Estimating Contingency Sum for Building Works in Ghana
Total Page：16
File Type：pdf, Size：1020Kb
Sci., Tech. and Dev., 32 (3): 266-275, 2013 ESTIMATING CONTINGENCY SUM FOR BUILDING WORKS IN GHANA RICHARD ODURO ASAMOAH1*, JAMES COFIE DANKU2 AND P.D. BAIDEN AMISSAH1 1Research Scientist, Building and Road Research Institute, Council for Scientific and Industrial Research, Kumasi, Ghana. 2Department of Building Technology, Kwame Nkrumah University of Science and Technology, Ghana. Abstract It is a common practice in the construction industry in Ghana to allow for contingencies to cater for any unforeseen events. This study was to identify existing methods of determining contingency sum, factors influencing contingency sum and develop a new system of determining contingency sum. The study employed a case study of some 38 completed building projects in Ashanti and Brong Ahafo regions of Ghana to compare the accuracy of both the existing and the new method. Questionnaires were distributed to the selected professionals. Relative Importance Indices Ranking and the Kendall coefficient of concordance were used to rank factors and the agreement of factors ranking among building professions. It was established that the most commonly used method is the Percentage Approach method. The study revealed that 77% of the building professionals have been using the Percentage Approach and 23% have been using the Probabilistic Estimation Methods. These methods were based on subjective approach. Economic, Environmental and Technical factors were identified as the most influential factors. The study concludes by developing a new software system of determining contingency sum and new method was found to be 45% more accurate than the Percentage Approach. Keywords: Contingency sum, Factors, Existing methods, Proposed new method. Introduction projects altogether. In particular, overestimated Contingency sum has been defined as an contingency sums limit the cash-flow to additional fund, meant to cater for unforeseeable contractors. To address these problems, it is elements of cost, within the defined project scope. important for building professionals to consider The purpose of contingency sum is to generate a other methods of determining contingency sums. reserve fund that may be sufficient to manage the Determination of an appropriate contingency sum inherent risk within the project, so as to complete requires an understanding of how estimators it on time (Ford, 2002). In Ghana, it is make budget contingency decisions and the characteristics of a construction work to proceed impact on the level of accuracy of the included without any risk appraisal. In order to address any contingency sum. The contingency sum is usually future risk, high contingency sums are included in expressed as a percentage mark-up on the base the mark-ups (Badu, 2004). There has been little estimate (Picken and Mak, 2001). In the empirical research into the concept of construction industry, building professionals have contingency sum, its intended scope and methods not been able to state the actual percentage range of estimating contingency sum in infrastructure for Contingency Sum. Available information, development contracts. The difficulty in however, indicates percentage ranges of 2.5% - determining contingency sum depends on 10%, which have been determined for some technical, economic and institutional factors selected projects financed by the Government of (Tawiah, 1999). Inappropriate contingency sums Ghana and other development partners, such as, have resulted in poor management of risk leading the African Development Bank and the World to underestimation or overestimation, delay in the Bank from 1999 to 2007 (GPRP/SIF, 2004). The completion of projects and abandonment of amount for contingency sum varies but 10% is *Author for correspondence E-mail: [email protected] ESTIMATING CO NTINGENCY SUM FOR BUILDING WORKS IN GHANA 267 recommended for lump sum projects and for Ghana. The study showed that the ‘Deterministic other types of contracts (cost plus contracts), it is Approach’ (Percentage Approach) was the most advisable to set contingency above 10% (Davey, widely used and known method for determining 1992). Contingency Sum by professionals in Ghana. As Existing Method(s) of Determining Projects indicated in Table 2, 77% of the sampled Contingency Sum in Building Works professionals have been using the Deterministic Approach and only 23% have been using the Baccarini in 2005 came out with 14 methods Probabilistic Estimation. The sampled of determining contingency sum for construction professionals had knowledge about the works. The methods are as follows; Estimating using Risk Analysis, Range Deterministic Estimation (Percentage Estimating and the Monte Carlo methods of Addition) determining the Contingency