COST MANAGEMENT TECHNIQUES PRACTICES BY BUILDING CONTRACTORS NETWORK IN TAMILNADU

Volume 117 No. 9 2017, 145-149 ISSN: 1311-8080 (printed version); ISSN: 1314-3395 (on-line version) url: http://www.ijpam.eu doi: 10.12732/ijpam.v117i9.26 ijpam.eu COST MANAGEMENT TECHNIQUES PRACTICES BY BUILDING CONTRACTORS NETWORK IN TAMILNADU S.Radhakrishnan 1, K G. Selvan 2 1 Research scholar, PRIST School of management, PRIST university, Thanjavur 613403 srk1960@yahoo.in 2 Associate dean. PRIST school of management, PRIST University, Thanjavur 613403 drcsrv@gmail.com Abstract Cost Management is the essential element to control the success of a project and also it is the important technique in determining and enhancing the cost performance of Construction Projects. This paper aims to investigate the project cost management practices adopted by contractors in the Tamil Nadu, India. This study has been conducted by means of survey questionnaire distributed to contractors with different socio economic status and the data were analyzed. The results of the study undertaken show that there is a significant difference between Socio- Economic status of building contractors and Cost they follow in their business. The Cost Planning and Control, Budgeting, Estimate and Cost Flow Forecasting are positively and significantly influencing the level of Cost Effectiveness in construction industry. It is hereby recommended that establishment of professional body to review the local cost management practice and adequate training in areas like parametric estimate and cost variances. Keywords ; Construction Industry, costoverrun Contractors, Cost. 1.INTRODUCTION The construction industry is a prime motivator of any national economy that globally has a strong linkage with many economic activities, and whatever happens to the industry will directly or indirectly influence other industries and ultimately the wealth of the country. The industry deals not only on the lives of practically everyone on a daily basis, but also occupies a basic national position in various national economies. Project cost and its control are important management responsibilities. After construction works begin, the project cost management system retrieves cost, labour, and equipment-hours and production quantities from the job site as the work progress.[1-2] The project cost estimate is primarily concerned with the cost of resources needed to complete the project activities. [3]. Costs include all processes which are employed to maintain financial control over the project, generally classified as estimating and cost control (which include forecasting, estimating, budgeting, monitoring and reporting) [4]. Further construction project outcome is usually measured in terms of time, cost and quality achieved. Of these, cost and time tend to be the most important and visible, always considered as very critical because of their economic implications if they are unnecessarily exceeded.[5]. Since the cost was the most important output to the customer, therefore the dynamic cost management systems must include the processes required to ensure that the project is completed within the approved budget. These processes generally, cost estimating, cost control and cost projection. In order to avoid cost overrun of a work, cost management systems must be proactive and able to support different decision making processes, as well as to protect the business from the harmful effects of uncertainty. [6-7].The most significant techniques in the construction industry are Estimating, Budgeting, Cash Flow Forecasting, Cost Planning and Control, Financial Cost Reporting, Cost Code System and 145

