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Available online through - http://ijifr.com/searchjournal.aspx
International Journal of Informative & Futuristic Research ISSN: 2347-1697
Volume 3 Issue 5 January 2016 Research Paper
Abstract
In the construction projects, cost and time are the main aspects to be considered in the planning of every project. It is a difficult task used by project managers in practice, which include evaluation of plans, corrective actions and constantly measuring progress should be taken whenever required. Cost optimization is an important issue in construction project management. It is mostly used by contractors and needs to carry out throughout the life of a construction project. A brief Questionnaire with a contractor, consultant, developer, Project manager found out that the contractor lack the knowledge of cost optimization system. Hence, a research is carried out to study the cost optimization method in a construction project, to identify the cost optimization method frequently used by contractor during the construction stage and to identify the problem faced by the contractor in optimizing the costs on site. The availability of qualified expertise is the main problem faced by contractor in optimizing the costs on site. The duration of the project and ever changing environment are the least problem faced by contractor in optimizing the costs on site.
Effective Techniques In Cost
Optimization Of Construction Projects Paper ID IJIFR/ V3/ E5/ 031 Page No. 1646-1658 Subject Area Civil Engineering
Keywords Time, Optimization, Cost, Contractors, Problems
1st Anuja Rajguru
M.Tech. Student,
Department of Civil Engineering,
Prof Ram Meghe College of Engineering & Management,
Badnera- Amravati , Maharashtra(India)
2nd
Parag Mahatme
Assistant Professor,
Department of Civil Engineering,
Prof Ram Meghe College of Engineering & Management,
Badnera- Amravati , Maharashtra(India)
1647
ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
1. Introduction
With the liberalization of the Indian Economy and Globalization, there is now a
competition from various concerns of the world (T.Subramani, P S Sruthi, M.Kavitha,
June 2014). As a result there is now a race to secure a place for survival. A many of
challenges has to face by the construction industries which include design and
constructability issues, land acquisition issues, adverse political changes, shortage of
talent, time and cost related issues, rising material and labour costs, structural changes.
Time and cost are two main factors in a construction and they are used for planning the
construction project due to which there is increase in importance of time and Cost
optimization in construction projects. It is important to estimate the time and cost of
each activity through which the total duration and total cost of the project are determined
for the planning task. Optimization is a systematic effort made to improve profit margins
and obtain the best results under given circumstances or situations. The cost
optimization is a process that should be carried out throughout the construction period to
ensure that the cost of the building is kept within the estimated cost limits. The cost
optimization can divide into two major areas; the optimization of cost during design
stages and the optimizing the cost by the contractors once the construction of project has
started. Cost optimization of a project involves the collecting and measuring the cost
record of a project and the work progress. It also includes the comparison of actual
progress of project cost with the estimated. The main objective of cost optimization of a
project is to gain the maximum profit within the design period and with satisfactory
quality of work.
2. Literature Review
A.S. Ali, S.N. Kamaruzzaman (2010), as per the author for management of
construction 4 parameters important are as follows: scope, cost, time, and
quality. the main aim of the author is to find out the problem or parameters
which contribute for the cost overrun. for this they carried out the quaternary
survey on the live projects. for the data analysis the method used is quantitative
based i.e. descriptive statistics and ranking analysis is used. from the
investigation they found that factors which contributes to cost overrun was
inaccurate and/ / or poor estimation of original cost and factor which don't affect
is mistake in design for this to control the construction cost method suggested by
the author is proper costing and financing. Also they concluded that cost overrun
is most serious problem which may affect the construction project effectively.
Seyed Ali Mousavi Dehmourdi (2014) the Objective of this paper are to apply
the principles of engineering economics, basic economic concepts , finance and
quantitative techniques to modeling and analysis of civil engineering projects.
Also a practical application of linear programming in a real life project problem
with two objectives as optimization of transporting cost of equipment and
finding the best solution for reducing the functional costs of the equipment.
Mainly structured linear programming model is used for optimizing the
1648
ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
transporting cost of equipment. Applications of this approach helps in
determining the need for the replacement and the maintenance analysis are based
on the econometric approach to the realistic problems and the result shows that
optimization with advanced techniques really helps in minimization of cost of
2014) Low cost housing technologies aim to reduction in construction cost using
alternatives to conventional methods. Authors examined the cost effectiveness
using low cost housing technologies comparing with the traditional construction
methods. From Two case studies in India found that about 22 to 26 % of the
construction cost can be saved by using the low cost housing technologies
including labor and material cost comparing it with traditional construction
methods for walling and roofing respectively.
