Pergamon International Journal of Project Management Vol. 15, No. 4, pp. 263-267, 1997

© 1997 Elsevier Science Ltd and IPMA. All rights reserved Printed in Great Britain

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Identification and evaluation of factors influencing variations on building projects

A O Akinsola, K F Potts, I Ndekugri and F C Harris School of Construction Engineering and Technology, University of Wolverhampton, Wulfruna Street, Wolverhampton, WV1 1SB, UK

This paper identifies and quantitatively examines factors influencing the magnitude and frequency of variations on building projects. The evaluation was based on the analysis of 46 completed building projects in the UK. The identified factors were classified into four main categories: client characteristics, project characteristics, project organization and environ- mental factors. The findings of the study suggest that there is a relationship between these factors and the magnitude and frequency of variations. Adequate attention given to these significant factors at pre- and post-tender stages of the project should reduce the effect of variations. © 1997 Elsevier Science Ltd and IPMA

Keywords: Variations, project management, building contract, project control

Over the past few years the construction industry in the UK has witnessed a steady fall in output due to the recession in the economy. At present any inefficiency of the industry in meeting cost and time requirements of its clients becomes more and more evident, especially when the cost of bor- rowing money is high. Such concerns stimulated this research and others to produce a series of reports, for example the recently completed Latham report ~ where variations were identified as one of the main problems confronting the construction industry. "Variat ions", being defined as the "modification or change to design after the contract has been awarded", are likely to be a major cause of disruption, disputes and claims.

In order to fully understand the resulting problem caused by variations, firstly their source and nature need to be understood, and why they arise. Secondly, it is necessary to identify the factors influencing their occurrence. This will lead to better management and control of those items which are controllable and containment of those items which cannot be controlled. The first issue was partly addressed Bromilow 2, Hibberd 3, and McDermott 4 whilst the second issue is the focus of this paper.

Factors influencing variations

Following a literature review four major factors categories were identified as affecting a project's cost and time perfor- mance 5-9 namely; client characteristics, project character- istics, project organization and environmental factors.

Consequently, to test whether these factors also had an influence on the incidence and magnitude of variations a theoretical framework was developed.

The client characteristics

The client is the project sponsor or initiator, represented sometimes by an individual or commonly an organization commissioning a single building and possessing limited knowledge of construction and limited funds through to a large complex multinational organization with expert knowledge of construction requiring new facilities. Clearly the characteristics of building clients would differ in respect of the nature of their business, whether private or public and experience, where such factors could influence the decision making processes and lead to variations 2'6'~°. For instance, a speculative property developer ordering or approving variations after the contract award might be aware of the cost impacts on the project, where other types of client might be less aware.

The project characteristics

Construction projects are generally unique, accommodating different designs, sites and construction methods. Each has different characteristics influencing how the project is initiated, designed, organized and managed and the final outcome of the finished product 6m'~2. Hence type, size, time duration, and complexity of the project may be characteristics likely to influence variations.

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Factors influencing variations on building projects: A 0 Akinsola e t a l .

Project organization

The organization of the construction process is dynamic in nature, generating different contract strategies and organiza- tional structures as well as styles of management reflecting the amalgamation of specialists from different disciplines with different objectives. Individual members of the team have their own objectives and make contributions according to their expertise and are often concerned with a discrete functional part of the process 6. This can often create problems of co-ordination and communication, affecting variations in terms of number, agreement of cost/value and if disputes arise how they are resolved. These organization factors include: method of procurement, type of contract, method of tendering, type of tender document used, percentage of design completed before tender, design and construction duration, adequacy of information, and number of sub-contractors used.

The environmental factors

The term 'environment' describes all external influences on the construction process 6. As Williams ~3 suggested "an organization is embedded in social, political, legis- lative, economic and technical systems which will influence the strategy, structural systems and technology adopted". A construction project, as a temporary organization, is also subject to these environmental influences which Hughes ~4 identified as including: the economy, social, political and technology elements.

Research methodology

Data collection

Data for the study was collected from completed build- ing projects in the UK using a structured questionnaire designed with reference to the literature review stage. This questionnaire was tested prior to the main study via a pilot study using 16 projects to assess its suitability; some amendments being necessary.

The main study comprised of 46 completed building projects, with data structured into four sections. The first comprised a general introduction about the respondent organization and field of activity, the second--the principal section--was designed to elicit information on single projects chosen by the respondent as typical of their organization's activity and completed within the last five years, the objective being to gather information and data on the identified factors and variations. The last two sections sought to determine the perception of the respondents on sources and nature of variation incidents observed and the effectiveness of the variation clauses contained in the contract.

