Home Project-material AN APPRAISAL OF THE COST MANAGEMENT PRACTICES IN THE DELIVERY OF CAPITAL PROJECTS IN NIGERIA

AN APPRAISAL OF THE COST MANAGEMENT PRACTICES IN THE DELIVERY OF CAPITAL PROJECTS IN NIGERIA

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Abstract

This study appraises the Cost Management Practices in the Delivery of Capital Projects in Nigeria with set objectives of (i) Identifying and assessing the courses of ineffective cost management practices in delivery of capital projects., (ii) Identifying and assessing the effect of ineffective cost management practices in the delivery of capital projects in Nigeria and (iii) proffering of solution to the problems. Relevant texts, journals, personnal interviews and administered questionnaires were used to obtain data from the stratified randomly sampled population. A total of sixty seven questionnaires were administered to respondents and fifty were returned making a 75% response rate. The questionnaires were structured and administered in the following order. Architects-5numbers, Builders-9Numbers, Quantity surveyors 17Numbers. Mechanical Engineers-4Numbers, Electrical Engineers 4Numbers, civil/structural Engineers-17Numbers, others-17Numbers. The percentile grading a

CHAPTER ONE

BACKGROUND OF THE STUDY

Procurement of Capital projects in Nigeria has become a

source of worry to both Government and Private sector

developers as it is evident from the recent outcries of

unfavoured professional group(s) of the construction

industry in the inclusion exercises into the National Council

on Public Procurement. This Council has had some of these

set cardinal objectives as follows;

i. the establishment of pricing standards and setting

bench mark

ii. enduring the application of fair, competitive,

transparent, value for money standard and

iii. the attainment of transparency, cost effectiveness and

professionalism in the public sector procurement

system.

According to Onyeri (2008):

“The latest survey conducted by the World

Bank on procurement activities prior to the

enactment of the 2007 Act; that bribery and

corruption dominated Nigeria’s N775 billion

contract award in 2007. In fact the survey

did not tell us anything that we are not

aware of. We have always known that the

system of

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procurement in this country is fraught with

corruption and corrupt practices”The above statement in direct terms, confirms the belief that

there is problem in the cost management practices (if any)

adopted in delivery of capital projects in the country and this

projects ranges from mass housing projects through highways

and road infrastructures, other civil engineering works and

industrial engineering construction works.According to (Adetola, 2007):

It is very disturbing to know about 90% of the road

contracts awarded by various levels of government

in Nigeria is done through only one professional

grouping – “Engineering” who designs, estimates

the cost of construction, makes payment and

contracts. It is the situation and arrangement that

forces former Minister ofWorks, Senator Ogunlewe

to verbally attack the engineers in a public hearing

on the Procurement Act.The professional businesses in the construction industry

needs to be better and equitably distributed for improved

and specialized handling.According to Ogunlewe (as cited in Adetola, 2007):

We are talking of due process, shouting due

process. What is due process? In the Federal

Ministry of Works where I preside as the minister, I

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don’t believe there is anything that is due process.

How can there be due process when the engineers

designs the roads, estimates the costs of the roads,

settles the contractor, construct the road,

supervises the construction, recommend payment

for work done, approve the payment certificates and

the quality of work! All these by one person! Haba!

This cannot be due process. Not until roles are

assigned to relevant professionals like the quantity

surveyors to be in charge of cost and cost

management of roads and highways, can there be

any due process in Federal Ministry of Works.

The statement of the Senator does not only depict emotional

attachment towards resolution of the problems, but also it

substantially exposes possible areas and ways of resolving the

problem from his own angle of perception.According to Oforeh, (1997): “The Nigerian construction

industry contributes at least 60% to the Nations yearly Gross

Domestic Products (GDP)”,The implication of this statement when married to the other

points on cost management discussed above is that any problem

in the cost management of capital projects within the

construction industry is a major problem to the Nigerian economy

and the people and this should be taken serious.4

1.2 PROBLEM ANALYSIS

Cost management of capital projects in Nigeria is poor and

demands urgent attention. This is obvious from incessant

abandonment of capital projects (Elephant Projects – Ajaokuta

Steel Rolling Plant to mention a few).Complaint of cost overrun of capital projects and a host of other

cost related and disturbing issues.

Fair-enough, there is no doubt that mush words have been

undertaken in recent years in at least proffering solution to the

menacing problems of poor cost management of a capital

projects as it is evident form the consistent dramatized effort of

government and the scholarly works of eminent professionals

and educationists in this area. Notably among these works are

those of Mogbo (2000) “The procurement and financing of roads

in Nigeria through new private sector and Government initiatives

and that of Oladapo (2000) “Cost management of engineering

infrastructure”Notwithstanding these efforts made so far, much is yet to be

desired particularly in area of efficient and effective cost

management of those projects, hence the need to identify the

problems constraining the efficient cost management of capital

projects

i. Late appointment of quantity surveyor in the delivery

of capital projects will certainly lead to ineffective cost

management practices.