Tam W. Y, (2011) It is necessary to adopt cost effective, innovative and Eco-
friendly housing technologies for the construction of buildings. Methodology
used by author is to comparing the construction cost of the traditional and low
cost housing technologies. For which various Case studies in India are used for
the investigation. Construction methods, stability, Strength and durability of the
structure, safety of various members are compared during cost reduction. The
result found that about 26.11% and 22.68% of the construction cost can be saved
by using low cost housing technologies which should be compare with
traditional construction methods. This shows that use of low cost housing
technologies is a cost effective construction approach for the industry.
Nilanjan Sengupta (January 2008) as per the author the cost effective
construction technologies are useful and beneficial from both in terms of cost
and environment. Author discuss about the some effective technologies in India
with their features and advantages. Technologies used in India are
a. Rat trap bond wall: due to this bond cost and material is saved and strength is
more
b. Brick arch: it is given with its construction. It is beneficial from appearance point
of view
c. Filler slab: its slab construction is also discussed. It’s advantageous from economy, appearance, strength, material usage and reduction, less weight,
material saving point of view.
d. Compressed earth block: it is beneficial because it absorb less water in rainfall.
From the study author concluded that, if we pay attention towards the terms like
sanitization of people, manpower development, material devolvement, technical
guidance’s then the cost effective techniques will be extensively used in the light
of sustainable development and protection of environment.
R. Taur, V. Devi (Oct 2009) the main objective of this paper is to point out the
various aspect of prefabricated building methodology for low housing. For this
different prefabrication techniques with their advantage and importance are given
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ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
by authors. There is need for improving the speed of construction and reducing
the construction cost. The methods of construction systems suggested by authors
are as follows prefabricated roofing components like mortar less block walls,
precast RC planks, and structural block walls.
3. Theoretical Background
3.1 Definitions
It is better to look in detail the definitions of the terms used in optimization procedures
since it is widely used and have a different meaning (Barbole A.N., Y. D. Nalwade, S.
D. Parakh June 2013). The Table-1 gives the definitions of terms related with cost
optimization procedures:
Table-1: Terms related with cost optimization
Terms Definitions
Budget A plan for future against actual results can be measured
Cost Value to pay for goods or a service for a purchaser.
Cost analysis Subdividing the cost under different elements of the contract or construction.
Costing Analysing expenses so it can be allocated to different processes, or services,
or contracts, with the aim of ascertaining cost
Optimization Optimization is a systematic effort made to improve profit margins and obtain
the best results under given circumstances or situations
Cost optimization The Process of optimizing the expenses of cost in a project, from the starting
of client's idea to the completion and final payment on site.
3.2 Factors influencing Cost Overrun
Construction delay is considered to be one of the major problems in the
construction and it has an adverse effect on project success in terms of time, cost and
quality. Contractor is also an important factor which influences the cost of project. Due
to wrong work, contractor's poor site management and supervision, inadequate
contractor experience, incorrect planning and scheduling by contractors, wrong
estimation/ estimation method are the major causes of cost overrun. Changes in scope
and objectives of project and frequent design changes are least affecting factors on
construction cost.
From literature review main problems faced by problems faced by the contractor
in optimization of the costs on site which include Shortage of material, labor or
mechanical plants, Ever-changing environment of construction work, Difficulty in
collection of standard data, Additional costs to carry out the system qualified expertise,
Duration of the project.
3.3 Cost and Time of project
3.3.1 Construction Time
The elements in which a construction project is subdivided for network
schedules are called “activities”. An activity is a single work step that has recognizable
dates to begin and end. The duration of an activity is the estimated time that will be
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ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
required to complete it (Hinze, J.W. 2004 p26). Typically, in construction, the unit of
time is days and it is assumed that work is performed on a continuous and uniform basis
within the standard workday and workweek except the weekends and holidays. Time
might also be measured in months, week, shifts, or even hours. Activity durations
frequently are tied directly to the resources applied (e.g., crew size and equipment) and
the productivity of these resources.
Time estimation may be important for many reasons:
1. To calculate the project completion date, with which the contractor has to make sure
his or her schedule meets the date specified in the contract;
2. To calculate the start or end of a specific activity;
3. To improve work efficiency and to resolve delay claims, etc.
3.3.2 Construction Cost
The estimated cost for a contract to carry out the work is known as the
construction cost and is composed of the direct cost of carrying out the work and the
indirect cost (site overhead) (Pilcher, 1992, p244). The construction cost then forms the
basis for determining the net cost for the contract. Cost is considered to be a common
parameter of resources expenditure on a project. In other words, the application and use
of money, man, and machines, material and time for the performance of the various
activities are all related to these common measures of cost.
