Tuesday, January 24, 2012

Research Proposal Finance


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RESEARCH PROPOSAL
MBA2

BY :- PRATIK LAKHMASHI PATEL
STUDENT ID : L0702KMKM1010
GROUP : FINANCE-A

What affects construction project cost overruns and how do managers overcome them? A comparative analysis of private sector and government sector projects.

RESEARCH BRIEF
Though construction management must have been applied in Egypt for construction of Pyramids, but the disciplined Project management has began in its early form in the late 19th century, driven by government large scale coordinated project that were underway and the managers that found themselves having to organize a huge labour workforce at the site as well as coordinating another large production workforce and unprecedented raw materials in the factory. The complexity of the project naturally drove management practices towards project management processes. But over the years these practices come along very badly as most of the times it overrun the costs.
Each project is different and it may vary in size, length and complexity, but several features are common to all construction projects. And one of these features is change in the project. In the early stages of construction project many decisions have to be made based on incomplete information, assumptions and personal experience of the construction professionals, but at later stages changes and adjustments are inevitable. For the success of a project managing change is very crucial task. These changes may cause project delays and overspending if not properly managed. At present, there are no widely accepted standard methods and comprehensive construction management theories in practice. Each project team usually use appropriate procedures for respective projects. The current shortcomings are lack of effectiveness of these methods and the difficulty for project teams to learn and improve their skills in managing change from project to project.

PUBLIC-PRIVATE PARTNERSHIP
In the development of the innovative approaches to engage the private sector in delivery of government project/services UK has been at the front position. The United Kingdom had started a new type of partnership between government and private sector called as Private Finance Initiative (PFI). In this partnership, private sector firms takes responsibility to provide public services including maintaining, enhancing or constructing the necessary infrastructure required. This is a contract between government and private sector firms that are typically of fifteen to thirty years and consortium is being paid back in predefined instalments over the period, conditional on performance. Government sector owns the project’s assets on the expiry of the project.

PROJECT RISKS AND THEIR ALLOCATION IN PFIs
Risks in the construction projects are inevitable. Construction projects can have risks at any stages of the work. There are many reasons for that like permission for planning can be hard to get and finalisation of design may not be done before the work starts. The construction process itself may face difficulties like defective materials, labour disputes, design changes and disruption in the work by macro/micro factors. All these factors can lead projects to run over time and budget. Though the project is complete there are certain risks that buildings become prematurely obsolete or face wear and tear, leads to refurbishment and extra cost.
The allocation of risks will depend on the extent to which contract is written. Risk allocation should be written down in the project contract, though it is not possible to put down every contingency in the contract and there is often legal ambiguity. So at the end risk should be allocated to who is best able to bear and manage them.   In most of the cases government bears the risk of cost overruns in PFIs.

CONSTRUCTION PROJECT MANAGEMENT

“Project management is the skills, tools and management processes required to undertake a project successfully”. (Project Management Guidebook 2003)

Construction project management is a professional management practice consisting of an array of services applied to construction projects and programs through the planning, design, construction and post construction phases for the purpose of achieving project objectives including the management of quality, cost, time and scope. Project manager performs this task of management. Developer or contractor hires the project manager to carry out this task. Tasks of project management changes vividly from project to project because of its complexity. As per the employees working in this field, specifications of each project make each process of management different and complex.

Project management in the construction is basically to make sure that a project is constructed as per the given requirements. Construction project management is not just to complete the project according to the plan but also on time and within specified budget. It is the duty of project manager to keep cost under control and maximize the profit of the employer.

A basic concept of project management in the construction industry is to undertaking and delivering successful construction projects. This strongly depends on the powerful project management.
At present, several billions of pounds are being spent each year by construction industry in UK in both the private and government sectors, and is one of the strongest sectors in UK. Economic factors in the UK at present underline the importance of managing successful projects.

Managing successful project is reliant on good communication and efficiency at all stages of a project, and the aim to reduce costs, time and risk. To deliver a successful project, implementation of a project schedule and sticking to it, by assigning a strong project team is very essential.

CONSTRUCTION PROJECT MANAGER

Construction project managers plan and coordinate construction projects. Construction project managers are normally hired for a project by construction firms and specialist contractors. They may be owner of the construction firms, salaried employee of the construction firm, contractor, or management firm managing the firm’s construction projects. They may plan and direct a whole project or just a part of a project.

Construction project manager’s job is to evaluate and decide suitable methods of construction and most cost-effective plan and schedule by discussing plans with architects, surveyors, trade contractors and client before building work starts. They segregate all required construction site activities into logical steps, budgeting the time required to meet established deadlines. They work closely with the site workforce once building is underway. They monitor the progress, costs, checks quality of construction and direct the workforce as per the plan. Construction project manager determine the labour requirements, hires them and if requires dismiss them too. They have to report regularly to the architect, engineers, surveyors, and client about the progress of the project. They are responsible to make sure all work is completed on time and within specified budget.

