BUILDING COST MANAGEMENTS

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Approaches to the total cost management of construction works are now changing rapidly. The change imposes the necessity to change how the cost of construction work is conceived across domain. The term cost management connotes basically two related activities in costing that is, cost forecasting and cost control (Ashworth, Hogg and Higgs, 2013). This understanding suggests that, to be able to exert cost control yardsticks, the estimate of the cost implication must be known over defined stages in the project development cycle. Cost management of buildings were historically aimed at minimising the initial construction costs alone.  Opoku (2013) observed that the usual practice in the construction industry was to accept the cheapest initial cost, and this trend tend to discourage whole life cost consideration. However, during the 1930’s, many building users began to discover that the running costs of the buildings such as maintenance, energy, management cost, began to impact significantly on the occupier’s budget (Opoku, 2011).

Unfortunately, the lowest price frequently does not result in the lowest all-in cost or total cost of acquisition, operation and disposal. The resurgence of concern for energy consumed by buildings and the associated high maintenance cost have highlighted the need to reconsider whole life costing in building cost management. According to Bello, Ibrahim and Kolo (2013), buildings have long design life-spans, as a result, concerns dealing with the whole life of the building deserves considerate attention.

The application of whole life costing (WLC) technique is widely practiced in other industries; however, its use in the construction industry is marginal. The WLC approach encourages decision-making that takes account of the initial capital cost, running cost, maintenance cost, refurbishment requirements and disposal cost. However, recent government initiatives and the growing demand from the private sector for greater predictability in the running costs of buildings have increased the need to analyze life cycle costs from earliest stage of a project. Several reports, including those of “Constructing the Team” (Latham 1994) and “Rethinking Construction” (Egan 1998) have all strongly recommended the need to consider the long-term costs and economic performance of constructed assets. The construction industry is now recognized as an important contributor to sustainable development; that is achieving economic and social objectives while minimizing adverse environmental impacts (Addis and Talbot 2001). It is therefore essential that, the concept of whole life value is used as a criterion for procurement in the construction industry. The Egan report recommended that design should encompass whole life costs including cost of energy consumption and maintenance costs (Egan 1998). However, little has been written on the extent of application of WLC in the Nigerian construction industry. According to Chirugwui et al. (2010) and Olubodun et al. (2010), the concepts of whole life costing must be well understood to enhance wide application. This study therefore examined the depth of whole life costing knowledge in building design cost management in the Nigerian construction industry in Akwa Ibom State.

1.2       Statement of Research Problem

Schade (2007) stated that WLC had earned acceptance in the construction industry, but that real-world application of it had decelerated. Schade’s opinion is similarly buttressed by Aouad et al., (2003) who define it as a method that ‘persists to suffer in oblivion’; and Bakis et al. (2003) further assert that WLC has attained restricted use so far in spite of its significance. However, studies by El-Haram et al. (2002) believe that the use of total WLC within the construction industry is rapidly snowballing while Lindholm and Suomala, (2004) stated that the implementation of WLC thinking has been sluggish despite the important received by the public sector in many places.

The skills and knowledge of whole life costing is globally acknowledged to be low. This is largely attributed to non-application of the tool in design decision-making in the construction industry (Opoku, 2013). According to Udeaja, Babatunde and Ekundayo (n.d), low application is attributed to lack of client’s understanding and this factors is considered significant inhibiting factor facing the adoption of whole life costing in the construction industry.

A study by Bello, Ibrahim and Kolo (2013) conducted in Kaduna state revealed that consultant quantity surveyors are more conversant with whole life costing than quantity surveyors in client organisations. The relative knowledge among consultant quantity surveyors notwithstanding, the need to think through the project life cycle in terms of cost implication of design decisions is therefore long overdue (Oduyemi, 2016). According to Oduyemi (2016), there is limited authoritative investment decision and cost control framework over the project life cycle (cradle to grave). The need for related framework is more important now than ever due to growing impetus for the integration of sustainability concerns in construction. Decisions towards achieving sustainable built environment is so much predicated on its cost implications; hence the imperative of whole life cycle costing in the construction industry. According to Edwards (2000), growing apprehensions with regards to the long term environmental effect of buildings have compelled professionals to take on more all-inclusive approaches and to consider more meticulously the costs incurred over the entire life cycle, from cradle to grave.

The foregoing positions mean that construction stakeholders tend to place significant emphasis on the expenditure on operation and maintenance and disposal cost of built assets (Dhillion, 2013). A study by Langdon (2007) revealed that £1 spend on construction means £50 spent on maintenance and £200 spent on operational costs. This follows the traditional intuitive ratio-based criteria of 1:50:200. Whilst these criteria have gained widespread application, it is now more imperative to understand a more comprehensive and scientific-based yardstick for understanding the cost of built assets over their life cycle.

The traditional method of estimating construction projects concentrates and emphasises largely on initial capital costs. Still, with operating costs accounting for up to seventy percent of the whole cost of buildings over its whole life cycle (Boussabaine and Kirkham, 2008), this mania(obsession) and pre-occupation with initial capital expenses have resulted in designs that fail to present the client with best value for money in the long term.

1.3       Research Questions

The following are set-out to guide the study

1)      What are the benefits of adopting whole life costing in building design cost management?

2)      What is the level of use of whole life costing in building design cost management?

3)      What are the factors affecting the use of whole life costing for building design cost management?

1.4       Aim and Objectives of the Study

The study aims to assess the use of whole life cycle costing as a design tool in building cost management with a view to improve application. To achieve this aim, the objectives are to:

1)      determine the benefits of whole life costing in building design cost management;

2)      evaluate level of use of whole life costing techniques in building design cost management; and

3)      Examine factors influencing the use of whole life costing in building design cost management. 

1.5   Significance of the Study

Ferry and Flanagan (1991) argued that application of Whole life cost, in any environment, exists on two levels. The lower level of whole life costing is represented as a ‘Management Tool’ to aid the decision making process. The higher level of whole life costing is termed the ‘Management System’ whose continuous operation dictates that responsibility for asset management should be retained. In general terms, they argue that during the management of a typical project, all stages, except project initiation, have a potential use for Whole Life Cost.

The outcome and knowledge of Whole Life Cost can therefore be used as a management tool to identify the actual costs incurred in operating an asset. The primary objective is to relate running costs and performance data. Thus, it could be useful for clients who want to estimate the actual running costs of the building and also for budgeting purposes.

1.7       Scope of the Study

The study is limited to evaluating the use of whole life costing in building design cost management in Akwa Ibom state.  The study will be limited to Uyo Municipal based on the need to collect cost data from construction professionals (Cost Managers) whose business and firms are located mainly in Uyo. The study sample comprised mainly of quantity surveyors largely due to the subject of the study which context deals with construction cost management.

1.8   Organisation of the Work

The work is organized into the Chapters. Chapter One is the Introduction, and introduces the background to the study, statement of research problems and identify the aim, objectives, hypotheses and scope of the study. Chapter Two is the Literature Review and this section highlights: identification of design variables influencing whole life cost of building projects; determining the level of use of whole life costing techniques in building design choice selection; examining the factors influencing the use of whole life costing in building design choices; and establishing the nexus between the design variables and whole life cycle cost of building projects.

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