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Cost performance on projects is often poor, what are the possible causes of this and how can it be improved? Essay Example

Causes of Poor Cost Performance on Projects and how it can be improved

Causes of Poor Cost Performance on Projects and how it can be improved

Causes of Poor Cost Performance on Projects and how it can be improved

The 21st century has seen the growth of projects as innovators and engineers aspire to solve the increasing needs of humanity. Similarly, project management has become crucial in ensuring project success. Azhar, Farooqui and Ahmed (2008, p. 500) pointed out that apart from timelines and quality, cost performance is cited as a major component of project management a driving force towards the project success. Cost is involved in the whole life cycle of a project (Frimpong, Oluwoye & Crawford 2003, p. 325). Despite its importance in the project management, project experts claim that cost performance has always been poor in most projects. Therefore, this essay will discuss causes of poor cost performance on the projects and how it can be improved.

According to Ali and Kamaruzzaman (2010, p.111), the cost performance is one of the significant practices in the project management endeavors which is broadly discussed in project industry. The research shows that cost performance analysis can be done using four cost-based measures including cumulative budget cost, total budget cost, Total earned value and Total actual cost (Gido & Clements 2003, p. 47). These measures are applied to assess whether the whole project is being carried within the actual cost the project is being performed within the budgeted cost or whether it is in line with the actual cost. However, in most cases, cost performance has proved to be poor in different projects. Ali and Kamaruzzaman (2010, p. 111) claimed many projects face cost overrun- a case in which the expenditure or final cost surpasses the initial estimation cost of the project. Project management scholars have given different reasons as the cause for such situation. Poor planning, time management, design error and economic factors are quoted as the primary cause of poor cost performance.

Project planning is an element of a project success. However, lack of it also causes poor cost performance in a project. General plan in reference to cost entail budgeting and assigning cost to every material and labour involved. Maylor (2003, p.67) argued that when a project manager fails to plan for the project, there will be inappropriate cost estimation which can lead to cost overrun and delay. Lack of planning in a project also means loss of financial. The reason for this is that project manager can end up buying what is not needed leading to wastage of loss of money (Doloi 2013 p. 269). An example of poor planning in project management is the failure of production of Boeing Comanche (attack helicopter). The project of making Boeing Comanche started in 1983 with the objective of replacing the existing but dysfunctional aircrafts (Trimble 2004). According to Trimble (2004), the project was restructured five times before it was canceled in 2004. Jackson (2007) claimed that during the time of cancelation, the US army had already spent up to US$6.9 billion. The efforts by the government agencies to expedite the project by constant adjustments to the budget and putting up risk-reduction measures created a deadly cycle which only extended development timeframe. The government lost money signifying poor cost performance.

Poor time management is another common cause of poor cost performance in projects such as road construction, aircraft production and setting up a satellite (Ali & Kamaruzzaman 2010, p. 110). Delay or poor time management can be it terms of overruns. In this context, time overrun is either delaying to complete the project with the set time frameworks or falling to deliver the project to the customer on agreed delivery time (Long, Young & Jun, Y.L 2008, p. 368). An example is the delay by Apple to launch iPhone 5 in 2012. Production of Boeing Comanche is another instance of poor time management as the management took 21 years yet it was never completed. The poor time management often leads to loss of revenue to the sponsor. Similarly, Ali and Kamaruzzaman (2010, p. 112) pointed out that delay results in a high cost of labour, increase in the cost of materials and even longer production period on the contractor.

Economic changes in a country also lead to poor cost performance, particularly if proper planning was not done. FrimpongOluwoye and Crawford (2003, p. 322) asserted that as inflation increases in the country, interest goes up and the cost of materials also increases. The studies also show when the project take a longer a period, it may face vicious cycle hence damaging the cost performance. Ali and Kamaruzzaman (2010, p. 112) contended that developing countries tend to experience high inflation leading to high cost of materials.

According to Long, Young and Jun (2008, p.369), the design error is another considerable cause of poor cost performance. Design error implies that prototype does not meet the need of the clients. Creating a design is a critical phase in a project because it shapes the direction of the project. Having a model with an error implies that the engineer needs to change the prototype. The process does only take longer but also means loss of money (Long, Young & Jun 2008, p. 371).

