COST ESCALATION MANAGEMENT IN LOW-INCOME APARTMENT PROJECT

By

Ngo Quoc Thai

Abstract

             

Vietnam has become the official member of the World Trade Organization since 2007. This dramatic event unfortunately occurred at the same time with the worldwide financial crisis in 2008 and lasted to the present. Consequently, the real estate and construction markets are affected strongly by the inflation, the cost escalation and the tightly controlled credit strategy of the Government.

In addition, project implementation naturally requires a long time to finish, with a huge investment capital and various participating parties. Moreover, the governmental policies in the real estate market and construction industry usually change and overlap among authorities.

Generally speaking, real estate developers are facing with complicated issues of financial structure -  the cost escalation, the slump status  of business market; the  worst status  of  infrastructure and  the incompetency of management but above all it is the cost overrun  in most  of the projects. As a result, costs of housing industry in Viet Nam can be compared with the neighboring countries.

In order to survive, real estate developers must devote themselves to researching about potential cost escalation factors to find out the suitable strategies to reduce and eliminate their impacts. Developers realized that the risks which must be dealt with everyday require considerable foresight, attention to details and tenacity if problems can add costs or cause ineffective overrun. Therefore, most of the developers want to make the target cost plan is as much tightly controlled as possible.

Executive summary

Rationale of research

This research has been conducted to identify the factors involving cost escalation in Apartment projects.

Objectives of study

To study factors affecting cost escalation and project management activities which can be used to control cost escalation.

Methodology  

The exploratory research method is used to review the literature and study the cost management at different stages of project.

Findings and conclusion

Project value become uncertain by various reasons, and appears in each stage of project processes. Risk of cost escalation cannot be eliminated, but can be minimized, transferred or retained. There are some ways for risk arranging such as transferring, avoiding, reducing the negative effect or absorbing them. Among the risks, risk of cost escalation play the conclusive role and both parties have to endure  with many disputes if that factor are not foreseen and discussed to solution before contract signed.

The active and early identification, analysis and evaluation, with control measures can reduce the impact of cost escalation factors and urgently needed to ensure the feasibility and efficiency of the project. Cost escalation management should be valued and implemented from the first steps of the project and continue to maintain in all project implementation cycle.

The case in this report describes a practical implementation in the underground construction stage of an Apartment project. The project team obviously has revealed high-risk factors can seriously affect the success of the project. All lessons need to be conducted and learnt for experience.

The report just briefly describes the various factors of cost escalation that are normally influence to Vietnam construction industry. It is obvious that most popular factors are widely known in construction participants and investors. A standard mitigation plan of these kinds of risk should be prepared   which cover all of potential sources of cost escalation. This important issue should be discussed widely in project team include Owner‘s staff, consultants, architects, engineers, contractors.

In the process of integrating with the world’s economy, Vietnam has been influenced strongly by positive factors on the cost management, contract administration. There are many researches to control the cost escalation in construction projects. However, the following issues are still present and harmful for the success of a project:

·                     Inflation: This issue almost breaking all attempts to cost controlling.

·                     Government:  Bureaucracy, Fluctuation; Late in corruption defense.

·                      Contractual Risks : Understanding , obedience , respecting  the Law

·                     Lacking of transparency: An unclear environment is the major factor contributing towards cost escalation.

We do believe that engineers who address these escalation factors when assessing future project cost and who seek to mitigate the influence of these factors can improve the accuracy of their plan, their cost estimates and program budget. Author of this study do hope that the future of project management in Vietnam will be better, the cost escalation will be well management; these are also the purpose of our work.

Recommendation

For Project Owner

·         Foreseeing and prepare a contingency plan and preserve a maximum risk premium within budget.

·         Transferring partly through a complete strategy in contract

·         Applying policy of advance payment specified for price escalation to fix the price during construction time.

·         Maximizing profit margin to ensure the risk premium can cover the loss from inflation.

·         Postpone the large project until the financial crisis is over.

·         Put priority in recruitment the competent team. Periodic training to the staff.

·         Review the planning and executing work including selection of project delivery method, development of project documentation and selection of contractors.

