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.

Owner’s Quality Management – A case study of high-rise building project for resettlement of people relocated

by

Dang Quang Ngoc

Abstract

In the recent years, QMS become the most critical factor, tool for any construction organization who want to be affirmed their reputation in the real estate market. This report expresses the key issues of the Quality Management System (QMS) in implementing the construction project.

By this study, A high-rise building project for Resettlement and People relocated, I would like to express the theories and the standards system of the Owner’s Quality Management System in construction, system requirements for owner’s QMS in construction and its benefits. The report has introduce briefly the factors that most effect to project quality studied from public reports and the key points to control project quality from the design to construction stage.

Through a case study on high-rise building project I also would like to propose a framework for application and improvement of QMS in order to obtain a better managing construction project.

   

Executive summary 

Rationale of research

This research has been conducted to identify problems and propose frame work for Quality Management System (QMS) for high rise construction.

Objectives of study

To study implementation of QMS for project owner in construction project from design phase to construction phase, discussion interims of strengths and weakness to recommend improvement and to propose a frame work on QMS for High rise construction.

Methodology

The exploratory research method is used to study QMS through QMS standards for comparison and applying theories into existing QMS for improvement.

Findings and conclusion

In general, most of the requirements of quality system have been covered and presented in the existing system. However, the Owner’s QMS only meet the general requirements related to low-rise building and the simple construction project. The owner need to develop their QMS to specified construction project, such as high-rise building, add the requirement related to control the pile foundation, the fire fighting system, tower crane installation, elevator....etc. Otherwise, the common problems of missing contract review, improper coordination and communication, lack of the process control, control of quality records and the inspection status monitoring during the course of work are the reasons that caused major problems to owner such as schedule delay, rework and violation of safety.

Moreover, it is observed from the high-rise building project that most of problems occurred during design phase and construction phase are caused by these groups: missing contract review, poor coordination and communication, lack of training and internal audit, inadequate quality control procedures. Moreover, the quality culture in organization should be formed up so that the Company can reach to the Total Quality Management.

Recommendations

1.      Document clear procedures of construction for high-rise building

High-rise building project is large and complicated project required a high demand on structure, fire fighting system, M&E system, safety during construction and operation...etc. Owner not only conduct the general QMS system on implementing project but also amend and improve the existing procedure(current quality plan old) to ensure the quality of project.

2.      Increase in Commitment by Top Management

 Top management shall demonstrate its commitment to

·         Communicate the importance of customer’s meeting and regulatory & legal requirements.

·         Establishing the quality policy and quality objectives.

·         Provide necessary resources, funds for implementation of QMS, make sure all members of the company understand and comply with the process.

·         Creating a culture of quality within the company, all activities of the departments to the staff in the company must aim quality.

3.      Internal Quality Audit training for All Level of Staff

            Company need to provide the training courses about quality management of construction projects, regulations on quality control for construction works, the specific requirements for quality and quality management of construction works at the company and work instructions and forms for each individual, each position. Company need to establish a separate quality management department. That will work with other departments to build handbook quality control documents, materials, processes and carrying out tasks for each department.

4.      Focusing on customer

     Company needs to consider on costumer focus orientation to satisfy customer needs from planning phase to warranty, maintenance work to keep old customers and make new relations. The Top management should establish the customer caring unit to collect customer feedback, for improvement.

5.      Develop Communication and Coordination Procedure

     Need to develop clear communication & coordination mechanism for all parties involved.

·      Briefings units periodically.

·      Prepare reports, periodic testing.

·      Regularly and promptly report and exchange information related to the situation in the construction

·       Inviting the State management agencies to inspect and certify the results of construction in accordance with the Ministry of Construction.

·      Coordinate with the state management of local development organizations

-          Check the profile construction process.

-          Check out the results of construction at the site.

-          Certification records and test results as the basis for the test conducted in the stage of execution.

6.      Enhance the corrective and preventive activities and improvement

     Companies need unified approach to the implementation of improvement actions, prevent, eliminate causes of potential nonconformities, which included measures to improve quality systems company's process improvement project construction. A professional group to be appointed to do research by working in different departments for quality improvement and will submit results to management for approval for implementation.

After performing the corrective, preventive action and improvement, they shall consider the results and draw experience.

