UNIVERSITI PUTRA MALAYSIA

COST CONTROL STRATEGIES FOR IBS CONTRACTORS IN MALAYSIA

LEW YOKE LIAN

FK 2002 43

COST CONTROL STRATEGIES FOR IBS CONTRACTORS IN MALAYSIA

By

LEW YOKE LIAN

Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia, in Fulfilment of the Requirement for the Degree of Master of Science

August 2002

Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of the requirement for the degree of Master of Science

COST CONTROL STRATEGIES FOR IDS CONTRACTORS IN MALAYSIA

Dy

LEW YOKE LIAN

August 2002

Chairman: Salihudin Hassim, Jr.

Faculty: Faculty of Engineering

Industrialised Building System (IBS) is a system widely used in construction industry

in Malaysia. This study is a survey to identify the factors contributing to cost control

problems faced by local contractors in IBS projects and to identify the strategies used

to reduce the cost variation in IBS projects. From the finding of the survey, a

computer-based cost control model was developed to improve the effectiveness of

cost control on IBS.

The survey shows that management team capability & performance, buildability of

design, and timely decision making were the top-ranked factors contributing to cost

control problems in IBS construction in Malaysia. Strategies like increase the

working hours, increase manpower and/or equipment, provide close supervision to

subordinates for minimising abortive work, and coordinate closely with

subcontractors were identified as the most popular method used to reduce cost

variation of IBS projects.

In hypotheses testing of this study, it was found that there is significant association

between type of IBS used and the perceived contributor to cost control problems.

1\

Results of Logistic Regression Analysis shows that allowance of partially handover,

delay of payment from client to the contractor, deposit needed for IBS before delivery

of the precast components, and application of tracking curve for cost control are likely

to influence the cost variance of IBS construction projects.

The developed computer-based cost control model could assist constructor of IBS

(with prefabricated elements) to plan their expenses and progress of work.

Additionally, monitoring during the construction is made available through a series of

user-friendly electronic forms. With identification of potential problem contributors,

strategies to overcome cost variation, and application of the cost control model, cost

control of IBS projects in Malaysia would be unproblematic to any new or existing

IBS practitioners.

III

Abstrak tesis yang dikemukakan kepada Senate Universiti Putra Malaysia sebagai memenuhi kepeduan untuk ijazah Mastaer Sains

STRA TEGI KA W ALAN KOS UNTUK KONTRAKTOR IBS DI MALAYSIA

Oleh

LEW YOKE LIAN

Ogos 2002

Pengerusi: Salihudin Hassim, Ir.

Faculti: Faculty of Engineering

Industrialised Building System (IBS) merupakan satu sistem yang digunakan secara

meluas di industri pembinaan di Malayisa. Projek ini adalah satu kajian untuk

mengenalpasti faktor-faktor yang menyebabkan masalah kawalan kos semasa

pembinaan dan juga strategi yang digunakan untuk mengatasi variasi kos yang teIjadi.

Daripada hasil kajian yang didapati, satu sistem kawalan kos berdasarkan komputer

telahpun dihasilkan.

Daripada kajian yang dijalankan, keupayaan dan kecekapan kumpulan pengurusan,

kebolehbinaan sesuatu rekabentuk dan kepantasan keputusan dibuat merupakan faktor

utama yang menyebabkan masalah kawalan kos dalam pembinaan IBS di Malaysia.

Peningkatan masa keIja, peningkatan tenaga buruh dan/atau peralatan, pengawalan

yang lebih ketat kepada pekeIja serta sub-kontraktor merupakan strategi yang paling

kerap digunakan untuk mengurangkan variasi kos dalam projek pembinaan IBS.

Dalam pengujian hipotesis dalam kajian ini, jenis IBS yang digunakan didapati

mempunyai perhubungan dengan faktor penyebab masalah kawalan koso Keputusan

iv

Regrasi Logistic pula menunjukkan kebenaran penyerahan mengikut bahagian,

kelambatan pembayaran daripada pelanggan, keperluan pembayaran wang

pendahuluan oleh pembekal IBS dan penggunaan tracking curve akan mempengaruhi

variasi kos projek pembinaan IBS .

