Designing Buildings - User contributions [en]

Possible remedial actions during budget reduction

2016-07-03T18:51:42Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a budget reduction during each of the strategy and implementation stage.

Published by ROMAN GORYAINOV.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project's financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it's an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-02T09:03:38Z

Roman Goryainov: Protected "Possible remedial actions during budget reduction" ([edit=author] (indefinite))

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

Published by ROMAN GORYAINOV.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:53:53Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

Published by ROMAN GORYAINOV.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:52:51Z

Roman Goryainov:

[[File:Belt tightened.png]]

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

Published by ROMAN GORYAINOV.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

File:Belt tightened.png

2016-07-01T18:51:49Z

Roman Goryainov:

Possible remedial actions during budget reduction

2016-07-01T18:46:51Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

Published by ROMAN GORYAINOV.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:45:49Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

<Published by Roman Goryainov>

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:44:55Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

<signature>Roman Goryainov

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:44:09Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

=== Design and Quality Specifications: ===

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

=== Project Scope: ===

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

=== Project team; ===

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

=== Site conditions: ===

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

=== Construction Procurement route: ===

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

=== Project time schedule; ===

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

=== Procurement; ===

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

=== Labour: ===

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

=== Rework: ===

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

=== Reused demolition material ===

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

=== Equipment: ===

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

=== Discounts: ===

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

=== Offsite fabrication: ===

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:41:18Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as changing of material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

Design and Quality Specifications:

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

Project Scope:

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

Project team;

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

Site conditions:

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

Construction Procurement route:

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

Project time schedule;

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

Procurement;

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

Labour:

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

Rework:

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

Reused demolition material

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

Equipment:

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

Discounts:

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

Offsite fabrication:

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:40:08Z

Roman Goryainov:

= INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as:

* Reducing of labour;
* Change material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

Design and Quality Specifications:

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

Project Scope:

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

Project team;

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

Site conditions:

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

Construction Procurement route:

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

Project time schedule;

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

Procurement;

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

Labour:

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

Rework:

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

Reused demolition material

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

Equipment:

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

Discounts:

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

Offsite fabrication:

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:39:18Z

Roman Goryainov:

= 1 INTRODUCTION =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= 2 PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== 2.1 POSSIBLE RISKS ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== 2.2 EXAMPLE ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as:

* Reducing of labour;
* Change material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= 3 REMEDIAL MEASURES =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== 3.1 STRATEGY STAGE ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

Design and Quality Specifications:

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

Project Scope:

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

Project team;

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

Site conditions:

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

Construction Procurement route:

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== 3.2 IMPLEMENTATION STAGE ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

Project time schedule;

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

Procurement;

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

Labour:

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

Rework:

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

Reused demolition material

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

Equipment:

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

Discounts:

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

Offsite fabrication:

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= 4 CONCLUSION =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= 5 REFERENCES =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]

Possible remedial actions during budget reduction

2016-07-01T18:38:11Z

Roman Goryainov: Created page with "= <a name="_Toc448934909">1 INTRODUCTION</a> = This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from perso..."

= <a name="_Toc448934909">1 INTRODUCTION</a> =

This article will evaluate the potential risks that might affect the project financing/budgeting along with the example from personal experience and possible remedial measures that are suggested to be implemented in case if the project was subject to a 20% budget reduction during each of the strategy and implementation stage.

= <a name="_Toc448934910">2 PROJECT FINANCING DEFICIT AND BUDGET REDUCTIONS</a> =

Factors like recession, inflation, changes in government regulation, political stability and others are often negatively impacting financing of the ongoing Projects and/or Projects (both international and domestic) that are under initiation processes.

Negative effect on the ongoing project’s financing will potentially end up with budgeting deficits that will subsequently require either to stop the project or undertake possible and applicable to the specific Project stages, remedial measures.

== <a name="_Toc448934911">2.1 POSSIBLE RISKS</a> ==

Yescombe (2002) divides risk into tree main categories:

* Commercial – those inherent in the project itself or the market it operates in. Sub-components of the commercial risks are expanded by the Yescombe (2002) as: commercial viability , completion, environmental, revenue and force majeure risks;
* Macro-economic – financial risks or economic effects not directly related to the project , such as inflation , interest rate and exchange rate risks
* Political – related to the effects of the government actions or political force majeure events (Yescombe 2002) , such as investment risks and change of law risk

== 2.2 <a name="_Toc448934912">EXAMPLE</a> ==

Following example is given to supporting indicated in above Section 2.1 possible risks:

More than 70 % of the income in to the Azerbaijan Republic economy depends on the Oil and Gas prices that were significantly decreased during the period of 2014 – 2015. Due to low prices, the local economy was expressed major budget deficits that forced the government to devaluate the local currency (Azerbaijan New Manat) that affected increasing of exchange rate against US Dollar up to 102%.

