Riza Yosia receives a PhD scholarship from UNSW. He will join on 19 July 2009.
Congratulations! and Good luck with your PhD study.
Posted by
Hadikusumo
Tuesday, 30 June 2009
EPC PROJECTS MANAGEMENT AND PROBLEMS: CASE STUDY OF INTERNATIONAL AND LOCAL EPC CONTRACTORS OF OIL/GAS AND PETROCHEMICAL PROJECTS IN VIETNAM
Now with a stable political and social economic status, Vietnam becomes a destination of the foreign investors from developed countries. The foreign investors always perceived to be beneficial to the host countries. In the side of host counties, foreign investment business structures are predicted to bring back the foreign capital, advanced technologies, management know-how and better quality products for re-export or for domestic market distribution. The quest for technology is more essential for the host countries when the requirement of foreign investors’ capital is obvious and great.
Since the start of the opening market economy, hundred investors have transferred their money to Vietnam and found out the business, almost strong and famous chaebol or enterprises invested to Vietnam have concentrated in investment to Oil and Gas industry. With the Joint Venture Agreements selection, they became shareholders with Vietnamese State Owned Companies and have been starting their businesses successfully.
In recent years, Vietnam Oil and Gas Group (PVN) have been carrying out a lot of mega projects. Some have been done and others are progressing like Vietnam-Soviet Union JV (VSP) oil exploration and developing projects.
In order to ensure that most projects will be executed with the aiming cost, quality and time targets, Vietnamese Government and PVN particularly have to invite engineering and technical resources from developing or developed countries by bidding for the International EPC Contractors, International PMC, Certificate Agents, Insurance companies etc
With the Joint Venture Agreements selection, these companies became shareholders with Vietnamese State Owned Companies and have been starting their businesses successfully.
Even though most of EPC Contractors who were selected for PVN’s projects are well experienced and well-known in their particular categories, it does not mean that all the EPC Contractors were successful in reaching clients’ satisfactions. The common problems during the implementation the projects were schedule delay, contingencies, variation orders and unqualified accomplishment
Mr. Nguyen Khoa conducted a case study on “EPC Projects Management and Problems: Case Study of International and Local EPC Contractors of Oil/Gas and Petrochemical Projects in Vietnam” to (1) explore some reasons why some EPC contractors getting troubles in carrying out the project, also their problems in EPC Project Management; and (2) explore the better practices in EPC project management.
His research study focused on how the EPC contractors control and manage the EPC projects in Vietnam including procurement, cost, scheduling management. Three Petrochemical construction projects were selected base on specific criteria such as:
· Medium to large projects
· Executed by International EPC contractors and Local EPC Contractor this have dealing experiences in Vietnamese construction market.
· Mentioned projects were accomplished and now under operation.
The case study projects are Phumy Fertilizer Project, Phumy PVC Project and Thivai Terminal and LPG Pipeline Project since these three have similar things in common:
Belonging to PetroVietnam.
Projects were built in Southern of Vietnam, in 02 adjacent Industrial Zones.
The Execution time of these 03 projects was happened in 1997 to 2005.
The Type of contract is EPC Contract; 02 EPC Contractors were assigned and the other one was selected by bidding.
The 02 Projects were carried out by International EPC Contractors were successful in project execution. The other one was executed by the Local EPC Contractor was the failure one (in time, cost and quality management.)
Based on the result of the study, among hundred projects belonged to PetroVietnam, the Phumy Fertilizer Project was the first and only project that was accomplished on time and under the estimated budget. The reasons for this project’s success were due to the competence of the Consortium, support and direction from the Nation Leaders, and scare of fertilizer in current situation. But, in the point of view of a member who joined this project, the hard working spirit of the Project Management Board in both sides (Client and Consortium) is the only primary reason.
Phumy Plastic Plant was also one of the accomplished projects of PetroVietnam within Joint Venture field. The project itself was started, executed and finished on time and within the approved budget. Most of the site activities were the equipment erection and installation works; the civil and construction works occupied a small part of whole project without any special solution need to be applied. The procurement activities were done by the EPC Contractor with the fixed configuration from the Licensor and PETRONAS (shareholders), so it was not sophisticatedly ordered and contracted to the International Vendors.
Thivai LPG Terminal and Pipeline Project was a small project without any high techniques or sophisticated configuration. It is about 12 ha in total and 20 ha for extension consideration in the future following the International Codes and Standards in engineering design and project management. It was still considered a failure due to the incompetencies of the EPC Contractor. Without historical experiences in role as the EPC Contractor, PVECC did not know how to solve and manage the project.