Sistem kawalan kos yang dihasilkan akan dapat membantu pembina IBS (yang

menggunakan elemen pasang-siap) untuk merancang perbelanjaan dan kemajuan

kerja. Tambahan pula, pengawalan semasa pembinaan boleh dilakukan melalui

borang kawalan dalam komputer. Dengan pengenalpastian penyebab masalah, stategi

untuk mengatasi variasi kos dan penggunaan sistem kawalan kos, kawalan kos projek

IBS di Malaysia akan menjadi lebih mudah.

v

ACKNOWLEDGEMENT

I would like to express my deepest and sincere appreciation to my supervisor, Ir.

Salihudin Hassim for his invaluable advise, guidance, suggestions and unfailing help

throughout the project. My sincere thanks are also extended to the chairman of the

VIVA examination, Prof. D. N. Trikha; my examiners, Prof. Madya Ir. Dr. Mohd.

Razali Abdul Kadir and Mr. Law Teik Hwa for their comments and suggestions in

this project.

Besides, I would like to thanks to all practitioners of IBS that have shared their

invaluable experience and knowledge. Last but not least, I would like to express my

gratitude to the senior students and friends who have helped me during this project.

vi

I certify that an Examination Committee met on 12th August 2002 to conduct the final examination of Lew Yoke Lian on her Master of Science thesis entitled "Cost Control Strategies for IBS Contractors in Malaysia" in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Regulations 1981. The Committee recommends that tha candidate be awarded the relevant degree. Members of the Examination Committee are as follows:

D.N. TRIKHA, Ph.D. Professor Faculty of Engineering Universiti Putra Malaysia (Chairman)

SALIHUDIN BIN HASSIM, Ir. Faculty of Engineering Universiti Putra Malaysia (Member)

MOHD. RAZALI BIN ABDUL KADIR, Ph.D., Ir. Assoc. ProfessorlDeputy Dean (Development) Faculty of Engineering Universiti Putra Malaysia (Member)

LAW TEIK HUA Faculty of Engineering Universiti Putra Malaysia (Member)

�

"

SHAMSHER MOHAMAD RAMADILI, Ph.D. Professor/ Deputy Dean School of Graduate Studies Universiti Putra Malaysia

Date: i 3 NOV 2002

VII

This thesis submitted to the Senate of Universiti Putra Malaysia has been accepted as fulfilment of the requirement for the degree of Master Science. The members of the Supervisory Committee are as follows:

SALIHUDIN BIN HASSIM, Ir. Faculty of Engineering Universiti Putra Malaysia (Chairman)

MOHD. RAZALI BIN ABDUL KADIR, Ph.D., Ir. Assoc. ProfessorlDeputy Dean (Development) Faculty of Engineering Universiti Putra Malaysia (Member)

LAW TEIK HUA Faculty of Engineering Universiti Putra Malaysia (Member)

AINI IDERIS, Ph.D. ProfessorlDean School of Graduate Studies Universiti Putra Malaysia

Date: 9 JA�' ,;r-'')

viii

DECLARATION

I hereby declare that the thesis is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other degree at UPM or other

institutions.

LEW YOKE LIAN

ix

TABLE OF CONTENTS

Page

ABSTRACT II ABSTRAK IV ACKNOWLEDGEMENTS VI APPROVAL Vll

DECLARATION IX

LIST OF TABLES Xll LIST OF FIGURES xnll LIST OF ABBREVIATIONSINOTATIONS/GLOSSARY OF TERMS XVI

CHAPTER

INTRODUCTION Problem Statement S ignificant of Study Objectives Justification

4 5 6 9 10 11 12

S cope and Limitation Framework of Study Thesis Overview

2 LITERATURE REVIEW Introduction 15 Industrialised Building System 15

Industrialisation 16 Standardisation 17 Modular Co-ordination 18 Open and Closed System 19 Classification of IBS 20 Advantages of IBS 25 Cost Performance of IBS 26 Industrialised Building System in Malaysia 28

Cost Control 30 Items to be Controlled 33 Stages of Cost Control 42 Methods of Cost Control 44 Pertinent Studies on Cost Control in Construction 49 Cost Variance 54 Cost Modelling Methods 61 Factors Affecting Cost in Construction 65