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ii. Non appointment of quantity surveyor in the delivery

of capital projects will certainly lead to ineffective cost

management practices.

iii. Inadequate budgeting at the inceptional stages of

project delivery will lead to ineffective cost

management practices.

iv. Inflation during the period of capital project delivery

can lead to ineffective cost management practices.

v. Lack of optimized concurrent professional engineering

environment in the delivery of capital projects

(industrial engineering construction in particular) will

lead to in effective cost management practices.

vi. Inadequate funding of capital projects can lead to

ineffective cost management practices.

vii. Corruption will obviously lead to ineffective cost

management practices in the delivery of capital

projects.

viii. Political instability will lead to ineffective cost

management practices in the delivery of capital

projects.

ix. Lack of continuity in government can lead to

ineffective cost management practices in the delivery

of capital projects.

x. Ignorance on the part of client will cause ineffective

cost management in the delivery of capital projects.

6

xi. Client’s contractual negligence will lead to ineffective

cost management practices in the delivery of capital

projects.

xii. Unanticipated increase in interest rate during the

period of capital project delivery will lead to ineffective

cost management practices.

xiii. Lack of cost risk analysis in delivery of capital projects

(industrial engineering construction works in particular

will lead to ineffective cost management practices.

xiv. Lack of cost control exercises at pre-contract stages of

project delivery will lead to in-effective cost

management practices.

xv. Lack of value analysis will lead to inefficient cost

management practices in the delivery of capital

projects.

xvi. Lack of value engineering will lead to inefficient cost

management practices in the delivery of capital

projects.

xvii. Lack of proper monitoring by cost managers and cost

engineers at construction phase of capital projects’

delivery will lead to ineffective cost management

practices.

xviii. Poor project management will lead to ineffective cost

management in the delivery of capital project.

7

1.3 AIM AND OBJECTIVES

AIM

The aim of this study is to appraise the general cost management

practices available in the delivery of capital projects in Nigeria.OBJECTIVES:

The set of objectives in achieving the above mentioned aim is as

stated below:

i. To identify and assess the causes of ineffective cost

management practices in the delivery of capital

projects in Nigeria.

ii. To identify and assess the effect of ineffective cost

management practices in the delivery of capital

projects in Nigeria.

iii. To proffer solution to the problems.1.4 RELEVANT RESEARCH QUESTIONS

i. How can early appointment of quantity surveyor in the

delivery of capital project bring about effective cost

management practices?

ii. How can correction of attitude of Non inclusion of

quantity surveyors and cost engineers in the delivery of

capital projects bring about improved cost management

practices?

iii. How can adequate budgeting for proposed capital

projects bring about improved cost management

practices?

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iv. Do you consider tackling of inflation as a way of bring

about improved cost management practices in the

delivery of capital projects?

v. How would optimized concurrent professional

engineering environment bring about improved cost

management practices?1.5 DEFINITION OF TERMS AND CONCEPTS

Optimized concurrent engineering: An environment that

provides opportunity to

substantially reduce the

total cost of a project

through integration of

construction / engineering

product teams, containing

members of various skilled

disciplines, enabling a

simultaneous contribution

to an early product

development and

definition.Valued Analysis: It involves the analyses of

a product with respect to

product process cost and it

is typically a technique

used on existing

9

items/products in light of a

new processes, materials

or assembly method being

available.

Value Engineering: It is an approach that

vigorously examines the

relationship between a

product function and cost

and can be used during the

concept stage of a product

development.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

This study focuses on construction industry professional

practicing firms, clients of the industry (public and private),

selected industrial engineering construction companies, and

construction and engineering manufacturing firms.These were some of the extraneous and constraining

circumstances that created imperfection in the study ï‚· Finance was one of the main constraining factors in

this study as there was not enough funds to carry

out and supervise the field work as the researcher

would have expected, ï‚· The researcher is based in Lagos and had time

problem to fully follow-up personally and supervise

the administration of the questionnaire to

respondents. The researcher was not available all

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the time and so friends and colleagues helped out to

the best of their ability. ï‚· Some of the respondents did not comply to

instructions and requests as expected.1.7 SIGNIFICANCE OF THE STUDY AND JUSTIFICATION

FOR INVESTIGATING IT

This thesis examines the causes and impacts of ineffective

cost management practices in the delivery of capital

projects in Nigeria with a view to proffer solution to these

problems.However, the significance of the study is to enlighten the

government and prospective private sector clients on the

observed associated problems of cost management

practices in the delivery of capital projects and ways out of

the problems when investigating them.It will equally educate the would-be clients on their

contractual obligations when embarking on such projects. It

will also highlight the need for and appointment of proper

professionals when embarking on such projects.

It will highlight the accruing benefits to proper cost

mismanagement of capital projects.The result of the research will aid government, their

respective agencies and concerned private sector

developers in revisiting existing and on-going projects that

are presently suffering from these professional/technical

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denials. The result of the research will equally help the

different professional actors to know about the parts they

are expected to play at strategic periods of capital project

delivery with special regards to cost management practices.


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