1.0 Chapter 1 Introduction
1.1 Background and Rationale of the Research
The industry of construction is not only a key player in the national economic growth; but also a crucial sector affecting the economic and social welfare of citizenry, particularly in its primary function in providing reliable and decent shelter. It is viewed as one of the most essential sector to highly contribute to the growth of an entire economy at the provincial, national and international levels (Artto & Kujala, 2008). In the recent years, cost modelling and estimation for construction projects have attracted major attention of several research scholars. Controlling and managing cost of the projects is regarded as one of the most vital activities. Cost management demands efficient strategies that can control the project costs and avoid delays or cost overruns. At a general level, this management is performed by contractors’ quantity surveyors in a particular project. The surveyors emphasizes on gathering and proving the relevant information pertaining to cost estimation of a project. Such information is utilized by the contractors in decision making process for acquiring incessant enhancements and cost controlling. If the contractor’s cost control is efficient, then maximum profit can be acquired with desired quality of work and therefore, generate higher revenues and lead to the success of the industry. Therefore, identifying the best way to reach a successful outcome theoretically and the techniques chosen by contractors is the purpose of this dissertation.
The role of cost management extends from maintaining the expenditure records to understanding the expenses that might occur and taking relevant actions pertaining to this knowledge for avoiding cost overruns and delays. Cost management in projects encompasses three main functions: budgeting, cost controlling and cost estimating (Hansen & Mowen, 2006). According to Artto et al., (2011) the ultimate aim, which such a purpose has is to assure the project`s performance in a cost efficient and profitable manner on the basis of the business principle and the perspective of firms. Regularly monitoring the costs can help in detecting any work items that are attributed to higher costs than initially expected. On the basis of such information, certain actions can be deployed to control the exceeding costs and maintain the limit of the budget. Another benefit of monitoring the costs is that it helps in assessing the total cost of the project at its completion, which further provides an estimation of the future costs for unfinished work items.
Ensuring that the project cost is within the boundaries of the defined budget is the responsibility of an efficient cost controlling system. Cost control exists in order to monitor expenses during the different stages of a construction project and provide cost certainty for ensuring the completion of the project within the budget (Cunningham, 2015). Cost control not only monitors the cash flows but also forecasts the future expenses through budgetary control.
Following Bennett`s observations (2003), generating a contractor’s cost control system is to accomplish such goals:
Pilcher (1994) explained that developing an efficient cost-control system requires extensive research about the company’s size, the type of work and the distinct contractual arrangements. There are three types of cost-control systems that are efficiently deployed in various projects, namely, cost-value reconciliation (CVR), contract variance and earned value management (EVM). Out of these, CVR is usually utilized by building contractors’ all over the world.
Many contractors rely upon Cost Value Reconciliation (CVR), although many other options such as contract variance and earned value management are available. As mentioned before, an appropriate cost control by careful management is crucial. Cost needs to be effectively monitored and managed in order to avoid budget overruns (Chigara, Moyo and Mudzengerere 2013). The dynamic external environment can be the strong competition in the construction market, social, technological or legal deviations and economic or political conditions in the surroundings. CVR is a cost control system that is adaptable to changes in the above mentioned external financial environment during the construction project. It monitors and measures the expenditures in a project and then compares it with the actual budget. The design of CVR is made up of many of the other cost control methods as mentioned above (contract variance and earned value management). These methods are comprehensively explained in the literature review chapter to form a better view of their advantages and disadvantages.
One reason CVR is attractive is because costs are compared to values throughout the duration of the construction process providing “a running account of the profitability” of projects (Crompton 2015:1). Profitability is calculated to measure a project’s performance by evaluating the difference of revenue from the costs (Shakantu, Tookey and Bowen 2003).
The primary purpose of CVR is to make sure that accounted profits are realistic and accurate in reflecting the current financial position of a company (Potts 2008). While the other two cost-control systems (standard costs and variance analyses) are extensively used in the site level on individual project and are capable of weekly control and monitoring. CVR is the preferred method by the upper management, usually head of project offices (Fellows et al. 2002). Its outputs constitute statements of the total costs and values of each project in specific time scale, usually monthly. CVR provides interim financial reports on the progress of the site work, which quantity surveyors are usually in-charge in its preparation.
However, in the UAE construction industry, cost management has been an area of primary concern. McCaffer and Harris (2002) suggested the cost control mechanism to be initiated and implemented to the time cost commitments are made. However, it is observed that the contractor’s quantity surveyors focus on only monitoring the costs instead of controlling them. Cost management and control is significant to the projects, but cost overruns and scope of projects are common, which is often noticed worldwide (Artto et al, 2011). One such reason behind this failure is the inefficiency of contractor’s cost control system. They are faced with significant challenges that hinder their performance in estimating the costs. Such challenges can range from contract type and period, intensity of price, project size to lack of experienced team, environmental factors and more (Kikwasi, 2012; Kaliba et al, 2009). This is due to the fact that the projects are not attributed to effective approaches of determining and managing control user`s requirements, costs and scope. It is therefore, crucial to explore this research domain and evaluate the cost controlling and monitoring strategies for contractor’s productive cost control to ensure the success of a construction project.