3 METHODOLOGY Introduction Data Collection

Sampling Design Variables

Data Analysis

79 79 83 84 86

x

Chi-Square Homogeneity Test Logistic Regression

Development of Model

87 88 93

4 RESULTS & DISCUSSION Introduction 97 Background of Respondents 98 Factors Contributing to Problems of Cost Control 106

Client Characteristic 110 Consultant and Design Characteristic 110 Contractor Characteristic 110 Project Characteristic 111 Contract Procedure and Procurement Method 111 External Factors 112 10 Top-Ranked Factors 112

Strategies to Reduce Cost Variance 123 Hypotheses Testing 125

Hypothesis 1: Relationship between Types of IBS and Factors Contributing to Cost Control Problems 127 Hypotheses 2 - 18: Factors that are Likely to Influence

Cost Variance 13 1

5 COMPUTER-BASED COST CONTROL MODEL DEVELOPMENT Introduction Work Breakdown Structure Cost Control Model

Data Acquisition Cost Control Forms Data Storage Data Processing

6 SUMMARY & CONCLUSION Summary and Conclusion Recommendation

REFERENCE APPENDIX A APPENDIX B BIODAT A OF THE AUTHOR

141 141 144 144 148 151 153

155 158

159 167 174 181

Xl

LIST OF TABLES

Table Page

2.1 Direct and Indirect Cost Variances Summary 58

2.2 Summary of Factors Affecting Cost of Construction Projects 69

3.1 Example of Cross-Tabulation Table 90

3.2 Summary of Analysis Conducted 92

4.1 Characteristics of the projects investigated 98

4.2 Respondents Characteristic (1) 100

4.3 Respondents Characteristic (2) 101

4.4 Types of IBS Used 104

4.5 Factors Contributing to Cost Control Problems 108

4.6 10 Top-Ranked Factors Contributing to Cost Control Problems 113

4.7 Comparison of 10 Top-Ranked Factors Contributing to Cost

Control Problems with Other Studies 114

4.8 Summary of Research Works for Comparison of 10 Top-Ranked

Factors 115

4.9 Strategies to Reduce Cost Variance 123

4.10 Main Contributors to Cost Control Problems 128

4.11 Crosstabulation of Type of IBS Vs Category of Perceived Factors 130

4.12 Factors Contributing to Cost Variance 137

XII

LIST OF FIGURES

Figure Page

1.1 Thesis Layout 14

2.1 Badir-Razali Building System Classification 24

2.2 The Four Basic Elements of Cost Control 32

2.3 Diagrammatic Representation of a Unit Rate 34

2.4 Flow Chart of Material Cost Control 35

2.5 Stages of Cost Control 42

2.6 The Earned Value Model; Calculation of Cost Performance 45

2.7 Tracking Curve 46

2.8 Project-Control Checklist 47

2.9 Integrated Cost/Schedule Report 50

2.10 Integrated of Cost, Schedule, and Time Variances 51

2.11 Direct Cost Variances 55

2.12 Overhead Cost Variances 56

2.13 Cost Modelling 61

3.1 Flow Chart of Study 82

3.2 Relationship of 'Type of Client' and 'Cost Variance' 91

3.3 Flowchart of Cost Control Model 93

4.1 Types of Projects Investigated 99

4.2 Academic Qualification of Respondents 102

4.3 Academic Discipline of Respondents 102

4.4 Respondents' Nature of Business 103

4.5 Types of IBS Used 105

4.6 Relationship of 'Delay in payment' and ' Increased Cost Variance' 132

XIII

4.7 Relationship of ' Allowance of Partially Handover' and

' Increased Cost Variance' 132

4.8 Relationship of ' Requirement of Deposit by IBS Supplier'

and ' Increased Cost Variance' 133

4.9 Relationship of 'Application of Tracking Curve' and

' Increased Cost Variance' 133

4.10 Relationship of ' Academic Qualification' and

' Increased Cost Variance' 134

4.11 Relationship of 'Type of IBS ' and ' Increased Cost Variance' 134

4.12 Relationship of ' Construction Method' and ' Increased

Cost Variance' 135

4.13 Relationship of 'Time lag of Delivery' and ' Increased

Cost Variance' 135

4.14 Relationship of ' Application of CPM Method' and ' Increased

Cost Variance' 136

5.1 Cost Breakdown Structure (CBS) 143

5.2 Work Breakdown Structure (WBS) 143

5.3 Data Acquisition Form - General Information 146

5.4 Data Acquisition Form - Industrialized Building System 146

5.5 Data Acquisition Form - WBS 147

5.6 Links to Cost Control Forms 147

5.7 Cost Control Form - Overall Progress 148

5.8 Cost Control Form - Material 149

5.9 Cost Control Form - Manpower 149

5.10 Cost Control Form - Equipment 150

xiv

5.11 Report generated from Cost Control Model 154

B l General Information 174

B2 Information of Industrialized Building System 175

B3 Overall Progress for Wall Panel 176

B4 Data of Wall Panel 176

B5 Details of Manpower Required 177

B6 Details of Equipment Required 177

