A study investigating the factors that cause delays and cost overruns in construction projects in India

Table of Contents

Acknowledgement

Abstract

CHAPTER 1: INTRODUCTION
1.1 Introduction
1.2 Background
1.3 Research aims and Question
1.3.1 Research aim
1.3.2 Research Question
1.4 Organization of the study

CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
2.2 Basic concepts of a project and project management
2.3 Aligning the project with the business strategy
2.4 Assessing the project
2.5 Project implementation
2.6 Factors causing delays in the construction industry
2.6.1 Lack of commitment
2.6.2 Inefficient site management
2.6.3 Poor site coordination
2.6.4 Improper planning
2.6.5 Lack of clarity in project scope
2.6.6 Lack of communication
2.6.7 Sub-standard contract
2.7 Summary

CHAPTER 3: METHODOLOGY
3.1 Research philosophy
3.1.1 Epistemological considerations
3.1.2 Ontological considerations
3.1.3 Axiological Considerations
3.2 Research approach
3.3 Research method
3.4 Research design and strategy
3.5 Time Horizon
3.6 Research instrument
3.7 Sampling
3.8 Data analysis
3.9 Ethical concerns
3.10 Summary

CHAPTER 4: FINDINGS AND ANALYSIS
4.1 Introduction
4.2 Factors identified
4.2.1 Problems related to government and authorities
4.2.2 Problems related to the contractor
4.2.3 Problems related to labor
4.2.4 Problems related to materials and equipment
4.2.5 Problems related to design
4.2.6 Problems related to finance

CHAPTER 5: CONCLUSION
5.1 Limitations of the study
5.2 Potentials of the study

References

Appendix A

Abstract

Anyone who has got a rework or renovation work done in their house can tell you what a troublesome activity it is. Not only that, it seems to take forever to be completed and is heavy on the wallet. Even an international icon like the Sydney Opera house, which has always been Australia’s pride, was delayed by 10 years with its budget shooting up by 14.5 times its estimated budget of $7 million. There are plenty of such examples available. It is very common for construction projects to get delayed and outrun their budget. This is a tough scenario faced by almost all projects around the world, with India not being an exception. Thus, the researcher has undertaken this research to investigate the factors responsible for delays and cost overruns. Both secondary research and primary research have been carried out and the barriers have been identified. Such barriers create problems that hinder the efficiency and progress of a project, making it lag behind its schedule. The factors identified in the secondary research are compared to the findings of the primary research to see if they hold true in the Indian context.

CHAPTER 1: INTRODUCTION

1.1 Introduction

Chapter one of this dissertation provides the background of this research study.

It starts by explaining the contribution of the construction industry in India, thus explaining the significance of the research. It then goes on to give evidence of the problems in the industry.

1.2 Background

India is regarded as a developing country that is moving forward at a fast pace. But the construction industry in India is growing at a faster rate than the short-term economic growth (Sen, 2013). This trajectory growth in the industry is beneficial for the country because being a developing country, infrastructural development is very important to fuel growth.

With a GDP of US$2,242.8 billion (2008), India is the fourth largest economy in the world. The construction industry stands as the second largest industry in the country after agriculture when talking about contribution to the country’s GDP, contributing one-third to the projected GDP. Every Rupee invested in the industry brings about a parallel increase of about Rs. 0.80 in the GDP. This is much higher when compared to Rs. 0.20 and Rs. 0.14 earned from agriculture and manufacturing. Statistics show that compared to other sectors, this sector creates an increase of 4.7 times in the income (Laskar & Murthy, 2004). Over the next 5-10 years, it is estimated that Rs. 16,747.67 billion will be invested in the infrastructure sector of the country (empulse global, 2006). The industry has a market size of US$55 billion and is growing at the rate of 7-8% pa, which is faster than the rate of GDP growth of the country, thus showing potential for development in the sector (Business Wire, 2009).

Talking in the accounting sense, construction adds to total output and wealth, as it helps the production processes. The construction industry also provides employment at a large scale. The industry employs 32 million people, spread over skilled and unskilled labor (empulse global, 2006). It is one of the main sources of employment for people migrating from rural areas to the urban areas in search of employment (Greenwood, 2006).