Though there are several researches focusing on evaluating mechanisms for efficient cost management, only a few focuses on cost control, especially in the post-contract stage. CVR, as a cost control technique, is generally utilized by the contractors’ in the construction projects in various parts of the world, but has low popularity in UAE construction industry. It is therefore, imperative to explore the use of CVR in construction industry as compared to the other methods available for ensuring whether it is appropriately implemented or not and also determine its efficiency. Therefore, the purpose of the current research is to identify the best practices of contractor’s cost control in this region (United Arab Emirates). Also, this research will provide valuable insight into the cost control systems that are presently used by the contractors in UAE construction industry, and how the CVR is improving the financial effectuation of the construction project. Such knowledge and evaluation will be useful for the practitioners in using the best cost control technique, which will be beneficiary for the construction industry.
1.2 Aim of the Dissertation
The purpose of this research is to establish the way CVR is enhancing the financial performance of the construction project.
The following specific objectives are established to attain the aforementioned aim
CVR is an accepted cost operation in many parts of the world due to the best budgeting operations it offers. Although there are other cost control methods as well, CVR has sustained as one of the most efficient strategy and therefore, this research focuses on only CVR and test the stated hypothesis of CVR efficiency to help improving the financial effectuation on project`s construction.
1.5 Research Methodology
Data collection will be conducted using two approaches:
1. Literature review
1.5.1 Literature Review
This review of literature will explore the aims for cost-control during post contract stage and different types of techniques, which are used for cost control after the post-contract stage in the construction industry. Also, related works pertaining to the CVR method for cost control will be explored by using peer-reviewed literature which can contribute significantly in the thorough understanding of the method.
Field work data collection involves the administration of the questionnaire online to professionals working in the contacting industry. Quantitative data will be collected pertaining to the challenges faced by the contractors, the cost control methods deployed by them, their familiarity with CVR and how they implement it. Data obtained from the questionnaires will be uploaded to Survey Monkey (www.surveymonkey.com) for basic data processing statistics (e.g. median, mean, variance, mode and standard deviation).
1.6 Dissertation Structure
The study report will be structured based on the following contents and as described therein:
Chapter 1 - Introduction
This chapter contains the background of the study, its rationale, aim, and objectives. It presents an introduction to the construction industry, contractor’s cost control systems and CVR.
Chapter 2 - Literature Review
It covers the importance of cost controls and cost control management in the construction company. It also covers themes such as CVR definitions as a cost-control method, objectives, strengths and weaknesses, applicability and limitations, remedial solutions, and current and related methodological and conceptual trends but expanded to accommodate new and additional information about the CVR method.
Chapter 3 - Research Methodology
There is a discussion of methodology design in the chapter containing a sample of the questionnaire.
Chapter 4 - Presentation of Results
The results are discussed with analysis in relation to the objectives and aim along with hypotheses of the study.
Chapter 5 - Discussion
The results from different perspectives are discussed in this chapter along with identifying trends that may emerge in relation to the literature review and results.
Chapter 6 - Conclusion and Recommendation
Consolidates and summarizes the main benefits of the study, identifying limitations of study in relation to the results, providing recommendations for improvements and approaches for further studies where applicable.
Chapter 2 Literature Review
The related literature on the notion of “how CVR is improving the performance of construction project financially” is reviewed in this chapter. There is also exploration of the different cost-controlling techniques deployed in the post-contract stage of a construction project in a detailed manner. On the other hand, various scholars have investigated on the concept of cost control systems in construction industry; there is no apparent status of data and information in this particular area. The study highlights the advantages and disadvantages of techniques in the cost controlling of construction projects. Further this study explores the applicability and limitations of CVR in order to study about the factors which influence the cost control technique in construction industry and finally concluded with the chapter summary.
2.2 An overview of cost-control
The view of cost-control seems to be extremely important in the matter of the construction project in order to follow the planned sums for consumption and outputs. It is essential to have the ability of be involved in the project`s designing and cost-control. This way, one is able to bring some changes according to his needs and make the project more diversified. Being enforced to manage the construction process and watch costs provides people with the higher level of trust towards financial side of any project.
The construction field is merely accountable for the financial development of the country and based on the administration’s economic strategy and budget the creation of its specific strategy plan on how to accomplish and execute progress in that cost and similarly offer the country a strongly established atmosphere (Anyanwu 2013).
