An Evaluation of Contribution of Cost Contingency Towards Successful Execution of Building Projects In Nigeria

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 – An Evaluation of Contribution of Cost Contingency Towards Successful Execution of Building Projects In Nigeria – 

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ABSTRACT

Contingency funds are included in project estimates to manage risk and uncertainties associated with a construction project. The fund is calculated in various ways.

In most cases it is either underestimated or inflated. The aim of this research work was to evaluate the contribution of Cost Contingency toward successful execution of building projects in Nigeria.

To achieve this aim the impact of contingency provision in some selected building projects had been evaluated. Data for this study was obtainedfrom 40 project files of completed buildings obtained from 10 organizations.

Furthermore 100 comprehensive survey questionnaires on project Cost Contingencieswere randomly distributed to Quantity Surveyors and Project Managers with 67%response obtained.

The data were analyzed with the aid of simple statistical tools using SPSS package. The study found that although the inclusion of contingency allowance reduces the incidence of project cost overrun, 55% of the projects considered were in excess.

It was also found that projects exceed their initial cost estimate by an average value of 5.07% where contingency is applied and by an average value of 9.52% where no contingency is applied.

TABLE OF CONTENTS 

Title page i
Declaration ii
Certification iii
Acknowledgement iv
Abstract v
Contents vi
List of Tables vii
List of Appendices viii
CHAPTER ONE INTRODUCTION
1.1 Background 1
1.2 Need for the Study 3
1.3 Aims and Objectives 4
1.4 Statement of Hypotheses 4
1.5 Scope and Limitation 5
CHAPTER TWO LITERATURE REVIEW
2.1 The concept of project cost estimation 7
2.1.1 Preparation of cost estimation 7
2.1.2 Factors affecting the accuracy of cost estimation of
building projects 8
2.2 The concept of risk in construction industry 9
2.2.1 Risk and uncertainty 9
2.2.2 Types of risks in construction contracts 10
2.2.3 Risk management 12
2.2.4 Risk management workshop 15
2.3 Concept of cost contingency 16
2.3.1 Method of contingency allowance assessment 17
2.3.2 Cost contingency management 18
2.3.3 Objectives of cost contingency management 28
2.3.4 Contingency management strategy 19
2.3.5 Expenditure of contingency fund 20
2.3.6 Adequacy of contingency fund 20
2.3.7 Limitations of contingency management practice 21
2.3.8 Areas of application of contingency fund 21
2.3.9 Limitations of cost contingency 24
CHAPTER THREE METHODOLOGY
3.1 Population 25
3.2 Sampling procedure and sample size 25
3.3 Data collection 25
3.3.1 Questionnaire survey 26
3.3.2 Checklist 26
3.4 Data analysis 26
3.4.1 T – test 26
CHAPTER FOUR DATA PRESENTATION, RESULTS, AND DISCUSSION
4.1 Data presentation of questionnaire survey 27
4.1.1 Methods of calculation of contingency fund 28
4.1.2 Management of contingency fund 31
4.2 Presentation and analysis for historical data 39
4.3 T – test 42
CHAPTER FIVE CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion 43
5.2 Recommendation 44
References 46
Appendices. 49

INTRODUCTION

Background

Construction by its nature involves certain unavoidable risks. There are many variables affecting the outcome of a building project especially its final cost.

Contractors are required to accept a certain level of risk due to unforeseen costs that are incur redduring construction. Risk is also a concern of clients (Mak and Picken, 2000).

To account for the various risks that lead to cost increase, many owners and contractors allocate a contingency amount to each project.

Owners allocate contingency amount to the budget for upcoming projects, while contractors attach a contingency amount to all their submitted bids.

Ford (2002) postulates that, project budgets are one of the most important and widely used project management tools.

Project complexity and the inherent uncertainty of the financial performance of constructed facilities, development funding, and the control of costs and schedules make exact budget needs impossible to forecast accurately.

These same characteristics also cause project to deviate from plans. Therefore, contingency funds are included in development budgets to address uncertainties and deviation that threaten achieving set objectives.

Reference

AACE (American Association of Cost Engineers) (1992). Skills and Knowledge of CostEngineering.

AACE, Morgantown, W. VirginiaAkintoye, A. (1998)Analysis of Factors Influencing Project Cost Estimating Practice.Construction Management and Economics, 18, 77-89.

Akintoye, A. and Fitzgerald, E. (2000)A survey of Current Cost Estimating PracticeU.K. construction Management and Economics,18, 161-172.

Baccarini, D. (2005, Understanding Project Cost Contingency; A Survey.ConferenceProceedings of the Queensland University of Technology 4-8 July.

Carr, R.I (1989) Cost Estimating Principles.Journal of Construction Engineering andManagement. 115 (4), 545 – 551)

C.I.O.B (Chartered Institute of Building) (1997), Code of Estimating Practice, 5th Edition.The Charted Institute of Building, Ascot,UK .C.I.R.I.A (Construction Industry Research and Information Association) (1996).

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