It is evident from the literature that investment in the construction sector is important for the growth of a country’s economy. Infrastructure capital has a noteworthy linkage with economic growth (Shioji, 2011). On investigating the relation between construction and other economic sectors for Singapore, a bi-lateral relationship was found between construction activities and GDP (Lean, 2001). Also it was found that deregulation in the industry would increase the impact of construction on growth (Gauger & Snyder, 2003).

Though being an important element of the world economy, the majority of the projects fail. The projects get delayed and cross their budget very often, and India is not an exception for the same.

Out of 49 public sector projects in 1974-79, 13 got delayed by more than 2 years; 10 by 2-3 years; 13 by 3-5 years and 8 by 5 years or more. Such delays cause consequent cost overruns. Out of these, 9 projects outran the budget by 50%; 15 by 50-100% and 17 by 100-200%. Apart from that, 316 out of 422 central sector projects exceeded the scheduled time by 1-189 months (Chandramouli, 2000).

Thus it is evident that an industry of such importance to the country’s economy is not able to deliver up to its potential because of certain factors that might be responsible for this. Such factors cause delays and cost overruns in construction projects throughout the country, because of which the firms bear losses or lose a major chunk of their profits.

1.3 Research aims and Question

The research aims and objectives are presented as follows:

1.3.1 Research aim

This study aims to examine the factors that cause delays and cost overruns in the construction projects in India.

1.3.2 Research Question

In relation to the research aim, the research question is:

Do the barriers identified in the project management literature for construction industries hold true in Indian context?

1.4 Organization of the study

CHAPTER 1: The first chapter gives an introduction to the topic, background of the industry and states the research aims and the research question.

CHAPTER 2: This chapter constitutes the secondary research done. The reading for the literature review was directed by the research question. To set the context, first the concepts of project and project management are discussed before moving on to look at what is already known, in both general and specific literature, regarding the research topic, thus bringing forward the factors responsible for delays and cost overruns in construction projects.

CHAPTER 3: This chapter states the philosophy, approach, strategy and data collection methods used by the researcher and gives an insight about how the research was conducted.

CHAPTER 4: This chapter discusses the findings of the primary research conducted. It also analyses the findings by talking about the differences in the opinions of the respondents and comparing the findings to the literature, so as to confirm, extend or contradict it.

CHAPTER 5: This chapter concludes the research. It also answers the research question, keeping in mind both the literature reviewed and the findings from the primary research. It also discusses the limitations and constraints that the researcher had to work under and also the potentials of the study.

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Based on the research objectives identified in the earlier chapter, this chapter reviews the previous studies and the research done in the field of project management by identifying the factors affecting delays in the construction industry. It discusses the basic concepts of a project and project management, moving forward to the models for assessing a project and carrying out the process of completing a project, thus forming a framework for the factors that cause delays in the Indian construction industry. Most of the research work included in the literature is also based on other South Asian countries like Malaysia, Singapore, etc and also some middle-eastern countries, as their findings also apply in the Indian context.

The literature review highlights the research work already done in this field, explaining the key factors in detail. This is an important element of the dissertation as it is the first step towards identifying the problems that the firms engaged in construction activities face in India.

2.2 Basic concepts of a project and project management

A project can be defined as “A temporary endeavor undertaken to create a unique product or service” (Project Management Institute, 2004). A project can be anything, from parties to fund drives to construction projects to military projects. In a broad sense, a project is a specific finite task to be accomplished, but a project in itself is not a single activity, it is a unit of different tasks collaborating with each other in synchronization (Meredith & Mantel, 2010).

There are some attributes that characterize a project. A project must hold importance in the eyes of the management, so that they assign the project to someone who is capable of handling the project and the team. A project should be one that can be divided into a well-defined set of desired end results, for which it will have to be broken down into subtasks that are coordinated and controlled by the project manager. Also, projects should have a life cycle. There has to be a set of stages that define the process of a project, which are selection, planning, controlling, implementation, evaluation and termination. Another attribute in a project are resources. Projects have a limited set of resources, which include both financial resources and human resources.

The projects have to be completed within the scope of the resources that are available, and this is always pre-determined. If additional resources are to be acquired, it may lead to a conflict between the people involved, including the project manager and the senior management (Meredith & Mantel, 2010).

Projects need to be completed and delivered under predetermined constraints. These constraints are time, wherein the project is supposed to be completed and delivered within a predetermined period of time; cost, as a budget for the project is predetermined within which the project manager has to carry out all the activities; and performance, which can be dubbed as the quality of the finished project (Minkiewicz, 2009).