2.2 An overview of cost-control
The tendering stage is an ideal commencement for project cost control, as contractors will get a cost system containing a structure of the resource code, which is used by accounts or the finance department. Where available such codes have to be included to the list of resources, which becomes the part of estimate that simplifies the original coordination between the ‘working budget’ and the ‘estimate’.
Cost control for construction projects starts during the project life cycle from the conception stage through to the construction stage and beyond. Further, the basic need of any construction project to achieve its goals through the attainment of sufficient profit necessitates that the contractor will have to turn to cost control for assistance (Bahaudin et al, 2010). Cost overruns in construction activities are highly problematic with the ability to seriously over-extend the client financially up to point, during which the project may have to be abandoned (Cunningham, 2015). Thereby, signalling the indispensable requirement of controlling the costs of any project.
The major activities of cost control in post contract stage includes interim valuation, certification of payments, Controlling cash flow, forecasting it through budgetary control, and maintaining financial statements displaying current and expected final cost of the project. Simultaneously, for effective cost controlling in post contract phase, it is also deemed imperative to conduct site meetings and preparation of documentation for sub-contractors ,suppliers, invoice and for making recommendation as well as keeping scope for negotiations.
2.3 Importance of significance of Post Contract cost-control
Cost control in construction project arises at the outset of any project and ends on the final account agreement. Various numbers of techniques are adapted to restraint the rising cost during the pre-contract and post-contract stages of a project. Cost controlling technique enables contractors to visualize and control their present and future projects.
Controlling the cost of a construction project is considered to be a complex task, which project managers undertake in practice. It primarily involves constantly evaluating plans, measuring progress and taking corrective actions when required (Kerzner, 2003). In fact, the problems of project control are aptly summed up in an old definition of a project as "any collection of vaguely related activities that are ninety per cent complete, over budget and late." (Zoll 1979). Thus, the importance of cost and time control has been widely recognized by the construction professionals since decades.
The fundaments of such an importance are in the necessity to take the control over the whole project. Every person seeks to cover work with his demands and be assured in the abidance by cost-control. They watch tender sums to be identical to the final accounts in order to get the expenditures, which are to satisfy them. The activities of cost control may include certificates for payments, controlling budgets and agreements on settlements of claims along with the final certificate of the final project. All these activities are considered when checking the post contract cost-control in order to get the total assurance in the properness of the work done.
2.4 Problems facing with Post Contract cost-control
The development of a construction cost control system is dependent on the type and complexity required by those responsible for managing the project. A related issue that is often overlooked and needs to be considered carefully is the availability of resources that can operate these systems (Potts 2008).
Pilcher (1994) adds that when developing a contractor’s cost control system, the following issues need to be considered:
The size of the company,
Type of work or operating sector, for example building or civil engineering,
Condition of contract, the different projects and their contractual arrangements.
Sometimes cost reports may be taken from the planned data in order to hide some differences in sums. Such reports are inefficient, so they can lead the company to deficiencies in productivity and outcomes to be achieved. In other cases it may happen that the statuses of reports are not known, so financer controller does not check them because of lack of time and visibility (Pilcher, 1994). Doing so, further operations are not held properly and the post contract cost-control cannot be viewed as the report about true state of the construction project.
All of these issues have to be measured well before implementing the project for its correct functioning. For example, managers have to watch payment certificates and correlate them with required materials in order to regularize expenditures and get the required outcomes.
2.5 Types of Cost-controlling techniques adapted by Contractors
The cost control technique is considered as a process which should be continued throughout the construction phase in order to ensure the cost of the project is kept within the agreed cost limitation. The certain techniques and implements which could be utilized in order to support those accountable for handling a construction project to probably better control and manage costs of project. The major objective of cost control technique of a project is to obtain maximum profit within the specified period and achieve satisfactory quality of work.
Anyanwu (2013) studied about the cost control project in the construction industry. Cost planning and control are considered as the important factors in the planning of construction industry. The project execution by the contractor has required the cost control. Cost control has done by way of planning of the project and scheduling using various kinds of qualitative techniques used in the industry. The proper cost controlling technique has used to guide the technical specifications of the project, revision of estimated activity duration, resource availability, working conditions and the economy related to the construction industry. Therefore the next topic explores the different type of techniques adapted by the Contactor’s during post contract stage.
2.5.1 Earned Value Management (EVM)
Earned Value Management (EVM) technique integrates the project reporting with project cost and schedule control. The analysis provides cost and schedule variances. This control technique can be adapted to any industry (Potts 2008).
The concept of EVM was developed by Defence Department of the USA almost six decades ago where it was used to measure performance of projects (Ross and Williams 2013). Performance is measured by evaluating the amount of work planned to the work that was “actually accomplished to determine if cost and schedule performance are as planned” (Ross and Williams 2013:273).