Despitethe increase in poor cost performance, project management experts, researchers, and scholars have recommended ways poor cost performance can be improved. Some of the approaches include proper planning, having a competent team and good time management.

Planning is essential in project management (Montequi et al., 2014, p.993). Planning entails budgeting and putting measures for risks. The project manager needs to specify every material needed and their cost to enable the sponsor set up the required amount at once. In so doing, the project manager reduces the situations where the project stalls because of lack of materials and finance. Svejvig and Andersen (2015, p. 280) argued that the planning should also allow room for adjustments, particularly during economic fluctuations. During inflation, the cost of materials often increases hence the adjustment of their prices (Ali and Kamaruzzaman (2010, p. 112). The adjustment also needed in phases which take longer time. When adjustments are stated in plans, there cannot be poor cost performance because every fund is accounted for. Planning also put up measures on the cost control.

Joslin and Müller (2016, p.615) opined that having a competent project team is another way of improving poor cost performance. Competence of the team must match the needed knowledge and skills to perform different tasks (Kaliba et al. 2009). Having the right team reduces the chances of design mistakes, time wastage, and financial wastage.

Proper time management is another factor which improves cost performance (Joslin & Müller 2016, p.613). Time frame when the project should be completed is often set on the project proposal, but the implementation depends on the project team. Maylor (2003, p. 187) stated that the project manager ought to lead the project team on time management to ensure the project runs as set at the beginning. In this way, the project will instance of incurring more costs which is often associated with delays.

In conclusion, this essay established that the cost performance has proved to be a significant issue in project management. Notably, the research has found that projects have been marred with poor cost performances leading to loss. The poor cost performances are is highly caused by poor planning, time management, design error and economic factors. Project managers now have strategies they can use to enhance a situation of poor cost performances. The essay, therefore, concludes unless the project managers apply a good planning, proper time management and have a competent project team they may continue witnessing poor cost performance.

References

Ali, A.S & Kamaruzzaman, S.N 2010, Cost Performance for Building Construction Projects in

Klang Valley, Journal of Building Performance, vol.1, no.1, pp. 110-118

Azhar, N, Farooqui, R.U & Ahmed, S.M 2008, ‘Cost overrun factors in construction

industry of Pakistan ’Advancing and Integrating Construction Education, Reseach & Practice, pp.499-508.

Doloi, H 2013, ‘Cost Overruns and Failure in Project Management: Understanding the Roles of

Key Stakeholders in Construction Projects’, Journal of Construction Engineering and Management, vol. 139, pp.267-279

Frimpong, Y, Oluwoye, J & Crawford, L 2003, ‘Causes of delay and cost overruns in

construction of groundwater projects in developing countries; Ghana as a case study’, International Journal of Project Management, vol.21, pp.321-326.

Gido, J & Clements, J.P 2003, Successful project management, South-Western, New York

Jackson, P 2007, Boeing Sikorsky RAH-66 Comanche, Jane’s Information Group

Joslin, R & Müller, R 2016, ‘The relationship between project governance and project success’,

International Journal of Project Management Vol.34, pp. 613-626.

Long, L.H, Young, D.L & Jun, Y.L 2008, ‘Delays and cost overrun in Vietnam large

construction projects: A comparison with other selected countries’, KSCE Journal of Civil Engineering, vol. 12, pp.367-377

Maylor, H 2003, Project Management,3rd ed, Prentice Hall, pp. 103-174.

Montequi, V.R, Cousillas, S, Ortega, F & Villanueva, J 2014, ‘Analysis of the Success and

Failure Causes in Information & Communication Technology (ICT) Projects in Spain’, Procedia
Technology, vol. 16, pp. 992-999

Svejvig, P & Andersen, P 2015, ‘Rethinking project management: A structured literature review

with a critical look at the brave new world’, International Journal of Project Management, vol.33, pp.278-290.

Trimble, S 2004, US Army calls time on Comanche, Reed Business

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