Delay And Cost Overruns Management Essay

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5/12/16 Management Reference this

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Delay and cost overruns are common in construction projects. Cost overrun means the actual cost more than planned. In construction, delay could be defined as the time overrun either beyond completion date specified in a contract, or beyond the date that the parties agreed upon for delivery of a project (Assaf & Al-Hejji, 2006, p.349). The construction industry is the tool through which a society achieves its goals of urban and rural development (Enshassi et al., 2006).Firstly, this paper critical analysis some literature reviews. Identify the significant factors contribute to construction project delays and cost overruns. Secondly, explore the overrun and delay causes of 2012 London Olympic Games. Lastly, compare and contrast the reasons have been concluded between literature reviews and the selected project.

Literature Review

“Some of the projects are the efficient and effective management and some poor management to generate much delay and cost overruns” (Frimpong, Oluwoye & Crawford, 2003). A successful project should consider the time, cost and scope. In 1980s, a mass of Turkish public agencies were investigated to recognize the cost overrun resources in public projects. The consequences indicated that floating of exchange rate, material prices increased, estimates errors and technology skills were the most important reasons for expenditure overruns (Arditi, Akan & Gurdamar, 1985). Actually, each project has specific characters which can determine the project time and cost. The critical thinking is showing below.

Technology Skills

Technique is the importance factors contribute to project cost overrun or delay. “In technical terms, such as imperfect techniques, inadequate data, honest mistakes, inherent problems in predicting the future, lack of experience on the part of forecasters, etc.” (Ascher, 1978; Flyvbjerg; Morris & Hough, 1987; Wachs, 1990, p.286).For a practical example, Noulmanee and other colleagues investigated reasons for why highway construction delays in Thailand. Consequently, main reasons were from inadequacy of sub-contractors, organization that lacks of sufficient resources, incomplete and unclear drawings and deficiencies between consultants and contractors. Furthermore, improper planning could cause the deviation between actual cost and planned cost (Assaf, et al, 2006).moreover, if the equipments quality is low, then this will lead to delay the progress.

Economic Force

Kaming with his colleagues studied influencing factors on 31 high-rise projects in Indonesia and found out that cost overruns occur more frequently and are more severe problem than time overruns. They pointed out that the major factors influencing cost overrun are material cost increase due to inflation, inaccurate material estimation and degree of complexity. Moreover, financial crisis also affect the raw material price, then increase the whole cost of project (Kaming, 2001). Furthermore, the financial crisis could lead to the inflation rate increase. Then, the price of goods also will be improved. In this field, the overall expenditure also rises.

Uncertain Force

Al-Momani investigated causes of delay in 130 public projects in Jordan. The main causes of delay were related to effects of construction conditions (e.g., soil, high water table, etc.).Moreover, the hot weather effect on construction tricks. Rain is also effect on construction activities (see appendix 1). Goods price inflation cannot be forecasted. So the raw materials price cannot be ensured (NAO, 2007).

Resource Management

This investigation of the respondents is including groundwater in Ghana project. Project management relates to the management of resources, workers, machinery, capital, materials and methods (Frimpong, et al, 2003).

The research results show that the main reason for the groundwater project construction delays and cost overruns, including: agencies monthly payment difficulties, poor contractor management and material procurement (Frimpong, et al, 2003) “The data show that 75% of the project beyond the original project schedule and cost while only 25% of the budget and time to complete ((Frimpong et al, 2003, p.321). The problem stems from poor resource management (human, technical and material), for example, poor site management and supervision by contractor, ineffective planning and scheduling of project by contractor and low productivity level of labors ((Frimpong, et al, 2003).

Low quality materials cause higher construction cost than the expected because of the loss of material during the implementation phase. This results from a lack of standards for materials and management systems. Lack of ability to prevent cost overruns or to control construction costs, causes many construction companies to fail( Aziz,2013,p.52).An effective cost management strategy is therefore necessary; this could be achieved through putting in a proactive cost management.

Special Requirements

This study is conducted to investigate the effect of project special requirements on cost deviation. The nature of the project, some special requirements will be different .For example in road construction using data from road construction projects awarded in the West Bank – Palestine over the years 2007-2010.