To achieve this goal of accomplishing a project, the authority and responsibility is focused on the project manager. They are required to coordinate and integrate all the tasks to achieve the goal of the project (Fisher, 2011). An effective project manager should not only show concern for the people around, but should also have effective interpersonal skills (Fisher, 2006). The project manager should motivate the team to work towards the common goal (Thamhain, 2004), making the team willing to coordinate with trust (Kadefors, 2004). They need to prevent any conflicts that may arise and resolve them (Verma, 1996). An effective project manager should have a results-oriented attitude in order to focus on long term goals in spite of being engaged in daily routine chores(Gillard & Price, 2005). This would demonstrate proficiency in knowledge, skills and abilities that are a prerequisite in the selection of a project manager (Boyatzis, 1982).

2.3 Aligning the project with the business strategy

The success of a project is not in the hands of the project manager alone, the senior management must make sure that the project aligns with their business strategy (Pinto & Covin, 1989). It is the management who is responsible for developing business strategies, forming the portfolio of projects to undertake and selecting the appropriate projects. On the other hand, the project management is responsible for the project execution. Thus, it is important that the projects selected to be undertaken are aligned by the ability of the projects to meet the schedule, quality, and financial expectations to the business strategy, so as to make sure they contribute to the portfolio making optimum utilization of resources (Shenbar, 2001). Integration of business strategy in the project management thus helps to balance the portfolio (Cooper et al., 1998).

The business strategy, through its competitive attributes like time-to-market, quality and cost, exercises influence on project management’s elements of strategy, process and tools. If the business strategy were cost leadership, its project strategy on alignment would focus on sticking to the schedule so as to prevent cost overruns and be flexible so as to adapt to changes in order to save costs. If on the other hand the business strategy were differentiation, its project strategy would focus on the ability of projects to meet the fast time-to-market aspect and superior product quality (Milosevic & Srivannaboon, 2006).

After selection of projects into the project portfolio to support the implementation of business strategy, this alignment is measured. This information allows the business to adapt their business strategies, thus following emergent strategy approach (Srivannaboon, 2005).

Another aspect that plays an important role in the success or failure of a project is the delivery model. As the dissertation concerns construction projects, the delivery models in a construction industry have been reviewed.

Project delivery is all about using the right form of contract to shift/share risks. It is about ‘getting a quality project done on time and in budget’ (KMPG International, 2010). The delivery approaches can be placed into four categories, namely traditional, integrative, collaborative and partnership.

The traditional strategy constitutes the design-bid-build model, wherein an owner appoints a contractor who builds according to the specifications of the design. The contractor is usually selected in an open bid. The owner is responsible for operations and finance (Pakkala, 2002).

The most widely used model in the collaborative strategy is design-build. This is a simple method where the owner appoints an organization that designs as well as completes construction under one agreement (Pakkala, 2002).

The partnership strategy is another widely used strategy, where a contracting party, who is also responsible for wholly/partly financing the project, completes the design, construction and operations (Helsinki, 2002).

The integrative model is a relatively new approach that enables the owner to share risk. In this model, the owner, the design consultant, and the contractor work as one team to deliver the project. It works to realign the roles that the different participants play to utilize everyone’s capabilities (Pakkala, 2002).

Thus, if the most suitable delivery model is chosen after careful consideration, it helps the success of the project to a large extent. In order to that, there are certain factors that the management has to consider.

The first factor is cost. It is a factor of very high risk that determines the size of the project. Also, if the investment is big, management has to ensure high rate of return. For that, the options are evaluated on the basis of lowest capital cost (KMPG International, 2010).

Schedule is an equally important factor, as delays are a major cause of cost overruns. Thus, the delivery models are also evaluated keeping in mind the stakeholders that would facilitate timely completion of the project (KMPG International, 2010).

The next factor is quality, which refers to the design features, equipment, materials, site standards, safety measures, etc. So the delivery models can be evaluated on the basis of quality of the work of the involved parties (KMPG International, 2010).

The last major factor is the project scope. The size and complexity of the project has a major influence on the owner’s selection of a delivery strategy, as large projects generally require a sophisticated management that can exercise control (KMPG International, 2010).

Thus, it is safe to conclude that the aforementioned components, namely a capable project manager, alignment of project with business strategy and an efficient delivery model, when all put together, contribute to the success of a project.

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