Mr. Khoa concluded that the main cause in the projects’s failure was depending on the competency of the EPC Contractor. Lack of experiences in the similar works, bad in planning and scheduling, bad financing plan, fragile in contracts negotiation, low reputation, lack of world wide relationships, unskillful in project management, shortcoming of human resources etc. are the constraints that the Local EPC Contractors have to overcome to improve and affirm themselves for getting the reputation from the clients in current competition market.
His thesis abstract is copied and posted.
ABSTRACT
Vietnam social-economic is booming in recent years, with attracting investment policies, the Vietnamese Government have been successful in luring many foreign investors starting their businesses in Vietnam, especially in Oil and Gas Industry.
Known as a country has rich natural fossil resources, Vietnam has large capacity of crude oil and natural gas in his off-shore East Sea areas. But with the restriction of engineering and updated technologies, the Vietnamese Government / PetroVietnam have been exerted themselves to attract as more bilateral relationships from developed countries (US, Russian, England, France, Norway, Japan...) as possible to expand their advantages in exploration and own their fossil energy resources.
Most of the projects that related to Oil and Gas Industry which have been carried out in Vietnam following the EPC type of contract. In the point of view of PetroVietnam, Oil and Gas projects should be implemented effectively, and that is the reason why the international EPC Contractors are the most feasible selection, cause of the lack of experiences in mega projects executing of Local EPC Contractors.
In order to manage and control the project to reach the demands from the Client / Owners, normally are cost, time and quality, the International EPC Contractors should have very efficiency project management methods which could help the International EPC Contractors in order to avoid any problems and adverse factors related to cost overrun, delay and inadequate productivities.
In the contain of this thesis, the author would like to focus on the research of International EPC Contractors Project Management, in Oil and Gas Industry Projects. The three selected case study projects are the Phumy Fertilizer Project, the Phumy PVC Project and the last one is the Thivai LPG Pipeline and Terminal Project. Those mentioned projects will be draft informed as below:
1. Phumy Fertilizer Project:
Petrochemical Industry, that included the Urea (Fertilizer) production, is one of foundation industries, it’s really important for the national economic developing. The shape and growing of this industry will become a force to develop the agriculture and other related industries.
In economic developing strategies of the Government, execution the Fertilizer or Urea Plant, not only to ensure the stability and initiative in supplying the fertilizer with reputedly as the strategic production for national developing, but also to bring back the other effective outcomes aspects such as economic, social, political and also distribute to impulse the industrialize and modernize processing that taken initiative by Vietnamese Communist Party.
In years ago, Vietnamese Government did have the mission the develop the fertilizer industry, but it was impossible due to some objective existences. There have been only some small size plants of Urea and Phosphates were operating in Vietnam in current time, with the supplying capacity approximately only 7% of the national demand, and the remain requires should depend on the importing resources and be paid with valuable foreign currencies.
On the April of 2000, the Prime Minister delegated to PetroVietnam (PVN) incorporated with Vietnam General Chemical Companies (VinaChem) and Vietnam Agriculture Company (Vigecam) to establish the Feasibility Study Report (FS) of Fertilizer Plant with the feedstock from associated (nature) gas resources.
Followed the order of the Prime Minister (correspondence No. 58/TB-VPCP dated 30th April, 2000 referred to Developing the Gas – Power – Fertilizer Program), PVN urgently drafted and submitted to the Government for approval the Feasibility Study Report of Fertilizer Project. This project was invested by Vietnamese Government / PVN, and the selected location of the project is in Phumy 1 Industrial Zone in Baria – Vungtau Province.
This is the first Fertilizer Plant in Vietnam could use the feedstock from the associated nature gas, this Plant supplies the production to the domestic market, concentration to the Mekong Delta provinces and the other areas in the South of Vietnam. Until now, most of Urea used in Vietnam must be imported from regional countries. As forecasting, the 2000 – 2005 Urea demand increased around 4,8%. The predict urea demand in 2000 was 1,975 millions tons, it was 2,07 millions ton on 2001, 2,169 millions ton in 2002, 2,224 millions ton in 2003, 2,29 millions ton on 2004 and 2,37 millions ton in 2005. The demand speed of grow in 2005 – 2010 period is 4,1% and total urea demand in 2010 will be 2,9 millions ton. In case the Plant will operate full design capacity (740.000 ton – 800.000 ton /year) in the initiate stage, it only satisfies 35% of domestic demand (Phumy Fertilizer Project – The Feasibility Study Report). Consequently, the project will have advantages in competition compare to the other imported resources.