The performance of a project by comparing the below elements consists of Earned Value Analysis (EVA) (Baguley 2008),
The work scheduled in the budget: Budgeted cost of work scheduled (BCWS) or Planned Value (PV).
The actual cost of work performed: Actual cost (AC) or Actual cost of work performed (ACWP)
The value of work actually completed: Earned value (EV) or Budgeted cost of work performed (BCWP)
The project performance can be analysed on the basis of above elements are used to calculate a set of variances as shown below (Rozenes et al 2004):
The cost variance (CV) equals to variance between the value of the actually completed and the actual cost of work performed, that is, CV = BCWP-ACWP.
The schedule of variance (SV) equals to variance between the value of the actually completed and the work scheduled in the budget, that is SV=BCWP-BCWS.
Earned value analysis can also be used to provide overall performance of a project such as evaluating whether the project is ahead or behind schedule and budget by calculating the indexes known as the Schedule Performance Index (SPI) and Cost Performance index (CPI) as detailed below (Gupta, Mahatme and Bhagat 2015);
CPI = EV/AC. A result provides if index greater than 1 is over run in the project budget, less than 1 is under run in the project budget, and equals to 1 is exactly on the project budget.
SPI = EV/PV. A result provides if index greater than 1 is behind schedule of the project, less than 1 is ahead schedule of the project, and equals to 1 is exactly on the project schedule.
The above indexes can also be used to set the forecast as indicated below (Bhosekar and Vyas 2012);
Estimate at completion (EAC): This is to provide indication of how much cost of a project will be incurred at completion, which is EAC = Budget cost at completion (BAC) / Cost performance index (CPI).
Variance at completion (VAC): This is the difference between BAC and EAC which indicates how much over run or under run of project budget by considering the cost incurred to date. VAC = Budgeted cost at completion (BAC)-Estimate at completion (EAC)
Estimate to complete (ETC): This is to provide indication of how much additional cost is required for a project, that is ETC = EAC-AC
Figure 2.1 Application of EVA
(Source from http://www.slideshare.netdrtahirhanifearned-value-management-13245789)
Bhosekar and Vyas (2012) pointed out that the cost of the management has effectively controlled by the earned value analysis and it has provided the early indications of project performance to emphasize the need of eventual corrective action. Gupta, Mahatme and Bhagat (2015) stated that the EVM has helped to track the project status successfully. The CPI and the SPI provide an early signal of warning and hence it is considered as the biggest advantages of earned value management system (EVM). There the significant relations between the CVR and EVM in the industry of construction globally exist. However, implementing cost of EVM has caused the managers to not use it extensively EVM. Also, it is acknowledged that the EVM technique may not wholly fulfil the requirements for using contractors as it is time consuming and the detail necessarily allows for increased opportunities for human error (Potts and Ankrah 2014). The effectiveness of EVM depends on proper and accurate collection of data, and the data is precisely arranged. It does not provide enough value for project control, however.
2.5.2 Contract Variance – Unit costing
The Contract variance – Unit costing technique is mostly used in civil engineering contracts as they have less work activities, but of higher value. The contract variance is the unit of cost measured by dividing the actual cost for each work type by the quantity, which is completed. The result is then directed to the tender rate (which is certified unit value) (Potts, 2008). The rate value achieved from this estimation can easily be used in order to predict the end cost of a project which involves similar or repetitive works (it implies the work cost to be the same).
The costs are recorded separately for each of the main activities or elements and then quantities of actual work done of the same activities will be measured which provides the unit costs for each particular main activity. Thereafter it provides a comparison of actual cost against originally priced within the project tender.
The cost report by using this method can be either prepared monthly or weekly depends on project management. It highlights difference among the value of completed work and the actual cost of completing the work. The main purpose of the technique is to “identify unacceptable performance to focus management on projects, systems and elements that can benefit from (highly) detailed analysis” (Potts 2008).
The drawback of this technique is that subjective assumptions must be made and amount of experience correlates with reliability of estimates. Further, it requires the assessment of probabilities and risks so no way of accuracy (Fortune and Cox 2005).
2.5.3 Activity based costing (ABC)
The Chartered Institute of Management Accountants (CIMA) gives the official definition of ABC as the approach to cost and monitor the activities, which involves watching and calculatinf of materials consumed and estimation of final outputs. Resources are related to activities, which are associated with the cost objects based on estimates of expenditures. Latter utilise drivers of cost and resources for attaching costs concerning activities used to the benefits and outputs achieved after the project`s completion. A typical ABC technique is illustrated below;
Figure 2.2 Activity-based costing (ABC)
(Adapted from Edwards 2008:4)
Traditional ABC costing techniques considered the movement of costs in three stages;
Overhead costs are compiled,
Direct costs are categorized from the overhead costs, and then
The costs are allocated to the project in terms of labour hours or material (Edwards 2008).