“Weak linear relation between cost deviation in road construction and project’s physical characteristics such as terrain conditions, soil and rock suitability, and soil and rock drill ability” (Mahamid, 2013, p.87). These special projects need spend more funds and time to construct.

Fishbone Diagram

Fishbone diagram also named as Ishikawa diagram which developed in the 1940s by Kaoru Ishikawa (Michael &Gorman, 2006). “Fishbone diagram is used to identify the causes of quality problems” (Lynn & Davies, 1998, p.158).

It can identify all the reasons of causing the problem or situation, and to find the root cause. Moreover, in order to see clearly reasons of the project overruns or overtime, the causes will be listed those on the fishbone diagram.

Resource management

Technology skills

Project Forecasts

Special Requirements

Uncertain Force

Economic Force

Specified requirements

Characteristics (nature)

Raw materials price rises

Waste and Use is not reasonable

Financial crisis

Skills

Keep changing

Weather being uncertain

Price is floating

Lack of experience

Inflation rate

Weather

Materials

Labour

Poor human resource management

Low effective

Equipment

Inflationary force

Fishbone Diagram—Adopt to list the reasons of project cost overrun or delay.

The London 2012 Olympic Games and Paralympic Games

On July 6, 2005, the International Olympic Committee announced that London could host 2012 summer Olympics Games and Paralympic Games. The opening of the Olympic Stadium in Stratford of London On July 27, 2012, The Olympic Games is an international sporting event, held each four years. The Olympic Games originated in ancient Greece, the Olympic Games now has become a symbol of peace and friendship. It combines the sports, education and culture as a whole. It is a comprehensive, sustained, world-wide activity, but also a cultural dissemination.

Main stadium Wembley Stadium and Olympic Park are the landmark of this Olympic Games. Nonetheless, this sport event caused the dispute. Because the large amount of external cost was be regard as unreasonable. The actual cost was £9.3 billion, as a consequence, 500 million pounds more than the budget. Compared the actual cost with budget, the final cost turned over four times (CNN, 2012 [Online]).

“The anticipated final cost of policing and providing security outside the venue is £455million” (NAO, 2012, p.24). In early 2007, Jowell has said that security spending should account for about 30 percent of the total budget of the Olympic. As a consequence, the security cost occupies an important position.

Compare and contrast

Economic force

Economic elements affected 2012 London Olympic Games. In addition, “Due to the impact of the European debt crisis, Britain’s crisis worries difficult to eliminate “( Arghyrou & Kontonikas, 2012, p.662). The euro zone economic downturn is a direct impact on the economy of the United Kingdom; upset the established plan to improve the financial position of the British Government (Kara & Nelson, 2003). The biggest problem currently affecting UK businesses is the appreciation of the pound against the euro, the British EU countries export commodity prices rise, greatly influenced the United Kingdom export and economic outlook. Inflation will exacerbate the growth rate of the cost. Overall, the inflation rate between 2005 and 2012 that was increased (Appendix 5).

Uncertain force

“The main areas of uncertainty that remain include the impact of construction price inflation” (NAO, 2007, p.7). In this project, price inflation cannot be forecasted. Raw material price has increased. Steel is the most material used widely in construction. In 2012 london Olympic games project, steel as the basic material, a large number of steel was purchased by LOCOG. That was the large spending. However, in 2005, the price index of steel was 129.0. After that, the price index continued to grow. In the end of 2011, the figure has reached 191.7 (EEF, 2011, [Online]). The price of materials is floating. This is an uncertain factor. Rising material prices, the purchase price has been higher than most initial estimate. Therefore, that will undoubtedly increase the expenses of the building of the Olympic Games (Appendix6 & 7).