Due to the budget deficit, most of the government funded multimillion dollar Projects that were under initiation stage was suspended. Projects that were under construction also expressed a significant budget deficit which required undertaking such type of remedial measures as:

* Reducing of labour;
* Change material specifications with possible minimum effect to the quality (in our project , for example, specification of the site run cable trays has been changed from the stainless steel to the galvanised steel which is approximately 75% cheaper).

Differences in exchange rates were also significantly affected many ongoing Projects as more that 80 % of all materials and equipment that being used in the local Projects being procured from abroad.

= <a name="_Toc448934913">3 REMEDIAL MEASURES</a> =

As stated in Section 2, budged reduction might be requested during any stage of the Project and remedial measures that will be implemented will be directly depending on the current Project stage.

== <a name="_Toc448934914">3.1 STRATEGY STAGE</a> ==

Due to the Strategy stage of project is considerable flexible for accommodating of any changes, therefore, considering that the Project was subject to 20 % budget reduction, following remedial measures are suggested to be implemented by Project Manager:

Design and Quality Specifications:

Design and material specifications are one of the major factors that are affecting the total cost of construction and future facility operation and maintenance costs. Selection of alternate designs and materials might represent a potentially viable cost saving strategy; however following recommendations are suggested to be considered:

* Incorporating of materials with better quality that will promote a longer life cycle and reduce future maintenance costs;
* Usage of BIM models that will allow identification of all potential clashes during design stage. This option will require some spending for hiring and/or training of the project stuff and obtaining of required software, but it still will be cost efficient for the implementation stage as no rework will be required;

Project Scope:

While reviewing of Design and Quality specification it is also suggested to review Project scope to identify “nice to have” areas which could be removed from the construction programme.

For example, during selection of project site priorities could be given to areas with the existing access road, as in such case construction of the new access road could be removed from scope.

Project team;

It is well known that most significant costs in construction projects are generally associated with labour ratios. As the Strategy stage is the stage where project teams are only being formed following options are suggested to be considered in case if cost saving will be required:

* Hire employees from areas close to the construction site to minimise transportation costs;
* In cases when specific training will be required, it is suggested to obtain training for one of the supervision personnel that could direct and provide instructions to others in the future;
* Employment of part-time or temporary staff will aim to achieve long-term cost savings by reduce costs related to employment benefits that would have to be paid for full-time project staff;
* Priority shall be given only to the experienced personnel.

Site conditions:

Site conditions such as poor soil, contaminated materials, utilities such as underground pipelines and cables, overhead lines, ground water, archaeological sites and etc. shall be clearly identified in design documents as any unidentified utilities can increase the project cost during the construction stage.

Construction Procurement route:

Procurement route could be another factor that influences project costs.

Considering budget reduction requirements, it would be suggested to proceed with Design & Build procurement route, due to the following advantages:

* Lack of contractor input can result in a number of change orders during the implementation / construction stage. Design & Build procurement route allows early input of the construction contractor in to design, specification development, constructability review, and planning of traffic control.
* This option will have a significant reduced programme as design & construction activities can be undertaken in a parallel manner and has greater potential to save time and reduce cost
* A construction contractor able to use his experience and expertise in providing a design that allows him to procure materials and services which allows him to obtain the best buying margins, the design and build procurement route can be more cost effective and can provide more cost (RICS Guidance notes.)

== <a name="_Toc448934915">3.2 IMPLEMENTATION STAGE</a> ==

Reduction of the budget during the construction stage of the project is a major risk that if occurs will significantly impact project implementation, however in case if a budget were subject to reduction following remedial measures are suggested to be implemented:

Project time schedule;

Developing a detailed and a comprehensive schedule for construction projects can save a lot of time and money during the implementation stage. Therefore, it is suggested to develop more detailed schedules (Level 5 schedule) and highlight and concentrate on critical path activities.

Procurement;

As of personal experience, procurement and logistics are often becoming a main factor that delays the construction schedule, which subsequently increases project costs as any delay causes downtime / standby of labour and equipment. Following actions suggested to be considered:

* Begin procurement process early for all imported and long lead time materials;
* Priority shall be given to locally available materials;
* Material requirement shall be planned ahead and communicated to suppliers.

Labour:

As already highlighted in Section 3.1, labour holds a major part of the project costs, where poor performance of labour can significantly affect construction schedules and increase cost, therefore employee productivity should be increased and efficiency maximised by setting deadlines and providing daily targets.