The Fertilizer Plant uses the feedstock from the associated gas resources from CuuLong and Nam ConSon gas basins, and the predict output capacity around 740.000 ton / year of urea (2.200 tons of urea / day and 1.350 tons of ammonia / day). The flexible in using the feedstock (gas) will warranty the high efficiency of economic and necessary security for the Plant in case of the fluctuation of cost and supplying resources in the market.
2. The Phumy PVC Plant:
This project was a Joint Venture project between 04 shareholders: PetroVietnam, Petronas - Malaysia, Marubeni - Japan and TMS - Thailand. This project located nearby the Thivai LPG Pipeline and Terminal, in the Caimep Industrial Zone, Baria – Vungtau Province, with total square around 07 ha.
The outputs of this plant is Polyvinyl Chloride with capacity is 100,000 MTPA. Total investment of this project is USD70 millions and via the License of European Chloride, UK. The project has Amended Joint Venture Contract signed on 12th April 2000. Amended Investment License 1305/GPDC3 issued on 6th May 2000. EPCC (Engineering – Procurement – Construction – Commissioning) Contract awarded to Samsung Engineering and site handover on 15th May 2000. Site preparation and soil improvement works essentially completed and Piling scheduled to start end June 2001. The plant on stream by October 2002.
The PVC plant uses the LPG and Natural gas as the feedstock to their inputs. In the project management perspective, this project could be a success. But in operation phase, due to Joint Venture Terms and References, this plant has to face with a lot of difficulties in production and selling their products. But it is a difference aspect of The Phumy PVC Plant. In this scope of research, the author only focus on the EPCC Contractor Project Management side and will present the detail in the Chapter 4.
3. The Thivai LPG Terminal and Pipeline Project:
This project is a complex of the 03 x 06 inches pipelines system connecting the DinhCo Gas Distribution Plant to the Thi Vai LPG Terminal with the distance of on-shore underground pipeline around 48 km. The production was transported via the pipelines system and separated into three kinds of products such as Condensate, Butane-Propane gas and LPG. Products were terminated in separate storages and exported to the customers via barges or lorries.
The processing system of this project is including: 01 Pig Launcher Skid, 01 Pig Receiver Skid, 03 Line Block Valve Skids, 33 x 463m3 horizontal pressure vessels (bullets) for LPG, 02 x 6500m3 floating roof tanks for Condensate. 02 Loading Arm systems for product export, 02 LPG Compressors, Online Bu-Pro Mixing system, the Flare with burning capacity in 7503/h and the Close Drain System, Nitrogen Compressor, Diesel Generators, Fire Fighting System. 02 Product export Berths and function Buildings .etc. This project had the total budget cost was around USD 58 million and scheduled to construct in 02 years, from 1997 to 1999. But actually, this project had delay 02 years more and had a lot of contingencies that raised the budget into USD 71 millions. Finally the project had have finished and handed over to the End-User, the company named PetroVietnam Gas Co. (PV Gas.) on the end of 2001 with 02 years delay.
The EPC Contractor of this project was one of PetroVietnam Subsidiaries – PetroVietnam Engineering and Construction Company (PVECC). It was the biggest construction company of PVN and had construction experiences in most of mega projects which had been invested by PVN in Vietnam. This Company had about 20 Construction Enterprises underneath and they were the subcontractors for PVECC to carry out this project at that time.
This project received a lot of supports from the PetroVietnam, but could not be a success project in cost, time, and quality management aspects. In this case study, the author would like to present some of main reasons that led this project still will be a nightmare of everyone who used to be involved in, and the information of this project will be detail in the Chapter 4.
Since the start of the opening market economy, hundred investors have transferred their money to Vietnam and found out the business, almost strong and famous chaebol or enterprises invested to Vietnam have concentrated in investment to Oil and Gas industry. With the Joint Venture Agreements selection, they became shareholders with Vietnamese State Owned Companies and have been starting their businesses successfully.
In recent years, Vietnam Oil and Gas Group (PVN) have been carrying out a lot of mega projects. Some have been done and others are progressing like Vietnam-Soviet Union JV (VSP) oil exploration and developing projects.