The sample projects varied from offices to residential buildings with costs ranging from £100,000 to over £50m in value, the data profile by type being presented in Figure 1.

Leisure

Residenti

I n d u s t r i a l

dth

Education

F i g u r e 1 S a m p l e p r o f i l e b y p r o j e c t t y p e s

Distribution of the project by size and types are shown in Table 1.

Data analysis

The prime aim of the data analysis was to establish whether there is a significant relationship between variations and the identified factors. Variations measured in terms of: (i) their magnitude, i.e. the total cost of variations (TCV) ordered per project and (ii) their frequency, i.e. the rate of variations per month (RVM). TCV is based on the total cost of variations contained in variation order sheets. A variation order sheet may contain a number of works to be done, each of which is a separate variation, summed to derive the total cost of variation per project. While RVM is the measure of the total cost of variations ordered per month, i.e.

RVM = TCV/construction duration (in months).

To examine the relationship between the variation measures (i.e. TCV and RVM) and the factors, correlation analysis was employed. Where all correlation coefficients of 0.20 or over were considered significant at P <~ 0.10. Positive or negative correlation coefficients indicates the direction of the relationship. A positive coefficient means that increase or decrease in value of the factor will result in increase or decrease in variations, while the reverse is the case if the sign is negative.

Results and discussion

The client characteristics influence in variations

Table 2 shows client types, broken down into individual sectors, with the local authorities dominating the public sector accounting for 32.6 % of the total projects considered

Table 1 S a m p l e projects profile by t y p e s and sizes

Project cost range Office Industrial Health Education Residential Leisure O t h e r s

Less £1rn 1 - - 1 6 5 1 - - £ 1 - 5 m 2 1 - - 3 1 - - 1

£ 5 - 1 5 m 11 3 1 1 - - 2 - - £ 1 5 - 2 5 r n 1 - - 1 - - - - - - 1

£ 2 5 - 5 0 r n 1 . . . . . . O v e r £ 5 0 m - - 1 . . . . 1 Tota l 16 5 3 10 6 3 3

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Factors influencing variations on building projects: A 0 Akinsola et al.

Table 2 Client type profile

Client Sector % No. of Average TCV RVM type projects cost (£1000) (£1000)

(million)

Public Local government 32.6 2.26 176 8 Central government 15.2 24.22 2462 65 Nationalized industry 2.2 0.28 25 5

Private Developers 21.7 20.34 1215 54 Companies 28.3 8.12 1591 99

with an average project cost o f £2.26m. While in the private sector, developers accounted for majori ty of the private sector accounting for 21.7% of the total projects averaging £20.34m per project.

Distribution of the projects according to the client characteristic factors and measures o f variations presented in Table 3 indicate that the magnitude and frequency of variations, on average, observed with private clients projects exceeded public projects. This may, possibly, be attributed to the cuts in public spending on new projects. The results also suggest that inexperienced clients tended to generate more variations. Examined further in Table 4 the association between the factors and the variation measures the results reaffirm the initial assumption that the factors influenced the magnitude and frequency of variations.

Project characteristics influence on variations

Analysis of the number and value of the projects studied by type in relation to the average total cost and rate of variations are summarized in Table 5, where 'office bui ldings ' dominated, accounting for 34.8 % of the total sample with an average value of over £11m. In contrast residential buildings with an average value of £611,000 had the least value. In terms of variations, industrial buildings have the greatest value of variations with an average total cost, for each project , o f over £5m at an average rate of £114,000 per month. While education buildings were the reverse with an average total variation cost for each project at £90,000 at an average rate of only £7000 per month.

Compar ison results of the project size with the extent of

variation is presented in Table 6, this table shows that the majori ty o f the projects fell within the ranges of £ 5 - 1 5 m in value and accounted for 39% of the total projects in the study, the least being in the range £25m and over. Inter- estingly the magnitude and frequency o f variations seemed to increase with the project size, for example, projects valued over £50m generated the highest incidence and magnitude of variations. Whilst projects in the category " less than £1m" showed the reverse. Projects variation analysis by complexi ty as shown in Table 7 revealed that both the total cost of variations and their monthly rate increase with the project complexity.

The correlat ion analysis results shown in Table 8, emphasize a strong relationship between the project charac- teristics factors (type, size, complexity and duration) and the two variation measures, i .e. magnitude and frequency of variations. This finding is supported by Bromilow ~5'16, Morris ~j, Sidwell 6 and McDermot t 4.