·         Transparency must become core value in overall process.  Auditing and checking project management activities

RISK FACTORS IN WATER ENVIRONMENT IMPROVEMENT PROJECT: A CASE STUDY OF BIEN HOA CITY IN DONG NAI PROVINCE

By

Le Van Tuan

Abstract

             

Vietnam has just been developing in recent years. The speed of economic development is growing rapidly but substandard managerial capacity has not satisfy the actual requirements, so great urban areas of Vietnam are now facing with complicated issues of urbanization process and urban development such as migration, accommodation, labor, career, traffic jam, flood, environment pollution.

The developments in field water environment improvement are still slow and delay because there a lot of problems happened in development the project. therefore make project stage cannot be completed as expected, by analyzing to find out the root causes of these problems from the data, which are investigated from a real project, base on key relevant theories, the Author would like to develop the solutions for future improvements.

Executive summary

Rationale of research

This research has been conducted to identify risk factors in water environment improvement projects.

Objectives of study

To study and analyze activities in water projects to find the risk factors and propose solution.

Methodology  

The exploratory research method is used to review literature and study the “Dong Nai water environment improvement project (sewerage and drainage sector)”.

Findings and conclusion

This report describes risk factors in each phase development of Dong Nai water environment improvement project, and has revealed high-risk factors can seriously affect the success of the project.  Actually, Rationale of research

This research has been conducted to identify risk factors in water environment improvement projects.

Objectives of study

To study and analyze activities in water projects to find the risk factors and propose solution.

Methodology  

The exploratory research method is used to review literature and study the “Dong Nai water environment improvement project (sewerage and drainage sector)”.

Findings and conclusion

This report describes risk factors on each phase development of Dong Nai water environment improvement project, and obviously has revealed high-risk factors can seriously affect the success of the project. Actually, Vietnam present has enormous efforts to overcome policy and reduce risk in development project. However, investors still face a lot of problems (risks) when development project.

The report may not offer the complete of risk factors in various stages of project implementation, but also clear description of the risk factors may affect the efficiency projects that most water environment improvement projects in Vietnam are all experiencing the problem of land acquisition and resettlement, legal, project costs incurred up compared to initial estimates of financial, construction progress and fund for operation and maintenance.

Recommendation

Study suggests measures to improve the management process of the development stages’ project. Note that the proposal cannot be applied to other project which not use ODA loan and in field wastewater treatment.

1.      Land acquisition and resettlement:

·         Acquisition of land and other assets, and resettlement of people will be minimized as much as possible.

·         All Project Affected Persons (PAP) residing, working, doing business or cultivating land within the recovered area for the Project as of the cut-off-date, are entitled to be provided with rehabilitation measures sufficient to assist them to at least maintain or improve their pre-Project living standards.

-       compensation at replacement cost, without deduction for depreciation or salvaged materials from houses and other structures;

-       priority given for agricultural land-for-land of equal productive capacity acceptable to the PAPs;

-       replacement of residential land of equal size and acceptable to the PAPs;

-       transportation and subsistence allowances; and

-       Business/income rehabilitation allowances (even for non registered businesses).

-       Replacement of residential and agricultural land should be as near as possible to the land/compensation that is lost.

-       Particular attention should be paid to the needs of vulnerable groups among those displaced, especially those below the poverty line.

-       Appropriate reporting, monitoring and evaluation mechanisms should be identified and set in place as part of the resettlement management system.

2.      Legal: The government should be modified, reduced many regulations in Laws to do the project more quickly, so investors have more responsibility and can actively to make decision in the implementation of the project.

3.      Financing:

·         Structure of project financing: The government in Vietnam should require to Plan and use ODA to specify findings of an analysis of the institutional framework covering:

-       the identification of agencies responsible for use ODA loan activities and authorities of all levels that have a role in project implementation;

-       an assessment of the institutional capacity of such agencies;

-       Do implementation of transparency in the use of loans.

·         Project cost estimate:

-       Cost estimation should carefully be conducted in terms of recent Vietnam economic condition basic cost of is increased in Vietnam.

-       To assure the quality in the cost estimate phase of projects, the investor should have a good training program for their engineering staff, which develop cost estimate. Training on the job is a good method to help employees to be more professional.

4.      Construction: using WBS to divide and control schedule. The contractor should focus to difficulty objectives to reduce risk or delay on project.