In order to ensure that most projects will be executed with the aiming cost, quality and time targets, Vietnamese Government and PVN particularly have to invite engineering and technical resources from developing or developed countries by bidding for the International EPC Contractors, International PMC, Certificate Agents, Insurance companies etc
With the Joint Venture Agreements selection, these companies became shareholders with Vietnamese State Owned Companies and have been starting their businesses successfully.
Even though most of EPC Contractors who were selected for PVN’s projects are well experienced and well-known in their particular categories, it does not mean that all the EPC Contractors were successful in reaching clients’ satisfactions. The common problems during the implementation the projects were schedule delay, contingencies, variation orders and unqualified accomplishment
Mr. Nguyen Khoa conducted a case study on “EPC Projects Management and Problems: Case Study of International and Local EPC Contractors of Oil/Gas and Petrochemical Projects in Vietnam” to (1) explore some reasons why some EPC contractors getting troubles in carrying out the project, also their problems in EPC Project Management; and (2) explore the better practices in EPC project management.
His research study focused on how the EPC contractors control and manage the EPC projects in Vietnam including procurement, cost, scheduling management. Three Petrochemical construction projects were selected base on specific criteria such as:
· Medium to large projects
· Executed by International EPC contractors and Local EPC Contractor this have dealing experiences in Vietnamese construction market.
· Mentioned projects were accomplished and now under operation.
The case study projects are Phumy Fertilizer Project, Phumy PVC Project and Thivai Terminal and LPG Pipeline Project since these three have similar things in common:
Belonging to PetroVietnam.
Projects were built in Southern of Vietnam, in 02 adjacent Industrial Zones.
The Execution time of these 03 projects was happened in 1997 to 2005.
The Type of contract is EPC Contract; 02 EPC Contractors were assigned and the other one was selected by bidding.
The 02 Projects were carried out by International EPC Contractors were successful in project execution. The other one was executed by the Local EPC Contractor was the failure one (in time, cost and quality management.)
Based on the result of the study, among hundred projects belonged to PetroVietnam, the Phumy Fertilizer Project was the first and only project that was accomplished on time and under the estimated budget. The reasons for this project’s success were due to the competence of the Consortium, support and direction from the Nation Leaders, and scare of fertilizer in current situation. But, in the point of view of a member who joined this project, the hard working spirit of the Project Management Board in both sides (Client and Consortium) is the only primary reason.
Phumy Plastic Plant was also one of the accomplished projects of PetroVietnam within Joint Venture field. The project itself was started, executed and finished on time and within the approved budget. Most of the site activities were the equipment erection and installation works; the civil and construction works occupied a small part of whole project without any special solution need to be applied. The procurement activities were done by the EPC Contractor with the fixed configuration from the Licensor and PETRONAS (shareholders), so it was not sophisticatedly ordered and contracted to the International Vendors.
Thivai LPG Terminal and Pipeline Project was a small project without any high techniques or sophisticated configuration. It is about 12 ha in total and 20 ha for extension consideration in the future following the International Codes and Standards in engineering design and project management. It was still considered a failure due to the incompetencies of the EPC Contractor. Without historical experiences in role as the EPC Contractor, PVECC did not know how to solve and manage the project.
Mr. Khoa concluded that the main cause in the projects’s failure was depending on the competency of the EPC Contractor. Lack of experiences in the similar works, bad in planning and scheduling, bad financing plan, fragile in contracts negotiation, low reputation, lack of world wide relationships, unskillful in project management, shortcoming of human resources etc. are the constraints that the Local EPC Contractors have to overcome to improve and affirm themselves for getting the reputation from the clients in current competition market.
His thesis abstract is copied and posted.
ABSTRACT
Vietnam social-economic is booming in recent years, with attracting investment policies, the Vietnamese Government have been successful in luring many foreign investors starting their businesses in Vietnam, especially in Oil and Gas Industry.
Known as a country has rich natural fossil resources, Vietnam has large capacity of crude oil and natural gas in his off-shore East Sea areas. But with the restriction of engineering and updated technologies, the Vietnamese Government / PetroVietnam have been exerted themselves to attract as more bilateral relationships from developed countries (US, Russian, England, France, Norway, Japan...) as possible to expand their advantages in exploration and own their fossil energy resources.
Most of the projects that related to Oil and Gas Industry which have been carried out in Vietnam following the EPC type of contract. In the point of view of PetroVietnam, Oil and Gas projects should be implemented effectively, and that is the reason why the international EPC Contractors are the most feasible selection, cause of the lack of experiences in mega projects executing of Local EPC Contractors.