Project organization factors influence on variations

Table 9 illustrates that traditional methods accounted for 78.3 % of the whole sample, with an average project value o f £9m. While the least common relates to management contracting, at only 6 .5%, with average value of over £60m. However the management method generated far the largest variations with an average of over £6m at an average spend rate of £183,000 per month. In contrast, the design build method generated the least variations. The summarized data analysis results by contract types are

Table 6 Project size and variation measures

Project type % No. of Average Average Average projects project cost TCV RVM

(million) (£1000) (£1000)

Less £1m 30.4 0.50 341 18 £1-5m 17.4 1.68 101 10 £5-15m 39.2 8.89 1261 67 £15-25m 6.5 25.50 2317 91 £25 -50m 2.2 46.10 1566 71 Over £50m 4.3 93.25 8500 186

Table 3 Client experience profile

Client Client % No. of Average cost TCV RVM type experience projects (million) (£1000) (£1000)

Public Experienced 32.6 2.26 176 8 Private Inexperienced 21.7 20.34 1215 54

Table 4 Correlation of client characteristics with variation measures

CLient characteristics TCV RVM

Type 0.42 0.51 Experience -0.39 -0.35

Table 5 Project types and variation measures

Project type % No. of Average Average Average projects project cost TCV RVM

(million) (£1000) (£1000)

Office 34.8 11.07 999 68 Industrial 10.9 29.49 5237 114 Health 6.5 12.57 461 14 Education 21.7 1.73 90 7 Residential 13.1 0.61 715 37 Leisure 6.5 5.29 849 59 Other 6.5 30.20 837 12

Table 7 Project complexity and variation measures

Project % No. of Average Average Average complexity projects project cost TCV RVM

(million) (£1000) (£1000)

Less complex 37.0 1.31 588 20 Averagely complex 32.6 5.90 742 22 Highly complex 30.4 27.11 2333 110

Table 8 Correlation of project characteristics with variation measures

Project characteristics TCV RMV

Type -0.37 -0.42 Size 0.72 0.59 Complexity 0.63 0.66 Duration 0.42 0.18

Table 9 Procurement methods and variation measures

Procurement % No. of Average Average Average method projects project cost TCV RVM

(million) (£1000) (£1000)

Traditional 78.3 9.17 862 37 Management contract 6.5 60.70 6383 183 Design build 15.2 5.39 514 57

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Factors influencing variations on building projects: A 0 Akinsola et al.

Table 10 Contract types and variation measures

Type of % No. of Average Average Average contract projects project cost TCV RVM

(million) (£1000) (£1000)

Lump sum 63.1 10.35 863 40 Cost plus fee 4.3 120.0 9500 266 Cost plus % fee 6.5 1.16 82 7 Fixed cost 23.9 5.18 702 34 Target cost 2.2 8.60 1800 150

Table l 1 Contractor selection methods and variation measures

Selection % No. of Average Average Average method projects project cost TCV RVM

(million) (£1000) (£1000)

Open 8.7 19.59 1922 34 Selective 78.3 8.92 1134 52 Direct 6.5 9.78 240 12 Others 6.5 23.03 1522 57

Table 12 Correlation of project organization factors with variation measures

Project organization TCV RMV

Design duration 0.48 0.36 % of design completed -0.44 -0.42 Procurement method 0.09 0.24 Contract type -0.20 0.11 Selection method -0.19 0.14 Tender documentation 0.06 0.23 Adequacy of information 0.47 0.38 Construction duration 0.40 0.16 No. of sub-contract 0.21 0.35

Table 13 Correlation of environmental factors with variation measures

Environmental factors TCV RMV

Economy -0.20 -0.22 Political -0.22 -0.18 Technology 0.10 0.07

shown in Table 10, where the 'cost plus fee' contracts (4.3 %) and 'target cost' (2.2 %) with an average value of £120m and £8.6m, respectively, produced the largest variations. Thus, the two contract types were the least dominants but generated the largest variations.

The data was further analysed by method of contractor selection to determine whether this factor influenced vari- ations. The results are shown in Table 11. The selective tender method shows up as the dominant method (78%) with average project values of £8.92m. However, the largest variations were generated on project where the 'open tender' method of contractor selection were employed, with variations costing an average of £1.9m. In contrast, the direct nomination method generated the least variations. In terms of the relationship between the magnitude and frequency of variations and the nine organization factors, only six factors were shown to have a significant correlation coefficients (see Table 12).

Environmental factors influence on variations

Table 13 shows the summarized results of the correlation analysis between the variation measures and the environ- mental factors, where only 'economy' and 'political' factors were found to be related to variations. However these two factors could have a significant impact and influence on the other factors such as client characteristics and project

organization factors, resulting in a significant increase in variations.

Conclusion

The four main factors categories, namely: client character- istics, project characteristics, project organization, and environmental factors, were quantitatively analysed and evaluated, and their influence on variations was statistically established. The main findings of the paper can be sum- marized as follows:

• Client characteristics, especially prior experience and knowledge of construction project organization and the production processes have a significant influence on both the magnitude and the frequency of variations.