5.      Operation and Maintenance: Dong Nai province People's Committee and centre Government should build a legal framework. It will create the financial foundation for wastewater treatment company like:

-       Development of sewage tariff schedule, raising program and method for applied gradually offset the cost price are also necessary to operate system with sustainability from the point of view of finance.

-       Create navigation tools to help investment.

 Vietnam present has enormous efforts to overcome policy and reduce risk in development project. However, investors still face a lot of problems (risks) when development project.

The report may not offer the complete of risk factors in various stages of project implementation, but also clear description of the risk factors may affect the efficiency projects that most water environment improvement projects in Vietnam are all experiencing the problem of land acquisition and resettlement, legal, project costs incurred up compared to initial estimates of financial, construction progress and fund for operation and maintenance.

Recommendation

Study suggests measures to improve the management process of the development stages’ project. Note that the proposal cannot be applied to other project which not use ODA loan and in field wastewater treatment.

1.      Land acquisition and resettlement:

·         Acquisition of land and other assets, and resettlement of people will be minimized as much as possible.

·         All Project Affected Persons (PAP) residing, working, doing business or cultivating land within the recovered area for the Project as of the cut-off-date, are entitled to be provided with rehabilitation measures sufficient to assist them to at least maintain or improve their pre-Project living standards.

-       compensation at replacement cost, without deduction for depreciation or salvaged materials from houses and other structures;

-       priority given for agricultural land-for-land of equal productive capacity acceptable to the PAPs;

-       replacement of residential land of equal size and acceptable to the PAPs;

-       transportation and subsistence allowances; and

-       Business/income rehabilitation allowances (even for non registered businesses).

-       Replacement of residential and agricultural land should be as near as possible to the land/compensation that is lost.

-       Particular attention should be paid to the needs of vulnerable groups among those displaced, especially those below the poverty line.

-       Appropriate reporting, monitoring and evaluation mechanisms should be identified and set in place as part of the resettlement management system.

2.      Legal: The government should be modified, reduced many regulations in Laws to do the project more quickly, so investors have more responsibility and can actively to make decision in the implementation of the project.

3.      Financing:

·         Structure of project financing: The government in Vietnam should require to Plan and use ODA to specify findings of an analysis of the institutional framework covering:

-       the identification of agencies responsible for use ODA loan activities and authorities of all levels that have a role in project implementation;

-       an assessment of the institutional capacity of such agencies;

-       Do implementation of transparency in the use of loans.

·         Project cost estimate:

-       Cost estimation should carefully be conducted in terms of recent Vietnam economic condition basic cost of is increased in Vietnam.

-       To assure the quality in the cost estimate phase of projects, the investor should have a good training program for their engineering staff, which develop cost estimate. Training on the job is a good method to help employees to be more professional.

4.      Construction: using WBS to divide and control schedule. The contractor should focus to difficulty objectives to reduce risk or delay on project.

5.      Operation and Maintenance: Dong Nai province People's Committee and centre Government should build a legal framework. It will create the financial foundation for wastewater treatment company like:

-       Development of sewage tariff schedule, raising program and method for applied gradually offset the cost price are also necessary to operate system with sustainability from the point of view of finance.

-       Create navigation tools to help investment.

DELAYS IN FLOOD PREVENTION PROJECTS

A CASE STUDY OF URBAN DRAINAGE PROJECT MANAGEMENT UNIT

By

Le Do

Abstract

             

Currently, the overload on drainage of the existing systems along with the development of the increasing urbanization of the big cities like Ho Chi Minh City has led to flooding on many streets, with the level of flood is wider and heavier day by day. One of the issues affected by flood that is the congestion and traffic jams on the roads of Ho Chi Minh City’s areas, which has caused pressing and affect the economic and social activities, life environment and the daily activities of people traveling in the region.

In the recent period, the city government also is trying to invest in renovating and upgrading of infrastructure for roads and drainage in the areas of Ho Chi Minh. Typically, a water infrastructure projects have been implemented on a large scale, specifically: Ho Chi Minh City Environmental Sanitation Project Basin Nhieu Loc - Thi Nghe; Ho Chi Minh City Water Environmental Sanitation Project Basin Tau Hu - Ben Nghe - Kenh Te - Kenh Doi; Canal Tan Hoa – Lo Gom Sanitation and Urban Upgrading Project, etc.