B7 Variance Report Generated 178

B8 Data Stored in Microsoft Excel Workbook 180

xv

NOTATIONS

IBS Industrialised Building System

WBS Work Breakdown Structure

CBS Cost Breakdown Structure

XVI

CHAPTER!

INTRODUCTION

Between years 1 995 to 2020, Malaysia will need a total of 8,850,554 houses,

including 4,964,560 units of new housing to cater for the increase in population

during this period. Unfortunately, only 1 ,382,9 1 7 units were constructed under the

6th ( 1 99 1 - 1 995) and ih ( 1 996-2000) Malaysia Plan. We have another 3 ,5 8 1 ,643

units to be built within the next twenty years. That is on average 1 ,790,820 units to

be built for every ten years. It is clear that unless a drastic change of policy

pertaining to population growth is adopted, or some new solutions for this increase in

housing demand is implemented, the housing problem is expected to continue for

years to come (Chen, 2000).

Industrialised Building System (IBS) has been proposed in many writings as

the solution for this increasing housing demands (Koo, 2000; Omar, 2000; Engletrik,

2000; Trikha, 1 999; Karim and Adeeb, 1 993 ; Din, 1 984). Chew ( 1 986) from

Ministry of Housing and Local Government, Malaysia mentioned that shorter

construction time, saving in labour cost/dependency, material saving, better quality

control, immunity to weather changes and the cost factor are among the advantages

of IBS . Shorter construction time offered by IBS seems to be the panacea for the

housing demand in Malaysia and it is proven successful in some of the countries,

namely Finland, England, and United States (CIDB, 1 998).

From the records in PAM's publications, different types of IBS have been

used in Malaysia since mid-50s and it is still expanding (Loo, 1986). Though some

of the IBS projects were successful in sustaining lower costs, others ended up with

higher costs in comparison to similar conventional housing proj ects. (Din, 1986)

Survey done by Malaysian Institute of Architects (PAM) on Industrialised

System for Housing in year 1986 (Loo, 1986) shows that in order to strengthen the

weaknesses for its improvements, it is essential to examine each activity from the

total delivery cycle of construction work in order to diagnose the real weaknesses.

In the background of early 80's the prefabrication method would cost more

due to their destitution of experience. However, the logic of the day was to set-off

the benefits of faster completion time against the higher unit cost in view of the

escalating prices due to the inflationary trend and that early delivery would save the

buyers interest charges and rentals. Cost overrun in the IBS projects are still

common in Malaysia until today and it is one of the reasons that limit the

development of IBS (Lew, 2000). In a research done in year 2000, 60% of the

projects studied experience delay of progress. The survey shows that more than half

of the projects studied have experienced cost overrun and material is the cost element

that contributes most of the variances (Lew et. aI. , 2000). Importance of cost­

consciousness during construction is still not widespread in local construction

projects. Cost control for IBS is conducted as part of cost control of whole

construction project. In most of the cases, IBS works are awarded to suppliers or

subcontractors that specialized in IBS where monitoring of cost control over IBS

works has been overlooked (Lew et. aI., 2000).

2

According to Flanagan and Tate ( 1 997), the aim of cost control on

construction is to achieve faster construction to a higher quality at a lower cost. A

project may be regarded as ' successful ' if the building is completed on time, within

budget, without any accident, to the specified quality standards and overall clients'

satisfaction (Chan and Kumaraswamy, 2002). Kharbanda et. al. ( 1 987) mentioned

that the basic concepts of cost control are nothing new due to the size and complexity

of modern projects and the risks thereby involved, cost control today is more vital,

and more necessary than ever before. Therefore, cost control for local IBS projects

will be just applying the same old concepts of cost control with more emphasis given

on the differences between IBS and conventional construction methods, local site

conditions and availability of information or data needed in doing so.