In order to manage and control the project to reach the demands from the Client / Owners, normally are cost, time and quality, the International EPC Contractors should have very efficiency project management methods which could help the International EPC Contractors in order to avoid any problems and adverse factors related to cost overrun, delay and inadequate productivities.
In the contain of this thesis, the author would like to focus on the research of International EPC Contractors Project Management, in Oil and Gas Industry Projects. The three selected case study projects are the Phumy Fertilizer Project, the Phumy PVC Project and the last one is the Thivai LPG Pipeline and Terminal Project. Those mentioned projects will be draft informed as below:
1. Phumy Fertilizer Project:
Petrochemical Industry, that included the Urea (Fertilizer) production, is one of foundation industries, it’s really important for the national economic developing. The shape and growing of this industry will become a force to develop the agriculture and other related industries.
In economic developing strategies of the Government, execution the Fertilizer or Urea Plant, not only to ensure the stability and initiative in supplying the fertilizer with reputedly as the strategic production for national developing, but also to bring back the other effective outcomes aspects such as economic, social, political and also distribute to impulse the industrialize and modernize processing that taken initiative by Vietnamese Communist Party.
In years ago, Vietnamese Government did have the mission the develop the fertilizer industry, but it was impossible due to some objective existences. There have been only some small size plants of Urea and Phosphates were operating in Vietnam in current time, with the supplying capacity approximately only 7% of the national demand, and the remain requires should depend on the importing resources and be paid with valuable foreign currencies.
On the April of 2000, the Prime Minister delegated to PetroVietnam (PVN) incorporated with Vietnam General Chemical Companies (VinaChem) and Vietnam Agriculture Company (Vigecam) to establish the Feasibility Study Report (FS) of Fertilizer Plant with the feedstock from associated (nature) gas resources.
Followed the order of the Prime Minister (correspondence No. 58/TB-VPCP dated 30th April, 2000 referred to Developing the Gas – Power – Fertilizer Program), PVN urgently drafted and submitted to the Government for approval the Feasibility Study Report of Fertilizer Project. This project was invested by Vietnamese Government / PVN, and the selected location of the project is in Phumy 1 Industrial Zone in Baria – Vungtau Province.
This is the first Fertilizer Plant in Vietnam could use the feedstock from the associated nature gas, this Plant supplies the production to the domestic market, concentration to the Mekong Delta provinces and the other areas in the South of Vietnam. Until now, most of Urea used in Vietnam must be imported from regional countries. As forecasting, the 2000 – 2005 Urea demand increased around 4,8%. The predict urea demand in 2000 was 1,975 millions tons, it was 2,07 millions ton on 2001, 2,169 millions ton in 2002, 2,224 millions ton in 2003, 2,29 millions ton on 2004 and 2,37 millions ton in 2005. The demand speed of grow in 2005 – 2010 period is 4,1% and total urea demand in 2010 will be 2,9 millions ton. In case the Plant will operate full design capacity (740.000 ton – 800.000 ton /year) in the initiate stage, it only satisfies 35% of domestic demand (Phumy Fertilizer Project – The Feasibility Study Report). Consequently, the project will have advantages in competition compare to the other imported resources.
The Fertilizer Plant uses the feedstock from the associated gas resources from CuuLong and Nam ConSon gas basins, and the predict output capacity around 740.000 ton / year of urea (2.200 tons of urea / day and 1.350 tons of ammonia / day). The flexible in using the feedstock (gas) will warranty the high efficiency of economic and necessary security for the Plant in case of the fluctuation of cost and supplying resources in the market.
2. The Phumy PVC Plant:
This project was a Joint Venture project between 04 shareholders: PetroVietnam, Petronas - Malaysia, Marubeni - Japan and TMS - Thailand. This project located nearby the Thivai LPG Pipeline and Terminal, in the Caimep Industrial Zone, Baria – Vungtau Province, with total square around 07 ha.
The outputs of this plant is Polyvinyl Chloride with capacity is 100,000 MTPA. Total investment of this project is USD70 millions and via the License of European Chloride, UK. The project has Amended Joint Venture Contract signed on 12th April 2000. Amended Investment License 1305/GPDC3 issued on 6th May 2000. EPCC (Engineering – Procurement – Construction – Commissioning) Contract awarded to Samsung Engineering and site handover on 15th May 2000. Site preparation and soil improvement works essentially completed and Piling scheduled to start end June 2001. The plant on stream by October 2002.
