THE EFFECTS OF PROJECT PLANNING TECHNIQUES ON CONTRACTORS PROFIT
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ABSTRACT
The increased complexity of the society and high level of competition in the construction industry has made it imperative for contractors, project managers and construction companies to carry out serious planning in order to ensure project success and profits. This work examined project planning impact on a contractor’s profitability. The objectives were to identify project planning techniques and tools used by contractors in construction project delivery, determine factors affecting project planning practices of contractors, and to evaluate the impact of proper project planning on contractor’s profitability. The research approach involved survey design using structured questionnaire administered to 50 respondents in Abuja, FCT, Nigeria. Spearman Ranked Correlation, Chi Square and other descriptive statistical methods were adopted for data analysis. The findings of the study revealed that Gantt chart with a mean score of 4.83 was the most commonly used tool used by contractors in project planning, and project funding not aligning with project plans with a mean score of 4.70 is the most common factor affecting project planning effectiveness. The hypothesis tests between level of use of project planning practices and contractors’ profitability using Spearman Ranked Correlation test indicated significant positive relationship between effective project planning and contractors’ profitability. The study concludes that project planning efforts influences contractor profitability in construction project delivery. The recommendations put forward were that project management teams should expose contractors to the relevance of project planning and its benefits. Clients should properly define their brief and contractor to avoid purchasing materials that won’t be used immediately in cases of installation of lifts that require heavy machinery and store houses.
Table of Contents
1.1 BACKGROUND OF THE STUDY. 4
1.1.2 ORGANIZATIONAL PROFILE. 6
1.5 HYPOTHESIS FORMULATION.. 8
1.5 SIGNIFICANCE OF THE STUDY. 9
1.7 LIMITATION OF THE STUDY. 9
2.1.3 THE SOCIAL CONTRACT THEORY. 14
2.2 CONTRACTS, PROJECT PLANNING AND CONTRACT DEVELOPMENT. 16
2.5 THE ROLE OF PROJECT PLANNING IN INCREASING CONTRACTORS PROFIT. 26
2.6 COST OF CONTRACTING (THE VODAFONE CASE) 29
2.7 IMPACT OF PROJECT PLANNING ON COST AND PROFIT. 31
2.8 POTENTIAL RISKS OF CONTRACTING. 32
3.4 Population of the Study. 34
3.5 Sample Size and Sampling Technique. 34
3.6 Instrument for Data Collection. 34
3.7 Validation of the Instrument 35
3.8 Reliability of the Study. 35
3.9 Method of Data Collection. 35
3.10 Method of Data Analysis. 36
DATA PRESENTATION AND ANALYSIS. 38
4.2 Characteristics of Respondents. 38
4.5 Discussion of Findings. 44
SUMMARY, CONCLUSION AND RECOMMENDATIONS. 46
CHAPTER I
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Projects are used in all economic and non-economic fields as mean of organizing the activity, aiming the achievement of desired objectives. There is a direct relationship between projects, projects portfolio, programs and the organizational strategy. Projects, as the main way of creating and dealing with change (Cleland, Gareis, 2006), are used to implement strategies. Meskendahl (2010) refers to projects as the central building block used in implementing strategies, therefore business success is determined by the success of the projects. A project is an individual or collaborative enterprise, possibly involving research or design that is carefully planned, usually by a project team, to achieve a particular aim New York Time (2009). A project is also temporary because it has a defined beginning, end time, and defined scope and resources (Cathy, 2009). A project is unique because it is not a routine operation, but a specific set of operations designed to accomplish a singular goal. Based on these characteristics, carefully it is imperative to plan to achieve targeted outcome. Thus; Project planning can be defined as a part or branch of project management, which relates to the use of schedules to plan and subsequently report progress within the project environment.