RESEARCH AIMS AND OBJECTIVES

In my research I intend to look at the reasons for the construction project cost overruns, challenges faced by project managers to manage and control cost overruns in private and government sector projects and also its effects on both the sectors. My aims and objectives are
  1. To review extant conceptual models and theoretical frameworks related to evolutionary trends of the construction project management.
  2. To identify the difference in private and government sectors cause of cost overruns in construction projects and these problems dealt by project managers to minimize cost overruns.
  3. To analyse the requirement of public-private partnership
  4. To recommend solutions based on my research that will help to predict and prevent cost overruns.

RESEARCH QUESTIONS

I intent to answer the following research questions in order to direct my research:
  1. What is the difference between private sector and government sector construction projects?
  2. Which factors affect the construction project cost overruns in private and government sector projects?
  3. Does public-private partnership helps to reduce cost overruns in government sector projects?
  4. How do project managers resist the cost overruns?
  5. Which factors make Private sector projects different from Government sector projects in terms of cost controlling and change management?

LITERATURE REVIEW

The construction industry faces many challenges throughout the project, but most common challenges are the risk of cost overruns and project delivery within specified budget. In 1990, Brandon stated that in construction the new orthodoxy is to accept risk and uncertainty. He also added that in the early stages of design process most of the important decisions are made but during the project there are several factors which can cause the progress of the project, and the task is to discover techniques, procedures and information support that will improve decision-making at this critical point. Ten years later, Brandon (2000) said, “We realise that that we cannot actually forecast the future particularly well, our job is to assess what the risks might be in the future but, at the same time, bring in management process that allow us to minimise the risk or adapt to changing circumstances.”

Attempts are being made to improve the construction industry’s poor reputation. In 1994 Sir Michael Latham set out an agenda for action that demanded changes in culture, attitude and procedures with the objective of ensuring value for money and certainty of outcome (Latham, 1994). Latham said that “No construction project is risk free. Risk can be managed, minimised, shared, transferred, or accepted. It cannot be ignored.” This work was followed in 1998 with a report by Sir John Egan, “Rethinking Construction” (DETR, 2000b), and the Construction Best Practice Programme was subsequently set up supported the Construction Industry Board (CIB). The aim is to improve awareness of the benefits of best practice and give the support and advice in the construction and client organisations with the knowledge and skills to the way they improve working (CIB, 2000). The main goal is to transform the outdated management practices and corporate cultures.

In addition to the above initiatives, under a corporate governance code directors of listed firms must now carry out an assessment of the way they handle risk (King, 1999). This explains that the company have to think systematically about the risk that the company faces, and make available the full descriptive report to the auditors and shareholders about how are they going to manage them. The issues include health and safety, financial procedures, environmental risks and regulatory compliance.   The code means that, for the first time, directors will have to comment on what they are doing about risk in their annual reports.   A finance director of a construction company said that “the code is a heavy compliance burden for contractors in a high-risk industry”, but welcomed the idea that businesses would be more transparent and it is a good opportunity to show that the industry is “trying to put its house in order” (King, 1999).

A major contractors have hired management consultants to examine the its risk management strategy, in an attempt to avoid bidding for loss-making jobs and also to examine their financial and operating controls (White, 2000a).   The Chief Executive said “It could well be that spending half a million pounds on a soil investigation is worth it in order to avoid a major delay at a later date”.   White (2000b) also added that many contractors are investing in internet based knowledge management system which allows their employees to access to the past project performances which make them aware of the problems occurred in the past projects and how did they overcome them or could have been solved.

RESEARCH METHODOLOGY

The process by which one writes or performs research is very important because it has reached a major impact on the conclusions at the end of the research. There are two main types of research approach, namely quantitative and qualitative. A quantitative approach is often associated with the positivism philosophy which concerns counts and measures of things (Collis & hussy, 2003). Moreover, quantitative research is concerned with questions such as: How much? How often? How many? (Gummesson, 2000).

On the other hand, qualitative research usually implies an emphasis on processes and meanings rather than numbers (Bryman, 2007). Thus, a qualitative method is more constructive and reflects on perceptions in order to gain an understanding of social and human activities (Hussey and Hussey, 1997). Therefore, Sutrisna (2009) and Easterby-Smith et al. (2008) confirmed that a qualitative method emerges from interpritivism and it is based on the assumption that there is no singular objective reality and hence the observed reality will be related to the researcher’s interaction with the problem. Furthermore, Strauss and Corbin (1998) mentioned that the strengths of such a qualitative method lie mainly in their success in ascertaining deeper underlying meanings and explanation of the phenomenon.

The approach adopted contains important assumptions about the way the researcher views the world (Sunders et al., 2007). In conducting this research, I will employ the positivist approach because by using a reality which is separate from my knowledge of the area, it provides an objective reality against which researchers and project managers can compare and determine the truth.

The research strategy that I will be using in my research is the case study which is “a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence.” (Robson, 2002).

