Effects of Preliminary Estimate on Final Account of Building Projects
Chapter One
Aim and Objectives of the Study
The aim of the study is evaluate the effect of feasibility estimate on the final account of building projects with a view to enhance efficiency. The objectives of the study include the following:
- Identify factors affecting the accuracy of feasibility estimates for building works;
- Evaluate stakeholders’ preference, level of use and the accuracy of feasibility estimating techniques; and
- Determine the effect of feasibility estimate on final account sum of building projects.
CHAPTER TWO
LITERATURE REVIEW
PRELIMINARY ESTIMATE
According to Omole (1999), preliminary estimate is defined as the computation of the probable cost of a new development (i.e. construction) at some stages before the tender documents are produced. Preliminary estimates are those estimates prepared before the bill of quantities is available, or where there is no bill of quantities for the project, then, they are estimates arrived at before the contract or tender sum is obtained.
Ashworth (1994) observed that the purpose of a pre-tender estimate or preliminary estimate is to provide an indication of the probable cost of construction. This will be an important factor to consider in the client’s overall strategy of the decision to build. The estimate will also provide the basis for his budgetary and control of the construction cost.
Also, Oborien (2006), stated that preliminary estimate is the forecasting of a probable project cost before detail designs and contract document preparations are made. The building client, through the quantity surveyor is made aware of likely financial commitments before extensive designs are undertaken.
METHOD OF ESTIMATING
Basically, there are two methods being used for estimation namely approximate quantities and cost yardsticks or single rate methods. Cost yardstick includes the unit method, the cubic method, storey enclosure method and square meter or superficial method.
TENDER SUM
Tender sum is the amount of money the contractor offers to carry out a building project and this amount has being accepted by the client. It is also referred to as the contract sum. When the Joint Contract Tribunal standard form of contract is used, tender sum or contract sum is the amount named in Article 2. The contract sum is the total amount named in the contract bill to cover the quantity and quality of work included in the contract bills.
COST MANAGEMENT AND COST CONTROL TECHNIQUES USED IN THE CONSTRUCTION INDUSTRY
Cost management is an approach used to realize decisions made for planning, controllingand developing competitive strategies, and it is noteworthy to say that making a balance betweenthis factor and other dimensions of competition such as quality and time is required. It is thecontrol of costs through the formal process of budget development, monitoring, and adjustment toachieve the maximum amount of work at a specified level of quality where unknowns anduncertainty may cause costs to increase beyond acceptable levels (Frimpong, 2006). The Project Management Institute considers cost management as primarily concerned with the cost of resources neededto complete project activities and would be achieved through a process involving estimating, budgeting, and cost control. However, cost management is much more than simply maintainingrecords of expenditure and issuing cost reports – it means understanding how and why costs occurand promptly taking the necessary response in light of all the relevant information. Thus thekey question to stay competitive in construction enterprise is cost management and control.
Over the years, contractors developed several cost management strategies to assist them torecord all financial transactions that occur as well as giving managers an indication of theprogress and problems associated with a project (Davies, 2013). Some of the strategies, tools and techniquesused by contractors to manage cost are discussed below.
Cost Value Reconciliation
Cost Value Reconciliation (CVR) is the practice of determining and reporting profitability of a construction project on a regular basis. By comparing the costs with revenue at a certain date, it is possible to see the difference between the cumulative profit or the loss on the project. The application of cost value reconciliation (CVR) in the subcontracting construction industry is considered an important part of cost management for the financial control of construction projects. However despite its’ uses it is often not widely used by subcontracting organisations. This is generally due to the perceived resource requirements, the cost and technical skills necessary to incorporate the technique into small and medium size subcontractors.
The Project Budget
For cost control on a project, the construction plan and the associated cash flow estimates can provide thebaseline reference for subsequent project monitoring and control. For schedules, progress on individual activitiesand the achievement of milestone completions can be compared with the project schedule to monitor the progressof activities. Contract and job specifications provide the criteria by which to assess and assure the requiredquality of construction. The final or detailed cost estimate provides a baseline for the assessment of financialperformance during the project. To the extent that costs are within the detailed cost estimate, then the project isthought to be under financial control. Overruns in particular cost categories signal the possibility of problems andgive an indication of exactly what problems are being encountered. Expense oriented construction planning andcontrol focuses upon the categories included in the final cost estimation. This focus is particular relevant forprojects with few activities and considerable repetition such as grading and paving roadways.
CHAPTER THREE
RESEARCHMETHODOLOGY
INTRODUCTION
This chapter covers the description and discussion on the various techniques and procedures used in the study to collect and analyse the data as it is deemed appropriate.
RESEARCH DESIGN
According to Asika (2009), research designs are often referred to as the structuring of investigation aimed at identifying variables and their relationships to one another. In this study, questionnaire serves as useful guide to the effort of generating data for this study. The questionnaire is a survey method and it is an exploratory research.
POPULATION OF THE STUDY
The population of study consists of public and private contractors involving civil engineers and quantity surveyors in Imo State. According to the Imo state ministry of Works, Corporate afairsCommision data, total registered contractors” amount to 52.
SAMPLE OF THE STUDY
Random sampling technique was used in selecting 30 contractors from the entire population. This was chosen due to the financial strength of the researcher coupled with time constraints.
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
Data presentation and Respondents working
Table1; Respondents working experience.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
CONCLUSION
In the analysis of relationship among preliminary estimate, tender sum and final account carried out in this study, the study was able to derive a mathematical model to predict final account from tender sum and preliminary estimate. The research reveals that there is a significant relationship between preliminary estimate, tender sum and final account of building projects.
This will help the Quantity Surveyor know with a high level of accuracy the likely final account figure of the building project the moment the tender sums is agreed with the contractor. It will help the consulting team to control the cost of the project effectively, as it will help in reducing the wide gap between final account and tender sum, and also final account and preliminary estimate (initial estimate) early arrived at the inspection of the building project.
This research work has contributed to the existing body of knowledge in that it would help to provide reliable estimate for budgeting purposes. This will in turn assist in facilitating efficient distribution of resources and reduce the incidence of abandoned projects. Also, it would help to provide reliable estimate to be used in feasibility and viability studies for investment purposes or project prioritization.
RECOMMENDATIONS
To improve on the effectiveness of contractors’ cost management strategies in Nigeria, the research recommends that contractors pay particularattention to problem areas that significantly affect cost management (labour, material andorganisational related challenges), engagement of experienced cost management personnel orupgrading of staff’s professional ingenuity through conventional training, refresher courses orparticipation in seminars; and regular review of cost management systems and strategies. Theindustry can also take advantage of advancement in ICTS to automate their cost informationmanagement systems. This study has provided baseline information on the strategies used tomanage project cost and related challenges; however, further research is needed to assess theeffectiveness of these strategies to manage project cost.
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