cost estimation problem in FS and FEED phase of thermal power PROJECTS

A CASE STUDY OF

thai binh 2 thermal power PROJECT

By

Tran Viet Sinh

Abstract

The accurate determination of investment capital and project costs in all projects as well as its stages has strong affect to the project success and efficiency. The required levels of accuracy of project cost estimates vary at different stages of project development, ranging from ball park figures in the early stage to fairly reliable figures for budget control prior to construction. Since design decisions made at the beginning stage of a project life cycle are more tentative than those made at a later stage, the cost estimates made at the earlier stage are expected to be less accurate. Generally, the accuracy of a cost estimate will reflect the information available at the time of estimation.

The project cost estimates may be viewed from different perspectives because of different institutional requirements. In spite of the many types of cost estimates used at different stages of a project, cost estimates can best be classified into three major categories according to their functions. A project cost estimate serves one of the three basic functions: design, bid and control. For establishing the financing of a project, either a design estimate or a bid estimate is used.

1.Design Estimates

For the owner or its designated design professionals, the types of cost estimates encountered run parallel with the planning and design as follows:

-           Screening estimates (or order of magnitude estimates)
-           Preliminary estimates (or conceptual estimates)
 -          Detailed estimates (or definitive estimates)
 -          Engineer’s estimates based on plans and specifications
for each of these different estimates, the amount of design information available typically increases.
2. Bid Estimates

For the contractor, a bid estimate submitted to the owner either for competitive bidding or negotiation consists of direct construction cost including field supervision, plus a markup to cover general overhead and profits. The direct cost of construction for bid estimates is usually derived from a combination of the following approaches.

-           Subcontractor quotations
-           Quantity takeoffs
-           Construction procedures.

3. Control Estimates
For monitoring the project during construction, a control estimate is derived from available information to establish:
-           Budget estimate for financing
-           Budgeted cost after contracting but prior to construction
-           Estimated cost to completion during the progress of construction.

In this study, the author shall focus on the cost estimation methods in the view of the Owner (Design estimate), with reality project case study of Thai Binh 2 Thermal Power Plant Project.

Executive summary

Rationale of research

This research has been conducted to identify problems in cost estimating for EPC contract

Objectives of study

To study different estimating methods from FS to FEED phase, Government regulation which affects estimation.

Discuss strengths and weakness, to propose frame work for accurate estimation for power plant projects.

Methodology                                            

The exploratory research method is used to study problems in cost estimation of thermal power projects in Vietnam and using case to study about frame work for estimating in thermal power plant projects.

Findings and conclusion

As the power plant projects in Vietnam are invested by Government, so total cost from FS to FEED should comply government rules and regulations. The application of the Vietnam government regulation in determining the total investment and total project cost of the thermal power project, also raises some of problem

·         Equipment Cost is usually estimated too low (compared to similar international projects)

·         Policies and cost rates of layout clearance, compensation and resettlement is not close to reality price which leads to almost of the thermal power projects have encountered obstacles to hand over plan and causing project delays.

·         Cost consultants and project managers is low due to excluding the cost of foreign consultants

·         Contingency cost is determined too low.

The method of estimating the total investment and total project cost of thermal power project is combined methods, including some of the following main steps.

·         Breakdown total cost to subdivision of cost areas.

·         Quantity takeoff is determined basing on the basic design for FS phase and the FEED design for FEED Phase. If design drawings are not available, the quantities are calculated with references to similar projects already executed.

·         Detail cost determination.

·         Applying the government rules and regulations into the project to identify sub-divide the areas cost of project.

·         Summarize total project cost estimation.

Recommendations

·         In the thermal power project, the imported equipment and materials cost is a large proportion of the total cost of the project, so the currency in calculation and approval of total project cost is recommended to use two type of money in the spreadsheet which is VND and USD. Amount in USD which is used for the purchase of overseas equipment/material. This reduces the risk causing by variation of exchange rate (always increasing) between VND and USD for investors.