Net cost is the sum of two separate costs:
a) The Direct cost: Direct costs are those expenses which are directly chargeable and can
be identified specifically according with the activities of the project. They represent the
costs of the resources used by activities, such as the materials installed, labour, and
subcontractors
b) The Indirect cost: Indirect costs (site overhead or on costs) are those that are not
specifically identified but, they are being associated with a particular work item. They
include site management and supervision, offices, canteen, storage sheds, cars and other
transport temporary roads and services, and general labour not assigned to production.
3.4 Time cost optimization Concept
“The cost optimization is a process that should be carried out throughout the
construction period to ensure that the cost of the building is kept within the estimated
cost limits”. In the construction field, time saving can also be transformed into some
kind of opportunity such as bonus of early completion or saving in overhead. Therefore,
the lowest tender price may not be the only criterion for project success and thus
concurrent optimization in both time and cost is highly encouraged and desirable.
3.4.1 Time and Cost Relationship of an Activity
Chitkara (2005) said the relationship between cost and time is a very important
aspect in the control of costs on construction site. It is important to record all the works
involving materials, plant and labour on sites. This helps the contractor to know the
costs and expenses of the resources used on site and it compare with the initial cost
budget. Various report techniques can be used by the contractors which include; daily or
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ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
weekly and monthly recording, site daily diary report and the project budget, schedule
control.
By examining further the relationship between time (e.g., project and activity
durations) and cost, it can be determined how decisions about one of these
considerations relate to the other. Time-cost relationship for a single activity is
illustrated in Fig-1.As shown in the figure, the least direct cost required for completing
an activity is called the normal cost, and the corresponding duration of an activity is
known the normal duration. The shortest possible duration required for completing the
activity is referred as the crash duration, and the corresponding cost is the crash cost.
Figure 1: Typical relationships between time and cost of an activity (Hegazy, 2002)
3.4.2 Time and Cost Relationship of a Project When the all the
activities is considered in the
project, the relationship
between project duration and
the total construction cost can
be shown in Fig-2. Direct cost
could be seen as the summation
of all the activities’ construction direct cost and
indirect cost is the project site
overhead. Hence, the total
project construction cost can be
calculated by adding direct cost
to indirect cost. Fig-2 shows
that when the duration for the
project is reduced, the total cost
of further reductions becomes
quite high. Figure 2: General relationship of project construction cost to duration
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ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
Ultimately a point is reached at which the project cost cannot be realistically reduced
any further even with the infusion of additional resources. As the duration increases, the
total cost increase but at a rate that is lower than the daily rate.
3.5 Cost Optimization Techniques
It is necessary to decide which optimization is required and amount of detail that
will be in used into the construction stage. Many cost optimization methods have been
implemented in the past by different companies and have not survived. The cost itself is
a major difficulty in operating a detailed cost optimization system. It is an expensive
operation for a large contract to carry out a detailed cost optimization system. There are
three types of cost optimization system; they are by comparison with a cost standard, by
subdivision by detail and by integration with other functions.
In comparison with a cost standard method, the standard set up by estimator is
compared at the time of tender. There are also other standards efficiency can be judged
include set up by the work study department of a company, previous outputs achieved
within the company or within the knowledge of the company’s employees in the past, and standards that have been published in books primarily for use of estimator, giving
data on recommended outputs for labor and plant.
In the subdivision by detail method, it is usually practiced by small scale of
contractors compares the amount of money received with the amount of money he has
had to pay out to complete the contract at the end of the contract. It is not expensive but
a risky operation, involves little or no optimization of costs. It is also inaccurate since
estimator often omits some contentious items from a valuation, even though payment
will result from them.
In integration with other functions method, the cost optimization system will
combine with some other necessary operation in the administration of a contract and not
as a separate entity. For example, it may be combined with a labor utilization scheme, in
which the optimization is kept on the optimal utilization of the labor employed.
3.5.1 Frequently Used Methods
1) Work Programmes: Contractors prepare and use schedules to monitor progress and
financial performance of project.
2) Inspection of Works: Inspection of works is carried out and comparison is made
with the budget of project.
3) The project Budgets: Cost and expenditure attached with responsibility centers
along with work targets to be accomplished.