A major problem emerged that correlated with the rise in overhead costs so ABC was developed as an alternative to the arbitrary method of traditional costing (Edwards 2008). ABC changed the focus to the activities instead of the costs. ABC is carried out in four major steps.
Identification of the activities by detailed observations.
Apply resource and materials costs to the activities by using two categories direct and indirect. Direct costs can be trace from to an output such as one material that is used to build walls. Indirect costs cannot be traced to the general outputs because they only apply to one or two of the activities like maintenance or storage.
Outputs need to be identified in their various forms such as materials, subcontractor or service provided.
The last step is the comparison of activity costs to outputs by applying the activity drivers (Edwards 2008). Activity drivers assign outputs (cost objects) to activity cost considering the demand for activities or consumption (Edwards 2008: 6).
The activity based costing is considered as the analytical approach to understand the sequential activities and eliminate the wasteful activities effectively. A survey held across several industries sized differently and in different locations showed that ABC was found to be more accurate than the traditional costing method (Edwards 2008). On other hand ABC technique consists wide range of data handling such as each activity contains each activity rate, and a project generally has so many various activities, data calculation is disaster. The time needed to gather data about activities and cost drivers impairs efficiency of this technique (Edwards 2008). ABC can be an expensive technique when it comes to managing and implementing the process (Edwards 2008). Despite it is extensively used in manufacturing industries by providing the benefits of continuous improvement and tracking performance. The ABC technique is not widely used by the managers in the construction industry because of nature complexity.
2.6 Cost Value Reconciliation (CVR)
2.6.1 An overview of CVR
CVR occupies a significant position among several cost control systems, such as Cost Value Reconciliations (CVR), Earned Value Analysis (EVA), Contract variance-unit costing, Activity based costing (ABC) etc. According to a research conducted by Lee Chun Hoong (2007) among the top 100 UK contractors, CVR approach was dominantly adopted by a significant 58% of the sampled contractors, followed by an 18% reporting the use of standard costing by sub-variances.
Kenny (2015) defined the Cost Value Reconciliations (CVR) as the act of monitoring the cost and valuating the expenses against the sum of allocated financial budgets in construction field. A measurement is made by the company in any projects they are handling with the initial cost value to the work made for acquiring the final profit. These values are calculated by the contractors in every construction organisation and the works are tabulated and aligned to the workers on daily basis by the management team. These works of the contractors are accounted in the balance sheet to manage the cost plan of the projects.
Potts (2008), find the meaning of the CVR as the process of ensuring and studying the two accounts balances are equal. The differences in the money loss in an account with the money spent play a main criterion in the cost value reconciliation. The financial accounting in the field of construction is must to find the cash flow and income acquired, so a balancing sheet is made to make accurate addition reconciliation to avoid the errors made. The purpose of the reconciliation is to find the valuation of the cost overrun and losses in each working contracts and find the cost value information.
CVR design is in fact, a culmination of most of other methods for controlling the cost like earned value management and contract variance. It is thus, a preferred cost control system adopted by most companies. The independent use of these methods has been severely limited. For instance, it was claimed by Potts and Ankrah (2013) that the sector of UK construction has been reluctant to use of EVM in their projects. The contract variance- unit costing approach also is limited to use in repetitive operations, and is not suitable for the non-repeating contracts, which is often the case in the construction industry.
2.6.2 Principles of CVR
Cooke and Williams (2004) stated that CVR collects the established totals for value and cost for illustrating the company`s profitability. Its purpose is to ensure the profits in company accounts and realistically display the current financial situation after completing the project.
Figure 2.3 Principles of Cost Value Reconciliation (CVR)
(Adapted from Cooke and Williams 2004)
The principles of CVR vary from company to company. However, it serves two main purposes: at first, it creates the basis of statutory accounts - legal requirement. The guidelines of Standard Statement of Accounting Practice No. 9 (SSAP9), states the valuation of stocks and works in progress to be followed awkwardly. The main thrust for financial statements is to be prudent. Potential losses should be identified immediately and essentially in order for the business not to claim to be more profitable than it actually can be (Stephenson and Hill 2005).
Secondly, the CVR provides the management with information for assisting in the problems` identification, the need for reserves, the loss reasons and information for preventing repetition of the losses. CVR should also show the true budget figures and expected profit along with the assessment of project`s final position and the final account. (Stephenson and Hill, 2005).
This process requires gross value of work, which is certified up to date and detailed in the external interim valuation certificate. Gross value of work performed in time as per internal assessment is also required. The difference among the internal assessment and external valuation gives the financial stands of the project.