However, in the process of implementation has encountered many difficulties such as the construction schedule are affected because the infrastructure systems are not controlled, the weak contractor capacity, capital limited investment. Besides, the function of our State Management is loose, many duplicate projects which we call "walked together" projects, plus with the investment does not spread as a strategy or a specific plan has made to a waste of investment. All of these are leaving a result, an issue that needs attention and consideration, which is effective in the management of construction and drainage in the areas of Ho Chi Minh City.

Facing this reality, those problems require the city authorities need to organize and research actively, inspection and review the city’s management and construction drainage system now. That work to ensure if they has consistent and effective in the current development phase to propose remedies and the develop orientation in the management of construction and drainage system in the future. Besides improving project schedules is the most important in order to solve aspiration of urban residents. That is why I chose this topic for my last case study.

Executive summary

Rationale of research

This research has been conducted to identify delay factors in flood prevention projects.

Objectives of study

To study and analyze delay situation in past flood prevention projects at construction sage and analyzing activities causing delay in projects in government funded projects

Methodology  

The exploratory research method is used to review theory of flood prevention projects in Ho Chi Minh City from 2008-2011.

Findings and conclusion

In Flood Prevention Projects, contractors seldom cause critical delays. It is easy to understand this problem. Work characteristics are not complicated and contractors set too much task durations. Therefore, they always have extra time to finish tasks. However, they never try their bests to reduce project durations. This is a problem that schedulers must pay attention.

In the other hand, critical delays are caused by lacking corporation between government operators. This problem is a general disadvantage that government authority always tries to improve. In my opinion, it is proceed from organization culture.

Recommendation

For heavy rain

·         Need to plan master schedule in accordance with rainy season (May-October) to avoid delay.

·         Contractor must prepare pumping to solve storm water in excavation. Besides SCFC force contractors equip pumping to help owner solve emergency situations at flooded streets.

·         To avoid bad weather conditions, using new technology construction such as: Cured-In-Place Pipe, (CIPP) technology and Pipe – Jacking technology. However, It is not used for small projects because of its expensiveness.

For catching infrastructure systems

·         For long term: building digital infrastructure map to be prepared and use of new technologies.

·         For short term: Strict co-ordination with the parties associated is required.

For waiting sewage connection

·         Setting contingency duration in schedule.

·         Setting project end date for project.

For lack of contractor capability

·         Apply modern project management  skills

·         Change of direct contracting methods

·         Strict supervision. 

Future research

In this case study, we only discuss about delays in construction stages. However, because of lacking databases and time, case study still has some defections. Actually, in conceptual and design stages, owners and approval organization always cause critical delays. The main reasons are unsuitable organizations, extra-complicated approval process and bad master planning.

In the order hand, databases that we collected are not much. Therefore, the statistic is not quite exact. In future, SCFC will run more and more projects to prevent with climate change. Certainly,

5th Year Anniversary of Master in Project Management in Construction in Ho Chi Minh - Video Clip

BUSINESS PROCESS MANAGEMENT AND KEY PERFORMANCE INDICATORS IN REAL ESTATE CONSTRUCTION

By

Le Anh Thai

Abstract

             

The controlling of construction processes is important to achieve project’s goals. Many companies now start look for solutions to optimize their own business process. In order to develop in business area, every organization has to continually finding solution for business to act in term of effectiveness and efficiency. The question to save cost and business improvement is the effort so that organizations must consider if they want to maintain sustainable development. How to ensure that the organization is operated effectively and whether the organization is taking competitive advantage? These problems only answer if the organization know their own business processes and have clearly measure, monitor and analyzes its performance.

This report is going to make effort to understand the applied of Business Process Management (BPM) and Key Performance Indicators (KPIs) which should be implement in construction stage to measure the effectiveness and efficiency of the construction process.

  

Executive summary

Rationale of research

This research has been conducted to identify key performance indicators to improve construction process in real estate project.

Objectives of study

To study business process management (BPM) in real estate construction projects, to identify the indicators for improving construction process.

Methodology  

The exploratory research method is used to review theory of business process management and performance management of construction processes.

