Cost overrun, a setback for construction sector

Cost overrun, a setback for construction sector

Azhar Bukhari

Cost overrun is a very frequent phenomenon in country’s construction sector and is almost associated with all projects of construction industry. A research study has revealed that 9 out of 10 projects had overrun.
World commodity prices for basic materials, the current state of the local economy, the quality of materials and poor supply and demand have contributed to dramatic price fluctuations in the sector.
At the time when masses are facing sever power crisis and ever increasing inflation rate, it is a pipe dream for common men to buy a house for their families.
In big cities like Lahore, Faisalabad, Karachi, Quetta etc, a large population is residing at rent making the cities very congested place. To overcome the shortage of housing units, the town planning and management departments, without following the rules, have granted licenses for establishing housing schemes to every Tom, Dick and Harry, which have made the situation more critical.
It is learnt that 80 out of 100 housing schemes are either fake or hide the facts. However, all the field is not barren, as few developers like Eden Developers, Lake City, Bahria Town, Urban Developers, TajMahal Marketing and Wocland International are still providing low-cost housing units both in cash and installments. Busy in metro life, a common man prefer to buy a unit in housing scheme to save time and money as well.
In Pakistan, construction sector is an important sector although not working to its fullest potential but still of prime significance to the country. Growth in this sector is critical for growth in national income as it is among the largest sectors that generates employment within the country as well as a key driver for economic development of Pakistan. Like many other developing countries, Pakistan is also facing critical project management related issues among which cost overrun is quite prominent.
A research study has indicated that the majority of cost overrun factors (88%) lie in medium severity impact zone, signifying that major attention needs to be given to these factors as they collectively cause considerable cost overrun. It is evident from the findings that both internal and external aspects of business setting are present as the prime contributors to cost overruns.
According to the study, the major cost overrun factors were fluctuation in prices of raw materials, unstable cost of manufactured materials, high cost of machineries, poor project (site) management, incorrect/ inappropriate methods of cost estimation, additional work, improper planning, and unsupportive government policies.
Cost has its proven importance as the prime factor for project success. A completed project may not be regarded as a successful endeavor until and unless it satisfies the cost limitations applied to it.
Management Factors
Some cost overruns are unavoidable because they cannot be reasonably prevented, such as those due to unanticipated events, however overruns due to design plan or project management problems are avoidable because they could have reasonably been foreseen and prevented. The project control procedure can help management identify its current position related to a future position.
Majority of constructors are small players who have weak financial positions, out-dated labour-intensive technology and poor organizational structures.
It is need of the hour to encourage investment in the real estate sector and facilitate the developers like Eden, Wocland, Bahria Town, TajMahal, Urban Developers etc which are establishing modern housing schemes with all basic facilities for a common man.

Approximate construction material prices in Lahore market
during April 2009
Construction including material per square ft Rs 1250 to 1500
Labour cost without material per square ft Rs 150 to 200
Electricity & Plumbing per square ft Rs 10 each
Cement bag Rs 325
Stone crush Rs 40 per square ft
Sand Truck Rs 12,000
Bathroom Tiles Rs 300 to 1200 per square meter
Marble Rs 20 to 80 per square ft
Bricks Rs 3600 to 4000 per 1000
Approximate covered area for single storey house
5 Marla 1125 square ft
10 Marla 1800 square ft
1 Kanal 3200-3600