The CVR is usually performed by the Contactor’s QS on a monthly basis with internal valuation agreement. This process requires considerable discussion with both the contract and project managers and site agents along with the liaison with the other departments.
Figure 2.2 Simplified CVR Pro forma
(Adapted from Ross and Williams 2013)
2.6.3 Benefits and arguments of using CVR
CVR is considered as providing a true account of a project`s profitability. CVR directly compares value and cost and is applied in cases of the project to be over cost or provides a poor value. In such cases CVR can help in the early detection and initiate corrective action which could prevent the future reoccurrence of a loss. The strategic role played by CVR makes it imperative to further discuss the benefits and arguments of using CVR which will help us to understand the module of CVR in a comprehensive manner.
Benefits of using CVR:
Walker and Wilkie (2002) pointed out the benefits of using CVR as cost control system as follows:
CVR allows comparing project turnover and profitability with budget and forecast figure;
It is used to monitor project performance in terms of plant, labour and material cost against original tender figure;
CVR is like a monitor of general performance to be used during assessing tenders on other projects alike.
The use of the CVR with the existing office network saves time for a contractor so they can work on construction projects instead of administrative duties. Also the report is easy to share both internally or externally as often as possible over the internet. One database is all that is needed to share the data to a company’s departments and other appropriate parties. Therefore the chance for human error is reduced and financial and budget sheets are more accurate.
Yasser, (2005) stated that CVR is the deed of influential and stating effectiveness on a construction industry and construction-based project on a systematic basis. And it is the evaluation of budget with assessment per time, the variance being the collective damage or revenue on the construction project. The author claimed that the data from CVR is quite operative delivered the budget statistics is precisely composed and inferred. Likewise, it has a great point of development observing of mechanisms as this accountability is presented on the customers quality service or illustrative whose main attention is to commence peripheral evaluation at a communally established deadline date, for the advantage of the workers CVR development.
Arguments of using CVR:
The effectiveness of CVR report is deeply relied on such qualified professionals as the staff. Individuals are important in the process of CVR implementation for achieving success. CVR always need to be prepared as soon as possible once interim valuation is completed and agreed on site, if there is a delay caused like several weeks in producing cost information, as this report will ineffective for remedial measures (Walker and Wilkie 2002). Both value and costs must be taken to a particular date; if they fall in different dates, then this report cannot be produced effectively that is reconciliation cannot be shown until one of the other or both set of figures have been adjusted. It is observed that CVR report is a time taken process. CVR lets predictions to be crafted of the project’s expenses and effectiveness to accomplishment, at particular period of reconciliation.
2.6.4 CVR applicability and its limitations
Cost-Value Reconciliation (CVR) focuses at implicating management in the financial presentation of the project by comparing cost against the value. As stated earlier, CVR is regarded as more of a monitoring method which strictly functions as the one stated in the guidelines of the Institute of Chartered Accountants in England & Wales. For the smooth functioning of CVR it has to address the Statement of Standard Accounting Practice No. 9 (SSAP9) (Barett, 1992). The strict adherence to these guidelines enables CVR to the legal essentials to maintain legal accounts.
The primary benefits of CVR accrue to its function of presenting as running account of the profits incurred in the project. The direct comparison of cost and value included under the CVR functioning helps in recognizing, the areas which are going above the estimated cost or providing poor value can be recognized early on in time to adopt correct measures to prevent the reoccurrence of such a possibility in coming future.
Figure 2.3 Conceptual Framework of CVR
Figure 2.3 depicts the conceptual framework of the efficiency of cost value reconciliation in the post-contract stage of construction project. CVR generating value, planning against actual expenditure, forecast project cost and forecast project probability.
Efficiency of CVR is provided by evaluation of quality of work and its components, inspection of financial side of the work and monitoring the process along with scheduling the performance.
However, despite of the visible benefits of CVR, Barett (1992) cites that CVR has not often been used because the contractors do not have an access to control finances or resources in place to inform at these levels or may be because the contractor underestimates the utilization of SSAP9. It is in fact claimed by Stephenson & Hill (2005) that the witnessed lack of use of CVR, is directly in co-relation due to the dearth of resources and skill in its employment. CVR curtails in detail given by Earned Value Analysis and is therefore, found to be more often preferred by upper management used as a monitoring tool (Potts, 2008).
The construction industry is considered to be the second largest industry of the world after agriculture. It creates a noteworthy contribution to the world economy and offers employment to great number of people. The utilization of different new technologies and consumption of project management strategies has made it possible to carry out projects of mega scale particularly in the UAE. The industry has to surmount a number of difficulties and challenges, in its path of advancement in UAE. On the other hand, the industry is still met with some key challenges, incorporating housing, water management, disaster resistant construction and mass transportation. Construction cost estimating has attracted the attention of several researchers in the area of economics and construction management because of the significant role the construction industry plays in the economy at regional, national and international levels. New experiences of various new mega-projects are apparent indicators in which the industry is poised for a brilliant future (Laskar and Murty, 2004). It is the second arrival of the civil engineering profession to the front position among all professions in the world.