RISK FACTORS AND MANAGEMENT IN CABLE STAYED BRIDGE CONSTRUCTION PROJECT – A CASE STUDY OF NHAT TAN BRIDGE PROJECT IN HANOI

By

Nguyen Ninh Son

Abstract

In bridge construction projects, even minor problems in any work at any time may cause serious un-expected consequences. Risk management will reduce and prevent risks happen to the project. In risk management, we need to analyze risks firstly. Risk analysis will help to identify potential risks can be happened to the project, therefore we can restrain risks and maximize reduce damages of the project. 

This Study mentions about subject: Risk management in bridge construction project in Vietnam in general and Nhat Tan bridge construction project in particular. Through this Study, I hope that I can present to Engineers, Managers a overall view of risks prevention in construction and operation stage of bridge construction project.

This Study carry-out risks analysis in Nhat Tan bridge construction project base on my own experiences and knowledge studied at AIT. Through this Study I hope that I can present a risk management framework for bridge construction projects. 

Executive summary

Rationale of research

This research has been conducted to identify the risk factors in Bridge construction projects.

Objectives of study

To identify factors of risks management of constructions project in general and bridge construction project in particular, with focus on “Risks Factors and Management in Stay Cable Bridge Construction Project” and apply in Nhat Tan cable stayed bridge construction project.   

Face to potential risks and what managers should do to minimize the defects and predict, prevent other risks occur?

Methodology

The exploratory research method is used for literature review, to study and analyze Risks Factors and Management in Stay Cable Bridge Construction Project.

Findings and conclusion

The purpose of project risk management is to reduce the risk in order to achieve the objective of the project such as time, cost, quality, safety and environment. In particular, risk management helps people involved as project manager, HSE manager, and quality manager, in setting priorities, allocating resources and implementing actions and process to mitigate the risk of the project.

Construction is performed by Contractor to ensure that the work is completed successfully. Risk factors in construction stage of cable stayed bridge construction project often occur in: Health and Safety, Environment, Cost and Technical problems. Main risks included:

·          Delay of land acquisition, seriously affect to cost and schedule of the project.

·          Low quality of input materials: sand, aggregate, cement, steel (for fabrication of main girders), cable do not satisfy requirements of specification.

·          Method statements are not suitable with site condition and not effective.

·          Lack of supervisor, instruction of Consultant Engineer in working process.

·          Dangerous working conditions: working in the large river, working at height.

This research also has conducted a risk management study for cable stayed bridge construction project. The case study in this research is the real cable stayed construction project. Some of solutions given in this research have applied in the real conditions of the project. They worked effectively and also reduce bad effects, damages of the project caused by risks.

OWNER’S PROJECT SCHEDULING STRATEGY

A CASE STUDY OF

SHB - DA NANG F.C SPORTS AND TRAINING COMPLEX CENTER PROJECT 

by

Vuong Hoang Thang

Abstract

A successful construction project is the one that completion within destined time, budget and quality. Project scheduling and project scheduling management are very important parts of any project as they provide the project team, sponsor, and stakeholders a picture of the project’s status at any given time.

The Project schedule is the roadmap for how the project will be executed. A successful construction project is also meaning a successful project scheduling and it is executed in the boundaries schedule's creation.

This report review project scheduling and management theory, time management functions and delay risks address into scheduling management commonly applied in developed countries and developing countries and Vietnam.

The report study the scheduling and management strategy applied in a construction project in Danang city, Vietnam. From the study case, the report identifies and analyzes the practical application of project scheduling management functions and strategy. Then, reviews practices of the project scheduling management and suggest some improvements strategy can be applied

  

Executive summary 

Rationale of research

This research has been conducted to indentify scheduling problems and propose good project scheduling practice and strategy for the owner.

Objectives of study

To identify project delay and risks of project delay in construction stages, and approach to schedule creation to propose owners strategy for project scheduling management.

Methodology

The exploratory research method is used to study delay and understand factors that affect project scheduling management.

By undergoing into project case and practice implementing in scheduling management .

Findings and conclusion

The administration of schedule is the most significant concerns of project management for  project owner, as an investor, mainly concerned about the profitability of investment.

The project scheduling management is resulted from the frame of project management planning and related directly to time aspect in each project.

considering the review of project schedule management, analyzing the practice in Project of SHB-Danang Sports and Trainings Complex Center, 1^st phase, a project sponsored by non-state owner resources. The learning from the study is that from the initial stage up to now this project is applied some project management tools and methods to manage cost, time, procurement, etc. And the same to other common projects in Vietnam the scheduling management and time management is always a big challenge to the Owner.