Judgement. In construction, the cost estimating process usually starts by producing a budget, normally at the early phases of the project. It is a very important cost document throughout the project and it is often part of the project main contract. This initial estimate also serves as a reference for production planning and control. After costs have been estimated, the financial performance must be planned and controlled during the production phase by means of a cycle composed by two sub-processes, cost planning and cost control. Cost planning involves refining the initial cost estimate and generating a project cash flow, based on additional information that is generated along the project, such as the schedule of payments for the main material suppliers and subcontractors, which should be based on production plans.[8-10] Hence cost management means, coordination of all resources entails planning, organizing, directing and expenditure of fund to complete the project that assesses the financial consequences of the plan and gives financial feedback so that the plans can be revised and monitored [11]. Generally the resources are managed by contractors to satisfy clients requirement, by converting designs into practical reality [12]. Contractors of high repute and better past performance will bring about improved client confidence and raise the possibility of future business. It requires correct and firm financial plan, a good knowledge about the costs of the work, correct and honest cost report[13-15]. Considering all these facts, the objectives of the present study is assess the contractor s managerial capability relating to their prequalification and determine the relationship between degree of using cost reduction techniques to their project performance. 2. METHODOLOGY This study has been conducted by means of a well structured survey questionnaire and the chosen study area is Tamil Nadu state. The building contractors are selected by using random sampling method. The data are collected from 150 building contractors through pre-tested and structured questionnaire. This random choice comprises the builders with various educational back ground and socio economic status. While a good number of builders are with necessary qualification and back ground experience, some builders have the qualification but are in the process of gaining experience. The group also consists of people with excellent financial back up (as they are involved in other business activities as well) and also builders for whom the construction alone is the mainstay. Even in this, it was observed that majority of builders are comfortable in capital (as delay in the project or slow phase of work will not affect them) and some builders are struck with cash flow problems, often. The reason is that they are ambitious in the construction, but are not sound enough in capital formation. Some builders privately opined that even marginal delays in realization of money will result in big jerks. 3.ASCERTAINMENTOF INFORMATION AND APPLICATION FOR RESULTS. In order to find out more precisely the impact of costing in construction, enough care was taken in choosing the builders with various back grounds. This was in terms of Qualification, Capital Formation, Socio Economic Background and the Business Experience. As already mentioned above, all these led to eye opening results which were tested. To understand the socio-economic status of building contractors, Percentage Analysis was carried out. The responses from contractor s were collected on the cost management techniques Viz: budgeting, estimation, planning and control as well cost flow forecast and code systems. To study the cost management techniques practised by building contractors in construction industry, Mean and Standard Deviation were worked out. To examine the difference between socio-economic status of building contractors and cost management techniques practiced, the ANOVA (Analysis of Variance) test was done. To examine the influence of cost management techniques on level of cost effectiveness in construction industry, the Multiple Regression was applied. 4. RESULTS AND DISCUSSION The socio-economic status of building contractors was analyzed and the results are presented in Table.1. Table-1. Socio-Economic Status of Building Contractors Socio-Economic Status Number Of % Respondents Age Group 150 25 30 years 12 8.00 31 40 years 51 34.00 41 50 years 64 42.67 More than 50 years 23 15.33 Educational Qualification Diploma 47 31.33 Graduation 60 40.00 Post Graduation 43 28.67 Work Experience Less than 5 years 39 26.00 6 10 years 34 22.67 11 15 years 56 37.33 146

More than 15 years 21 14.00 Annual Income Less than Rs.25,00,000 29 19.33 Rs.25,00,001 Rs.50,00,000 48 32.00 Rs.50,00,001 Rs.75,00,000 51 34.00 More than Rs.75,00,000 22 14.67 4.1 Contractors socio economic status The results show that 42.67 per cent of building contractors are in the age group of 41 50 years followed by 31 40 years (34.00 per cent), more than 50 years (15.33 per cent) and 25 30 years (8.00 per cent. The results indicate that 40.00 per cent of building contractors have educational qualification of graduation followed by diploma (31.33 per cent) and post graduation (28.67 per cent). The results reveal that 37.33 per cent of building contractors have work experience of 11 15 years followed by less than 5 years (26.00 per cent), 6 10 years (22.67 per cent) and more than 15 years (14.00 per cent). The results imply that 34.00 per cent of building contractors are in the annual income of Rs.50,00,001 Rs.75,00,000 followed by Rs.25,00,001 Rs.50,00,000 (32.00 per cent), less than Rs.25,00,000 (19.33 per cent) and more than Rs.75,00,000 (14.67 per cent). 4.2. Cost practice The Cost practised by building contractors in construction industry were analyzed and the results are presented in Table-2. The results show that the building contractors are agreed with Cost Flow Forecasting, Budgeting, Estimate, Cost Planning and Control and Cost Code System in the order of practice as done by them. Table-2. Cost practiced by contractors. Sl. Cost Management Standard Mean No. Techniques Deviation 1. Budgeting 3.89 0.90 2. Estimate 3.82 1.02 3. Cost Planning and Control 3.78 1.04 4. Cost Flow Forecasting 4.04 0.92 5. Cost Code System 3.70 1.06 4.3 Relationship between socioeconomic status and practice of cost management techniques To examine the relation between socio-economic status of building contractors and cost management techniques practicing by them, the ANOVA (Analysis of Variance) test is done and the results are presented in Table-3. The F-value of 7.652 is significant at one per cent level indicating that there is significant difference between age group of building contractors and cost management techniques. The F-value of 6.790 is significant at one per cent level indicating that there is significant difference between educational qualification of building contractors and cost management techniques. The F-value of 7.104 is significant at one per cent level indicating that there is significant difference between work experience of building contractors and cost management techniques. Table-3. Socio-economic status of contractors Vs Cost Particulars F-Value Sig. Age Group and Cost 7.652 **.000 Educational Qualification and Cost 6.790 **.000 Work Experience and Cost 7.104 **.000 Annual Income and Cost 7.916 **.000 ** Significant at one per cent level The F-value of 7.916 is significant at one per cent level indicating that there is significant difference between annual income of building contractors and cost management techniques. Therefore, the null hypothesis of here is no significant difference between socio-economic status of building contractors and cost management techniques in construction industry is rejected. To examine the influence of cost management techniques on level of cost effectiveness, the multiple regression is applied and the results are presented in Table-4. Table-4. Influence of Cost on Cost performance Cost Management Regression t - Techniques Co-efficients Value Sig. Intercept 1.112 ** 9.575.000 Budgeting (X1).343 ** 7.930.000 Estimate (X2).310 ** 7.312.000 Cost Planning and Control (X3).378 ** 8.480.000 Cost Flow Forecasting (X4).252 ** 6.715.000 Cost Code System (X5).047 1.581.472 R 2 0.51 - - Adjusted R 2 0.49 - - F 17.920 -.000 147