3

Problem Statement

There are at least fourteen IBS being introduced in Malaysia (Thanoon et al. ,

1 996) for years, each of them have their own characteristics which are different from

conventional construction method. Therefore, management of IBS projects could not

be exactly the same as what we implement for conventional construction method.

Even though a number of cost control systems have been introduced for

construction projects, there is neither one which is specifically developed for the

construction projects using industrialised building system in Malaysia. According to

Dawood ( 1 994), most of the researches in the precast industry are concentrated on

the application of mathematical models to scheduling and long-range planning. Even

though there are models developed to calculate cost variance, it is not meant for IBS

industry and it is certainly not for Malaysia' s working environment. Many potential

users of IBS in Malaysia currently have no formal cost control system to monitor

their construction costs. We do have the traditional methods or systems of cost

control from centuries of trials, yet, we are still seeking for practicable cost control

system for IBS .

Generally, IBS are used in large projects with repetitive units and these

projects are extremely likely to have major overruns on both time and budget

(Hardie, 200 1 ) . Therefore, identification of potential problems and development of a

cost control model would absolutely assist in prevention and minimization of

negative cost variance occurrence.

4

Significant of Study

Due to the current economIC downturn, construction project cost control

become a great subject to all the practitioners in construction industry. Effective

construction systems that can maximize the profit determine the success of

construction companies. In conjunction with this, new systems have been introduced

to reduce the cost and improve the quality of work.

Industrialised Building System is one of the new methods introduced for

these purposes. These new building systems introduced are new methods of

construction that use new or modified materials and new technology. They are said

to be more effective in reducing manpower demand, duration of construction and

cost needed. Nevertheless, the degree of these systems' effectiveness are being

queried, can these systems really helps in reducing projects' cost by achieving the

advantages afore-mentioned? Or it is just a new idea of businessmen trying to

increase their profit? How do the project and other related characteristics that affect

the cost variance of these systems' construction affect their efficiency?

By identifying obstacles afore-mentioned, a cost control model will be

proposed based on the local working environments. This is extremely important

towards better cost control of IBS projects especially for contractors with limited

works in hand, higher competition and small margin on the profit from each project

during this recession time.

5

Objectives

This study is carried out to examine the factors contributing to problems

faced by local contractors that are related to the cost management of IBS projects in

Malaysia. The dominant objectives of this study are as follow:

1 . To identify the factors contributing to problems faced by local contractors

to control cost of IBS projects during construction.

2. To identify the strategies used by local contractors to reduce the cost

variation in IBS projects.

3. To propose a tentative cost control model for IBS projects.

The hypotheses that need to be tested in this study,

1. There is no relationship in problems faced by the local contractors during

construction of different building systems.

For first obj ective, the following hypotheses need to be tested:

2. Academic qualification of respondent IS likely to influence the cost

variance of IBS projects.

3. Respondent' s experience in IBS is likely to influence the cost variance of

IBS projects.

6

4. Project' s nature of work is likely to influence the cost variance of IBS

projects.

5. Type of client is likely to influence the cost variance of IBS projects.

6. Location of project is likely to influence the cost variance of IBS projects.

7. Type of contract is likely to influence the cost variance of IBS projects.

8. Allowance of partially handover is likely to influence the cost variance of

IBS projects.

9. Delayed payment from client is likely to influence the cost variance of

IBS projects.

1 0 . Frequency of meeting with client is likely to influence the cost variance

of IBS projects.

11 . Type of IBS is likely to influence the cost variance of IBS projects.

12. Construction method 1S likely to influence the cost vanance of IBS

projects.

1 3 . Frequency of meeting with supplier/subcontractor is likely to influence

the cost variance of IBS projects.

7

14 . Time lag of IBS elements' delivery is likely to influence the cost variance

of IBS projects.

1 5 . On site prefabrication IS likely to influence the cost vanance of IBS

projects.

1 6 . Requirement of deposit by the supplier before the first delivery is likely to

influence the cost variance of IBS projects.

1 7. Number of variation order is likely to influence the cost variance of IBS

projects.

1 8 . Application of cost control method is likely to influence the cost variance

of IBS projects.

8