The PVC plant uses the LPG and Natural gas as the feedstock to their inputs. In the project management perspective, this project could be a success. But in operation phase, due to Joint Venture Terms and References, this plant has to face with a lot of difficulties in production and selling their products. But it is a difference aspect of The Phumy PVC Plant. In this scope of research, the author only focus on the EPCC Contractor Project Management side and will present the detail in the Chapter 4.
3. The Thivai LPG Terminal and Pipeline Project:
This project is a complex of the 03 x 06 inches pipelines system connecting the DinhCo Gas Distribution Plant to the Thi Vai LPG Terminal with the distance of on-shore underground pipeline around 48 km. The production was transported via the pipelines system and separated into three kinds of products such as Condensate, Butane-Propane gas and LPG. Products were terminated in separate storages and exported to the customers via barges or lorries.
The processing system of this project is including: 01 Pig Launcher Skid, 01 Pig Receiver Skid, 03 Line Block Valve Skids, 33 x 463m3 horizontal pressure vessels (bullets) for LPG, 02 x 6500m3 floating roof tanks for Condensate. 02 Loading Arm systems for product export, 02 LPG Compressors, Online Bu-Pro Mixing system, the Flare with burning capacity in 7503/h and the Close Drain System, Nitrogen Compressor, Diesel Generators, Fire Fighting System. 02 Product export Berths and function Buildings .etc. This project had the total budget cost was around USD 58 million and scheduled to construct in 02 years, from 1997 to 1999. But actually, this project had delay 02 years more and had a lot of contingencies that raised the budget into USD 71 millions. Finally the project had have finished and handed over to the End-User, the company named PetroVietnam Gas Co. (PV Gas.) on the end of 2001 with 02 years delay.
The EPC Contractor of this project was one of PetroVietnam Subsidiaries – PetroVietnam Engineering and Construction Company (PVECC). It was the biggest construction company of PVN and had construction experiences in most of mega projects which had been invested by PVN in Vietnam. This Company had about 20 Construction Enterprises underneath and they were the subcontractors for PVECC to carry out this project at that time.
This project received a lot of supports from the PetroVietnam, but could not be a success project in cost, time, and quality management aspects. In this case study, the author would like to present some of main reasons that led this project still will be a nightmare of everyone who used to be involved in, and the information of this project will be detail in the Chapter 4.
Monday, 29 June 2009
CONSTRUCTION MANAGEMENT PRACTICES UNDER CONSTRUCTION MATERIAL PRICE FLUCTUATION
Project cost management is defined as one of the nine knowledge areas which are applicable knowledge and practices to most projects. Construction materials generally consume about 40 percent to 60 percent of total budget of the project.
In 2002, the result of break-up construction costs by Construction Industry Development Council Survey in India explained that construction material roughly consume at range from 41 percent to 60 percent of total construction costs. Hence, it is very important to closely pay attention on the material cost then build a good material cost management.
In cost management, one of the favorite indicators is the cost index. It is the ratio of cost or price for a given commodity or service or set of commodities or services at a given time and place compared to the cost or price at a base or standard time and place (Humphreys, 2005). Likewise, it is necessary to learn the cost index because one of many factors influencing construction costs is time due to changes in demand, economic conditions, and prices. Cost indexes convert costs which was applicable at a past date to equivalent costs now or in the future (William, 1994).
However, the use of cost indexes has several limitations. For example, cost indexes are based on average values so in specific cases, the actual value may be different from the average. Humphreys (2005) mentioned that at this time, the technology is changed so the method by which any given index is complied may periodically be changed by the complier. In such cases, the index values at different times should not be compared directly. Figure 1.1 is an example of construction material price indexes by Ministry of Commerce Thailand that based year to compare for these indexes is year 2000.
Figure 1.2 revealed that the construction price indexes in Thailand are very uncertain from year 2000 to 2008. A trend of uncertainty at recent years is increasing. To apply escalation in construction project, it should be considered in two levels which are historic and future (Squire, 2008). From historic escalation are such bid results, price indexes, price comparisons and cost record. For future escalation data, it can be found from assessed forecast which attempts to anticipate cost. Hence, it is important to find the way to handle with uncertain material prices in construction.
Squire (2008) stated that in construction, the price fluctuation comprises material, labor, equipment, overhead costs and fees. Cost management on projects becomes a particular challenge in a location where the economic climate is uncertain. In this circumstance, one of the significant consequences is uncertain construction price which can lead to many problems. Gallagher and Riggs (2006) stated that ripple effect of this price escalation has included numerous other impacts. For example, the first impact is putting project on hold while supplemental funding is sought. Second, the alternative of canceling the project if additional money is not available is chosen. Third, scale-down the project scope is attempting to be proceeded. Therefore, the price fluctuation can create enormous difficulty in the construction industry.