·         Management and consulting Cost of projects need to be supplemented the unit price for the foreign consultant

·         Policies and unit prices application for compensation must be consistent with the actual market price; residential land can be compensated under once with the real market prices. With agricultural land compensation policy of the State should pay for farmer in yearly based on the profits of farm products on the land.

·         Contingency cost applied in FS stage is minimum rate of 20%; For the FEED is 10%, as same with international project cost estimate.

·         Electricity distribution prices to consumers in Vietnam are now too low. PPA (Power Purchase Agreement) between investor (PVN) with EVN should be low. Therefore, the investor has pressure to reduce of total investment and total project cost estimates to meet the economic criteria of the project (IRR, NPV).

·         In the technical engineering design (FEED) and bidding documents, OWNER should define the origin of Equipment. Estimator can determine the equipment cost in a more accurately.

Quality Management System of Project Owner

A Case Study of Bong Do Housing Development Project

By

Pham Viet Cuong

Abstract

Report shows the basic concepts of quality management systems in general and quality management systems in construction industry in particular that is an important factor for an organization to develop and build trust with customers.

In addition, the report also mentions the benefits of application and development quality management system of an orgnization. Based on the basic theories of quality management systems, this report has studied the application of quality management system of An Lac JSC, a company invests in real estate sector. At the same time, the report also analyzes the major problems that arise during the application of QMS and give solutions to solve these problems and the strengths and weaknesses of An Lac’s QMS.

The problems and solutions are given in this report, although limited, will help An Lac JSC understands quality management system which they are applying, from which propose the necessary adjustments to enhance and improve this system.

Executive summary

Rationale of research

This research has been conducted to identify the problems in Quality Management System (QMS) for project owner in housing development project.

Objectives of study

To study Quality Management System (QMS) of Project Owner (An Lac JSC) in Bong Do housing development project from design to construction stage and to analysis the major problems of QMS of An Lac JSC and propose the solutions to solve these problems. 

Methodology

The exploratory research method is used for literature review, to study and analyze QMS, quality policy and measurement, analysis and management.

Findings and conclusion

From the Case Study about the existing Quality Management System of An Lac JSC, it is observed that An Lac JSC has established the QMS that embraces the procedures from Design stage to Construction stage to ensure that work quality of each stage is controlled and managed well.

At Design stage, the procedure is established to the guideline for controlling of the design to ensure that the designs are complied with specifications, law and customer requirements including time schedules. Scope and responsibility of Design Control are also regulated clearly in procedure. A Lac JSC has established the Design Team Management that governed by Chief of Department to control the Designs of the Company.

At Tender Stage, the procedure is established to ensure that the Company has a good contractor who has capacity, ability, performance and good quality control system to support the Company Project. Fully responsibility of this stage is of Economy - Planning - Investment Department (The Planning Team Management) that includes investigation, evaluation, and selection of Contractors for Company Project.

At Construction stage, the procedure is established to ensure that the Company has a good Construction Quality Management process during the execution of the Company Project. This stage is controlled by Project Management Unit (Project Management Team) that governed by a Project Manager who is the representative of Owner on Site and has overall responsibility for the project management. The Project Management Team is responsible that the quality of buildings construction of the project conforms to the client as well as owner requirements and the project is completed on time.   

However, the existing Quality Management System of An Lac JSC still has problems relating work quality from Design stage to Construction stage that impact significantly on quality of project company, including unclear requirements at design stage, change the design, error of Bidding documents at tender stage, or scope of work (missing contract review) at construction stage, lack of process control, lack of quality records, etc.

In additional, besides the reasons of lacking of work procedures, another reason is that heterogeneous perception in quality exists in mind of staffs as well as leaders of An Lac JSC. So, it is necessary to conduct the internal quality audit and provide training at different position in order to gain the same level of quality perception in An Lac JSC.

PROJECT DELAYS IN CONSTRUCTION TAXIWAY S1

IN NOI BAI INTERNATIONAL AIRPORT

By

Nguyen Xuan Thang

Abstract

Construction mismanagement results in multiple problems that can cascade throughout the work force chain, affecting the schedule and leading to damages to multiple parties. Although the problem may start with a single subcontractor, it can result in all contractors feeling some impact to their work.

