CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The construction sector plays a pivotal role in shaping communities on various scales, from local to global. It encompasses diverse activities, including real estate development, infrastructure projects, and the construction of industrial facilities, making it the most influential industry on the global economic stage. This sector holds immense economic significance, contributing approximately 13% to the world's gross domestic product (GDP) as of 2020 (Ribeirinho, 2020).
The origins of this industry can be traced back to ancient times when it involved the construction of stone houses and the skilled craftsmanship of carpenters who transformed raw timber into functional boards. Over time, it has evolved into one of the world's oldest industries. Throughout history, the construction sector has showcased remarkable advancements, potentially even surpassing other industries (Kristensen, 2011).
Participating in construction endeavors involves a significant financial undertaking, necessitating careful deliberation by any client. Simultaneously, the projected expenses associated with a construction project assume a pivotal role in shaping the client's capacity and determination to proceed with the project. If a project surpasses the initial cost predictions made by the designer or cost consultant, or exceeds the client's predetermined budget, it typically triggers a reassessment process. This may entail potential redesign efforts or, in extreme cases, the abandonment of the project altogether. Such scenarios can impose supplementary costs on the designers or cost consultants and lead to financial losses for the client. Ultimately, this situation could potentially raise doubts about the professional competence and credibility of both the designers and cost consultants involved. Consequently, it underscores the pivotal role of effective cost management, encompassing activities like cost estimation, budgeting, and control throughout the design and construction phases. These practices stand as crucial determinants of a project's ultimate success (Abobakr, 2018).
Typically, there is a reliance on expedited methods that leverage the limited data at hand to craft a preliminary conceptual estimate. Dysert, in 2001, underscores the immense significance of cost estimation in ensuring a project's success. Similarly, Pushkar, as cited in his 1999 thesis, emphasizes that the primary objective of estimation is to ascertain the anticipated costs necessary for executing a project in accordance with the contract plans and specifications. Establishing an accurate estimate is a challenge, but it is important. In order to establish a meticulously crafted financial estimating approach, it is crucial to assess various techniques, as emphasized by Pushkar in 1999. Consequently, clients must ensure they equip themselves with the necessary resources to develop estimates under optimal conditions. This proactive approach is essential for averting the potential pitfalls associated with over-estimations or underestimations, as highlighted by Ogungbile and colleagues in 2018.
Preliminary cost estimates typically come into play when the initial project blueprints are being developed. These preliminary costs encompass the anticipated expenses directly tied to the construction phase and are essential for the project's overall management. Jagboro (1995) elucidates that the purpose of a preliminary cost estimate is twofold. Firstly, it serves to inform the client about their financial commitment at the earliest stages, even before detailed design work commences. Secondly, it provides the architect and other engineering consultants with a clearly defined cost boundary set by the client. This cost information aids the design team throughout the various stages of pre-contract development.
The advantages of estimating the cost of a potential construction project are manifold when compared to commencing without estimation. For the client, cost estimation is imperative, providing a foundation for financial planning. For investors in Nigeria's construction industry, it becomes a vital tool for evaluating project feasibility and determining the project's scope. To consultants, preliminary cost estimates serve as a basis for several critical functions, including job performance measurement, contractor selection, assisting in the resolution of construction contract disputes, influencing job procurement (particularly in the bidding process), and facilitating efficient cash flow management (Oyedele, 2015).
Jagboro (1995) further contends that the underlying principle of preliminary cost estimation in construction is rooted in the recognition that much of what has been constructed in the past can be replicated to a significant extent. However, this replication also necessitates necessary modifications and adjustments to align with the specific project requirements.
At the initial stages of a project, where there is limited available information, the need for preliminary cost estimates arises, despite the inherent challenges of achieving precision in these estimates. Nevertheless, these preliminary assessments hold significant value for construction clients, serving as essential tools for evaluation before making the critical decision of whether to proceed with a project (Mahamid and Amund, 2010).
Given the significance of preliminary estimating in the construction sector, this study seeks to investigate and propose effective strategies for improving preliminary estimating practices in the Nigerian construction industry.
1.2 Statement of the Problem
In contemporary times, it has become a common sight to observe numerous building projects abandoned as one travels from the East to the West and from the North to the South. The predominant reason attributed to the abandonment of these projects is the insufficiency of funds required for their completion. This raises a pertinent question: Was the client, at the project's outset, unaware of the probable cost needed to see the project through to its completion?
In many instances, preliminary estimates are conducted for building projects. The fundamental purpose of preliminary estimating is to generate a projection of the anticipated cost required to complete a future project before intricate design work and contract particulars are meticulously prepared. Consequently, this approach equips the client with an understanding of the expected financial commitments before embarking on comprehensive design phases.
A significant source of concern within the construction industry is the substantial disparity that often emerges between the final account figures and the earlier tender and preliminary estimates formulated during the pre-contract stage. This dissonance has instilled apprehension in building clients considering construction projects and has eroded the credibility of professionals within the industry in the eyes of their clients. It's imperative to underscore that what remains ingrained in the memory of the building client is the initial estimate, as this serves as the cornerstone upon which all financial calculations are based.
Therefore, the motivation for this study arises from the critical need to address these pressing issues and seek viable solutions to enhance the integrity and effectiveness of preliminary estimating practices within the construction industry.
1.2 Aim of the Study
The aim of this study is to investigate and propose effective strategies for improving preliminary estimating practices in the Nigerian construction industry.
1.3 Objectives of the Study
The specific objectives of this study are as follows:
- To identify and comprehensively understand the key factors that contribute to inaccuracies in preliminary estimates within the Nigerian construction industry.
- To investigate and analyze the profound impact of inaccurate preliminary estimates on construction projects in Nigeria.
- To explore strategies for enhancing preliminary estimating accuracy in the Nigerian context.
- To develop recommendations and guidelines for stakeholders in the construction industry to improve preliminary estimating practices.
1.4 Research Questions
To guide this study, the following research questions will be addressed:
- What are the primary factors contributing to inaccuracies in preliminary estimates within the Nigerian construction industry?
- How do inaccurate preliminary estimates impact construction projects in Nigeria, specifically in terms of cost overruns, project delays, and resource allocation challenges?
- What best practices and strategies can be adopted to enhance preliminary estimating accuracy in the Nigerian context?
- What recommendations and guidelines can be developed to assist stakeholders in improving preliminary estimating practices?
1.5 Research Hypothesis
The following research hypothesis will be tested during this study:
H0: There is no significant relationship between preliminary estimating accuracy and project outcomes in the Nigerian construction industry.
Ha: There is a significant relationship between preliminary estimating accuracy and project outcomes in the Nigerian construction industry.
1.6 Justification of the Study
The construction sector is a significant contributor to Nigeria's economy. More accurate preliminary estimates can help reduce the economic burden of cost overruns. Reliable preliminary estimates can attract more investment into the construction sector, fostering economic growth. This research will contribute valuable knowledge to the field of construction management, especially in the context of Nigeria.
1.7 Scope of the Study
This study will focus on the Nigerian construction industry. Data will be collected from various stakeholders, including contractors, owners, and consultants, to assess current preliminary estimating practices. The study will primarily cover strategies to enhance the accuracy of preliminary estimates, with a focus on factors contributing to inaccuracies, the impact of inaccuracies on project outcomes, and best practices for improvement.
