FACTORS AFFECTING CONSTRUCTION COSTS IN SAUDI ARABIA By Yaser Abdulla Al-Juwairah Presented by Shaikh Imran Abdul Qayyum Gani

TABLE OF CONTENTS INTRODUCTION INTRODUCTION OBJECTIVES OBJECTIVES SCOPE AND LIMITATIONS SCOPE AND LIMITATIONS RESEARCH METHODOLOGY RESEARCH METHODOLOGY DATA COLLECTION DATA COLLECTION DATA ANALYSIS DATA ANALYSIS CONCLUSIONS CONCLUSIONS RECOMMENDATIONS RECOMMENDATIONS

INTRODUCTION The Demand for more construction of all types, coupled with a tight monetary supply, provide the construction industry with a bigger challenge to cut costs. The Demand for more construction of all types, coupled with a tight monetary supply, provide the construction industry with a bigger challenge to cut costs. However, little has been done to minimize the problem. However, little has been done to minimize the problem. Consequently, substantial increases are observed in project costs. Consequently, substantial increases are observed in project costs. Therefore, it is important to identify the main dominating factors leading to high construction cost so that efforts can be concentrated on those factors in order to reduce construction cost in Saudi Arabia. Therefore, it is important to identify the main dominating factors leading to high construction cost so that efforts can be concentrated on those factors in order to reduce construction cost in Saudi Arabia.

OBJECTIVES The main objectives of this study are as follows :- To identify the factors affecting construction costs of large projects in the Eastern Province of Saudi Arabia. The research will answer the following questions, To identify the factors affecting construction costs of large projects in the Eastern Province of Saudi Arabia. The research will answer the following questions, What are the cost factors ranking according to contractors?What are the cost factors ranking according to contractors? What are the cost factors ranking according to consultants? What are the cost factors ranking according to consultants? What are the cost factors ranking according to What are the cost factors ranking according to owners? owners?

CONTD…. To find the agreement ranking factors between contractors/owners and consultants/owners. To find the agreement ranking factors between contractors/owners and consultants/owners. To test the hypothesis that contractors, owners and consultants, generally agree on the severity rank of the factors. To test the hypothesis that contractors, owners and consultants, generally agree on the severity rank of the factors.

SCOPE AND LIMITATIONS This study is limited to large projects in the Eastern Province of Saudi Arabia. This study is limited to large projects in the Eastern Province of Saudi Arabia. In the Selection process, there are two restrictions, namely: In the Selection process, there are two restrictions, namely: Restricted to large projects ( SR 5 million and above). Restricted to large projects ( SR 5 million and above). Restricted to the Eastern Province of Saudi Arabia. Restricted to the Eastern Province of Saudi Arabia.

RESEARCH METHODOLOGY The Research Methodology is as follows: The Research Methodology is as follows: Literature review and Personal interviews with some contractors, owners, and professionals in the construction and consulting industries. Literature review and Personal interviews with some contractors, owners, and professionals in the construction and consulting industries. A Questionnaire, which is the output of the literature review and personal interviews. A Questionnaire, which is the output of the literature review and personal interviews.

QUESTIONNAIRE DESIGN There are three main parts in the Questionnaire. There are three main parts in the Questionnaire. The First part is an introduction to explain the idea and purpose of the survey as well as the definition of the interested area of study. The First part is an introduction to explain the idea and purpose of the survey as well as the definition of the interested area of study. The Second part contains general information questions including annual volume, specialization, experience and nationality of the company. The Second part contains general information questions including annual volume, specialization, experience and nationality of the company. The Third part concerns the cost factors in building construction projects. The Third part concerns the cost factors in building construction projects. For each question, the respondents have five options. These are extremely severe, very severe, severe, some what severe and not severe. For each question, the respondents have five options. These are extremely severe, very severe, severe, some what severe and not severe.

DATA COLLECTION A total of 280 Questionnaires were distributed(200 mailed, 50 hand carried and 30 faxed). A total of 84 Questionnaires were received and analyzed. The percentage of respondent was about 30%. A total of 280 Questionnaires were distributed(200 mailed, 50 hand carried and 30 faxed). A total of 84 Questionnaires were received and analyzed. The percentage of respondent was about 30%.

DATA COLLECTION Table for Questionnaire Responses Table for Questionnaire Responses POPULATIONDISTRIBUTEDRESPONDED % RES. MIN.REQ. CONSULTANTS CONTRACTORS OWNERS TOTAL

DATA ANALYSIS STATISTICAL METHODS: STATISTICAL METHODS: The following Statistical Methods were used The following Statistical Methods were used for the analysis of the data collected through for the analysis of the data collected through Questionnaire. Questionnaire. RankingRanking Statistical TechniquesStatistical Techniques CorrelationCorrelation Tabulation and Cross TabulationTabulation and Cross Tabulation