The Owner of project (SHB) wished of completion construction and moving the club into new centres at the end of September 2012 latest. The construction duration is planned maximum of 8,5 months from the earth works till completion the 1^st phase. However, the actual performance is slow than schedule and now estimated delay about 5 months hopefully.

The project was traditional design bid and built, each participant team was working well at their responsibility and used computer tools to reduce risk.

But the major problems were in communication and decision making which caused delay and un-professional attitude from owner side.

The team got some unrealistic milestones but overall project management unit from owner side is weak.

Recommendations

To put project schedule on realistic channel owner should focus on following points

·         Set & manage Buffer in the timeframe and activities duration.

·         Reduce dependencies by applying tools and methods such as: WBS, OBS, CPM, LSM, PERT and delay risk management.

·         In the estimation of task / activities, should focus on the Critical path, LOB.

·         Develop communication and report mechanism with some tools such as EV, SV, in order to update and adjust baseline making decision of the Owner.

·         Set penalty/ award provision in the contract both to the contractor and the designer.

·         Put realistic milestones into the contract and general timeframe and bound to all the project's stakeholders (Owner, PMU, PMC, and contractor, and consultants, designer).

INTERIM PAYMENT & VARIATION ORDER MANAGEMENT FOR  HIGH-RISE BUILDING PROJECT

A CASE STUDY OF INDOCHINA PLAZA PROJECT.

by

Trinh Vuong Duy

Abstract

In recent years, construction industry in Viet Nam is booming. Both Government and private sectors develop many projects in infrastructure and new cities. Especially, high rise buildings become attractive to many developers because of high profit and saving land asset.

In general, to deliver a project, one of the most important parts of process is contract management. A good contract must cover most of the significant cases that potentially happen during process of construction to prevent from disputation. Nevertheless, in the real life, people who control contract management have not got enough experiences to foresee matters may arise in the future. A regular error of contract is the lack of specifications. That will support contractors to apply low quality materials in to project. Above reasons are only examples of insufficient contracts, besides, there are many reasons that cause the contract fail.

The report analyzes to find problems in contract of Project Indochina Plaza Ha Noi, but focus on payment & variation issues. Then report will recommend solutions for specific cases. The report can help the owner to improve contract management of the project, or apply it for other projects.

Executive summary  

Rationale of research

This research has been conducted to indentify the problems of payment and variation in the construction projects and the problems with owner and contractor regarding payment and variation.

Objectives of study

To identify frequent problems, causes in payment and variation in construction projects.  Suggest frame work for payment & variation for improving situation of practice in construction.

Methodology

The exploratory research method is used to study frame work of payment & variation in construction project, application of frame into Indochaina project to identify problems to adjust in contract and to propose suitable solution for future projects.

Findings and conclusion

Contract management being important step in the construction as it control cost of project and rules and regulation regarding cost.

The big issue in construction works is delay of payment which actually is supposed to pay each month to cover expenses and due to this contractor always claim higher then what he did, causes dispute.

The representative of owner intentionally drives design at initial stage to cause variation order at the end to benefit him. Project cost overrun mainly comes from this issue.

Recommendations

The recommendations are divided into groups according to area specific

1.      Payment frame work  

·         What amounts will be paid under payment terms.

·         When a payment will be assessed in contract term.

·         How percentage work done will be defined.

·         What information need to be defined between two parties.

·         Ownership of material should be proven to transferring to owner, to pay for offsite material.

·         Owner has right to access to inspect or collect offsite material.

·         A full refund for the value of materials and components will belong to owner before they move to contractor’s factory.

·         A full refund for the value of any work off site on these materials and components will belong to owner after ownership of those are transferred to contractor.

 ·         The contractor has to buy insurance for materials or goods offsite that used for the owner’s project.

 ·         The amount supposed to be withhold and the basic for withholding payment.

 ·         The notice shall be informed to the contractor before the final date for payment.

  ·      The contractor can suspend work with 7 days notice with reason for suspension.

  ·      The contractor only can suspend the work that is not being paid, but not all the work.

  ·      The contractor shall provided time extension for any delay caused by performance pending, or compensated a reasonable cost by the suspension.

2.      Variation order frame work

To mitigate variations arise in construction project & dispute between parties these issues need to be controlled in Design Stage & Construction Stage.

