concern in the building industry. If a building project cost estimate is presented for tender and the contractor gives his quotations, with all necessary adjustment made and contract is awarded, it is not likely that the agreed contract price will still be the final project cost at completion. The final project cost is often found to be higher at completion.

There are many factors leading to the changes in the final cost. Giwa (1998) had stated that the effect of change between the initial and the final cost incurred constitute a major problem in the building industry, especially between the client and estimator. This cost differential is called cost variance in the building construction industry. Cost variance is significant for general cost planning, and can be a big problem to solve by the managers in the building industry.

Yang (2004) defined cost in building construction as the application of price to the scheduled items of labour and material in order to obtain an approximation of the cost of construction. It therefore means that the cost variation can be caused by the changes in labour prizes, material prizes and plant costs among several other causes.

Total building project costs have been evaluated by several researchers through many methods. They all end up with one or more factors causing the hiking of final cost. Giwa (1998) had revealed that the bigger the project the higher the difference between the initial and final cost of construction. It means therefore that the size of the project, in other wards the cost of the project, can either reduce or be higher at the completion stage.

This differential in building contract sums have impact in building project in Nigeria (Ibrahimand Kano,2004). One of the factors leading to changes in final cost is underestimation of the project. The building construction industry undergoes an unexpected cost, in excess of a budgeted amount due to an underestimation of the cost during budgeting. This incurred cost is also called cost overrun or cost increase/budget overrun (Thiboudeaux, 2012).

Mahmid (2013) said that cost overrun had the potential of decreasing contractors profit. This hinders the attainment of the building project cost objectives (Kasimu, 2012). The implication of cost overrun is that it increases the burden of financial risks to clients (Boukendour, 2005). It is therefore necessary to continue to analyse the building project cost in order to see how the building project cost may be minimally reduced.

1.2 Statement of the Research Problem

Cost variance is a term which is frequently voiced out in most contracts in building industry. This is because most cost variance often leads to rise in prices of building project cost. Clients often raise alarm on this terminology as if the money that they budgeted for the building structure had been diverted. Cost variance can however be caused by many factors which includes material price escalation, due to sudden shortage in the production of such materials for example, cement. This often leads to the difference between estimated cost and the final cost (cost at completion).This is the basic problem that cuts across boundaries. Several methods had been used to calculate the projected cost variance in building industry. The main aim had been to secure the method of reducing the cost overrun by subjecting the estimated cost through analysis in order to obtain a projected cost variance from the estimated costs.

These methods include the use of SPSS which is often been employed to analyze the dataobtained. Secondly,several researchers had worked on the analysis of public building project cost usingMonte Carlo simulation method,otherwise known as SIMULATION.One of the basic reasons for employing the simulation method was because of its simplicity while the use of the exact analytical approach for calculating the coefficient of variance was considered difficult. However the project cost variance still persists.

With increase in knowledge however, a more accurate and a more straight forward method of calculating the cost variance was modeled by Skitmore and Ng (2002) in Hong Kong and this model was used on school projects with good results obtained. This project intend to test the Skitmore and Ng model of 2002 on tertiary institution projects handled by education trust fund (ETF) in Nigeria to see its applicability in projecting cost variance in tertiary educational structures.

In Nigeria, the problem of cost variance is phenomenal in the building industry. It is hoped that this study will lead to a result that may drastically minimize the high level of contract overrun in Nigeria.

1.3 Justification of the Study

In order to unveil the benefit of this study, the analysis of public building project costs continues to examine the more practical situation where the mean component costs are computed from the assumed estimated cost to show that the accuracy of the approximate method of estimating for an average project will be considerably improved. It will also show how the exact variance may be calculated for an individual project with this model.

The analysis of public building total project cost will be a useful guide as cost control for the project monitors, contractors, estate owners and property developers in the building industry.

1.4 Aim and Objectives

1.4.1    Aim

The aim of this research is to establish cost variance of public buildings project cost, estimation by mean component cost method with the view to determining ways of minimizing building construction cost.

1.4.2    Objectives

The specific objectives of this research are;

1. To articulate on the methodologies for analyzing project cost variance of public building.
2. To determine project cost variance of lecture theatre building projects using Skitmore and Ng(2002) model
3. To determine project cost variance of classroom building projects using Skitmore and Ng(2002) model

1.5 Scope and Limitation of the Study

The study focused on the Analytical and approximate variance of public building total project cost and it‟s implication on the construction industry. The data drawn covered publicbuildings. Qualitative secondary data method using unstructured questionnaire was adopted for the collection of the sample sizes used. The data were collected from Education Trust Fund (ETF) files of building projects constructed for tertiary institutions in Kaduna, Kwara, Kogi and Abuja. ETF had been the sole financiers of quite a number of public building projects located in the tertiary institutions within the states sampled among others. The data did not cover the whole country. The study is also limited to public buildings, within the areas selected. It does not include commercial structures. The total cost of the selected building structures does not include the cost of maintenance but basically production costs only.

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