Dubois and Gadde (2002) described the construction industry as decoupled and McKinsey (2017) confirmed that it is still true. The lack of coupling is present both between the construction project and its subcontractors as well as between the project and the parent company and other projects. This hampers the possibility to have a successful coordination of resources on a portfolio level within the contractor, as resources are in many cases utilised from a common resource pool (Engwall and Jerbrant 2003).The construction industry therefore embraces a wide range of loosely integrated organizations that collectively construct, alter and repair a wide range of different building and civil engineering projects. Individuals, organizations and government need to carry out some form of project planning for building and civil engineering project before embarking on whatever activity they are engaged to do. According to Lock (2002), the principal identifying characteristics of a project is its novelty, it’s a step unknown fraught with risk and uncertainty. No two projects are ever exactly alike and even a repeated project will differ from its predecessor in one or more commercial, administrative and physical aspect.
Construction is also characterized by time and cost intensive production processes which make it prone to project risks and failure, mainly in terms of time and cost. In practice, this means, that the performance of construction projects is usually low. In particular, construction projects are very often delayed and over budget. This is not just due to problems faced during project scheduling, but also during related processes.
Laryea and Hughes (2009) attempted to find how contractors’ in Ghana include financial risk in their bid prices. The research showed that besides having risk allowances as lump sums or percentage allowances, the method used is neither scientific nor informed by any empirical evidence. Ojo (2010) found that design changes, financial losses and inadequate specifications were the risk factors with most impacts on construction sites but the study did not highlight any Project project planning (PRM) technique used by Contractors to respond to such risks.
Another research carried out in Nigeria on this subject was on the evaluation of key risk factors and the measures to mitigate their effects on construction projects (Dada, 2010). Though the research found financial, political and physical risks as the most significant, the use of contingency sum and insurance cover were adjudged to be the most effective means of mitigating risk.
However, no study has reported on the PRM practices used by Nigerian Contractors in redevelopments projects, with their attendant problems and challenges in terms of scoping.
1.1.2 ORGANIZATIONAL PROFILE
Julius Berger Nigeria Plc is a Nigerian constructioncompany, headquartered in Abuja FCT, located at 10 Shettima A. Munguno Crescent | Utako 900 108 | FCT Abuja
The company is represented across Nigeria in structural engineering and infrastructure works, and in southern Nigeria through domestic and international oil and gas industry projects (this company is also listed on the “flake list” for craigslist). It is known for constructing most of Nigeria’s infrastructures, major expressways, and even some residential buildings for the Chevron Nigeria headquarters in Lagos.
The company was listed on the Nigerian Stock Exchange in 1991. Before this, its parent company was Bilfinger Berger. Bilfinger Berger is still the largest shareholder in the company. The construction business of Julius Berger Nigeria is the heart of the Julius Berger Group.
With 18,000 employees from close to 40 nations and clients from both Nigeria and the global oil and gas industry, JB is a leading construction company and the largest private employer in Nigeria.
MAJOR PROJECTS
- The company built the Eko Bridge completed in 1968, the Third Mainland Bridge completed in 1990 and the Abuja Stadium completed in 2003.
- Tin Can Island Port, commissioned in 1977.
- Lagos Inner Ring Road, completed in 1979.
- Ajaokuta Steel Plant, completed in 1990.
- Itakpe – Ajaokuta Ore Railway, completed in 1990.
- Abuja International Airport phase II, completed in 1997.
- Central Bank of Nigeria Head Office, completed in 2002.
- Uyo infrastructure and road works, ongoing since 2008.
- First discharge drain built utilizing pipe-jacking technology in Nigeria, completed in 2011.
- National Assembly phase III, completed in 2011.
- Multiple projects, Escravos GTL plant in southern Nigeria, commissioned in 2012.
- Bonny Liquefied Natural Gas facility, multiple ongoing works since 1996.