** Significance at one per cent level The coefficient of multiple determination (R2) is 0.51 and adjusted R2 is 0.49 showing the regression model is good fit. It is inferred that 49.00 per cent of the variation in dependent variable is explained by the independent variables. The F-value of 17.920 is statistically significant at one per cent level indicating that the model is good fit. The results reveal that cost planning and control, budgeting, estimate and cost flow forecasting are positively and significantly influencing the level of cost effectiveness in construction industry at one per cent level. Thus, the null hypothesis of there is no significant influence of cost management techniques on level of cost effectiveness in construction industry is rejected. 5.CONCLUSION& RECOMMENDATIONS The result of the statistical analysis indicates that contractors management capability is an important criterion for evaluating potential performance in the project. It was observed that the Socio Economic factors do play a significant role in the project performance. The Builders with good qualification and background are always equipped with an alert consciousness. The way of their business style is commitment, quality and rigid pricing. They had never shown any undue anxiety in clinching the deal or concessions in price or deviation in pattern, for clamping the deal. Their reputation is such that they remain firm in their principles. Their experience and background give them a front place in business. Cost cutting is the basic thing ingrained in them. Customers are also disciplined with them. Similarly, in order to have excellent inventory control, the process of JIT (Just In Time) should be followed so that work would never suffer for want of materials and the builders would also feel the least impact of capital reserve for the supplier. Cost cutting should not lead to quality sacrifice as it will smash the project and shatter the very reputation of the builder. The study also shows that construction project cost and time performance is correlated with contractors management capability in terms of coordinating and organizing the cost management techniques. Therefore, contractors who can demonstrate that they are becoming more educated in these areas too are likely to steal a march on their competition. References [1] Clough, R.H (1986), Construction contracting, John Wiley & Sons, Inc [2] Clough, R.H., Sears G.A. and Sears, S.K. (2000), Construction Project Management, John Wily and Sons, New York. [3] PMI., Project Management Institutes (PMI) (1996). A guide to the project management body of knowledge, PMBOK Guide. [4] Nobe, M. D., and Berryman, C. W. (1996). Incorporating Reserve Fund Analysis into Graduate Construction Education, ASC proceeding of 32th annual conference, Texas A&M University, College Station, Texas). [5] Wang, X. and Huang, J. (2006) The relationships between key stakeholders, project performance and project success: perceptions of Chinese construction supervising engineers, International Journal of Project Management, Vol. 24, pp.253-60. [6] Formoso, C.T. The new operations management paradigm. White Paper. NORIEIUFRGS, 2000. [7] Shanmuganathan, N. and Baskar, G.(2016) Effective Cost and Time in Construction Industry, International Journal of Advanced Engineering Technology, Vol 7(2): pp.743-747. [8] Al-Tabtabai, H. and Diekmann, J.E (1992) Judgmental Forecasting in Construction Projects, Construction Management and Economics, Vol 10(1): pp.19-30. [9] Hyung, K.P. (2005) Cash Flow Forecasting Model for General Contractors Using Moving Weights of Cost Categories, Journal of Management in Engineering, Vol 21(4): pp.164-172. [10] Olawale, Y.A., and Sun, M.(2010) Cost and Time Control of Construction Projects: Inhibiting Factors and Mitigating Measures in Practice, Construction Management and Economics, Vol 28( 5), pp.509-526. [11] Marsh, C., (2009), Mastering Financial Management, Pearson Education Limited, London. [12] Xiano, H. and Proverbs, D.(2005) Factors influencing contractors performance: an international investigation, Engineering, Construction and Architectural Management Vol. 10 ( 5), pp. 322-32. [13] Frisby, T.N., (1990), Survival in the Construction Business: Checklists for Success, R. S. Means, Kingston. 148

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