• Project characteristics factors, such as type, size, complexity and duration of the project have a significant influence on the total value of variations and their frequency.

• Project organization factors, such as; design duration, percentage of design completed before tender, procure- ment and contract type, adequacy of information pro- vided, and number of sub-contractors, were found to be significant and had an influence on variations.

While many are beyond the control of the project manager/supervisor, careful exploration of each factors could give an indication as to how to contain their influence on variations. While variations on construction may be inevitable, adequate planning and control can bring about reductions, especially if contingency allowances for variations and other unforeseen events in the budget are realistic and sufficient to facilitate control during the construction. Indeed, these factors when used as an input variable for modelling could assist in determining the required contingency allowances compared to the present conventional method of arbitrary allocation which has been proved unrealistic ~7-~9.

References

1. Latham, M., Constructing The Team. HMSO, London, UK, 1994. 2. Bromilow, F. J., The nature and extent of variations to building

contracts. The Building Economist, 1970, 9(3), 93-118 3. Hibberd, P. R., Building contract--variations. Unpublished Msc

thesis, UMIST, 1980. 4. McDermott, P., A socio-technical analysis of the building process

with special regard to variations. Ph.D thesis, Department of Mechanical Engineering, Brunel University, UK, 1994.

5. Walker, A., A model for the design of project management structure. The Quantity Surveyor, 1981, 37, 66-71

6. Sidwell, A. C., A critical study of project team organisation forms within the building process. Ph.D. thesis, University of Aston, UK, 1982.

7. Ireland, V., The role of management actions in the cost, time and quality performance of high-rise commercial building projects. Construction Management and Economics. 1985, 3, 59-87

8. Nahapiet, H. and Nahapiet, J., A comparison of contractual arrangements for building projects. Construction Management and Economics, 1985, 3, 217-231

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10. Bekr, G. A. R., Client's control of construction. Ph.D. thesis, University of Nottingham, UK, 1990.

11. Morris, P. W. G., A study of selected building projects in the context of theories of organisation. Ph.D. thesis, University of Manchester, UK, 1972.

12. Bennett, J., Project management in construction. Construction Management and Economics, 1983, 1, 187-197

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Factors influencing variations on building projects: A 0 Akinsola et al.

13. Williams, A., Changing Culture: New Organisational Approaches (1989), IBM Ltd.

14. Hughes, W. P., Identifying the environments of construction projects. Construction Management and Economics, 1989, 7, 29-40

15. Bromilow, F. J., Contract time performance, expectations and the reality. Building Forum, 1969, 1(3), 70-80

16. Bromilow, F. J., Building contract cost performance. The Building Economist, 1971, 9, 126-138

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Abiodun Akinsola is a researcher in the School o f Engineering and Built Environment at the University of Wolverhampton. He obtained his MSc in construction management at Southbank University in 1993 before joining the University o f Wolver- hampton. His research interest is on project management and computer application.

Keith Potts is a principal lecturer and the MSc Construction Project Manage- ment course leader at the University o f Wolverhampton. He is the author of Major Construction Works Contractual and Financial Management (Longman, 1995) and is a member of the Association for Project Management "s Contract and Procurement Special Interest Group.

18. Prasanta, D., Tabucanon, M. T. and Ogunlana, S. O., Planning for project control through risk analysis: a petroleum pipeline-laying project. International Journal o f Project Management, 1994, 12 (1) 23-33

19. Akinsola, A. O., Potts, K. F. and Ndefugri, I., Variations on construction projects: a review of empirical studies. Building Research and Information, 1994, 22(5), 269-271

Issaka Ndekugri graduated in Civil Engineering in 1977. After working in industry, mostly on highways and building projects, he undertook post- graduate studies in construction man- agement in Loughborough University of Technology. This was followed by two years as Research Fellow in the Department of Construction Manage- ment in Reading University. He is currently a Principal Lecturer in Construction Management in the University of Wolverhampton where his major research interests are in the areas o f construction law, infor- mation systems and project management.

Frank Harris is the Head and Dean of the School of Construction, Engineering and Technology at the University of Wolverhampton, having previously spent over a decade with Loughborough University running Masters courses in the construction areas. His research interests have concentrated on construction produc- tivity issues in contracts reaching £1m mainly undertaken for the Engineering and Physical Sciences Research Council. Research supervision has included Masters and PhD students together with external examining in other Universities. He is the author of Modern Construction and Ground Engineering Equipment and Methods. He has co-authored many books and published more than eighty papers in refereed and professional journals.

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