Causal relationship between material price fluctuation and project’s outturn costs

Abstract

Purpose A section of project management literature attributes overruns to estimators’ deceit and delusion. An example of this is Flyvbjerg’s theorisation of strategic misrepresentation and optimism bias. To show that such a notion is not true entirely, the study elicits evidence relating to how costs of projects often fluctuate erratically as prices of construction materials change throughout contract cycle times. The purpose of this paper is to examine the causal relationships between persistent changes in prices of construction materials and project’s outturn costs. Design/methodology/approach The authors obtained and analysed price data of construction materials published in a Nigerian national daily in the 16 years between 2000 and 2015. Additional data were obtained from a quantity surveying firm to validate the archival data on material prices, and to compare the firm’s robust database of project estimates and the corresponding outturn costs of specific building elements (detailed in the study). The goal of the analysis is to explore spontaneity and causal impact in the relationship between changes in prices of construction materials and project costs. Kolmogorov-Smirnov and Anderson-Darling tests were used to obtain the probability distributions of the causal relationships. Findings Findings show disproportionate positive correlations between changes in material prices and outturn costs in Nigeria. An important dimension to this, however, is that although fluctuations in material costs often trigger variations to project costs, outturn price only accounts for about one-third of actual cost variability. Recovery of costs, not least profit making, under these conditions is a complex process. Originality/value This paper concludes that dynamism in cost attributes is neither a deceit nor a delusion; understanding and tolerating them is not a systemic weakness, rather an essential key to project success and stakeholder satisfaction. Findings from the study also bring measured certainties to the transformation of variable costs into fixed price outcomes, an important consideration that will help contract estimators and project managers to understand the likelihood of fluctuation in material costs and how these might trigger variability in project costs.

Client attributes that motivate contractors' bid decision

“…Similarly, the currency in which project payment will be made is important. Contractors can be deterred where project's currency is known to be erratic in value and has had limited advantage in the international market, or where project is domiciled in currencies where contractor's business has no commercial value (Olatunji et al ., 2018).…”

Rationalizing Critical Cost Overrun Factors on Public Sector Housing Programmes

“…Financial Shortfall [14,40] Community involvement [40,99] Labour strikes [88,105,110] Shortage of labour [72,110] lengthy bureaucratic processes [41,50,81,[111][112][113][114][115] Economic business cycles [6,112] Acquiring regulatory approvals [81,109] Exploitation [99,113] Global financial crisis [58,81] Delayed Payments [88,116,117] Delayed materials and equipment [118][119][120] High interest rates/ inflation [35,88,[121][122][123] Abandonment of Project [118] Machinery and Equipment failure [88,105] Transportation cost for labour, equipment and materials to and from site [70,124,125] Failure and availability of equipment [126] Price fluctuations [127][128][129] Shortage of skilled and unskilled labourer...…”

Analysis of contractors' administrative characteristics in bid decision factors

“…Normative studies have reported the behaviours of construction contractors during bidding and project execution as though they are a linear process: rational, predictable, scientific and simplistic (Ansar et al, 2014;Flyvberg et al, 2003;Flyvbjerg et al, 2018;Green, 1989;Love and Ahiaga-Dagbui, 2018;Olatunji et al, 2018). However, Contractors bid for projects for different reasons: some rely on past and current experiences of themselves and others, some gamble by taking rational risks where competition is limited and success or failure is safe to admit, whilst others depend only on subjective instruments such as current workload, informal connections and sheer luck (Fadic, 2020;Loosemore and Richard, 2015;Shapira, 1995;Smith, 2017).…”

“…, 2003; Flyvbjerg et al. , 2018; Green, 1989; Love and Ahiaga-Dagbui, 2018; Olatunji et al. , 2018).…”