RESEARCH METHOD

There are basically two types of data collection, one is Primary Data and the other is Secondary Data. Primary data is the data that has not been previously published, i.e. the data is derived from a new or original research study and collected at the source. Secondary data on the other hand, is basically primary data collected by someone else. Researchers reuse and repurpose information as required for their research. For the purpose of my research, I will take few examples of actual construction project overruns in both private and government sectors and I will be making use of both primary and secondary data. I will use data such as published financial reports of individual projects, articles and journals related to construction project cost overruns. Due to the small sample size of relevant published data on such projects it will be difficult to draw any consistent findings from them. Thus, I will gather a large number of perceptions from experienced cost estimating professionals about the reasons for cost overruns. I will focus on the causes of cost overruns in projects, solutions used by project managers to control it and examine the effect of cost overruns on both the sectors.

Interviews will also be used as a data collection method, interviews provide in-depth information about a particular research or question. As the information is not quantifiable, the interview often described as qualitative research method. Interviews will help me to get appropriate and accurate data to my research aims and objectives and also help to answer the research questions. There are three types of interview methods; structured, semi structured and unstructured interviews. Structured interviews are “interviews in which all respondents are asked the same questions with the same wording and in the same sequence.” (Corbetta, 2003). According to Patton(2003), in semi structured interview interviewer explore, probe, and ask questions that will elucidate and illuminate that particular subject to build a conversation within a particular subject area, to word questions spontaneously, and to establish a conversational style but with the focus on a particular subject that has been predetermined. Unstructured interviews are more casual than the aforementioned interviews. There is no need to follow detailed interview guide. Interviewees are encouraged to speak openly, frankly and give as much detail as possible.

For my research I will be using semi structured and unstructured interviews because semi structured interviews will allow me to obtain answers of specific areas of the research that needs clarification and are specific to each respondent, while unstructured interviews which will be less restrictive, so that the interviewee express their opinions freely and give me the opportunity to provide information that might be useful for my research which are not necessarily known to have received. Each person thinks differently, so unstructured interview will give me the opportunity to get in-depth and varied response from the various respondents.
I will interview the following persons
    • Representatives of government construction bodies
    • Representatives of private construction organisations
    • Project managers
    • Project architects

ETHICAL CONSIDERATIONS

Ethics in research is positivist and interpretive data that are collected and analysed with careful attention to their accuracy, fidelity to logic, and respect for the feelings and rights of research participants. In my research, quantitative data will be readily and publicly available without any form of moral or ethical intrusion. I will get the qualitative data by semi structured and unstructured interviews. The interviewees will be voluntarily participating as I will be giving them full information about the procedure and risk involved. The confidentiality will also be respected as per their request.

CONCLUSION

This research will draw attention towards the macro and micro factors which affect the construction project overruns in private and government projects and the proposition will help prevent and manage the risk of cost overruns.

TIMESCALE

Written project proposal 18th August 2011
Information and data collection September 2011
Interviews with various representatives October 2011
Analysis of the information collected November 2011
Final writing of the dissertation November/December 2011
Submission of the dissertation Mid December 2011

REFERENCES
Corner, D. (2006) The United Kingdom Private Finance Initiative: The Challenge of Allocating Risk, OECD Journal on Budgeting, 5(3). [Online] Available from: http://www.oecd.org/dataoecd/5/19/43479923.pdf [Accessed on 12 August 2011]
Davies, J. (2006) Risk Transfer in Private Finance Initiatives (PFIs) An Economic Analysis, Industry Economics and Statistics Directorate (IES). [Online] Available from: http://www.bis.gov.uk/files/file26074.pdf [Accessed on 7 August 2011]
Elmagri, M. and Eaton, D. (2010) Identification of the factors of interpersonal conflict in cement industry: a methodological perspective. [Online] Available from: http://www.rics.org/site/download_feed.aspx?fileID=7861&fileExtension=PDF [Accessed on 13 August 2011]
Griffin, D. (2007) Project Management in the Construction Industry. [Online] Available from: http://www.aiu.edu/publications/student/english/Project%20Management.html [Accessed on 6 August 2011]
Hussey, J. and Hussey, R. (1997) Business Research, Macmillan Press Ltd, Basingstoke

Jackson, S. (2003) Project Cost Overruns And Risk Management, School of Construction Management and Engineering, The University of Reading. [Online] Available from: http://www.reading.ac.uk/web/FILES/innovativeconstructionresearchcentre/icrc-31-c-ProjectcostoverrunsandriskmanagementARCOM2002.pdf [Accessed on 6 August 2011]

Kahn, R. And Cannell, C. (1975) The Dynamics of Interviewing, New York and Chichester, Wiley

Robson, C. (2002) Real World Research (2nd Ed.), Oxford, Blackwell.

Saunders, M., Lewis, P. And Thornhill, A. (2007) Research Methods for Business Students (4th Ed.), Harlow, Pearson Education
Smith, H. (1975) Strategies of Social Research: The Methodological Imagination, Englewood Cliffs, NJ, Prentice Hall
Sun, M. et al (2005) Managing Changes in Construction Industry. [Online]. Available from: http://www.bne.uwe.ac.uk/cprc/publications/mcd.pdf [Accessed on 6 August 2011]