Ms. Piyachat Thaveelert made a survey on Construction Management Practices under Material Price Fluctuation to (1) investigate the situation of material price fluctuation and its effects on the practice of construction contractors during each stage namely estimating, bidding and construction stage; (2) identify the existing practices of how contractor strategically do to the situation and indicate interrelationships among practices; and (3) propose recommendation on how to handle the situation of construction price fluctuation.
Ms. Thaveelert found out that construction industry in Thailand usually confronts with the situation of material price fluctuation. Since the materials normally cost at the highest proportion of total cost, the situation of material price fluctuation becomes severe for construction industry. At this point, the appropriate management under material price fluctuation should be found out and investigated in order to be able to handle with the situation.
Her thesis abstract is copied and posted.
ABSTRACT
A construction management is very important for a construction project. To be a successful project, it requires an appropriate management from contractors to cope with especially the situation in construction industry that is unaccustomed. According to the recent record, it has been found that construction industry faced with the situation of material price fluctuation. Due to the material cost usually consumes the highest proportion in the construction cost, it is very significant for contractors to know how to handle with the situation. This research aims to investigate the existing of construction management practices under the construction material price fluctuation and propose the recommendation to respond to the situation.
The study uses a questionnaire as a research instrument to explore the existing practices of contractors. Two statistic methods were mainly used to analyze data from questionnaire surveys. The first analysis was descriptive analysis which used means and rankings to analyze. Second, the hypothesis testing was used to compare practices of the Bill of Quantity making and, procurement and employment among three groups of respondents. Those respondents are contractors focusing on private owners, public owners and both owners. In addition, another hypothesis testing was to compare practices relating to contract conditions between private owners and public owners through contractors’ perceptions. At his point, the correlation between groups of contractors was also tested through the hypothesis testing of correlation. Finally, the factor analysis was carried out to find out the interrelationship among practices by grouping the variables.
Result were found that for the Bill of Quantity making process, contractors prefer to find out the price trend by discussing the price trend with their suppliers with the highest mean. For the procurement and employment of contractors, contractors need to pay more attention on supplier selection process with the highest mean. For practices on contract conditions, it showed that the practice of the Specifying contract condition relating to furnishing materials clearly has the highest level of practice in private owners. In public owners, the Reasonable advance payment has the highest level of practice. The correlation between these two groups is also high positive correlation for practices on contract conditions. Last, the result of factor analysis showed that interrelationships of practices and it could be categorized into eight groups: Negotiating with Owners, Subcontractor Pricing Agreement, Government Pricing Index, Material Price Risk, Proactive Cost Control, Contractors’ Historical Data, Contractor Procurement Strategy and Estimate Pricing.
In 2002, the result of break-up construction costs by Construction Industry Development Council Survey in India explained that construction material roughly consume at range from 41 percent to 60 percent of total construction costs. Hence, it is very important to closely pay attention on the material cost then build a good material cost management.
In cost management, one of the favorite indicators is the cost index. It is the ratio of cost or price for a given commodity or service or set of commodities or services at a given time and place compared to the cost or price at a base or standard time and place (Humphreys, 2005). Likewise, it is necessary to learn the cost index because one of many factors influencing construction costs is time due to changes in demand, economic conditions, and prices. Cost indexes convert costs which was applicable at a past date to equivalent costs now or in the future (William, 1994).
However, the use of cost indexes has several limitations. For example, cost indexes are based on average values so in specific cases, the actual value may be different from the average. Humphreys (2005) mentioned that at this time, the technology is changed so the method by which any given index is complied may periodically be changed by the complier. In such cases, the index values at different times should not be compared directly. Figure 1.1 is an example of construction material price indexes by Ministry of Commerce Thailand that based year to compare for these indexes is year 2000.
Figure 1.2 revealed that the construction price indexes in Thailand are very uncertain from year 2000 to 2008. A trend of uncertainty at recent years is increasing. To apply escalation in construction project, it should be considered in two levels which are historic and future (Squire, 2008). From historic escalation are such bid results, price indexes, price comparisons and cost record. For future escalation data, it can be found from assessed forecast which attempts to anticipate cost. Hence, it is important to find the way to handle with uncertain material prices in construction.