STATISTICAL METHODS RANKINGCORRELATION STATISTICAL TECHNIQUES CROSS TABULATION BY SEVERITY 1) SPEARMEN 1) MEAN 1) EXPERIENCE BY SEVERITY 1) SPEARMEN 1) MEAN 1) EXPERIENCE INDEX CORRELATION INDEX CORRELATION 1) COMBINED 2) RANK AGREEMENT 2) STANDARD 2) COST FACTOR RANKING FACTOR DEVIATION CATEGORIES RANKING FACTOR DEVIATION CATEGORIES 2) CONTRACTORS 3) KENDALLS 3) STANDARD ERROR V/S RANKING COEFFICIENT OF MEAN PERCENTAGE RANKING COEFFICIENT OF MEAN PERCENTAGE 3) CONSULTANTS 4) CONFIDENCE AGREEMENT RANKING INTERVAL RANKING INTERVAL 4) OWNERS 5) COEFFICIENT OF RANKING VARIATION RANKING VARIATION

CONTD…. Hypothesis testing : Hypothesis testing : Hypothesis testing was used in order to check whether consultants, contractors, and owners generally agree on the rank of severity of construction cost factors. In this case t test was more suitable. Hypothesis testing was used in order to check whether consultants, contractors, and owners generally agree on the rank of severity of construction cost factors. In this case t test was more suitable. The null hypothesis says that parties do not agree on the severity rank of the factors and they differ in their responses. The null hypothesis says that parties do not agree on the severity rank of the factors and they differ in their responses. As t obs > t critical the null hypothesis is rejected and hence it is concluded that the parties agree on the severity rank of the factors and these parties are reliable in their responses. As t obs > t critical the null hypothesis is rejected and hence it is concluded that the parties agree on the severity rank of the factors and these parties are reliable in their responses.

RESULTS AND CONCLUSIONS The five most severe factors affecting the construction cost as agreed by three set of professionals (consultants, contractors, and owners) are: The five most severe factors affecting the construction cost as agreed by three set of professionals (consultants, contractors, and owners) are: Cost of materialsCost of materials Incorrect planningIncorrect planning Previous experience of the contractPrevious experience of the contract Contract ManagementContract Management Poor financial control in sitePoor financial control in site

CONTD…. Contractors have ranked the following factors to be most severe: Contractors have ranked the following factors to be most severe: Cost of MaterialsCost of Materials Incorrect PlanningIncorrect Planning Contract ManagementContract Management Wrong Estimation MethodsWrong Estimation Methods Previous Experience of the ContractPrevious Experience of the Contract

CONTD…. Consultants have ranked the following factors to be the most severe factors affecting construction cost: Consultants have ranked the following factors to be the most severe factors affecting construction cost: Cost of MaterialsCost of Materials Wrong Estimation methodsWrong Estimation methods Incorrect PlanningIncorrect Planning Project FinancingProject Financing Previous Experience of the ContractPrevious Experience of the Contract

CONTD…. Owners have ranked the following factors to be the most severe factors affecting construction cost: Owners have ranked the following factors to be the most severe factors affecting construction cost: Cost of MaterialsCost of Materials Incorrect PlanningIncorrect Planning Poor Financial Control in SitePoor Financial Control in Site Previous Experience of the ContractPrevious Experience of the Contract Economic StabilityEconomic Stability

CONTD…. The five least important factors as agreed by the three professionals are: The five least important factors as agreed by the three professionals are: domination of construction industry by foreign firmsdomination of construction industry by foreign firms currency exchangecurrency exchange insurance costinsurance cost social and cultural impactssocial and cultural impacts waste on sitewaste on site

CONTD…. Incorrect Planning is the second major problem affecting construction cost. Incorrect Planning is the second major problem affecting construction cost. Material cost is given the highest rank of all the 42 factors. Material cost is given the highest rank of all the 42 factors. Project financing is the major factor in the financing factors category. Project financing is the major factor in the financing factors category.

RECOMMENDATIONS The following recommendations are the most important ones that can be deduced by this study: The following recommendations are the most important ones that can be deduced by this study: Effort should be concentrated in major factors affecting construction cost. Effort should be concentrated in major factors affecting construction cost. Since the least agreement factor is between owners and consultants, it is suggested that this group should sit together and resolve all possible misunderstanding and reduce gaps between them. Since the least agreement factor is between owners and consultants, it is suggested that this group should sit together and resolve all possible misunderstanding and reduce gaps between them.

CONTD…. Coordination and communication among various parties working on the project is of a great importance to improve management and control problems and reduce any avoidable delay. Coordination and communication among various parties working on the project is of a great importance to improve management and control problems and reduce any avoidable delay. It is the responsibility of contractors to come up with a clear plan and strategy before starting a project. It is the responsibility of contractors to come up with a clear plan and strategy before starting a project. Estimates based on updated price information should be considered in order to come up with a reasonable offer and avoid any wrong estimation. Estimates based on updated price information should be considered in order to come up with a reasonable offer and avoid any wrong estimation.

CONTD…. Continuous update on material price list by the Government related agencies is recommended. Continuous update on material price list by the Government related agencies is recommended. The amount of experience of contractors should be given high priority in the pre-qualification procedure. The amount of experience of contractors should be given high priority in the pre-qualification procedure.