The pre-contract and post-contract stages of a project display the adoption of a number of methods and techniques with the aim to control the rising cost of projects. The literature further portrays that CVR has been widely recognized and accepted as an effective measure which can ensure timely detection for initiating corrective action for preventing the future reoccurrence of losses. Despite of the significant benefits which can accrue from the usage of CVR to the contractors, studies have reported that CVR has not been put to use by the contractors due to several reasons. Thus, it is essential to look into the uses of CVR, and its advantages as well as disadvantages accruing to these contractors. The next chapter will in detail discusses about the methodology to be carried out in the research.
Chapter 3 Research Methodology
According to the Advanced Learner’s Dictionary of Current English, any research may be described as a methodical study or inquiry by searching new details of knowledge. Further, Research methodology can be considered to be a method to methodically resolve the investigative issue. It is mainly the science of investigating how research is conducted scientifically. A methodology essentially defines the methods for acquiring, sorting out and breaking down of information.
It is usually a mandate for the investigator to include a concern for the ideas and theories that have motivated him to choose a particular method for conducting the research (Shank 2002). Especially in the current scientific era, where several ways have been identified for investigating the outcomes and judging the competence of the techniques used to make the inferences, it is indispensable to have a careful look into the methodology adopted for a research.
The chapter thus, details out the research methodology adopted for the present study, including research strategy, research approach, qualitative as well as quantitative approaches, and the data analysis techniques adopted.
3.2 Research Paradigm
An examination paradigm model is characterized as a structure of values, routines and convictions, under which the exploration and investigator's work happen (Krauss, 2005). Willis (2007) clarifies that a paradigm is consequently a far-reaching conviction framework, world perspective, or system that aids the research and practice in a field.
Research standards are classified under the name (1) positivism and (2) interpretivism (Creswell, 2003). Steinhauer (2002) clarifies that all the research paradigms convey related hypotheses of showing and learning (or instructional method), educational module and appraisal, proficient advancement, and so on.
The positivist paradigm endeavors to explore, affirm and foresee law-like examples of action, and is normally utilized as a part of the regulative examination to test hypotheses or theories. The goal of positivism researchers is to present context and time as free generalizations. They consider it possible because of human actions, which can be explained as the real causes` result that temporarily precedes behaviour. Researcher and the research subjects do not influence each other because of independence (Hudson and Ozanne, 1988).
Interpretivist paradigm is directed with the assistance of content examination and translation. The knowledge acquired by people in this discipline is constructed following different social principles rather than objectively determined (Carson et al., 2001) and perceived (Hirschman, 1985, Hudson and Ozanne, 1988).
The present research uses both the positivism and interpretivism methods (mixed) for the study, i.e., it adopts a Realism research paradigm. The study follows interpretivism since the researchers has collected engaging information for contemplating the issue proposed in the exploration during the study. Further, the study follows positivism in the tests, where an exploration speculation by investigating numerical information (hypothesis testing) is gathered from the primary respondents.
3.3 Research Design
The research design may refer to ‘a framework to collect and analyse the data’, as suggested by Bryman (2008). Examination outlines `deals with a legitimate issue and not a logistical issue' (Atkinson & Hammersley 2007). There are several types of research designs adopted by different studies, some of which are:
Descriptive research portrays the practices and mentality recognized amid an examination (Johnston and VanderStoep, 2009).
Explanatory research focuses on why questions.
Causal exploration distinguishes the degree to which the variables are interrelated with one another.
Best answers and analysis have to be presented in order to study the data at whole. The concepts applied to research have to cover all the objectives of the issue: analysing the environment for the project and calculating possible profits or losses. Such data is to help in evaluating risks and benefits to be acquired after the project`s implementation.
The present study adopts the descriptive research design since it endeavours to portray the issue, circumstance, administration, and wonder or program methodically and offers data about the living states of a group or portrays disposition towards the issue (Thyer, 2009). In the present study context, the descriptive design will suit the objectives of exploring into the present cost-controlling systems deployed by the UAE contractors and assessing their efficiency. It further aims at portraying the efficiency of CVR as a cost control system improving the financial performance of a construction project.
Descriptive exploration envelops government supported examination including the populace registration, the accumulation of an extensive variety of social markers and monetary data - family unit use examples, work and wrongdoing detail, time use studies and so forth.
3.4 Research approach
Research approach advocate the characteristics of the philosophy by which an examination is directed (Gliner and Morgan, 2000). The two acclaimed exploration approaches in practice are quantitative and qualitative examination approaches (Thomas, 2003).