4) Site Meetings: Meetings held to check and review the progress of work and compare
it with the monetary allocations.
5) Record Keeping: Documentation work of activities carried out to enable early
detection of variation from the set standards.
6) Monitoring Work and Cost Performance: Clients, consultants and the contractors
used monitoring tools of schedules, budgets, inspection and feedbacks to keep a watch
on the cost performance of project.
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ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
7) Evaluation of Works Carried Out: Quantification of works and comparing with the
costs in the bill of quantities. Inspection was also reportedly used to evaluate works.
8) Others: Sites that did not have particular method to use.
3.5.2 Time-Cost Optimization with Network Analysis
There is availability of various techniques for optimization and project control
software, still many construction projects do not achieve their cost and time objectives.
The basic scheduling techniques commonly used in practice include the Critical Path
Method (CPM) and Program Evaluation Review Technique (PERT)
3.5.2.1 Critical Path Method
Critical Path Method (CPM) was developed to optimize the organization of
complex procedures of an activity network and also to identify critical activities in a
network critical path. Because activities in the network can be carried out in parallel, the
critical path is the length of the longest path from the start of project to its finish. An
activity is said to be critical if there is no delay in determining its start and finish times.
Once the duration of all the activities is estimated, the project duration can be calculated
with CPM, the project duration is the sum of the durations of all activities on the critical
path.
3.5.2.2 Program Evaluation and Review Technique
Since uncertainties such as inclement weather, unforeseen site conditions, poor
labor performance, inadequate recourse allocation, low equipment performance and
inferior management style incurred during a construction process, it could be difficult to
estimate activity durations correctly. Program evaluation and review technique (PERT)
was originally designed to orient time elements of a project and adopted probabilistic
time estimate to determine the probability that a project could be completed by a given
date. This method uses weighted values of three time estimates: i.e. pessimistic, most-
likely and optimistic duration to estimate the mean and variance. The expected mean
values then are used to determine the mean critical path.
1. Optimistic time (O): the minimum possible time required to complete a task,
assuming condition that everything proceeds better than is normally expected
2. Pessimistic time (P): the maximum possible time required to complete a task,
assuming condition that everything goes wrong (but excluding major
catastrophes).
3. Most likely time (M): the best estimate of the time required to complete a task,
assuming condition that everything precedes as normal.
4. Expected time (TE): the best estimate of the time required to complete a task,
accounting for the fact that things don't always proceed as normal
TE = (O + 4M + P) ÷ 6
4. Methodology
4.1 Data Collection
Primary information and secondary information were collected to achieve the objectives
of the project report. The first beings were interviews with representatives of the
1654
ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects
Construction Company and professionals to collect the information. A questionnaire
survey was conducted to obtain feedback from the construction company. The entire
information gather are categorized as Primary Information.
Next Information was collected from the literature about research topic and challenges
faced by construction projects. It is obtained from the articles in journals and papers,
some other published research works and also Internet. From literature review, a clearer
framework of this research was established. Information gather from this ways are
known as Secondary Information.
4.2 Interviews
The findings were further strengthened by interviews with experienced personnel
from the construction company to collect the information and perspectives regarding the
aspects in the objectives of the research.
4.2.1 Questionnaire
A questionnaire survey was carried out to gather information from technical
professionals and contractors who were involved in the construction projects. The
survey was conducted in the Amravati city Maharashtra, India. It is to get the opinion
and understanding from the experienced respondents regarding the cost optimization.
The questionnaires are all categorized as below:
a) Respondents information
b) General information about the cost optimization
c) Purpose, principle, philosophy and objectives of the cost optimization
d) Weakness/Mistakes
4.3 Data Analysis
The data collected from the questionnaire survey was analysed by using Relative
Indices (RI) technique and Frequency analysis technique. This RI technique has been
used by (George Otim) in the same circumstances of application. RI was calculated
using the following formula:
�� =∑ � + � + � + � + �� + � + � + � + �
Where, nx = the number of respondent agreeing with the x choice
4.3.1. Examples of Calculating Relative Index (R.I.)
�� =∑ � + � + � + � + �� + � + � + � + �
Where nx = no. of respondents
1,2,3,4 and 5 are the ordinance scale of importance
Note:
Ordinance Scale,
1655
ISSN: 2347-1697
International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -5, January 2016
Continuous 29th Edition, Page No.:1646-1658
Anuja Rajguru, Parag Mahatme :: Effective Techniques In Cost Optimization Of Construction Projects