The actual delays causation occur in all kind of activities, but mostly in technical and management mistakes. The most important part comes from information, documentation and staff management. The impact from details engineering and purchasing materials are mainly related from the mismanagement of this process.

The construction schedule updating and forecasting can handle the uncertainty associated with quantifying activity delays and their impacts. The conditions in the schedule, that they are able to react and take the appropriate corrective measures to avoid and minimize delays.

The construction firms and the contractors need to feel in the same rhythm of their project. Especially in large and sophisticate project, our desire to complete the works on time and within budget is hard to fulfill. We can only achieve this goal if we have the experience, competence staff and numerous resources, strong financial aspects, and most of all we use it reasonable.

Executive summary

Rationale of research

This research has been conducted to identify the causes of delay in airport construction projects.

Objectives of study

To identify factors involved in delay in construction of airport projects completed and which are under construction and to develop a frame work for remaining or under construction projects of airports.

Methodology

The exploratory research method is used for literature review, to study and analyze project management of taxiway S1 in Noi Bai international airport in terms of strengths & weakness and to propose recommendations.

Findings and conclusion

The problem of delay time in the project construction of aviation infrastructure in Viet Nam is a serious problem. The results of this study provide a framework for project management can better understand the dynamics of project management and implementation of efforts to reduce incidences of delay time.

It was found that there are some important factors affecting the project time in implementing to build aviation infrastructure project. Completion time of any project is effected by the factors: Namely policy, budget, human source and materials.

Recommendations

In order to consider improving schedule of transport construction project, five policies having the most potential were evaluated. The result showed that delay can be reduced by carrying out several important policies during the construction phase including:

·         Design accuracy

·         Budget

·         Bidding document

·         Fluctuation and scarcity of material

·         Quality contractor (design, construction, consultant).

For future research:

·         Expand the model boundary assumptions to include other project stage, may comprise of design stage, bidder stage and deeper involvement of other parties.

·         Incorporate of deeper related with governmental institutions such as policies of government and inconsistencies in laws and aviation authority regulations.

·         Base on measurement, we can find out the good way to manage and finish the project on time, avoid the mistakes that it is occurring in the construction of transport infrastructure in Viet Nam.

MPM Faculty List 2011-2012

1.Bonaventura H.W. Hadikusumo, PhD

Asian Institute of Technology - Thailand

Specialization: Organizational Management, Project Management, construction Safety Management, construction quality management.

Nationality: Indonesia

2.Chotchai Charoenngam, PhD

Asian Institute of Technology - Thailand

Specialization: Project Scheduling, Project Financing, Project Management.

Nationality: Thailand

3.Stephen O. Ogunlana, PhD

Herriot-Watt University (UK)

Specialization: Project Management, Project Risk Management, Project Contract management

Nationality: Nigeria

4.Burin Kunatippapong, M.Eng, M.M.

Specialization: Negotiation Management, project management, leadership in project organization

Nationality: Thailand

5.Santi Charoenpornpattana, PhD

King Mongkut’s University of Technology, Thailand

Specialization: Project Scheduling, Project Financing, Project Management.

Nationality: Thailand

6.Ng Eng Wan, MBA, CPA

Specialization: Financial Management, accounting, project financial and accounting management

Nationality: Malaysia

8.Veerasak Likhitruangsilp, PhD

Chulalongkorn University, Thailand

Specialization: project risk management, project management, contract management

Nationality: Thailand

9.Roland Amoussou –Guenou, PhD

Specialization: Legal aspect of contract, contract, FIDIC.

Nationality: French

10.Takayuki Minato, PhD

University of Tokyo

Specialization: project management, project cost management, project risk management, project financial management.

Nationality: Japan

11.Wiboon Tachapaisalkul,M.Eng, MBA

Specialization: management process, safety management, Quality Management in ISO

Nationality: Thailand

12.Professor Gary E. Griggs

Stanford University

Specialization: Contract Administration, Public Infratructure, project management

Nationality: U.S.A

13.Theerathorn Tharatchai, PhD

Specialization: Project management, feasibility study, engineering economics, Housing and Real-Estate

Nationality: Thailand

14. Oulawan Kulchartchai, PhD

Specialization: Project management, project communication, project safety management, construction site administration.