·         Design stage

The owner is major cause because in variation order sometimes due to lake of experience, for aesthetic appearance and to use cheaper material, so there is need of accurate estimation for financial plan & cash flow will required to reduce issue and review of contract document especially drawings should be clear from ambiguity so that contractor should not take advantage from it.

·         Construction stage

finalize quantity and confirm that is variation or not. So site investigation of variation is

In some cases, the consultant can not assess quantity based on drawing, or doubt on

Need of variation order assessment procedure to be cleared and agreed by parties at initial stage of project to reduce problems, variation orders that involve change in original price will be approved in writing by owner before execution of work.

Owner should hire project management consultant to negotiate rates in variation orders professional team can help in negotiating to minimize negative impacts of variation

 reducing the cost.

the   variation submitted by contractor. He can physical check with the contractor to

The main dispute that occurs is different assessment of work; contractor should explain the procedure of work, expenses of work, material and labor etc.

very important, it would help consultant to assess accurately the variation order.

FEASIBILITY STUDY REPORT FOR URBAN

INFRASTRUCTURE PROJECT

USING LOAN FROM OFFICIAL DEVELOPMENT ASSISSTANCE (ODA).

A CASE STUDY OF LAOCAI CITY DEVELOPMENT PROJECT

FUNDED BY WORLD BANK

by

Nguyen Viet Cuong

Abstract

The development of socio-economic infrastructure plays a very important role in the country developing strategy, it is a major factor to help developing country reducing the poverty. The fund for the infrastructure development can be from many sources: private sector, counterpart, mixed credit and ODA loan…In order to meet the huge demand on infrastructure project development, the preparations of project investment such as project feasibility study is specially paid attention by Project Management Units.

Furthermore, with the project using the loan from international Donors, the feasibility study is not limited in project financial aspects like loss or profit, it also studies the other social aspect such as safeguard policies, economic benefits, benefit to the residents within project… The project feasibility study report therefore also be considered as approved factor for the Donor to give the loan.

The purpose of this study is to identify the process to prepare a feasibility study report for the urban infrastructure development project using the loan from World Bank. this process of preparing feasibility study report need to be followed the government instruction as well as complying with the World Bank regulation.   

Executive summary  

Rationale of research

This research has been conducted to indentify the course of action to prepare feasibility study report for the urban infrastructure development project using loan from World Bank.

Objectives of study

To prepare feasibility study report following guidelines of five funding agencies (Asian development Bank, French Agency, World Bank, Japan Bank for International Cooperation, German Bank for Reconstruction) to identify risk of unrealistic FS report preparation and to analyze problem during preparation of FS report.

Methodology

In this research methods are followed in accordance with the five funding agencies i-e step by step completion of FS report from collection of data to provincial people approval and World Bank non-objection letter.

Findings and conclusion

Apart from the project financial advantages, the significant advantage from project implementation is that the Project Owner and project shareholders particularly the Consultants are approached to the international standards in project preparation and implementation. Report helps in making decision of either invest or not to invest for construction.

The project shareholders, at any time during project implementation, must take note on the compliance of Donor’s guidelines, as World Bank specialists supervises strictly the project implementation to ensure the effectiveness of fund usage and development criteria are complied.

The project FS report has to be prepared in compliance with both Lender’s guideline and Governmental rule and regulation. This appears to be the biggest challenge for the Project Owner and FS Consultant, that why the selection of FS Consultant need to be always considered carefully with the Non-objection from the Donors.

The other issues such as the sustainable development and Community Awareness in sanitation and environment, institution and capacity building also need to be considered carefully and differently from the normal construction investment project

During the FS preparation stage, the difficulties will be occurred due the lack of experience in project management from project owner to this new concept of total project development, thus, the improvement of project communication and information sharing must be paid attention to avoid the unnecessary delay.

Recommendations

The FS report is more difficult and complicated when compared with commercial project report. The main procedure and guidelines are defined by donor agency and lenders criteria, so I can only give my recommendations to prepare reliable FS report using World Bank loan in particular.

·         Project management unit should be set up at early stage; matrix structure under control of provincial leader.

·         The more accurate data, the more reliable report will be so need of proper survey team and procedure.

·         As FS report preparation will be in direct supervision of World Bank so consultant need to have experience of working with WB and have experience in development of similar projects.

·          As FS preparation team is different from presentation team to World Bank expert, so there is need of proper communication system among stakeholders it can be done by telecom conference with minute notes.