Special requirement s

Olympic Game is the most import sport event. Its requirements are specifically. During the Olympic Games there will be 12,000 police officers responsible for the maintenance of law and order, in case of shortage of policemen or emergencies, there will be more police officers from other areas come to be redeployed to support these expenses has not been included in the budget (NAO,2007). Additionally, LOCOG was to promote sustainable development and green Olympics (British Embassy Tokyo, n. d.). Almost stadiums facilities were made of Dow materials, likes stadium seats. This material could to lessen the impact on environment (DOW¼Œn. d. [Online]). To achieve the Olympic goals that the sustainable development. In spite of this, the cost of Dow materials has increased.

Economic force, uncertain force and special requirement have appeared to impact on this project budget forecasting. However, technique skills and resource management did not show this project.

Conclusion

Based on the literature review and the 2012 London Olympic Games, case studies, it can be concluded, caused project cost overruns or time-out for many reasons. In this report, the production of a fishbone diagram, showing the five major aspects. London Olympics combined case analysis, economic factors, uncertainties and special requirements are consistent with the theory of the fishbone. Technology and resource management did not appear in this project. Inflation, material price fluctuations and weather changes will increase the construction cost. In particular, the Olympics security work is special is necessary, such special requirements need to be satisfied. By contrast, this will increase the cost. So, the Olympic was to estimate the error rather than deliberate lie. London Olympics was the really successful though it beyond the estimate. However, these factors should be considered into the future project budget in order to avoid underestimate and reduce losses.

References

Arditi, D., Akan, G.T. & Gurdamar,S.(1985) Cost overruns in public projects , International Journal of Project Management, 3, (4), 218-224.

Arghyrou M.G. & Kontonikas A. (2012) The EMU sovereign-debt crisis: Fundamentals, expectations and contagion, Journal of International Financial Markets, Institutions and Money, 22, (4), 658-677

Assaf, S. A.& Al-Hejji,S. (2006) Causes of delay in large construction projects, International Journal of Project Management, 24, (4), 349-357.

Aziz, R.F.(2013) Factors causing cost variation for constructing wastewater projects in Egypt, Alexandria Engineering Journal, 52, (1), 51-66.

British Embassy Tokyo (n.d.) London 2012 and Sustainability – the first ‘green’ Games [Online], available from: http://ukinjapan.fco.gov.uk/en/visiting-the-uk/london-2012-olympics/sustainability/[Accessed: 01.03.13].

CNN (2012) London 2012 Olympics Bill Set to Rise Again, Report Says [Online], Available from: http://edition.cnn.com/2012/03/09/sport/olympics-london-cost-rise [Accessed: 25.02.13].

Nagarajan, K. (2004) Project Management, India: New Age International Ltd.

Frimpong, Y., Oluwoye, J. & Crawford, L. (2003) Causes of delay and cost overruns in construction of groundwater projects in a developing countries; Ghana as a case study, International Journal of Project Management, 21, (5), 321-326.

Mahamid, I. (2013) Effects of project’s physical characteristics on cost deviation in road construction, Journal of King Saud University – Engineering Sciences, 25, (1), 81-88.

Nation Audit Office (2012)

Nation Audit Office (2007) The budget for the London 2012 Olympic and Paralympic Games, UK: Nation Audit Office.

Webb, M. & Gorman, T. (2006) Sales and Marketing the Six Sigma Way, USA: Kaplan Publishing

Lynn,V.D.W.&Davies,C.(1998) Supervision and Leadership in Tourism and Hospitality, Sydney: Hospitality Press.

Kara, A. & Nelson, E. (2003) The Exchange Rate and Inflation in the UK, Scottish Journal of Political Economy, 50, (5), 585-608.

Appendix

Appendix 1

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Appendix 3

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Source: Nation Audit Office

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Source: Nation Audit Office

Appendix 4

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Source: Nation Audit Office

Appendix 5

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Source: www.tradingeconomics.com

The inflation rate in the United Kingdom was recorded at 2.70 percent in January of 2013. Inflation Rate in the United Kingdom is reported by the UK Office for National Statistics. Historically, from 1989 until 2013, the United Kingdom Inflation Rate averaged 2.81 Percent reaching an all time high of 8.50 Percent in April of 1991 and a record low of 0.50 Percent in May of 2000.

Appendix 6

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Source: www.eef.org.uk

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