Nationality: Thailand

5th Year Anniversary of MPM in HCM City

Dear All

We will celebrate our important milestone of our history. This year 2012, we have been operating MPM in HCM city for 5 years. At present, we have around 250 alumni and students of MPM. When we started MPM in the year 2007, we started with 10 professional students in HCM city and 22 in Vung Tau. Now, MPM has our programs in HCM, Hanoi and Cantho.

The 5th Year anniversary will be conducted in HCM city on 18 February. If you are interested to participate, please contact ms Tuong.

Regards
Hadikusumo

Claims in Building Projects in Public Sector: Case Study in Mekong Area, Vietnam

The nature of construction industry is source of claims and disputes. They have very strong effect on the social and financial benefit of building projects. It means that the stimulation functions of these projects cannot achieve optimal value for economic development strategy of Vietnam. “In Vietnam, regularly, construction projects have met delays and cost overruns” (Long 2008). Although, both contractor and owner know that these claims cannot be avoided or solved at all easily, claims can be managed by preventing and procedures for settling them when they occur. Firstly, claims are result of risks in construction projects. But all risks were not identified and managed by the appropriate methods in order to control them within allowable range to reduce extension time and/or cost overrun of both contractor and client.

Secondly, almost owners in public sector avoid claims by transferring these risks to contractors, designer and consultants. However, claims can be managed and settled claims by owners efficiently. Hence, the influence of claim issues may be mitigated by cooperation of all stakeholders.

Mr. Nguyen Van Tam made a study to find which source of claims are essential and which types of claims have usually occurred in building projects. The objectives of his thesis consisted of three main points: i) identify types and causes of claims in the building project in Vietnam; ii) identify how the claim is settled in terms of analysis for additional cost and/or analysis for extension time; and iii) study claim attitudes of owners and contractors in the building project.

Conclusion

Causes of Claims in Building Projects in Mekong Delta

The case study explored the most significant problems causing claim in terms of delays and/or cost overrun. Factors related to designers, contractors and consultants were rated among the top problems. Delay issues as design changes by mistakes, additional works by owner, and mistakes during construction with 26 vital factors to be inventoried by literature and experts. Cost overrun issues such as design changes by mistakes, price fluctuation, additional works by owner, and unforeseen site condition. The foundation structure changes due to poor or lack of soft soil properties lead increase delay time and cost overrun. There are many owners who can give changes in design document during construction stage.

Claim Settlement in Terms of Additional Cost and/or Extension Time Analysis

There were not clear and fair claim analysis procedures that were written in contract condition or any construction decree or construction law. This was the opportune platform to grow claims. Owners did not force or require contractors to use CPM method in planning, monitoring and controlling the projects. A diary and meeting paper are central tools to notify all events in construction site. Evidently, both parties did not negotiate or discuss to choose a claim analysis method to deal when claims occurred. Although there are major numbers of delay and cost overrun analysis methods, choosing an appropriate analysis method is significant factors to estimate delay time and additional cost in clear and fair way.

Claim Attitudes in Building Projects

Core of claim cultures that were found are distributive attitude and economic order. These attitudes affected very deep in thinking and acting claim events in building projects. However, integrative attitude and occupational order can be observed as cooperation strategy inside project stakeholders. All findings in the study can support to managers and engineers who work in organization level or project level to enrich effect of building projects in public sector in Mekong area or Vietnam scale.

Abstract

Building projects in public sector in Mekong area in Vietnam has been suffered claim impacts heavily. They affect very strong on the social and financial benefit of building projects. In order to increase effect of claim management in building projects, three issues of claims that are causes of claim in terms of delay and/or cost overrun, claim settlement in terms of additional cost and/or extension time and claim attitudes were studied. The study was conducted by case study methodology with data of six building projects in public sector. First finding, the case study explored the most significant problems causing claim in terms of delays and/or cost overrun. Second finding, there were not clear and fair claim analysis procedures that were written in contract condition or any construction decree or construction law. Final finding, core of claim cultures were found are distributive attitude and economic order. These attitudes affected very deep in thinking and acting claim events in building projects. All findings in the study can support to managers and engineers who work in organization level or project level to enrich effect of building projects in public sector in Mekong area or Vietnam scale.