Rework:

Any rework leads to the prolonged schedule and requires extra expenditures, such material and labour man-hours. Preventing or minimising rework is an effective solution for cost saving.

As stated in Section 3.1, using of Building Information Models during the design stage could be an efficient tool for cost reduction in implementation stage if the project as it will aim in early identification of clashes. It is suggested to perform constructability reviews with all relevant disciplines and contractors prior to start construction works at the site to identify any potential areas of concern.

Hiring of an experienced contractor can also avoid rework.

Reused demolition material

Utilisation of demolished materials, such as concrete debris, instead of importing and disposing of new materials, for example, in construction of temporary roads or for soil stabilisation could be considered.

Equipment:

Another area that could be considered, depending on project scales, is hiring of equipment instead of buying it for full cost. In this case, cost saving is also achieved by keeping of fuel, maintenance and other associated costs under lessors responsibilities.

Discounts:

It is always worth to ask for a discount from material suppliers and service providers. Most of them will agree to reduce up to 10-15% of total costs to build up long term cooperation / supply-agreement.

Offsite fabrication:

Offsite fabrication is one of the efficient measures to relocate part of activities the external facilities. While researching for the fabrication facilities for example to fabricate steel structure columns, priorities could be given to the local facilities that are located not far from the construction site. This approach could reduce transportation / shipping cost of the materials.

= <a name="_Toc448934916">4 CONCLUSION</a> =

It is clear that any reductions of the estimated project budget during any stage of the project will require implementation of remedial and preventative measures to minimise the effect that in worth cases will cause project failure.

Considering that all projects are different in their environment it is suggested to perform study to define possible remedial measures and their effectiveness in case if they will require be applied. However, implementation of the Risk Management process at the early stages of the project is strongly advised due to it’s an effective tool that if properly maintained will aim in early identification of any potential risks that are associated with a project budget along with other project areas and plan for response actions to the potential risks prior their occurrence.

= <a name="_Toc448828641">5 REFERENCES</a> =

* Urmila A Mahadik, September 2015, Volume 3,. Cost Reduction in Construction Projects. International Journal of Engineering Technology, Management and Applied Sciences, pp.397-400.
* Sara Møller Toft; MSc. Finance and International Business - Project Finance and Political Risk - An empirical study of the relationship between project finance and political risk.
* CIOB – Code of Practice for Project Management for Construction and Development, Fifth Edition.
* Ivan Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt, and Devanshu Pandit, January 2009. Evaluation of ways and procedures to reduce construction cost and increase competition, Texas Transportation Institute
* Sara Yngvesson , 2007 Planning a Cost Reduction Event , DISSERTATION ,International Project Management, CHALMERS UNIVERSITY OF TECHNOLOGY .NORTHUMBRIA UNIVERSITY. Gothenburg, Sweden
* HAMZAH ALSHANBARI, 2010 , Impact of Pre-Construction project planning on cost savings , UNIVERSITY OF FLORIDA
* Yescombe (2002) , Principles of Project Finance

* Bob McGannon, 2014. 10 Things to Do When Your Project Budget Is Cut. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://www.lynda.com/articles/10-things-project-budget-cut];
* Jason Westland, 2011. Project Management: 4 Ways to Manage Your Budget. [Online]. Available from: [http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html http://www.cio.com/article/2406862/project-management/project-management--4-ways-to-manage-your-budget.html];
* JUDY QUINN, 2012. What to do if your project runs over-budget, and how to prevent it. [Online]. Available from: [http://www.lynda.com/articles/10-things-project-budget-cut http://project-management.com/what-to-do-if-your-project-runs-over-budget-and-how-to-prevent-it/];
* Vanessa Cross,. Long-Term Cost-Cutting Strategies for Projects. [Online]. Available from: [http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html http://smallbusiness.chron.com/longterm-costcutting-strategies-projects-24431.html];
* Wayne Strider. Four Ways to Adjust Your Project Budget for Risk. [Online]. Available from: [http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk http://www.projectcoachingcenter.com/four-ways-to-adjust-your-project-budget-for-risk];
* Jim Makos, 2015. Political Factors Affecting Business. [Online]. Available from: [http://pestleanalysis.com/political-factors-affecting-business/ http://pestleanalysis.com/political-factors-affecting-business/];
* VECES LEÍDA ,2014. Tips on cutting costs in the construction industry. [Online]. Available from: [http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry http://www.ecoticias.com/bio-construccion/94035/Tips-cutting-costs-construction-industry];

[[Category:Education]] [[Category:International]] [[Category:Projects_and_case_studies]] [[Category:Publications_/_reports]] [[Category:Construction_management]] [[Category:Cost_/_business_planning]]