Squire (2008) stated that in construction, the price fluctuation comprises material, labor, equipment, overhead costs and fees. Cost management on projects becomes a particular challenge in a location where the economic climate is uncertain. In this circumstance, one of the significant consequences is uncertain construction price which can lead to many problems. Gallagher and Riggs (2006) stated that ripple effect of this price escalation has included numerous other impacts. For example, the first impact is putting project on hold while supplemental funding is sought. Second, the alternative of canceling the project if additional money is not available is chosen. Third, scale-down the project scope is attempting to be proceeded. Therefore, the price fluctuation can create enormous difficulty in the construction industry.
Ms. Piyachat Thaveelert made a survey on Construction Management Practices under Material Price Fluctuation to (1) investigate the situation of material price fluctuation and its effects on the practice of construction contractors during each stage namely estimating, bidding and construction stage; (2) identify the existing practices of how contractor strategically do to the situation and indicate interrelationships among practices; and (3) propose recommendation on how to handle the situation of construction price fluctuation.
Ms. Thaveelert found out that construction industry in Thailand usually confronts with the situation of material price fluctuation. Since the materials normally cost at the highest proportion of total cost, the situation of material price fluctuation becomes severe for construction industry. At this point, the appropriate management under material price fluctuation should be found out and investigated in order to be able to handle with the situation.
Her thesis abstract is copied and posted.
ABSTRACT
A construction management is very important for a construction project. To be a successful project, it requires an appropriate management from contractors to cope with especially the situation in construction industry that is unaccustomed. According to the recent record, it has been found that construction industry faced with the situation of material price fluctuation. Due to the material cost usually consumes the highest proportion in the construction cost, it is very significant for contractors to know how to handle with the situation. This research aims to investigate the existing of construction management practices under the construction material price fluctuation and propose the recommendation to respond to the situation.
The study uses a questionnaire as a research instrument to explore the existing practices of contractors. Two statistic methods were mainly used to analyze data from questionnaire surveys. The first analysis was descriptive analysis which used means and rankings to analyze. Second, the hypothesis testing was used to compare practices of the Bill of Quantity making and, procurement and employment among three groups of respondents. Those respondents are contractors focusing on private owners, public owners and both owners. In addition, another hypothesis testing was to compare practices relating to contract conditions between private owners and public owners through contractors’ perceptions. At his point, the correlation between groups of contractors was also tested through the hypothesis testing of correlation. Finally, the factor analysis was carried out to find out the interrelationship among practices by grouping the variables.
Result were found that for the Bill of Quantity making process, contractors prefer to find out the price trend by discussing the price trend with their suppliers with the highest mean. For the procurement and employment of contractors, contractors need to pay more attention on supplier selection process with the highest mean. For practices on contract conditions, it showed that the practice of the Specifying contract condition relating to furnishing materials clearly has the highest level of practice in private owners. In public owners, the Reasonable advance payment has the highest level of practice. The correlation between these two groups is also high positive correlation for practices on contract conditions. Last, the result of factor analysis showed that interrelationships of practices and it could be categorized into eight groups: Negotiating with Owners, Subcontractor Pricing Agreement, Government Pricing Index, Material Price Risk, Proactive Cost Control, Contractors’ Historical Data, Contractor Procurement Strategy and Estimate Pricing.
Thursday, 25 June 2009
Ms. Htet Htet Shein Joined Ch. Kranchang
Ms. Htet Htet Shein (CEIM 2009 from Myanmar) has joined Ch. Kranchang Contractor.
Congratulations!
Hadikusumo
Congratulations!
Hadikusumo
Ms. Piyachart Thaveelert Joined Foster Wheeler
Dear All,
Ms. Piyachart Thaveelert (CEIM 2009) informed me that she is now joining Foster Wheeler, oil and gas construction company in Rayong.
Congratulations!
Hadikusumo
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Congratulations!
Hadikusumo
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Dear All
Mr. Surapong Panja and Ms. Rahongsree Prayongrut(CEIM 2009) have joined TEAM Consulting. They were recruited two months before they graduated from CEIM program.
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Hadikusumo
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Hadikusumo
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Dear All
I received a phone call from Mr Andreas from Indonesia (CEIM'2008) that he joinned Pakuwon Property Developer in Jakarta.
Congratulations!
Hadikusumo
I received a phone call from Mr Andreas from Indonesia (CEIM'2008) that he joinned Pakuwon Property Developer in Jakarta.
Congratulations!
Hadikusumo
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