Findings and conclusion

In applying BPM in the construction stage, the most important is to identify main phase, sub-process to be delivered. The main process need to focus control the output, and also control issues in sub-processes. After the main or critical processes were identified, it is necessary to assess the process performance. The key performance indicators is defined to evaluate whether the process performance comply with organization’s goals and objectives.

For effective implement BPM in construction stage, we should understand all the process of construction stage. And identify critical process to focus controlling. No need to control all the process in order to reduce expense for measurement activity, but the result still acceptable. There is very little guideline in selecting which indicators is appropriate lead to achieve project objective and organization‘s goal. The measurement process should regularly audit to guarantee the transparency. The follow indicators is the most applied in measuring the construction process.

Performance measurement allows an organization to determine what is working and what is not. In order to make effective performance measurement and to improve construction process, one must identify appropriate Key Performance indicator to focus on. In construction process generally, and real estate construction process, it is difficult to develop an agreed set of KPIs, because of the nature of construction industry.  

Recommendations

• Cost performance: It shows how the process consume budget. This performance indicator also tells about how effective the budget control.
• Time performance: this KPI tell whether the process has completed on planned schedule.
• Quality performance: this measurement shows the degree of satisfaction of the process to the requirement. 

RISK MANAGEMENT OF DIAPHRAGM WALL CONSTRUCTION

AFFECTING ADJACENT BUILDINGS

A CASE STUDY OF CONSTRUCTION PROJECT

IN HO CHI MINH CITY, VIETNAM

By

Huynh Thanh Quang

Abstract

In Vietnam was, is and will construct several buildings with basements. The construction of the basement in the soft ground in urban areas is more difficult and risky. There have been many successes but also happened to shame. There are many causes affecting the displacement of the structure and the land around the pit with and without adjacent works. Due to the urgent problem is mentioned so many studies summarizing the experience in the design and construction of over. This project report studied about risk management of basement construction affecting adjacent buildings.

We can only avoid the risks have clearly defined the cause risks to be proactive prevention measures in quality control work is to manage every stage of investment preparation, performance investment and exploitation. To limit risks in this problem, we must to risk identification and solving methods of risk in preparing and constructing stage of diaphragm wall and basements. Although many projects have quality management system, but risk still occurs, and even causing very severe damages for surrounding building.

Therefore, risk identification is the problem very important in quality management system of the project.

Executive summary

Rationale of research

This research has been conducted to identify risk in construction of Diaphragm wall.

Objectives of study

To identify the risk factors involving construction of Diaphragm wall and its effects on surrounding buildings and to propose recommendations to  reduce its effect on surrounding buildings.

Methodology  

The exploratory research method is used to study Diaphragm wall construction process by analyzing case of a building construction project Ho Chi Min City Vietnam.

Findings and conclusion

We can only avoid risks when we identified the cause of risk clearly and made a proactive and preventive measure in project quality management. So, the cause analysis of incident, technical error should be considered large study range in the development strategy of science and technology. Practice shows that many building was caused incidents in execution process of basement, it create severe impact such as structure damages, non-uniform settlement, collapse, casualties etc, some of the problems happened at site are as flows.

·         Damages to the adjacent buildings due to movement of machines and vibration caused by execution of diaphragm wall and bored piles, it will bad impact on the adjacent buildings.

·         Increasingly local deformation of the diaphragm walls made surrounding soil deformed.

·         Defect on the diaphragm wall have occurred pierced holes at basement.

We can see the above reasons are due to less experience of managers. Besides, the investor and relevant parties does not expected budget for risks. If the funding to solving of risks have not or not enough, plans for risk management will be limited and not efficient.

Recommendations

Limit and control of incident are a very complicated task; it requires high level experienced experts and responsibility before the work. Before design and building construction, the consultant must be to investigate the surrounding building thorough, to clarify the position, the status of the building, underground structure, roads, underground pipes, etc, currently in incidence, and estimated affect about adjacent building due to pumping lower ground water level and basement excavation. The contractor must be proposed method to prevent, control, observation and deal with urgent incidents when they happen.

The risks might cause severe incidents (Defect on diaphragm wall (pierced holes), deformation of shoring and king-post system, settlement of adjacent building, displacement of diaphragm wall, etc), there solving problem when it happened is quick enough and thoroughly. They must have plans to deal with urgent incidents and to focus on manpower, equipment and finance to solving risks. Besides, when incident happen they must to displacement and settlement observation for the building and adjacent building. Moreover, they should be study geologic conditions inside and outside the building, this problem is also very important in during process of observing and solving incidents, even solution to move people exit dangerous area when incidents happen.