Sum, but have not Range Estimating used any of the methods before. Analytical Hierarchy Process Methodology and Data Collection Monte Carlo Simulation In this study, initial review of documents on Probabilistic Estimating the subject was conducted. Data collection was Methods of Moments carried out using the stratified random sampling Factors Rating technique. The target population comprised Individual Risks – expected value construction professionals, working in Kumasi Regression and Accra. The target professionals were Artificial Neural Networks Architects, Civil Engineers and Quantity Fuzzy Sets Surveyors. Furthermore, Kumasi and Greater Controlled Interval Memory Accra are the commercial cities in Ghana where Influence Diagrams many of the working building professionals are Theory of Constraints located and most of the construction activities in Preliminary survey conducted in the study the country could be located. Using the Kish indicated that among the above methods, building (1965) formula, the overall sample size of 224 professionals had knowledge or had used the was obtained and assuming a return rate of 45%, following methods before. These methods were: the sample size was increased to 250. Two hundred and fifty (250) questionnaires were (i) Deterministic Method (Traditional or administered to professionals in the building Percentage addition estimate). industry. A total of 133 questionnaires (ii) Probabilistic Estimation (Based on representing 53.2% of the total questionnaire experience of past projects completed) administered were returned. The return rate was (iii) Estimating using Risk Analysis (ERA) high for the Quantity Surveyors and out of the (iv) Range Estimating 53.2% returned questionnaire as indicated in (v) Monte Carlo Simulation Table 1. 79.70% were responsive and 20.3% were This study therefore used these known not responsive. methods to determine the most widely used method in the building construction industry in Table 1. Questionnaire Response from Professionals. Building Professionals No. of Questionnaires No. of Questionnaires % Rate of Returned Distributed Returned Quantity Surveyors 90 52 57.8 Architects 80 41 51.3 Civil/Structural 80 40 50 Engineers Total 250 133 53.2 Source: Field Survey, February – March, 2007 268 RICHARD ODURO ASAMOAH ET AL. Table 2. Questionnaire Response from Professionals. Quantity Civil Methods Architects Total % Surveyors Engineers Percentage Approach 43 27 21 91 77 (Existing Method) Probabilistic Method 8 12 8 23 23 Range Estimating 0 0 0 0 0 ERA 0 0 0 0 0 Monte Carlo 0 0 0 0 0 Total 51 39 29 119 100 Source: Field Survey, February – March, 2007 Kendall (1970) coefficient of concordance, The New Method of Determining Contingency the best estimate of true ranking (rating) of ‘n’ Sum objects is provided, where ‘W’ (the coefficient of The study adopted and modified risk rating concordance) is significant by the order of factors developed by the American Association of various sums of ranks. If one accepts the criteria Cost Engineers (AACE, 2008), as shown in Table used by the judges, then the best true ranking is 3, to develop a system for determining provided by the mean of the ranks. This implies contingency figure as a percentage to be added to that most factors influencing contingency sum are project cost. The method is a visual basic the highest overall ranking. Based on the above programme designed to cover identified factors premise, the overall rankings were calculated for influencing the determination of contingency the Quantity Surveyors, Architects and Civil sum. The factors have been grouped into Engineers. The Kendall’s concordance co- Economic, Technical and Environmental/Cultural efficient, which measures the degree of Factors. From the study Technical and agreement among professionals of ranking, is Environmental/Cultural Factors contribute 20% expressed as respectively to the determination of contingency k sum, whiles Economic factors contributes 60%. 2 2 W = [ (Ri – Ř) ] ∕ [n (n -1)/12] Each of the main factors has related minor factors. Each of these minor factors has risk rated where, values, which vary depending on conditions and k = the number of set of ranking (e.g. the number the impact of risk as identified by the project of judgments) team, as shown in Table 3 and Fig. 1. Fig. 2 n = the number of aspects of a problem or factors shows the pictorial nature of the Proposed being ranked. Method. Ř= average of the ranks assigned to the nth aspect Table 5 shows the list of projects that were of the problem used for the case studies. The projects were under n(n2-1)/12 = the maximum possible squared the sponsorship of the government of Ghana and deviation, i.e., the numerator, which the development partners, including the World will occur if there were perfect Bank, African Development