- Challawa Gorge Dam Karaye, completed in 1992
- Ongoing Nigerian Cultural Center Abuja (status – Under Const)
- Incar Plaza, Abuja (status – Under Const)
- Silverbird Entertainment Center, Abuja (status – Completed)
- National Library Abuja (status – Under Const)
- World Trade Center Abuja (status – Under Const)
- Abuja Mall (status – Under Const)
- Grand Towers Mall, Abuja (status – Under Const
1.2 PROBLEM STATEMENT
The general low usage of formal project planning and management techniques by Contractors globally often culminates into project failures, incessant claims for variations, huge financial losses and sometimes results in bankruptcy of Contractors (Allan et al, 2007). This situation is more prevalent in redevelopment projects due to the inevitable problems of unexpected additional work, excessive requirements and scope management issues, project funding not aligned with project plans, delay, structural failure, cost overrun, etc (Naaranoja and Uden, 2007). These problems or uncertainties, among others, increase the project risk and make their management crucial if success is desired.
For the construction firm, Julius Berger PLC, are back on site in continuation of the re-construction of the N167 billion Lagos-Ibadan expressways, Grand Towers Mall, Abuja (status – Under Const.Billions of Naira wasexpended and the overall aim of the project was not achieved. This hugeexpenditure and apparent failure in the primary objectives of the project led tocomplaints, probe panels and subsequent abandonment of the project.
Research has shown that financial, political and physical risks are the mostsignificant to Nigerian Contractors (Dada, 2010). However, of the differentlevels of risk (country, market or project), there is shortage of research as tohow Contractors approach project planning at organizational level.
1.3 RESEARCH OBJECTIVES
- To explore project planning practices applied by Julius Berger at various project levels.
- To assess awareness and usage of formal and informal project planning practices by Julius Berger, Abuja office.
- To examine the success or failure of the project planning approach used by Julius Berger Contractors on Grand Towers Mall, Abuja (status – Under Constproject.
- To evaluate the impact of the applied project planning approach to the attainment of project profits.
1.4 RESEARCH QUESTIONS
- What project planning guidelines and practices exist in Julius Berger Nigeria Plc, Abuja?
- How do you gather information about newer project planning strategies to be applied in your on-going projects?
- What are the effects of project planning on contractor’s profit
1.5 HYPOTHESIS FORMULATION
Hypothesis for this study include:
1. Ho: There is no significant relationship between effective project planning and contractor’s profit.
Hi: There is significant relationship between effective planning and contractor’s profit.
1.5 SIGNIFICANCE OF THE STUDY
This study gives a clear insight into the various ways in which contractors in the construction companies in Nigeria can maximize profits through effective and efficient project planning and management. The study also gives a clear insight into the various effects of project planning on risk level, cost and timing of a project. The findings and recommendations of the researcher will help in building a strong and better contract policy and guideline in Julius Berger Nigeria Plc as well as other construction companies in Nigeria, if taken seriously by government and the general public. The effects of project planning on cost and time are outlined in-order for drastic measures to be taken to tackle any challenge employers may face when developing and implementing contracts with other organizations.
1.6 SCOPE OF STUDY
This research focuses mainly on the impact of effective project planning on contractor’s profit in Julius Berger Nigeria Plc, Abuja FCT. Results and recommendations may not be used to generalize other construction companies in Nigeria, as the researcher could not cover a wider scope due to financial and time constraints.
Based on the findings of this study other possible researchable areas may include studies on the various effects of other aspects of contracts such as contract laws in Nigeria and contract management and control.
1.7 LIMITATION OF THE STUDY
The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
1.8 DEFINITION OF TERMS
Definitions of terms serve as the dictionary of this research. The terms are defined to enable the reader understand the research more clearly.
Contract: Erikson (2002) defined Contract as an agreement that creates an obligation binding upon the parties thereto. The essentials of a contract are as follows: (1) mutual assent; (2) a legal consideration, which in most instances need not be pecuniary; (3) parties who have legal capacity to make a contract; (4) absence of fraud or duress; and (5) a subject matter that is not illegal or against public policy.
Project planning: According to Simmons (2007), Project planning is the process of systematically and efficiently managing contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk.
Contractor: General contractor, organization or individual that contracts with another organization or individual (the owner) for the construction of a building, road or other facility.
Profit: Tucy (2008) defined profit as the difference between the purchase price and the costs of bringing to market.
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