TMAXIMIZE PROFIT OF CONSTRUCTION CONTRACTOR

CASE STUDY FOR NAM THINH M&E CONTRACTOR

By

Ha Chi Nghia

Abstract

             

Business results of all the companies represent by profit that the company has achieved in business, the ultimate and first goals all of the company and type of business is profit. Profit is also a vital issue of whether large or small company, so companies are always looking for ways to achieve the highest possible profit. Profits are affected by many different factors that can directly or indirectly, may affect more or less.

The subject of this thesis will focus on the analysis of factors affecting the profitability of building contractors and thereby discuss effective strategies to achieve maximum profit for construction contractors.

My case study will focus on:

• Analysis of revenue, cost and profit of Nam Thinh M & E contractor all projects from 2005 – 2011.
• Manage financial of each project during construction for Nam Thinh M&E Contractor.
• Cash flow forecasting for Nam Thinh M&E Contractor.
• Key Performance Indicator for Nam Thinh M& E Contractor.
• Management system of Nam Thinh M & E Contractor in head office and Site.

Executive summary

Rationale of research

This research has been conducted to identify factors impacting profitability of project.

Objectives of study

To identify the factors involving increases in project cost and investigate the behavior of project making high profit by analyzing revenue cost and profit of project.

Develop management plan and strategy to control the factors affecting profitability of construction projects.

Methodology  

The exploratory research method is used to study revenue, cost and profit of Nam Thinh projects to identify high and less profitable projects.

Findings and conclusion

Cash flow and profits is critical for any organization. But in every business has unique properties and its own complexity, for the construction industry, the cash flow can be identified as the most important factor for all bidders. The profit that profit can be considered the first major puzzle in evaluating the success and viability of the contractor, the contractor's operation was successful or not taken on these factors, cash flow is that the profits of the enterprise.

Cash flow, profitability of the bidder is the best which allows evaluating capacity of the contractor's. Some of the unique aspects of cash flow for contractors include retention, lump sum contracts and multiple layers of contractors and suppliers. In addition, accounts receivable for contractors usually consists of a low volume of accounts with a relatively high amount.

So that, to maximize profit for the contractor's project, the most important thing is the contractors must organize and manage project cash flow for the most appropriate projects. To the best project cash flows of the bidder must provide the project planning, purchasing about equipment, labor and other expenses relative to the other details of the project period. So we have cash flow estimates for each task of the project, then consolidated cash flow for the project and finally summed up for all the company's projects are implemented.

In the cash flow projection for the activities of the project, the contractor must provide an alternative option to the best forecast performance, but the contractor should consider several different options for forecasting cash flow and make appropriate plans for settlement if that happens. Most importantly, the contractor needs to consider the worst case of cash flow, from planning to prepare and implement solutions to the company's ongoing.

To optimize the profit of the contractor, in addition to cash flow management and cash flow projection, the elements of the project is to evaluate management's effectiveness in project implementation phase of construction is also very important and we call it the KPIs (Key Performance Indicator).

Latter problem was studied in this topic "Maximize profit for the contractor's project" is the project management, with the subject of research will not be deep, but also offers the overall project management to maximize profits for contractor.

Recommendations

Some factors to consider contractors effectively manage cash flow and profitability of the project, including the following:

·         Implement an accounting system that provides timely information to be used in forecasting. Interface all areas of the company in the process to help ensure thorough and accurate data.

·         Negotiate to reduce contract retainage terms, particularly in situations in which the contractor has a successful prior relationship with the owner.

·         Use reasonable “front-end loading” techniques in preparing the schedule of values to provide better cash flow on the project in early phases. This will help ensure adequate cash to perform the work if, for example, unforeseen site conditions are encountered with front-end excavation.

·         Set the tone for open communication regarding cash flow among all relevant parties to the project. Openly discussing cash flow during pre-construction can better establish expectations, timing and procedures that will help start the job off on the right track. Ensure that any ambiguous terms or billing requirements are discussed and resolved to avoid payment delays as the job progresses.