Keywords: Claim, delay, cost overrun, claim attitude, Mekong delta, Vietnam.

CAUSATIVE FACTORS LEADING TO COST OVERRUN

IN EPC POWER PROJECTS

A CASE STUDY OF VUNG ANG POWER PLANT PROJECT IN VIETNAM

By

Ngo Hoang Linh

Abstract

Complete project within its scheduled cost has long been regarded as one of the most important goals of a project and the driving force of project success. Accurate scheduled cost estimates are critical to any client when making decision-to-build for a project. Despite the proven importance of cost target, cost overrun still occurs in almost construction projects, in any scale and kinds of project, in every country.

In an attempt to minimize cost overrun, the owners of power plant projects in Viet Nam widely choose EPC delivery model with fixed price contract. However, cost overrun is still severe in Vietnam Power projects where these overruns sometimes exceed 60% of the anticipated cost of the project (Son La hydro power project – VnEconomy, 2010). There are several factors leading to these cost overruns, some of which are unforeseen, but almost others relate to the incompetency of project management in terms of risk analysis.

Fully understanding and thorough analysis all causations significantly impacting to project cost are very important step for project management system.

This study identifies the major causative factors leading to cost overrun in power projects in Viet Nam. The study addresses causations of these factors and how to manage these factors for future projects and propose a framework for cost control in power plant project.

  

Executive summary

Rationale of research

This research has been conducted to identify factors involving cost overrun in Engineering Procurement Contract (EPC) in Power Plant projects.

Objectives of study

To identify factors involving cost overrun in power plant projects, analyzes causes of factors involving cost overrun and to propose a solution to cost control in EPC power plant projects.

Methodology

The exploratory research method is used for literature review and field research of Vung Ang Coal-fired Power Plant Project. This research is based on document record of happening in the project, statistical data and consultant assessment and analysis.

Findings and conclusion

From results of the case study in Vung Ang project, the following conclusion

• Identification of causative factors affecting project cost overrun

There were many variables that contributed to cost overruns in the power projects implemented in Vietnam. In preparation stage, the major factors are: insufficient soil investigation, in accuracy of FEED design and total cost estimate and non-guaranteed fuel resources. In EPC stage the major factors are design changes, inflation, delay of land reimbursement, interference of public authorities, technical complexity, contractor capability, and delay and weather condition.

This revelation should enable planners to take stock of the past performance and incorporate lessons learned.

·         Frame work to control cost overrun

The ability to mitigate the impact of cost overruns will largely depend on proper FEED design, adequate planning of schedule and resources, commitment of all project teams, application of project management techniques through use of qualified and motivated manpower.

In preparation stage, enough time and resources should be allocated to ensure that the following to be conducted: adequate site investigation, appropriate and up to date information, well definition of project specification and scope, accurate project cost estimates, adequate project analysis, wise selection of capable contractor, proper agreement with fuel resources suppliers, product off-taker, public authorities and other relevant parties.

In EPC stage, among all factors leading to cost overruns, management related factors are those which can be controlled and prevented most easily. Concentration should be placed on improvement of project management and human resources to ensure the followings: adequate contract/sub-contract management well cost control, schedule progress, proper quality management system, risk management, staff training, and good linkage with public authorities and other relevant parties.

Suggestion for future research

This study has indicated factors creating cost overruns in EPC power project but their frequency of occurrence and severity of impaction is still unknown. The scope of study can be extended to find out the impact of these factors in relation to their occurrence pattern and their severity impact. A cost control system and remedial solutions can also be researched to deal with these factors and to bring cost overruns down to some acceptable limits if they cannot be completely eradicated. Future research can also be extended to other type of project in process industries.