Quantitative and qualitative approaches should not be measured as distinct, rigid categories, polar opposites or dichotomies. They introduce different conclusions on a continuum, vice (Newman & Benz, 1998).
3.5 Qualitative approach
The Qualitative approach to a research is connected with words, dialect and encounters. The qualitative exploration is seen as dynamic and formative with utilizing no formal organized instruments (Gupta & Gupta 2011). Investigators who use qualitative examination follow an individual focused and comprehensive point of view to comprehend the human experience, without concentrating on particular ideas. This is due to its main focus on exploring about the responses to the inquiry, and gathering confirmation. It further aims at discovering some data that was not found already (Richardson 2000).
Some regular qualitative tools incorporate interviews, focus groups and observations. This research process involves emerging procedures and questions, data, usually grouped in the setting of participants, data analysis based on particulars or general themes, and the researcher interpreting data meaning.
3.6 Quantitative approach
The quantitative exploration is utilized to discover the relationship between one result or variable and another variable in the populace (Taylor 2010). It is utilized as a part of grouping the elements, numbering it and builds them as measurable models. In fact, Rasinger (2008) claims that the quantitative examination extensively utilizes factual numbers and strategies, mostly relying only on numerical estimations of specific parts of phenomena. An important part of the quantitative strategies is to carefully examine the systems and procedures of the test plans for producing generalized conclusions.
3.7 Research Strategy
Following Saunders (2003), research strategy is a general plan, which helps researchers to answer the research questions in a systematic way.
There are different research strategies which can be adopted pertaining to the different kinds of researches involving varying data collection techniques, research requirements, etc. The effectiveness of the entire research is dependent on the research strategy adopted. Examples of these include action phenomenography and research, qualitative research method (groups, focus, interviews and observation) and quantitative research method (surveys, questionnaire and experiment). The action research is based on “How to”, while the case study approach mainly deals with situations, events in which the research need s to take up the role of “either an outside observer or a participant-observer”.
The present research being a quantitative examination, will adopt the survey strategy for gathering data from the respondents. The target population will be the professionals from the construction industry concerned with the construction projects. The technique of Random probability sampling will be adopted to randomly select the samples from the population of construction project contractors. A total of 150 contractors will be approached online through a consent form and questionnaire to be filled. People will be acquainted with the factors, which influence the project mostly in order to examine the effectiveness of such an approach. Those professionals, who deal with the construction industry, will get only the information required, and, considering their knowledge, will analyse the outcomes fast. It will provide the project with thorough analysis.
3.8 Data collection techniques
The present study will utilize both primary as well as secondary data. The secondary data will involve the use of academic resources, such as journal articles, government reports, books, databases, etc. Further, the study will collect primary data by undertaking field work. Field work data collection involves the administration of the questionnaire online to professionals working in the contracting industry. Quantitative data will be collected pertaining to the challenges faced by the contractors, the cost control methods deployed by them, their efficiency with CVR and how they implement it.
Data obtained from the questionnaires will be uploaded to Survey Monkey (www.surveymonkey.com) for basic data processing statistics (e.g. median, variance, mode, standard deviation and mean). Thus, the present study adopts the quantitative examination approach for collecting the data and choosing its respondents. This approach is appropriate for the present study since it aims at numerically presenting the collected data in the way of ratings or rankings, for bringing forward precise conclusions about the perspectives of the contractors about efficiency of CVR as a cost control system for managing the financial performance of construction project. This will be done through questionnaires incorporating the Likert scale to record the views and rankings of the respondents related to the study aims and objective, and further test the hypothesis of the study.
3.9 Data analysis techniques
The analysts must be well aware on how to use a specific investigative method in addition to knowing which particular method is pertinent and which is not. Furthermore, they should know the meaning and reason of using specific methods in addition to comprehending the presumptions that trigger the different methodologies. The overall purpose of the process of data analysis is to systematically structure and assign meaning to the mass of collected data, with the aim to answer the research questions, and thereby achieve the research objectives and hypothesis.
The chapter provided an overview of the research methodology adopted for achieving the overall research objectives and aims. A detailed overview of the research approach, paradigm, methods, etc. is essential for a complete appreciation of the research conducted and its end results and findings.
I have adopted quantitative approach because of its accuracy. This kind of research has a significant role in the development of any product. Tests about statistics may be helpful in forming statements and evaluating various data. If implementing quantitative approach, the data is collected thoroughly, so the systems and procedures of the test plans for producing conclusions and estimations are carefully examined from different sides. Only specific parts are considered, however, if dealing with a big project, it is better to study major factors of it in order to assure proper reports about all the other factors influencing the project. Statistical information give the ability to analyse important data from researches through different aspects.
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